The Board of Florida’s Citizens Property Insurance Corporation today approved a proposal for the carrier to spend $400 million on its risk transfer renewal for the upcoming hurricane season, although it’s expected that this will only fill 90% of the full program amid a reduction in appetite from reinsurers.
Today, Citizens Board approved the purchase of an additional $3.64 billion of new risk transfer across both traditional reinsurance and catastrophe bonds. This, combined with $1.06 billion of in-force, multi-year catastrophe bonds from prior years, would take the carrier’s program to around $4.7 billion for the coming hurricane season.
The additional $3.64 billion is split across the firm’s Coastal Account and Personal Lines Account, at $1.869 billion and $2.828 billion, respectively, although some of this is already in-force thanks to its use of the catastrophe bond market.
Within the Coastal Account, $625 million of catastrophe bonds are still in-force, meaning Citizens needs to renew the remaining $1.244 billion. For the Personal Lines Account, there is $435 million of in-force protection from existing bonds, meaning the firm will seek to purchase $2.393 billion of risk transfer at the renewals.
So, across both accounts, Citizens is looking for an additional $3.64 billion of risk transfer at the mid-year renewals, with the large majority of this coming from the traditional reinsurance market.
Citizens’ Chief Financial Officer (CFO), Jennifer Montero, proposed to the Board that the company seek to procure this amount of risk transfer, which when combined with in-force cat bonds takes the total to $4.7 billion, for a budget of $400 million.
In comparison, Citizens’ 2021 program cost $249 million for total coverage of $2.7 billion.
During the meeting, however, Montero explained that currently, “it’s very difficult to place a full risk transfer program up to 1-in-100 year even with price increases in the range of 10 to 30%.”
According to Montero, “the markets are in complete disarray,” and outside of the litigation and wind-related exposures specific to the State of Florida, the global risk transfer market has “experienced additional pressure from global macro factors that are not related to the risk transfer market, such as inflation, Russia’s invasion of Ukraine, the energy crisis, interest rate increases, and equity market volatility.”
“As a result, all financial markets are dislocated and under stress,” she continued.
Add to this the issues directly related to Florida, which have seen a dramatic reduction in the appetite of reinsurers to participate in the marketplace, and it’s clear that it’s going to be a challenging renewals for some.
“Although the likelihood of placing 100% of our proposed program is very unlikely in the current market, we are requesting the total budgeted spend of $400 million, which is the cost to cover approximately 90% of the proposed placement, which will also be a challenge to accomplish with the significant reduction in capacity in the current market,” said Montero.
To fill 100% of the proposed 2022 program would cost $433 million, explained Montero, but the reality is that the company does not feel it will be able to do this, and her comments actually suggest filling 90% will be difficult in the current market.
In a reflection of the challenges engulfing the Florida property insurance market, Citizens’ CFO expressed uncertainty at exactly what layers of its program will be fully placed against those that won’t be.
The failings of domestic insurers in the state in recent years has seen Citizens expand in the past 18 months, which is why the insurer of last resort is seeking more risk transfer this year than in the past, as well as rising losses from catastrophe events and growing litigation costs.
