Florida’s Citizens is looking to buy more reinsurance for its personal lines account (PLA) and replace just under $900mn of expiring limit for its coastal account, but is not seeing the kind of policy count growth that would lead to meaningful changes to its risk transfer programme this year, The Insurer can reveal.

Citizens – Florida

According to sources, the so-called insurer of last resort is aiming to test pricing in the market for an upsized PLA layer which last year was a wrap around the Florida Hurricane Catastrophe Fund (FHCF) layer.

The 2019 placement was the first by Citizens for its PLA in a move revealed by this publication and was completed at 88.25 percent of a $200mn layer for $176.5mn of limit.

Its aim is to buy more limit within its budget to protect more of its surplus.

2019 PLA layer chart

In its personal and commercial residential coastal account, the carrier will replace the single year $100mn sliver around the FHCF coverage and the single year aggregate layer at the top of the tower that last year was placed at 68.5 percent of $350mn for $239.6mn of limit.

Citizens and its brokers Willis Re and Guy Carpenter are also expected to go to market to replace the two expiring multi-year tranches that sit above the FHCF layer.

The expiring cover includes $180mn of traditional aggregate limit and $300mn from the 2017-1 tranche of its Everglades Re II cat bond.

The carrier will also replace the commercial non-residential occurrence cover for the coastal account, which last year provided $53.25mn of limit.

Stable policy count

Citizens’ policy count going into the 1 June renewal at this stage looks to be relatively stable, despite suggestions that the challenges in the state could lead to a reversal in the depopulation of the state-backed insurer that has led to a dramatic reduction in its exposure base in recent years.

The state’s specialist homeowners carriers have reacted to challenging operating conditions by tightening their underwriting appetites and in some cases shedding business as they retrench from trouble spots including the Tri-County area.

The shifting appetites have been influenced by a surge in attritional water losses involving litigation, hurricane losses and the prospect of a second year in a row of meaningfully higher reinsurance costs as reinsurers alter their view of Florida hurricane risk.

At the same time there is uncertainty for a number of carriers against the backdrop of Demotech’s warning that it could downgrade several of the companies it rates in the state during the early part of 2020.

2019 coastal account layer chart

The ratings agency had said that the pressures on carriers could lead some to seek M&A or even go into run-off.

But with the exception of policies assumed after Florida Specialty’s failure last year, Citizens policy count has not been meaningfully impacted by the crisis in the state to date.

Of the 95,000 Florida Specialty policies, it is thought that at the end of 2019 only 19,500 had found their way onto Citizens’ books.

As at the end of January this year, Citizens had 443,228 policies in force, only 4 percent more than 12 months earlier.

That compares with a peak of 1.5 million pre-depopulation, with an exposure base of $512bn and a 23 percent market.

Its exposure base late last year was disclosed at around $107bn, with only 4 percent market share.

Lag on policies moving

Although the results of Demotech’s review are not yet known, sources have said that even if there was a slew of downgrades the impact on Citizens this year is likely to be minimal.

“Even if Demotech downgrades a company they don’t have to cancel business right away, they just can’t write new business without the rating. But it will take 12-18 months for those policies to go into run-off,” said a market source.

There would also be a lag on policies finding their way to Citizens as a result of the move by private insurers to push for significant rate filings.

If filings are successful, it typically takes 12-18 months for them to come through on all policies on a carrier’s books. At that point the policyholder’s agent would likely try and shop it to other insurers before it potentially ended up with the Citizens Clearing House.

In the unlikely event that Citizens does see a significant increase in its policy count this year, it has provisions in its risk transfer agreements that can upsize coverage at 30 September for an additional premium if its exposure base has risen by more than 10 percent.