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Creation of Citizens Property Insurance Corporation Citizens was created in 2002 in the merger of the state’s two insurers of last resort, the Florida Windstorm Underwriting Association (FWUA) and the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA). The merger has allowed Citizens to become exempt from all federal taxes, resulting in millions of dollars in annual savings. Citizens is also designed to realize additional administrative and economic efficiencies over its predecessor organizations. Quick Reference • FWUA: created in 1972 to provide wind-only coverage in coastal regions. • FRPCJUA: created in December, 1992 following Hurricane Andrew for Floridians unable to find homeowners insurance.
Overview of Accounts Each of the following three accounts are separate statutory accounts and have separate calculations of surplus, plan year deficit and assessment bases. Assets may not be commingled or used to fund losses in another account. • Personal Lines Account (PLA) - Multi-peril policies • Former FRPCJUA : Homeowners, mobile homeowners, dwelling fire, tenants, condominium unit owners and similar policies. • Commercial Lines Account (CLA)- Multi-peril policies • Former FPCJUA: Condominium association, apartment building and homeowners association policies. • Currently developing statutorily mandated commercial non-residential program. • High-Risk Account (HRA) – Wind-only policies • Former FWUA: Personal lines wind-only policies, commercial residential wind-only policies and commercial non-residential wind-only policies issued in coastal HRA eligible areas. • In the process of introducing statutorily mandated multi-peril residential and commercial policies to be written in eligible areas.
The Personal and Commercial Lines Accounts write personal and commercial residential coverage, respectively, in all 67 counties. The High-Risk Account (HRA) writes in 29 counties. Citizens Coverage Areas
Florida Residential Admitted Market Breakdown • The Florida residential property insurance admitted market is divided into 4 major parts based on policy counts: • Citizens – 21% • “Pups” of the major national writers – 28% • Florida-only domestic companies – 34% • Others, including USAA, etc. – 17%
CLA Policy Trends Note: The assumption of the Poe Group commercial residential policies during 2006 caused a large portion of the significant increase in risk counts.
Determination of Rates • Starting in 2002, rates were based on the “top twenty” insurers • Citizens rates were chosen to be equal to the highest rated company in a particular territory • Citizens’ rates were set to be uncompetitive • Only eligible for insurance with Citizens if you could not get insurance elsewhere
Rates • In 2006, the “highest rated” mandate was relaxed • Citizens’ rates were ordered to be based on actuarial principles • Rate indications showed Citizens’ rates to be inadequate • Rate increases went into effective 1/1/2007 • A policyholder is now eligible for coverage by Citizens only if any offers from admitted insurers are more than 15% higher than Citizens’ rates for comparable coverage
Rates • The rate increases effective January 1, 2007 were rescinded by legislative action. Any amounts collected were ordered to be refunded, and rates were frozen at 12/31/06 levels for all of 2007 and 2008 • Thereafter, Citizens will submit recommended rates to OIR and OIR will set rates within 45 days; no challenge is allowed. • The senate is considering a bill that would extent the rate freeze until 1/1/2010 with severe restrictions on rate increases in years 2011, 2012, 2013
Depopulation Programs and Projections • Only non-bonus takeout contracts for PLA and HRA are currently available. • Assuming carrier must remove during the 18-month contract period a minimum of either: • 10,000 policies with wind coverage; or • Policies with wind coverage with TIV (coverages A, B, C, and D) of $2 billion. • Each assumption during a contract period must remove a minimum of either: • 2,500 policies; or • TIV of $500 million. • Policies must be retained by the assuming carrier for a minimum of three (3) years. • CLA takeout program being developed. Projected implementation to occur in 2008. • Projected number of policies to be assumed during 2008: • PLA: 320,000 • CLA: 5,500
Capital Build-UP Incentive Program • Created in 2006 for the purpose of increasing the availability of residential property insurance • The Florida legislature appropriated $250 Million for use in providing Surplus Notes to qualified companies • Estimated that 1.7 million policies were written by other companies as a result of this program • This program has also lead to 165K policies being removed from Citizens • Estimated that 480K policies have been kept of Citizens due to this program
Capital Build-UP Incentive Program – Goals • Further spread of hurricane risk to new capital in Florida • Continued depopulation of Citizens • Mitigation of policy growth in Citizens • Reduction in exposure and assessment potential for Florida • Currently considering making more capital available for 2008
Wind Mitigation Credits • In 2001, there were changes to the Florida Building Codes • ARA conducted a study to quantify the impact of the new building codes • Studied characteristics such as roof covering, roof shape, roof-to wall connections, openings, building height, roof framing, etc • Developed hurricane severity relativities • OIR has mandated wind premium discounts based on results of this study
Windstorm Mitigation Credit Statistics – as of 9/30/07 For Personal Residential and Commercial Residential Policies Only
Reduction in Coverage • Offer higher hurricane deductibles • Exclude screen enclosures – offer buyback • Exclude sinkhole coverage – offer buyback • Limit HO coverage A amount to $1 million • Offer lower coverage B coverage • Over $750K and in a WBDR, must have storm shutters • Within 2,500 of coast, must be built to Code Plus (built after 1/1/2009)
