U.S. Senate Committee investigating Citizens Insurance’s financial resilience amid rising hurricane risks

by | Nov 30, 2023



  • The U.S. Senate Budget Committee is investigating Citizens Property Insurance Corporation for its financial resilience amid increasing climate risks.
  • This probe, highlighted in a letter to Florida officials, seeks to understand the company’s readiness for catastrophic weather events, with a focus on hurricanes.
  • Concerns about Citizens Insurance’s stability have been amplified by recent events such as Hurricane Idalia, which resulted in significant insured losses.
  • The Senate Committee’s inquiry also highlights the broader economic implications for Florida, including rising insurance premiums and insurers withdrawing from high-risk areas. The Committee is particularly interested in Citizens Insurance’s capacity to handle extreme hurricane scenarios and its overall solvency.

The U.S. Senate Budget Committee, led by Sen. Sheldon Whitehouse, is probing Citizens Property Insurance Corporation amid concerns over its financial resilience in the face of escalating climate risks.

The inquiry, outlined in a letter sent on Thursday, is part of a broader effort to assess the impact of climate change on the insurance industry. Addressed to Gov. Ron DeSantis, Insurance Commissioner Michael Yaworsky, and Citizens Insurance executives, the letter seeks 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.”

Recent events like Hurricane Idalia — which the Florida Office of Insurance Regulation reports has yielded $309.5 million in insured losses — have intensified concerns. The letter also points to a trend of increasing insurance premiums and the withdrawal of insurance providers from high-risk areas, which could have significant economic impacts on the state.

The committee has requested Citizens Insurance to provide data on its exposure to extreme hurricane scenarios, its future market share projections, assets, and its ability to pay out claims. The letter also inquires about any discussions regarding the company’s solvency and the possibility of a federal bailout.

“If Citizens were unable to cover its losses, it is entirely possible that state leaders might ask the federal government for a bailout. Given the potential magnitude of Citizens’ losses, such a request would put the federal government (and by extension, all American taxpayers) at substantial risk,” the letter reads.

Upon communication with representatives for Citizens, The Capitolist was informed that the agency has yet to receive a copy of the letter from the Senate Committee.

“While we have not yet received a letter from Senate Budget Committee, we did receive a draft and what appears to be a final copy from CNN yesterday. As Florida’s insurer of last resort, Citizens is structured so that it will always be able to protect its policyholders and pay claims,” said Citizens spokesman Michael Peltier. “If Citizens were to pay out all reserves and reinsurance following a major storm or series of disasters, it is required by Florida law to levy surcharges and assessments on its policyholders and all Florida insurance consumers until any deficit is eliminated. As such, Citizens will always have the ability to pay claims.”

In August, The Capitolist reported that Citizens Property Insurance Company CEO Tim Cerio indicated during a property insurance online forum with Senate Democrats that the company may be unable to pay out claims following another catastrophic hurricane without the use of surcharges for policyholders and assessments on Floridian taxpayers.

In response to a question solicited by The Capitolist regarding Citizens’ financial status, which was prompted following comments made by Gov. Ron DeSantis in April stating that the insurer could be insolvent, Cerio confirmed that the potential issue of handling claims is a significant worry for officials. Cerio’s affirmation came after DeSantis suggested that if a major hurricane were to strike and impact numerous Citizens policyholders, the insurer might not have sufficient funds to cover the resulting claims.

“Our Board is very concerned about that,” Cerio said in response. “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 that 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 was meticulous in clarifying that claims would, in fact, be paid following a catastrophic storm, albeit through reinsurance, surcharges, and assessments. 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.

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