Florida Citizens tightens hurricane Ian loss estimate to $2.3bn – $2.6bn

Florida’s insurer of last resort, Citizens Property Insurance Corporation, has tightened its estimated range of losses from hurricane Ian, now saying it expects them to fall at between $2.3 billion and $2.6 billion, at which level its private reinsurance recoveries would be small, if any, while its Everglades Re catastrophe bonds could be safe.

Previously, Citizens estimate straight after hurricane Ian’s landfall in Florida had begun with a figure of around $3.8 billion, with a potential claims burden of 225,000.

That had been subsequently tightened, with the insurer saying it anticipated indemnity losses of between $1.9 billion to $3.7 billion, with a claims count ranging from 100,00 to 150,000.

That was based on a best case of modelled indemnity and loss adjustment expenses (LAE) from hurricane Ian, before any risk transfer was considered.

Now, Florida Citizens’ latest update is an estimate of between $2.3 billion and $2.6 billion of losses from hurricane Ian, which does not include claims below the deducitble, or any loading for potential litigation.

The previous estimate had also not included litigation, or any social inflationary factors and the claims count once the deductible and social inflation factors are included remains around 225,000.

So far, 34,000 claims have been filed with Florida Citizens, as of 11 a.m. ET, October 5th.

The insurer has set up two catastrophe response centres in Port Charlotte and Fort Myers to assist its policyholders.

So what does this all mean for the Florida Citizens reinsurance tower and of course its Everglades Re catastrophe bonds?

At this point in time it’s extremely difficult to tell, with the way claims fall to the Coastal and Personal Lines Accounts seemingly the main factor in whether the insurer gets to tap its reinsurance for any support in paying them.

It does seem likely that Florida Citizens so-called “sliver” layer of its reinsurance tower could be impacted, as in the Coastal Account that attaches at $803 million of losses, while in the Personal Lines Account it attaches at $1.277 billion, according to the latest layer charts seen by Artemis.

These “sliver” layers of private market reinsurance are quite small and stretch quite high into the tower, filling up the layers next to the FHCF, so if those are all that is at-risk of attaching, then the exposure for the private reinsurance market seems quite low (potential litigation and social inflationary effects not taken into consideration).

For the Everglades Re catastrophe bonds, if Florida Citizens claims remain in the range they estimate and social inflation isn’t a significant factor that increases them, then at this stage it appears they could all be safe.

In Citizens Coastal Account, the $275m Series 2021-1 tranche of Class B Coastal Account notes attach above $2.592 billion of losses to that section of Citizens portfolio and are the lowest cat bond layer of reinsurance cover in the Coastal Account.

On the Personal Lines Account side, the $100 million of Everglades Re II Series 2020-2 Class A notes attach above $4.115 billion of losses and the Series 2021-2 Class A notes attach slightly above that, at $4.128 billion, suggesting these should both be safe from losses.

So, right now, if Citizens losses came in close to the estimate it seems the Coastal Account cat bond could attach, but only if all of Citizens losses fell to that account, which seems extremely unlikely.

These notes have been marked down in cat bond pricing sheets on Friday, not significantly, by high single-digits to low double-digits, but there’s a good chance these cat bonds coul see their values recover once the fall in loss estimate is factored in.

Of course, it’s still very early days and litigation or social inflation could amplify Florida Citizens losses. But based on the estimate, at this stage, it seems reinsurance market exposure to Citizens could be relatively low, while the cat bonds could prove to be safe.

Surplus is set to be eroded, of course, and the FHCF reinsurance coverage is likely to be tapped, to help Citizens pay its claims.

Time will tell though and whether they ultimately are safe from losses due to hurricane Ian won’t be known for a little longer.