Florida Hurricane Cat Fund • Purpose : Improve the availability and affordability of property insurance in Florida by providing inexpensive reinsurance to insurers • Created in 1993 after Andrew • Under the control and direction of the State Board of Administration of Florida (SBA - Board of Trustees: Governor, CFO, Attorney General ) • Nine member committee – 3 Consumer reps, 3 industry business professionals (agent, reinsurer, primary insurer), 3 technical professionals (meteorologist, engineer, & actuary) • Participation is mandatory • FHCF provides more then 50% of all reinsurance coverage in the state
Florida Hurricane Cat Fund • Insurers pay the FHCF a premium based on their proportionate residential risk in the state – $1.4B of premium in 2007 • Insurers have individual retentions – Industrial-wide retention of $6.1B in 2007 • After the retention is filled, FHCF reimburses insurers for 90% of their covered residential losses; insurers pay 10% co-payment (There are 25% and 45% co-payment options available) • FHCF’s total liability is defined and limited statutorily – maximum 2007 liability was $27.85B
FHCF - Funding • The FHCF receives annual reimbursement premiums from participating insurers; these premiums are actuarially set to be equal to the average annual expected loss for the FHCF • If losses occur, and accumulated reimbursement premiums are insufficient to pay claims, the FHCF can issue tax-exempt bonds secured by emergency assessments for up to 30 years on a broad range of P&C insurance premiums in the state (This liability for losses is limited to the lesser of the statutory maximum or what the FHCF can raise in the capital markets) • The “post-event” bonds would be repaid by an ongoing emergency assessment of up to 6% per year on direct premiums for most P&C lines of business in Florida (current assessment base is $37.4B) • The FHCF has one tax-exempt bond issue outstanding in the amount of $1.35B with a final maturity of 2012, secured by a 1% emergency assessment
FHCF - Liquidity • $2.8 B of proceeds from 2006 pre-event extendible note transaction • $1.0 B from 2006 reimbursement premiums • $1.4 B collected from 2007 reimbursement premiums • Total of $5.2 B on hand
Citizens’ Financial Highlights • 2007 net income of $1.46 b on net earned premium of $3.16b • 2008 budgeted income of $1.54 b • 2008 year end surplus of $4.18 b • Cash and investments of over $10 b • Cash paying ability before emergency assessments of over $22 b • This includes premium revenue, surplus, pre-event financing, and FHCF reimbursements
Assessment Base is Broad and Diverse Total Premium Subject to Assessment Direct Written $33.3B Surplus Lines $4.1B Total $37.4B
Assessment Base is Broad and Diverse • The following lines are subject to assessment in 2008:
Citizens’ Assessment Types1 • Non-homestead assessment – levied on non-homestead Citizens’ policyholders, up to a total of 10% of premium for each account with a deficit (up to 30% total); billed immediately • Citizens policyholder surcharge – levied on all Citizens’ policyholders up to an additional 10% of premium of premium for each account with a deficit (up to 30% total); billed on renewal/new business • Additional Citizens policyholder assessment – levied on all Citizens’ policyholders up to 10% of premium for each account with a deficit (up to 30% total); billed on renewal/new business • Regular assessment – levied on all non-Citizens property and casualty policyholders up to 10% of premium for each account with a deficit (up to 30%); billed on renewal/new business • Emergency assessments – levied on all P&C policyholders up to 10% of premium (per account); this assessment is collected for as many years as necessary to cover deficits, but not exceed 10% per account in a calendar year (per account).
PLA/CLA Projected Claims Paying Resources (2008 Hurricane Season) (Not to scale) 1 in 220-year PML $14.656 Billion Citizens’ Policyholder Surcharge - $800 Million Additional Assessment - $800M Non Homestead Assessments $140 million Regular Assessments - $5.800 Billion 100 Year PML - $8.59 Billion 1 in 68-year PML $7.116 Billion 100 Year PML - $9.278 Billion As of 12/31/07 Remaining Surplus - $1.302 Billion 1 in 49-year PML $5.814 Billion 10% of $2.019 B or $202 M from Surplus FHCF Recovery - TICL (90% of $2.019 Billion= $1.817 Billion) 1 in 27-year PML Liquidity Target $3.794 Billion FHCF Recovery - Regular (90% of $2.826 Billion xs $969 Million) $2.543 Billion 10% of $2.826 B or $283 M from Surplus FHCF Attachment Point - $969 Million 1 in 5-year PML $0.969 Billion Surplus - $969 Million
HRA Projected Claims Paying Resources (2008 Hurricane Season) (Not to scale) 1 in 100-year PML $14.615 Billion Emergency Assessments $2.032 Billion (.40% for 30 years) 100 Year PML $14.615 Billion As of 12/31/07 1 in 76-year PML $12.583 Billion Remaining Citizens’ Policyholder Surcharge - $330 Million Remaining Regular Assessments - $2.406 Billion 1 in 55-year PML $9.847Billion 10% of $3.42 B ($ 342M) from AAs +CPS FHCF Recovery - TICL (90% of $3.420 Billion) $3.078 Billion 1 in 31-year PML Liquidity Target $6.427 Billion FHCF Recovery - Regular (90% of $4.789 Billion xs $1.638 Billion) $4.310 Billion 10% of $4.79 B ($ 479 M) from AAs + CPS FHCF Attachment Point - $1.638 Billion 1 in 6-year PML $1.638 Billion 1 in 5-year PML Citizens NH+ Additional Assessment + CPS - $213 M $1.425 Billion Surplus - $1.425 Billion
Claim Stats for 2004-2005 Hurricanes as of 12/31/07 Data includes PLA, HRA, and CLA claims.
Insured Losses in Florida 2004-2005……..Who Paid FL quasi-governmental entities paid almost 40% of 2004-2005 losses (even without considering FIGA payments for Poe insolvency)
Florida Residential Property Insurance Market FHCF ($28 B in coverage; approx. 50% mkt share) Private Reinsurers (approx. 125) = Quasi-governmental entity Citizens (1.3 million policies) FIGA (Florida Insurance Guaranty Assoc.) Private Insurers (5.2 million policies; 205 insurers) Residential Policyholders (6.5 million risks) $10 billion residential premium (estimated), representing $2 trillion of insured property value