BRADENTON, Fla. - A bill reducing the exposure of, and potentially reducing future bond issuance by, Florida’s state-run insurance company is headed to Gov. Rick Scott’s desk.
Senate Bill 1770, which passed the House on Thursday and the Senate on April 25, reduces the liability of Citizens Property Insurance Corp. by limiting the amount of exposure it can accept on individual policies.
CPIC is a nonprofit, tax-exempt insurer created to offer property insurance to homeowners and condominiums that cannot get private-sector coverage. Currently, dwellings that cost under $2 million for replacement can obtain a policy from Citizens.
Under SB 1770, starting Jan. 1 the maximum policy limit will be reduced to $1 million.
In 2015, homes with replacement costs of $900,000 or more cannot get coverage from Citizens. In 2016, the limit becomes $800,000, and in 2017, the limit drops to $700,000.
The bill also establishes a clearinghouse program to steer policyholders to private insurance companies as part of the effort to shrink Citizens, which is the largest insurer in Florida with 1.27 million policies and total exposure of $403.5 billion.
If Citizens has to pay out claims for a major hurricane that exceed cash on hand, it can issue tax-exempt bonds. As of the latest audit in December 2011, the CPIC had about $4.88 billion of bonds outstanding rated A-plus by Fitch Ratings and Standard & Poor’s, and A2 by Moody’s Investors Service.
Claims, and potentially new bonds, would be paid with assessments on nearly every property insurance policyholder in the state. As Citizens’ exposure has grown, its critics, including the governor, have sought ways to reduce the risk that assessments will be used.
Barry Gilway, president of Citizens, said the clearinghouse would be “a great tool” for returning the agency to its initial status as an insurer of last resort.
“Through the clearinghouse, many policyholders will be able to find more comprehensive coverage at a lower price in the private market,” he said. “That, in turn, reduces the likelihood and amount of assessments on all Florida policyholders face in the event of a major storm.”
Citizens’ size as the largest property insurer in Florida has been a factor cited by rating analysts for many years, though they have also recognized the contraction that has occurred in the private property insurance market.
As of December, CPIC’s total insured value represented 19% of the market while State Farm Florida Insurance Co. had the second-highest market share with 9%.
It is not yet clear if the changes brought about in SB 1770 would have a positive impact on Citizens’ credit. Moody’s said Friday that it was reviewing the bill, and expected to discuss its impact this week.
“I think any reduction in Citizens’ exposure is positive for both Citizens and the private market,” said Sharon Binnun, CPIC’s chief financial officer. “The phase in does not begin until next year and will be done gradually which I believe will allow the private market time to plan to take on more business.”
Binnun also said that she did not believe that Citizens’ size is a significant factor as it pertains to the insurer’s credit. Citizens’ credit is strong for a variety of reasons, including the tax like nature of Citizens’ assessments which ensure debt service payments will be made, the diversity and size of the assessment base, and strong non-impairment language in Citizens’ statute, she said.
Scott has not indicated if he will sign the bill, though it has widespread backing from the insurance industry.
Opposition has emerged from the real estate industry, which has pointed out that it could be difficult for owners of high-end homes to get insurance.
The bill also changes the Florida Hurricane Catastrophe Fund Finance Corp. to the State Board of Administration Finance Corp.
The name change is designed to make it easier to explain the credit to prospective investors when municipal bonds are sold by the so-called Cat Fund, which is a nonprofit reinsurance mechanism designed to bolster the state’s overall insurance market.