Citizens eyes backup coverage in Florida

The board approved buying private reinsurance that could provide about $5.5 billion in coverage. Reinsurance plays a critical role in Florida's hurricane-prone market, with insurers buying it in advance to help cover claims if major storms deplete their cash.

Tuesday's approval did not finalize this year's Citizens reinsurance coverage, with officials saying negotiations need to play out. Citizens spent about $650 million last year.

"We definitely do not pay above market (rates) for the reinsurance," Jennifer Montero, the agency's chief financial officer, told board members. "We have walked away before, and I think the market knows that."

But Citizens, which was created as an insurer of last resort, goes into the 2024 hurricane season as by far the state's largest property insurer. As of Friday, it had nearly 1.197 million policies after a surge in recent years as private insurers dropped customers and raised rates because of financial problems.

Citizens has tried to trim its number of policies through what is known as a "depopulation" program that moves customers into the private market. Citizens had as many as 1.412 million policies in fall 2023 before seeing reductions because of depopulation.

Regul ator s a l so have approved proposals by Slide Insurance Co., Security First Insurance Co. and American Integrity Insurance Co. of Florida to take out batches of Citizens policies next week as part of the program, state records show. But policy takeouts are not expected in the coming months as insurers stay away from additional risks during hurricane season.

"The likelihood of depopulation in midstream of hurricane season has become very unlikely," Citizens board Chairman Carlos Beruff said.

In addition to buying reinsurance on the private market, Citizens and other property insurers pay for coverage through the Florida Hurricane Catastrophe Fund. That state progr am of fe rs l i m ited amounts of coverage at lower prices than the private market.

But ultimately, if Citizens does not have enough cash and reinsurance to pay claims after a big storm, it has the power to collect additional cash from its customers - and potentially even from customers of other insurance companies - to cover the costs.

As an example, insurers sometimes measure risks by what is known as a 1-in-100-year event, essentially a storm that has a 1 percent chance of happening in a given year.

An executive summary provided to the Citizens board for Tuesday's meeting indicated that even with a purchase of $5.5 billion in private reinsurance coverage, a 1-in-100-year storm would exhaust Citizens' cash surplus. Citizens customers then could face paying $567 million in extra "surcharges" to cover the costs of such a storm, the executive summary said. Forecasters have predicted a busier-than-average hurricane season, which will last through Nov. 30.