Citizens Property Insurance Corporation, Florida’s property insurer of last resort, has confirmed that it bought a lot less reinsurance than the $5.5 billion target announced back in April, securing a “cost-efficient” risk transfer program of approximately $3.564 billion.
Previously, the Board of Governors approved Citizens targeting total reinsurance coverage of $5.5 billion for the 2024 wind season, comprised of $5 billion of fresh capital from the traditional and capital markets, and $500 million of existing private risk transfer from its Lightning Re (Series 2023-1) catastrophe bond.
However, the insurer of last resort has now finalised its 2024 risk transfer program, and has revealed that it was able to secure just $3.564 billion of reinsurance, which includes $3.064 billion of new placement and the aforementioned $500 million cat bond.
Of the total purchased, approximately $1.964 billion came from the traditional reinsurance markets and around $1.6 billion from the capital markets.
The capital markets part of the 2024 risk transfer program includes the existing $500 million of multi-year coverage, and also $1.1 billion of reinsurance from its Everglades Re II Ltd. (Series 2024-1) catastrophe bond that was issued in May.
For 2023, Florida Citizens secured $5.38 billion of risk transfer, comprised of $2.4 billion of outstanding catastrophe bonds, at the time of the renewal, and a fresh placement of $2.98 billion of reinsurance from the traditional markets. That was a big increase in risk transfer purchased compared to the prior year, when Citizens only had around $2.51 billion of risk transfer in-force, across both its reinsurance and cat bonds.
So, that’s almost a $2 billion dip in reinsurance secured for the 2024 wind season when compared with what Citizens had been approved for and to the prior year, as the insurer opted to purchase much less traditional reinsurance than first thought.
Of course, the cost has also come down, with the initial $5.5 billion sought expected to come at a premium of around $700 million, and the $3.564 billion secured costing the insurer around $482 million.
Citizens notes that reinsurance markets were hard in 2023 but softened slightly in 2024 as a result of additional capital entering the risk transfer market, notably in the capital markets. However, there was also some slight hardening as capital was reduced on the back of forecasts for a very active hurricane season, and Citizens states that reinsurance capital levels remain “significantly affected” by hurricane Ian losses.
“As a result, risk adjusted risk transfer pricing was relatively flat or approximately +/- 5% for most Florida carriers and capital markets transactions were able to upsize and priced at levels close to initial guidance. However, specific to Citizens’, risk adjusted pricing was down approximately 7.9%,” says Citizens.
As you can see from the image of the company’s 2024 risk transfer program below, traditional reinsurance starts to attach at $3.514 billion of losses and the tower’s reinsurance protection exhausts at $15.733 billion of losses. However, the top of the tower extends to $17.424 billion with the emergency assessments sitting in the upper-layers.
“In summary, the total 2024 private risk transfer program totals $3.564 billion of coverage with a weighted average gross ROL of 14.07% and a net ROL of 13.44%. The 2024 risk adjusted price reflects some improvement in the market, despite the appearance of an increase in pricing in both the traditional and capital markets.
“For coverage placed in 2024, the price is approximately 7.9% lower than it would have cost for similar coverage in 2023. The 2024 gross ROL of 14.07% compared to the risk adjusted gross ROL of 15.2% for 2023 and the 2024 net ROL of 13.44% compared to the risk adjusted net ROL of 14.5% for 2023,” explains the firm.
