DeSantis, Citizens leaders offer differing statements over insurer’s financial standing

by | Feb 29, 2024

Following another claim by Gov. Ron DeSantis that Citizens Property Insurance Corp is not solvent, justifications issued by the organization’s leadership in recent months seemingly sugar-coat the governor’s assertion.

DeSantis, who appeared on CNBC’s ‘Last Call’ this week, said that a major storm would wreak financial havoc on Citizen’s — an intended insurer of last resort for Floridians — due to a bloated policy count, as first reported by Florida Politics’ A.G. Gancarski.

“It is not solvent and we can’t have millions of people on that because if a storm hits, it’s going to cause problems for the state,” DeSantis said.

Upon outreach, the Executive Office of the Governor doubled down on the statement, cautioning that the insurer’s current policy count exceeds a stable level. At the end of last week, Citizens recorded approximately 1.2 million policies.

“Citizens was never meant to house as many policies as it currently does, therefore at its current growth rate Gov. DeSantis is correct,” DeSantis Spokesman Jeremy Redfern said. “If Citizens were to pay out all reserves and reinsurance following a major storm or series of disasters, Florida law requires Citizens to levy surcharges and assessments on its policyholders and all Florida insurance consumers until any deficit is eliminated (to remain solvent). As such, Citizens will always have the ability to pay claims, but this comes at the expensive of all Florida insurance policy holders.”

DeSantis’ claim is not new, however. The governor raised eyebrows last year when he indicated during a press conference that Citizens has “not been solvent” and could struggle or be unable to pay claims following another large-scale natural disaster.

In August, in response to a question solicited by The Capitolist regarding Citizens’ financial status, Citizens CEO Tim Cerio confirmed that the potential issue of handling claims is a significant worry for officials.

Cerio’s affirmation came after DeSantis for a second time suggested that if a major hurricane were to strike and impact Citizens policyholders, the insurer might not have sufficient funds to cover the resulting claims.

“Our Board is very concerned about that,” said Cerio. “That’s why we buy reinsurance. We would not have enough to pay claims and that’s why there’s the assessment authority. Reinsurance, the Cat fund, these are all what will hopefully protect people because they are able to pay claims and protect the citizens of Florida from being hit with further assessments, but it is a danger.”

Cerio — and Citizens communication leaders — were meticulous in clarifying that claims would, in fact, be paid following a catastrophic storm, albeit through reinsurance, surcharges, and assessments.

“There is no chance that Citizens will not be able to pay claims,” a representative said following initial coverage.

Reinsurance is a financial arrangement in which one insurance company — the “ceding” or “primary” insurer — transfers a portion of its risks and liabilities to another insurance company. This is typically done to mitigate the potential financial impact of large claims or natural disaster events that could significantly strain the resources of the primary insurer with the downside that resulting debts are likely to be passed onto the taxpayers of Florida.

However, in an email statement received this week, Cerio disclosed that the insurer is “actuarily unsound.”

“Although Citizens’ assessment authority means that it will always be able to pay claims, Citizens’ rates are currently actuarily unsound because of the glide path,” he said. “It is critical that Citizens be able to charge actuarily sound rates to help minimize the risk of such assessments on the people of Florida.”

Concerns regarding Citizens’ financial standing has stretched to the federal level, as the U.S. Senate Budget Committee, led by Sen. Sheldon Whitehouse, opened an investigation on the insurer amid concerns over its financial resilience in the face of escalating climate risks.

The inquiry, outlined in a letter sent to state officials in November, sought detailed information on the company’s preparedness for catastrophic weather events, particularly hurricanes. The questioning follows a series of hearings in March in which economic threats, particularly to coastal properties and the broader insurance and mortgage markets, were examined.

“At the time of these hearings, there was already ample cause for concern,” wrote Whitehouse. “Since March, that concern has only grown, as events seem to be bearing out many of the warnings issued by the various experts who testified before the Committee. The situation in Florida appears to have grown particularly dire.”

Cerio, during a December Board of Governors meeting, pointed to the Senate’s inquiry as a “significant misunderstanding” of Citizens’ operational model and its ability to pay claims. The CEO again attempted to reassure stakeholders and Floridians that the organization has ample reserves and reinsurance to cover potential losses.

“I cannot overemphasize that the assumptions in the budget committees letter suggest a fundamental misunderstanding of how citizens property insurance operates,” Cerio said. “It underestimates our claims-paying ability and I’m speaking now, and I need to speak to our policyholders so they hear us. Citizens is structured so that it will always be able to protect its policyholders and pay claims.”

Cerio further drew attention to Citizens’ structured preparedness for disaster scenarios, noting the statutory surcharge and assessment mandate as a backstop if reserves are depleted. Such measures have never been deployed, he said, and serve as a representation of the company’s financial condition.


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