Louisiana Citizens approved for 63% rate hike as reinsurance costs bite

Louisiana Citizens Property Insurance Corporation, the non-profit residential and commercial property insurer for those who cannot access private market insurance in the state, has had a steep 63% residential property insurance rate increase approved by the regulator.

The Louisiana Department of Insurance (LDI) said it has approved Louisiana Citizens’ request for a 63% rate increase for residential property insurance policies beginning January 1st 2023.

This rate increase won’t affect Citizens’ current policyholders until they renew their policy beyond that date, but it is a sign of the direction we can expect coastal property insurance rates to continue moving in.

Louisiana law states that the insurer of last resort, Citizens’, rates must be at least 10% over the highest qualifying market rate, or 10% over the actuarial rate, whichever is higher.

However, the regulator noted that, “The rate increase is almost totally a result of the increased cost of reinsurance for Citizens’ increased number of policies this hurricane season.”

The reason Louisiana Citizens reinsurance costs have risen so significantly is because the state has been impacted by a number of significant hurricane losses in recent years, while the insurer has recovered a significant amount from its reinsurance partners to help pay claims.

Recently, we reported first that Louisiana Citizens losses from hurricane Ida had continued to creep higher and that as a result the insurer had blown through the top of its reinsurance tower.

Because of this, Louisiana Citizens is also set to recover another $50 million from a tranche of Pelican IV Re annual aggregate catastrophe bond notes as well.

Losses from hurricane Ida have now wiped out Louisiana Citizens reinsurance and cat bonds from that year, which alongside the hardening of reinsurance more widely, likely means the insurers costs of reinsurance have escalated significantly.

“There’s no sugarcoating it — this increase is extremely painful but required by law to make sure Citizens can handle a potential future disaster for its many policyholders,” said Louisiana Insurance Commissioner Jim Donelon. “My staff and I are working with the legislature to attract more insurers to the state through the use of a program that was highly effective following hurricanes Katrina and Rita, which will give Citizens policyholders, and all Louisianans, more and cheaper insurance options in the private market.”

While this move is very Louisiana specific, it perhaps provides a glimpse for what Florida’s marketplace should expect to happen after hurricane Ian.

Reinsurance costs in Florida were already very high, after significant market hardening this year. But that is about to escalate significantly, while insurers are going to need to put up their rates to help them cover their risk.