Fitch Ratings has said that Florida Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund do not face near-term risks to their capacity to service debt as a result of expected losses arising from Hurricane Ian.
Increasing storm frequency and severity will erode liquidity and may place a greater burden on the assessment base that supports the debt issuance of each of these entities.
Ample liquidity, built partially through the issuance of pre-event bonds during a period of limited storm activity in the 11 years prior to Hurricane Irma in 2017, will likely allow both Citizens and FHCF to cover Hurricane Ian claims and reimbursements without needing to issue bonds and/or levy an emergency assessment.
Аadditional claims as a result of Tropical Storm Nicole that made landfall in Florida late Wednesday as a Category 1 Hurricane, or other storms through the end of the season, will further reduce liquidity and could potentially necessitate borrowing.
Citizens and FHCF are obligated to levy emergency assessments or issue bonds if claims and reimbursements exceed liquid resources, including reserves and premium collections, until obligations are fully met.
Even if FHCF and Citizens do not need to tap the market this year, they will have exhausted much of their liquidity, leaving them more likely to have to borrow in the future to rebuild liquidity.
As the insurer of last resort, Citizens is the largest insurer in the state, and its policy count and exposure ticked up since 2016, fuelled by the increase in private homeowners’ insurance costs and non-renewals. Citizens’ updated modelled losses from Hurricane Ian are from $2.3bn to $2.6bn.
Claims will be paid from Citizens’ available balances, which totalled $6.8bn, as of June 2022, and reinsurance reimbursements from FHCF and private reinsurance, in an amount of $4.1bn and $2.5bn, respectively.
Every Florida property insurer must purchase reinsurance from the FHCF, with limited exceptions. The FHCF’s aggregate reinsurance cap, set in state statute, is currently $17bn and is reset annually.
FHCF currently has access to $15.8bn in liquid resources, including $12.3bn in fund balance and $3.5bn of pre-event bond proceeds. FHCF is modelling aHurricane Ian losses from $4bn to $12bn.
The State of Florida provided an additional $2bn in reinsurance allocated across the 2022 and 2023 hurricane seasons to private insurers, separate from FHCF, to provide another layer of coverage before FHCF reimbursements.
Approximately $900 million was elected by private insurers for the 2022 storm season, which is expected to be fully used to pay claims arising from Hurricane Ian.
Citizens’ and FHCF’s ratings reflect their ability to levy assessments on nearly every property and casualty insurance policy in the state for as long as debt is outstanding. Citizens’ and FHCF’s assessments are each subject to a cap of 6% of the aggregate statewide direct written premium on the subject lines of insurance for one year’s losses and 10% for cumulative losses in multiple years.
The assessment base could generate up to $3.8bn and $6.3bn per year, respectively, based on the $63.3bn assessment base as of Dec. 31, 2021, for each of Citizens’ subject lines and for FHCF.
Severe and frequent storm events could drive Citizens and FHCF to access the market concurrently, resulting in material overlapping assessments on policyholders.
The assessable base is currently large and has been rapidly growing but the pace of growth could diminish if recurring storm events limit rebuilding or as economic activity slows.
Pressures would be compounded if private insurers continue to leave the Florida market, causing Citizens’ policy count and risk exposure to grow. The governor announced he is working with the legislature to call a special session in December to discuss solutions to stabilize the property insurance market.