Florida’s Citizens Property Insurance Corp. board met yesterday to debate the carrier’s insurance risk transfer plans, approving a budget of $675 million more than expected, which Chief Financial Officer (CFO) Jennifer Montero hopes will be enough to get at least $5.5 billion. Risk transfer from both traditional reinsurance and capital markets.
In March, Citizens budgeted $725 million for 2023 for reinsurance and risk transfer purchases. Yesterday, however, the board reduced this by $50 million to $675 million, which includes $61 million in expenses. Lightning Re In March, he sponsored an industrial insolvency risk bond.
So, that means roughly $614 million in risk transfer budget for traditional insurance coverage, other cat bonds with continued coupon payments, and $775 million. Everglades Re II Ltd. (Series 2023-1 and 2023-2) Cat bonds currently on the market.
We are still in the market and the 2023 Capital Markets Cat Bond Everglades Re is the same as traditional. So it allows us to compare the two against each other, see which one we can get coverage at the best price,” Montero said. “We are currently in the capital and traditional markets. We are still collecting quotes and modeling different scenarios to find the most effective price and capacity.”
In total, Citizens is looking to secure $5.5 billion to $5.8 billion in reinsurance and capital markets transfer risk for the towers by 2023, with a portion secured by multi-year cat bonds and Lightning Re transactions.
Although the board is expected to at least confirm the minimum level of the plan with a total budget of 675 million dollars, at the meeting there was confusion as to why the budget should be reduced by 50 million dollars, and how to reconcile the costs of Lightning Re.
As explained earlier, it plans to merge its Citizens Offshore Account, Personal Lines Account and Commercial Lines Account into a single Citizens Account to effectively move its reinsurance structure into a single tower. This appears to have changed the company’s procurement strategy, with Citizens looking for one year or wind season covers on most towers for 2023.
Of course, the reinsurance market is going through a rough cycle and there have been some big price increases for protection buyers, especially in Florida, which looks set to continue.
During the meeting, Montero, who is responsible for the insurer’s reinsurance and risk transfer procurement functions, offered some comments on market conditions ahead of the mid-year renewal.
“As expected, risk transfer rates are increasing for the year, with Florida carriers experiencing increases of 30 to 50 percent. Rate indicators for non-Florida risks are 10 to 20 percent,” she said. Due to the attractive nature of risk transfer pricing in capital markets relative to other asset classes in current market conditions.”
So, while still clearly challenging, market conditions in the state of Florida appear to be improving somewhat, although there is still a supply-demand imbalance.
Montero continued, “Despite the high demand for Florida funds’ ability to transfer risk, investor interest remained stable, but with slightly higher distribution levels than in previous years.” “Capital market transactions managed to increase in value slightly below the initial price guidance. However, overall levels of circulation are higher than we have seen in previous years. This is mainly due to the scrutiny on credit and risk, rising capital costs, macro-level stress in the financial markets and alternative investments. It’s because of opportunities.
This is also true for reinsurance rates online as Florida property risk appetite continues to be muted.
The budget for the Citizens Offshore Account is $300 million, and the insurer has a $2.7 billion reinsurance and risk transfer target for 2023. Of this, $825 million came from existing cat bonds and renewables, and $1.9 billion was newly purchased bonds. .
Because this tower requires a $2.92 billion spending limit, the budget for the private line account is $375 million higher. Again, $825 million came from cat bonds and lightning refinancing, and about $2.1 billion was newly purchased.
As mentioned by Montero, Florida citizens are still in the market for 2023 when it looks to complete the reinsurance and risk transfer, and that includes decisions on the split between events and totals and exploring loss adjustment expenses (LAE).
“We’re also looking at loss adjustment expense, that’s another way to reduce online pricing. Something like a cat fund. A cat fund pays a loss plus a 10% factor,” Montero said. We are looking at the benefits of saving and still trying to stay within that 10% cost.
During the meeting, some board members expressed concern about the openness of the meeting and pointed out that it may be that the parties who are sitting to present their ability to transfer risk are listening to the strategy of sitting in public.
After some debate, it was called for negotiations to continue, then for board approval before June 1. But Montero explains why this can be dangerous and leaves the insurer open to missing out on the necessary risk transfer.
“Traditionally, if you don’t think the board will go, you don’t approve the line if it doesn’t get the board’s approval. That is why we come to the board first before we leave,” she said. “They think it can’t be approved. They don’t want to take their chances and bet on something that’s 50/50, it might not happen.”
Adding: “Rather than canceling their license at the last minute, they’d rather put their money somewhere else to get their money back. They write another Florida program.
“It’s important. You have until June 1st to finish your assignment and start your contract. That’s why we’re trying to finish this part, so we can rush everything on the market.
“We’re hoping to get $5.5 billion with $675 million,” Montero said, adding, “We have to see some bells and whistles and maybe we don’t have everything we want to have this year.”
“But we have coverage and I think that’s the most important thing, if we hit to have a good amount of coverage so that we don’t expose everything to review,” she continued.
The board signed off on a $675 million full-year risk transfer budget for 2023 to continue staffing both cat underwriting and reinsurance.
