Citizens aims to buy $5.5B in reinsurance to back up claims ahead of hurricane season

TAMPA, Fla. (WFLA) -- With hurricane season just over two weeks away, Citizens Property Insurance's Board of Governors met to discuss a new requirement that aims to cut down on risk.

Reinsurance is "insurance for insurance companies." In Citizens' case, it ensures the state's insurer of last resort will be able to pay out their claims if disaster strikes.

This comes a year after Florida Gov. Ron DeSantis said the company "is not solvent" and implied consumers should "knock on wood," hoping a major hurricane wouldn't collapse the market.

According to a report from NBC affiliate WBBH, the Board of Governors said the company will not pay more than $750 million for $5.5 billion in coverage. If the company ends up paying that $750 million, customers' rates should not go up.

Citizens CFO Jennifer Montero made it clear the company won't pay above market rate for reinsurance, saying, "we have walked away before and I think the market knows that."

The board worries they may have prematurely shown their hand by revealing how much the company is willing to spend.

"It's hard to negotiate or play a poker game when you're showing people your poker hand," board member Carlos Beruff said, according to WBBH.

Earlier this year, Citizens CEO Tim Cerio said that the company should shrink as Florida's insurance market becomes healthier. Mark Friedlander with the Insurance Information Institute told WBBH that isn't happening.

Other companies continue to pass off their customers to the insurer of last resort, which has racked up nearly 1.2 million policyholders.

"They're actually growing again," Friedlander told WBBH.

According to the company's 2023 annual statement, Citizens has $17.8 billion in reserve on top of the potential $5.5 billion in reinsurance.

When WBBH asked Friedlander if he thought $5.5 billion was sufficient to cover Citizens, he said "private insurers would probably face a ratings downgrade if they made that decision."

In a situation where claims exceed Citizens' reserves, Friedlander warned that the citizens of Florida themselves could be on the hook through a so-called "hurricane tax."

Citizens also announced Tuesday that the company does not plan to remove any customers during hurricane season. In the meantime, many policies are expected to be taken over by a handful of other companies.

A U.S. Senate budget committee launched a probe into Citizens last year to investigate its underwriting policies and to prepare for the possibility that Florida lawmakers may ask for a federal bailout. The committee doubled down on its quest for answers in a letter written by committee chairman Sen. Sheldon Whitehouse (D-Rhode Island) in March, which claims Citizens provided an insufficient response to their inquiry.

In an April 12 letter sent to Whitehouse by Citizens CEO Tim Cerio, he pointed out laws passed in the latest Florida legislative session promise "significant" reforms to the state's insurance market.

"After reviewing our response we hope, as we expressed in our last correspondence, the Budget Committee will recognize Florida as a model of sound financial stewardship and meaningful property insurance reform," Cerio wrote.

Representatives for Sen. Whitehouse and the Senate Budget Committee did not respond to WFLA's requests for an update on the probe, which were sent earlier this month.