Louisiana Citizens Property Insurance, the state-backed insurer of last resort, is expecting to incur $461 million in losses from Hurricane Ida, but says that the vast majority of losses will be absorbed by its reinsurance program.
During a recent Board meeting, Louisiana Citizens leaders revealed that the company is only expecting to retain $35 million of losses from the devastating September storm.
This would imply that its reinsurance program will account for $426 million, or 92%, of the losses, which would include a full pay-out from two of the per-occurrence catastrophe bonds that Louisiana Citizens has in place.
To date, Louisiana Citizens has received 13,600 claims from Hurricane Ida, although it expects another 1,000 to come in over the next few months.
Citizens provides coverage to homeowners and small businesses, often in coastal areas, who are unable to purchase insurance in the private market.
At present, it is responsible for over 38,600 policies in Louisiana and 0.28% of the state’s homeowner’s market, but expects to increase its policy count by around 5,000 next year, while at the same time depopulating roughly 100 policies.
Following last week’s Board meeting, Citizens has decided to expand its commercial limits to $10 million on an individual building, $3.2 million for contents and $20 million in the aggregate, versus previous limits of $5.5 million, $2.2 million and $11 million, respectively.
Board members noted that the increase would better enable Citizens to accomodate policyholders seeking coverage when they already have an open claim with an insurer during renewals.
They explained that Citizens will look to manage the additional risk through the facultative reinsurance market, which allows insurers to purchase reinsurance for individual policies.
Louisiana Citizens is also expected to return to the reinsurance market in 2022 in order to replenish its reinsurance protection in advance of next year’s hurricane season.
This could include the issuance of further cat bonds, following the successful utilisation of the $60 million Catahoula Re Pte. Ltd. (Series 2020-1) bond, and the $75 million per-occurrence tranche of the dual-tranche $125 million Pelican IV Re Ltd. (Series 2021-1) bond, following Hurricane Ida.
Looking at Louisiana Citizens’ reinsurance tower, Ida losses will have easily eaten through the $210 million of protection from its three reinstatable per-occurrence layers of traditional reinsurance, after accounting for the $35 million retention.
Together, the cat bonds then provide $135 million of coverage as part of two further $100 million layers of the reinsurance program, meaning they too should have been fully exhausted by the $461 million Ida loss.
However, the annual aggregate layer of the Pelican IV Re cat bond right at the top of the tower should still remain untouched at this point.
