Citizens Property Insurance Corporation, Florida’s property insurer of last resort, could obtain as much as $5.5 billion of reinsurance and catastrophe bond risk transfer next year, as the insurer prepares to merge its three accounts ahead of the 2024 wind season.
For 2023, Florida Citizens secured approximately $5.38 billion of risk transfer at a cost of roughly $650 million, which included $2.4 billion of catastrophe bond protection and $2.98 billion of reinsurance from the traditional market.
Currently, the insurer has $2.425 billion of outstanding catastrophe bonds in-force, although, as highlighted in the Artemis Deal Directory, the majority of this is scheduled to mature ahead of the 2024 wind season. These maturities, combined with the plan to redeem its Everglades Re 2022-1 cat bond early, means $1.9 billion of its cat bond program is scheduled to mature before June 1st, 2024.
So, with most of its multi-year cat bonds set to mature, it could be the case that as much as $5 billion of the projected $5.5 billion will need to be purchased from the traditional reinsurance and capital markets in 2024.
Further, prior to its 2023 renewal, the insurer of last resort announced that ahead of the 2024 wind season, it would combine its coastal account, personal lines account, and commercial lines account into a single Citizens account, essentially transitioning its reinsurance structure into a single tower.
A diagram of the projected layer chart for the insurer’s 2024 risk transfer reveals that Citizens is forecasting that it will need to secure around $5.5 billion of reinsurance and capital markets risk transfer for the next wind season.
As the image below shows, the majority of this will sit above its Florida Hurricane Catastrophe Fund (FHCF) protection, with a slice sitting alongside this part of the tower.
The way Florida Citizens purchases its reinsurance is going to change in a meaningful way in 2024, although once the hard work is done, it is expected to make future renewals less complicated for the insurer.
Additionally, Florida Citizens has noted that reinsurance market conditions are expected to be more orderly in 2024, although budget documents suggest there’s anticipation of marginal rate increases of around 5%.
Heading into 2024, a positive for the insurer is that it appears as though its policy count is starting to shrink, with more carriers willing to assume policies from the state-backed insurer.
“Legislative reform together with corporate initiatives targeted at reducing Citizens’ overall exposure have promoted a resurgence in depopulation during the third and fourth quarters of 2023, contributing to the reduction in policyholders insured by roughly 280,000.
“Further, the volume of premium removed through depopulation in 2023 was initially estimated at $32 million, corresponding to a $6 billion reduction in exposure, but has since been revised to $606 million by the end of 2023, corresponding to $110 billion more exposure removed,” said the insurer.
“While the insured policy count in 2024 is expected to stay roughly flat, an increase in the average premium per policy as well as growth in commercial risks will drive an increase in premium volume in 2024, increasing 36% to $7.1 billion,” added Citizens.
Another positive for the company is that it expects legislative changes in the state will have an effect in 2024.
“Statutory changes impacting litigation are also expected to produce favorable results in 2024. This will contribute to the non-catastrophe loss and LAE ratio decreasing by 5 percentage points, from 43% in 2023 to 38% in 2024,” said Florida Citizens.
