Citizens pulls $400mn cover from private reinsurers; cites high cost
Florida's state-backed insurer Citizens Property Insurance Corporation has pulled its reinsurance spend from the private market for 2009 because of the increased cost of cover.
As a consequence, the biggest writer of Florida homeowners insurance with around a 30 percent market share will only buy reinsurance cover from the state's cat fund.
Last year, Citizens bought $400mn of private reinsurance cover in addition to purchasing protection from the Florida Hurricane Catastrophe Fund (FHCF).
According to sources, $300mn of the cover, which was placed by then independent reinsurance broker Benfield, was written by hedge fund capacity, including DE Shaw with a significant line.
A reinsurance broking source suggested that Florida aggregate freed up by Citizens not purchasing "will be snapped up by other buyers on 1st tier local reinsurance or retro" in the capacity tight market.
Citizens bought cover last year to protect the 10 percent co-payment it was required to make to access the 90 percent coverage of the mandatory layer of the FHCF for its High Risk Account (HRA).
For 2009, however, after reviewing analysis and pricing information from its current reinsurance broker panel of Aon Benfield and Guy Carpenter, Citizens board took the decision to not purchase private reinsurance for the coming season "due to increased costs and limited impact on assessments".
Instead, the insurer will buy mandatory and optional Temporary Increase in Coverage Limits (TICL) cover from the FHCF for its HRA account alongside its personal lines and commercial lines accounts.
Citizens will spend $373mn premium buying $5.9bn of mandatory FHCF cover at 90 percent of covered losses after retention, and $173mn buying $3.5bn of TICL cover, also at 90 percent of covered losses.
Citizens spokesman John Kuczwanski told The Insurance Insider that with the increased cost for private reinsurance which the insurer is unable to pass on to customers in rates "it was determined it wasn't the right product at the right time".
The insurer had included in its budget $150mn to spend on private reinsurance, and Kuczwanski said the board had encouraged reinsurance brokers to continue looking at "beneficial" options that it may reconsider through the 2009 hurricane season.
Citizens had a total of 1,048,677 policies in force as at 30 April 2009.