BRADENTON, Fla. -Moody's Investors Service on Monday upgraded Florida's Citizens Property Insurance Corp.'s high-risk account bonds to A2 from A3 ahead of the planned sale of between $1.5 billion and $2 billion of fixed-rate debt.
The upgrade incorporates the fact that the policy count for the high-risk account has moderated in the past year, as well as other factors such as two years without hurricanes, expanded claims-paying resources, an expanded base on which to assess surcharges to pay claims, and continued government support, said a report by Moody's analyst Emily Raimes.
The upcoming sale, which is expected to take place later this month or in early May, is part of Citizens plan to convert a portion of its outstanding and costly auction-rate securities to fixed-rate bonds. The proceeds will be used as a source of liquidity to pay claims, if needed.
But the Florida Legislature, in session through May 2, is considering several bills that could impact Citizens credit rating.
The House yesterday passed HB 5057 by a vote of 109 to 6. The bill in part requires that $250 million be transferred from Citizens to finance a capital buildup loan program that is designed to encourage private companies to write more property insurance policies in the hurricane-prone Sunshine state.
The Senate is on the verge of passing SB 2860, which includes the requirement that Citizens fund the $250 million private company loan program. SB 2860 also extends until July 1, 2009 a prohibition on increasing Citizens rates. Those rates have been frozen since Jan. 1, 2007. The bill could come before the Senate as early as today for a final vote.
In addition, both the House and Senate are considering bills that would have the effect of reducing the liability of the Florida Hurricane Catastrophe Fund by $5.5 billion. The state-run, nonprofit Cat Fund provides reinsurance to private companies as well as Citizens and would sell bonds to pay claims, if necessary.
"This would decrease the amount of reinsurance available to Citizens through the [Fund] and would also lower the point at which Citizens would need to issue bonds because it would run into a deficit," said Raimes.
Last year, the Legislature increased the Cat Fund's reinsurance capacity to $27.8 billion, up from $15 billion in 2006. The idea was to provide low-cost reinsurance to private companies who would in turn lower premiums for policyholders. But rates didn't go down substantially, so lawmakers want to reduce the Cat Fund's exposure this year.
"While the final outcome of any current proposals in the Legislature is unclear, it is clear that this is a topic that will continue to be debated, and that changes are likely to be made that will affect Citizens," Raimes said. "Whether the changes are positive or negative is unknown at this time."
Florida Chief Financial Officer Alex Sink said she opposes extending the freeze on Citizens rates, but she supports the effort to reduce the Cat Fund's liability.
"Eliminating $5.5 billion of hurricane assessment risk after a bad storm is the fiscally responsible thing to do," Sink said Tuesday after the Senate Committee on General Government Appropriations unanimously passed SB 2156, which reduces the fund's liability. The bill has been sent to the full Senate.
Citizens is a state-run, nonprofit property insurance corporation. Originally, it was formed as a so-called "insurer of last resort" and mostly wrote policies along the coastline where private companies refused to cover wind damages.
But following multiple hurricanes that caused damages in 2004 and 2005, private companies reduced their risks by dropping policies and refusing to write new policies throughout the state. Citizens now has about 1.22 million policies and is Florida's largest property insurer.