DALLAS - The Louisiana State Bond Commission said Thursday it wants more and better options before taking action on a request for $100 million of assessment revenue bonds from Louisiana Citizens Property Insurance Corp.
The commission adjourned without taking a vote on the proposal from the state's insurer of last resort after several members, including Treasurer John N. Kennedy and Commissioner of Administration Kristy Nichols, questioned the need for the bonds at this time.
The insurer has a current cash balance of $75 million, which could be depleted quickly even without any damaging storms, said Citizens Chief Financial Officer Steve Cottrell.
"We could have to pay out $75 million to $80 million in the next three months, and that is without any new claims," Cottrell said. "If the winds blow some night, we would not be able to pay the claims."
There is no obvious reason to issue bonds now for claims that might never materialize, Nichols said. If the money is needed, she said, Citizens could draw on a $75 million line of credit as a temporary solution.
"You don't need $100 million to meet claims today," she said. "It is just not clear to me that you need that level of reserves."
The cash in the bank is are already less than what would be required for a conventional property insurance company, Cottrell said.
"If we were a private insurance company, we'd be insolvent right now," he said. "Citizens is not subject to those same rules, but we cannot wait. Waiting is not a viable option."
The bonds would help pay outstanding claims from Hurricane Katrina in 2005, Cottrell said.
Citizens in 2006 issued $978 million of bonds supported by assessments on property owners to pay the Katrina claims, he said, but damages were $340 million more than expected.
The 2006 bonds are rated A3 by Moody's Investors Service and A-minus by Fitch and Standard & Poor's.
If bond proceeds are not available, Cottrell said, Citizens could boost its reserves by levying an assessment on all other property insurers in the state.
If the trustees decide to do that, he said, the companies would pass that cost along as a surcharge to policy holders without a review from the state insurance commission.
Kennedy said he did not support the bond issue or the pass-through assessment on property owners.
"I cannot support options A or B," he said. "I want you to go look and work real had, and come back with option C or maybe even D."
Cottrell said the all the possibilities had been reviewed by the Citizens board for several months, and they voted, 9-2, last week to seek the bond issue after rejecting the assessment on insurers.
"I'm happy to do the hard work, but there doesn't seem to be another option," he said.
In other business, a $300 million state general obligation bond issue for fiscal 2013 was approved by the Bond Commission, but the mixture of tax-exempt and taxable debt in the issue was amended.
The taxable portion of the issue was increased to $169.3 million from the original $113.4 million request, while the tax-exempt portion fell to $130.7 million from $186.6 million.
Commission Director Whit Kling said $50 million of the bonds earmarked for projects at state hospitals now managed by outside entities could no longer be issued as tax-exempt debt.
The state will pay $13 million more in debt service with the taxable GOs, he said, or about $640,000 a year.
Richard Leibowitz of co-bond counsel Breazeale, Sachse & Wilson LLP said the hospital bonds could be issued separately as revenue debt through a conduit, but would not be rated as highly as the state GOs.