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Citizens’ President warns of market instability & reinsurance reliance

23rd September 2022 - Author: Matt Sheehan

Citizens Property Insurance Corporation’s President, Barry Gilway, has commented on the long-term instability he sees in the Florida market and its consequences both for Citizens and the wider reliance on reinsurance capacity.

In a September report on Citizens’ performance and market share, Gilway described the company’s policy growth a “roller-coaster” since its formation in 2002.

With customer count increasing or decreasing depending on the profitability of the private market, swings in policy numbers have been the direct result of insolvencies over time, as business moves to Citizens to stabilize the market.

“This really speaks to market instability, not just today but over time,” Gilway observed. “We are now a market dominated by Domestic Insurers that tend to be smaller companies more reliant on reinsurance and the capital markets.”

“History indicates that these companies tend to be far less stable than National Carriers. It would be difficult to argue that the makeup and instability of the market is due, in part, to the unintended consequences of HB1A in 2007,” he continued, referring to the Hurricane Preparedness & Insurance bill of that year.

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“National Companies, investors in Domestic Companies and Reinsurers all make decisions on capital allocation based on their ability to generate a consistent reasonable rate of return. HB1A created serious limitations that factor into their decisions.”

However, Gilway also noted that the lack of stability and reliance on reinsurance clearly is also having a significant impact on Citizens numbers today and driving the customer counts upward once again.

“We know that Florida pricing, to a large degree, is dictated by reinsurance pricing that can range from 40-50% of every premium dollar,” he said, pointing to the recent litigation trends that have driven up rates.

Consequently, Citizens market share, currently at 13%, is expected to reach 15% by year end, despite legislative measures earlier this year that attempted to curb runaway litigation trends.

Nevertheless, Gilway remains optimistic for the future, maintain that the overall quality of Citizens’ book is improving alongside the growth in policy numbers.

“We have been adding more preferred policies, that are clearly not residual policies, an example would be 4% of our policies are homes less than 10 years old,” he said.

“This provides significant opportunities to attract investors and convince financially stable companies to write more business. To attract investors, Citizens rates must not be more competitive than private market rates and the Legislature must address the continuing litigation crisis.”

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