BRADENTON, Fla. - Moody’s Investors Service said Monday that a rate hike on insurance premiums for customers of Florida’s Citizens Property Insurance Corp. is a credit positive.
Citizens, a state-run, nonprofit property insurer, has about $5.4 billion of municipal debt outstanding. The bonds are rated A2 by Moody’s and A-plus by Fitch Ratings and Standard & Poor’s.
The Florida Office of Insurance Regulation last week approved average statewide rate increases of 10.8% on CPIC’s homeowners’ policies and an increase of 8.8% on dwelling fire rates. Rates on policies that include sinkhole coverage will increase between 21.4% and 44.8%.
The new rates go into effect in January and February.
“The increase is a credit positive step towards bringing CPIC’s rates more in line with competitors, helping to reduce the number of properties it insures, and increasing capital available to pay claims on remaining policies,” said Moody’s analyst Lisa Heller. “Higher rates also reduce CPIC’s need for additional assessments and bond issuance.”
The state originally intended Citizens to be the insurer of last resort, but it has become Florida’s largest property insurer as private companies contracted or left the state due mainly to the hurricane risk.
The insurer has 1.46 million policies, or about 27% of the market, with an exposure totaling $493.26 billion. Under current rates, Citizens receives $3.16 billion in premiums.
More than 40% of residential policyholders are concentrated in the high-risk and expensive coastal areas of Broward, Miami-Dade, Monroe and Palm Beach counties, according to Heller.
CPIC issues bonds when necessary secured by various assessments to pay policyholders’ hurricane-related claims. Assessments levied to pay debt service are “tax-like in nature” because the assessment base includes nearly all property and casualty policies in Florida, she said.
“As a public corporation with a mission to provide affordable property insurance, CPIC makes trade-offs between offering policyholders low rates that make it harder to build a surplus and levying assessments to pay claims if it has a shortfall,” Heller said. “The organization has long faced public criticism for its size and rates, and is a frequent focus of legislative debate, although it has strong statutory non-impairment provisions that protect bondholders from interference.”
Citizens breaks coverage into the personal and commercial accounts, which insures homes, mobile homes, individual condominiums, condominium associations, apartment buildings and residential home association buildings. A separate account covers windstorm policies along the coastline.
Heller said the rate increase approved for next year is lower than what CPIC requested, but “brings premiums closer to actuarially sustainable levels and will likely drive some policies away from CPIC to private insurance companies.”