Florida Citizens struggles to fill reinsurance towers, only ~36% secured so far

Florida’s Citizens Property Insurance Corporation, the property insurer of last resort in the state, continues to work on filling out its reinsurance towers for the 2022 wind season, a process that has been a particular struggle given the challenging reinsurance market environment.

As of this time, Florida Citizens has only secured around $1.25 billion of the new risk transfer capacity it was seeking from traditional reinsurance markets and insurance-linked securities (ILS) funds or investors, leaving it well short of the target it had originally set itself.

It implies a reinsurance and risk transfer program that is only around 36%, or so, filled at this point in time.

As we reported previously, Florida Citizens CFO Jennifer Montero had reported that the reinsurance risk transfer markets were in a state of “disarray”, ultimately meaning the insurer could not buy its targeted reinsurance program within budget.

As it turns out, the reinsurance markets have been in such a state that just securing Citizens basic reinsurance needs has proven incredibly difficult this year.

A Florida Citizens spokesperson explained to Artemis that the insurer has now secured roughly 76% of the traditional reinsurance it had been seeking for the Coastal Account tower, a placement that reflects $941 million in traditional limit secured.

But it is the Personal Lines Account (PLA) tower that has proven the most difficult to fill, we’ve been told, with so far just 14% of the traditional reinsurance Citizens had been seeking secured.

Florida Citizens has found reinsurance market capacity particularly tight for properties in land, which its PLA tower covers.

This is a rapidly growing piece of Citizens portfolio, as the insurer picks up more policies from the private market.

Citizen has been able to secure $309 million in traditional reinsurance, out of a targeted $2.19 billion (so roughly 14%) for its Personal Lines Account (PLA) reinsurance needs.

In addition, Citizens did secure $200 million of capital markets backed reinsurance through its recent PLA focused catastrophe bond issuance.

The challenge in filling the PLA reinsurance tower may be linked to Citizens rapid policy growth in that segment of its portfolio, as well as the fact the insurer does not have as long a history in the market of buying reinsurance for that tower.

But ultimately it is market dynamics and reinsurers’ greatly increased risk aversion to property risk in Florida that drives the main challenge for Citizens.

We understand Florida Citizens continues to work to fill more of the tower and it’s expected some of the gap will be filled in the coming days and weeks.

But clearly there is a strong chance Florida Citizens goes through the 2022 hurricane season with less reinsurance protection in place than it would have liked, with ramifications for the state, policyholders and the potential for assessments if a major storm strikes Florida this year.

Florida Citizens policy count continues to rise rapidly, having reached almost 888,000 this week. That’s up by roughly 4% in just one month.

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