Reinsurance News

Citizens increases Ian loss estimate to $3.8bn, expects 37% to be ceded to reinsurers & FHCF

15th November 2022 - Author: Luke Gallin

Florida’s residual market insurer, Citizens Property Insurance Corporation, has released a revised projection of $3.8 billion of direct losses and loss adjustment expenses from Hurricane Ian, of which it expects $1.4 billion to be ceded to private reinsurers and the Florida Hurricane Catastrophe Fund (FHCF).

citizens-logoThe newly announced $3.8 billion total incorporates the results of a second hurricane model, considers actual claims activity to date, and also includes additional provisions for litigation costs and inflation.

Citizens’ previous estimate of $2.3 billion to $2.6 billion was based strictly on the results of a single hurricane model and failed to incorporate the expected costs of litigation and other claims-related expenses.

This is a fairly significant increase, with the total expected for the insurer now roughly $1.2 billion above the top-end of the preliminary range, while Citizens notes that these are still early projections of ultimate costs, suggesting the potential for further rises in the future.

While Citizens has said that some $1.4 billion, or 37% of direct losses and loss adjustment expenses will be passed onto its reinsurers and the FHCF, it does not expect any of its in-force catastrophe bond transactions to be triggered by Hurricane Ian, with these attaching higher up its reinsurance tower.

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After the consideration of this reinsurance, the net impact to its surplus is $2.4 billion, confirms the firm.

Back in June, a spokesperson told Reinsurance News that the state property insurer of last resort had only managed to secure around $1.25 billion of reinsurance capacity amid challenging property market conditions in Florida, with Citizens reportedly looking to secure anywhere up to $3.64 billion of risk transfer and reinsurance for 2022.

At the same time, difficulties in the state’s property market has seen the number of policies on the company’s books grow by a considerable 47.7% between January 1st and November 11th, 2022, to a huge 1.121 million.

Together, this suggests that Citizens had more exposure on its books while being less protected than in previous years ahead of the 2022 Atlantic Hurricane season, which, as our readers will be well aware, produced what’s likely to be the second most expensive catastrophe loss event in the market’s history in Hurricane Ian.

While it’s clear that the impact of Hurricane Ian has caused Citizens to leverage some of its reinsurance protection and cede some losses to the FHCF, it will be welcomed news to interested capital market investors that, currently, the total loss isn’t anticipated to trigger its cat bonds.

For the coastal account layer of its 2022 risk transfer programme, private reinsurance protection comes into play as silver layers alongside the FHCF. There’s also additional private occurrence based reinsurance that kicks in above the FHCF, attaching at around $2.498 billion of losses. Within the coastal account layer, catastrophe bonds kick in at $2.598 billion of losses.

For its personal lines account layer, private reinsurance protection also attaches as silver layers alongside the FHCF, with the catastrophe bonds that cover this part of the business coming into play above losses of $4.115 billion.

Again, these figures could change as the full impact of the storm is better understood, with Citizens stating that they “will be reevaluated at year end once Citizens has a full three months of actual claim activity to analyze.”

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