Why Louisiana keeps turning to low-rated insurers to reduce Citizens' policy load
Members of the board that oversees the
It took the public insurer more than a decade to trim the number of risky policies it was holding to less than 40,000, through a process called depopulation. But over the span of a few months, after the collapse of a dozen insurers, more than 80,000 policyholders had come rushing back into Citizens' arms.
The first board meeting of 2023 was an opportunity to consider something members might have overlooked.
In the previous depopulation effort, four of the insurers that helped reduce Citizens' rolls were allowed to participate even though they fell short on the required financial stability rating — and they ultimately collapsed. Seated in the quiet confines of a meeting room in
"Do you all have any particular process that you go through to check on solvency, or is there any discussion with the
Albright pointedly noted that two insurers asking to write policies only had an A grade from the ratings agency Demotech — and not the B+ from
In November, Insurance Commissioner
But when the issue came up at the meeting, Donelon wasn't in the room. A spokesperson later said he stepped out to take a call from the governor. No other board member weighed in.
Behind the silence is a discomforting fact: More than 100 insurers operating in the state rely on Demotech ratings.
That would likely slow Donelon's plan to steer customers off the public insurance plan, though it might benefit consumers in the long run.
The Citizens board approved the requests this month of two questionable insurers —
Donelon has promised that an actuarial consultant,
"We're looking at their reinsurance buy for this year and how it compares to last year," said Donelon, who recently announced he won't seek re-election. "We're doing a couple things that we didn't do before to monitor all of the property and casualty insurance companies doing business in the state."
Repeating history?
Since its inception, Citizens has been focused on reducing its policy load by trying to steer its customers to private insurers.
The depopulation program is fairly simple. Lawmakers didn't want Citizens to become an attractive choice, so they required its policies to be priced 10% higher than private options. In addition to that markup, they instructed Citizens to offer their policies to any private insurer willing to take them.
To qualify, insurers need a B+ rating from
Determining what's equivalent isn't easy, and
The disclosures to the
Over a little more than a decade, some 129,000 policies were moved off Citizens' rolls and placed with private companies. But after four major storms made landfall in the state in 2020 and 2021, the four firms that had taken over the largest number of Citizens policies all went under. All four had A ratings from Demotech.
But he said at least four of the company failures were related to incorrect modeling those insurers relied on to buy reinsurance, not his organization's ratings methodology. As evidence, he pointed to the Demotech-rated insurers that largely survived in the catastrophic year before Hurricane Ida.
"There was something about Ida or carrier data associated with Ida that was problematic," Petrelli said. "It was not our process, as carriers withstood the unprecedented six events in 54 weeks."
Other industry stakeholders say the quality of ratings frequently changes over time.
Questions over the ratings could have larger implications for the housing industry:
"Ratings agency performance is not static," a spokesperson said in an email, "and can change based on market conditions, clientele, and catastrophic events that impact insurer losses."
Less qualified insurers
The ratings concerns come amid a revival of the state's incentive program. In a special session last month,
Nine insurers have applied for the state's incentive program, seeking a total of
For one, at least seven out of the nine insurers that have submitted applications possess A ratings from Demotech. One firm,
During the last iteration of the incentive program, four out of the five participants held ratings from
But in the eyes of the
Department officials said the large national companies that generally have
Regulators said they will give preference to the highest-rated companies, but other factors will also be considered. And they note that the solvency monitoring performed by Merlinos should help the department keep watch on small insurers.
"We're mainly looking at those companies that have their risk concentrated in
"So if a company is only writing
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