Wednesday, February 16, 2005

News? Not.

Citizens Property Insurance Co. is broke, according to breathless news reports coming out of yesterday's board meeting of the state-owned property casualty insurer.

Paige St. John of Gannett News Service writes--
Officers of the state-run insurance company told Citizens' Board of Governors on Tuesday that 2004 hurricane losses exceed cash reserves by $400 million, pending a financial audit expected by the end of February.
In another version of the same report on February 16 the Pensacola News Journal adds:
Unlike some other insurance companies, Citizens is paying the full tab for its 2004 hurricane claims. It chose not to buy backup coverage on the reinsurance market, and its losses did not trigger relief from the state's Hurricane Catastrophic Fund.

"Our capital is eliminated," board member Ed London repeatedly noted during the meeting Tuesday. He said the company has no cash saved to pay potential 2005 storm claims.

Citizens' borrowing ability remains good, London said, because of the legal ability to make up losses with charges against the state's policyholders.
Translated, that means, acccording to various news reports, that the state will be passing along a special assessment of $56 to $61 per insured household this year.

What news reports haven't yet focussed on is that none of this comes as news. Indeed, if anything Citizens' payout rate is about two hundred million less than staff was projecting for the board in December. According to minutes from the December 7 2004 board meeting, Citizens was projecting then payouts totalling $1.8 billion. At the February 2005 meeting, however, reporter Jeff Harrington of the St. Petersburg Times tells us Citizens reported incurring "about $1.6-billion in insured losses from the storms."

Here's an excerpt from the draft minutes of the December meeting:
Mr. Odom asks, You said you paid off $550,000,000 to date, but your estimate of total losses (not audible) Ms. Buss responds, That is $1.8 billion, that is both the model estimate and I will address this when I go over the financial report, but also, as we look at our own development and reported claims, we believe that is probably about where we will end up ironically with the four storms in totality.
* * *

Mr. Odom asks, So, as far as Citizens’ ability to pay claims,we have no issues at all as far as our ability to pay? Ms. Buss responds, That is correct. Currently we still have in just our operating accounts an excess of $1.5 billion in liquid cash. Cash flow will not be an issue for us. If the losses are as the model predicts or even as we sort of re-scope them [as we will go over in the financial report], then we would have to either draw down on the notes which is also money that is liquid and available and then repay through an assessment or levy an assessment timely enough that the money comes in to meet our cash flow needs. We don’t predict any situation where we would have any cash flow issues. We have ample cash on hand.
In effect, then, yesterday's news was no news at all. Citizens has been projecting the same or slightly higher losses for some months. They have ample cash and cash equivalent resources (i.e., "the notes") to pay the projected claims, which may be as much as $200 million less than initially projected.

The 'news' of a coming assessment is no news at all. Citizens told the board two months ago it would "either draw down on the notes...and then repay through an assessment... ."

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