CAS Ratemaking Seminar
New Orleans, LA
State – Specific Issues in Personal
Lines
March 11, 2005
1
The 2004 Hurricane Season & The
Florida Property Residual Market
2
Agenda
•
•
•
•
History of Citizens
Financial Position of Citizens and the Cat
Fund … Post Hurricanes
Rates and Depopulation Efforts
Closing Remarks
3
Florida’s Residual Market Prior to Citizens
• Prior to the formation of Citizens Property Insurance
Corporation, there were two (2) property residual market
facilities in operation in Florida:
o Florida Windstorm Underwriting Association (“FWUA”)
o Florida Residential Property & Casualty Joint Underwriting
Association (“FRPCJUA”)
4
When and why was Citizens created?
• Initially proposed by Florida Treasurer Tom
Gallagher in 2001 to achieve:
• One property residual market mechanism
• Federal tax-exempt status
•
•
•
•
IRS issued Private Letter Ruling.
Federal tax-exempt status in February 2002.
Legislation signed into law in May 2002.
Citizens came into being on August 1, 2002.
5
Citizens Has Three Accounts
Three Accounts:
• Personal Lines Account – former FRPCJUA
• Commercial Lines Account – former FRPCJUA
• High-Risk Account – former FWUA
With separate calculations of:
• Surplus
• Plan Year Deficit
• Assessment Base
6
Personal Lines & Commercial Lines Account
(PLA/CLA)
• Personal lines: homeowners, mobile homeowners,
dwelling fire, tenants, condominium unit owners and
similar policies written throughout the state.
• Commercial lines: condominium association, apartment
building and homeowners association policies.
• Personal lines rates set for each county at the highest
rate of the 20 largest insurers in the State.
2002 legislation required Citizens rates to be actuarially
sound and not competitive with the voluntary market.
7
High-Risk Account (HRA)
Citizens uses Insurance Service Office (ISO) policy forms and
modified ISO policy forms to adjust for the unique coverage that is
needed for a residual market such as a wind only policy. The
completed forms are filed with the Office of Insurance Regulation for
final approval.
•
Personal lines wind-only policies – covering homeowners,
mobile homeowners, tenants, condominium unit owners
•
Commercial residential wind-only polices
•
Commercial non-residential wind only policies
8
Historical Policy Counts Comparison
Policies In Force
1996 : Highest
PIF for PLA.
Combined total
over 1.4 million
policies.
1,600,000
1,400,000
1,200,000
1,000,000
936,837
820,255
815,064
CLA
PLA
HRA
800,000
605,288
517,113
600,000
102,792
383,280
377,096
205,256
400,000
465,738
200,000
414,123
397,676
433,056
434,003
December 31, 2001
December 31, 2002
December 31, 2003
July 31, 2004
0
1996
9
Citizens’ Financial Resources
Citizens has at its disposal both the typical resources available to all P&C
insurers that conduct business in the State, as well as special assessment
powers granted to Citizens by the State Legislature.
Citizens Financial Resources
Typical Financial Resources
Special Assessment Powers
• Insurance Premiums
• Regular Assessments
• Investment Income
• Market Equalization Surcharges on
Citizens Policyholders
• Operating Surplus from Prior Years
• Florida Hurricane Catastrophe Fund
Reimbursements
• Emergency Assessments
• Private reinsurance (Citizens does not
utilize private reinsurance)
10
PLA Account
–
Comparison of Financial Strength to Predecessor FRPCJUA
$5,000
PML
Resources
$4,000
$3,000
$2,000
$1,000
$1996
2000
2004*
11
Rate Change History
Multi Peril
Year
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
HO
24.3
16.6
23.7
-4.2
2.2
-0.4
0.0
0.0
12.2
26.0
4.4
23.2
MH
24.1
13.2
28.2
-18.7
2.5
-0.2
0.0
0.0
2.1
36.4
1.1
17.1
DF
25.0
25.0
27.8
0.0
0.0
0.0
0.0
0.0
1.8
39.0
17.7
5.1
Wind Only
CR
0.0
22.1
13.4
0.0
0.0
0.0
0.0
20.0
50.3
0.0
0.0
26.1
Res
0.0
0.0
30.0
3.0
12.0
0.0
20.0 (1)
30.0(1)
8.0(1)
18.0(1)
11.6
11.8
CR
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
CNR
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(1) These are not statewide indications. Rather they are statutory caps for each policyholder.
Therefore, a policyholder will receive no more that the percentage indicated and many policyholders
will receive less or no rate change at all.
12
Depopulation in Calendar Year 2004
• Citizens has depopulated over 124,000 policies
in 2004 and it anticipates the removal of an
additional 69,500 before year-end. This does
not include an additional 75,000 polices
approved for takeout at the October 12th
meeting.
•
This results in a reduction to our PIF of over
270,000 policies.
• The 124,512 represents a reduction of our
current PIF by 15%.
• For policies removed in 2004 Citizens has paid
out:
• Unearned Premium: $87 million
• Escrowed Bonuses: $24 million
PLA actual removed
HRA actual removed
Voluntary Renewal Offer
TOTAL actual removed
PLA anticipated
HRA anticipated
OTHER anticipated
TOTAL anticipated
110,119
12,457
1,936
124,512
58,000
8,000
3,500
69,500
• The number of policies removed and the
success of our depopulation efforts have been
adversely affected by Consumers Choice.
13
GAAP Surplus by Account (Prior to 2004 Hurricanes)
In Millions
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$-
PLA/CLA
HRA
1997
1999
2001
2003
14
Plan Year Regular Assessment Base
• Must be levied to fund a deficit in any plan year
• Levied up to the greater of: 10% of the regular
assessment base or 10% of the Plan Year Deficit
• Levied on assessable insurers and assessable
insureds (surplus lines policyholders) collectively in
proportion to their share of statewide direct written
premium in prior year
“Market Equalization Surcharge” – assessment rate
applied to Citizens policyholders.
• Insurers are obligated to pay within 30 days
• Insurers may pass regular assessments through to
their policyholders through a rate filing process
15
Plan Year Regular Assessment Base
In Millions
$8,000
$7,000
$6,000
$5,000
CLA
PLA
HRA
$4,000
$3,000
$2,000
$1,000
$1998
1999
2000
2001
2002
2003
2004
16
Plan Year Emergency Assessment Base
• Must be imposed upon determination that Regular
Assessments are insufficient to fund a Plan Year Deficit
• Levied up to the greater of: 10% of the Emergency
Assessment base or 10% of the Plan Year Deficit plus
interest, reserves, and other financing costs
• Levied as a uniform percentage on all policies in the
subject lines of business (including surplus lines and
Citizens policyholders)
• Collected by insurers upon new business issuance or
renewal of policies
17
Plan Year Emergency Assessment Base
In Millions
$9,000
$8,000
$7,000
$6,000
CLA
PLA
HRA
$5,000
$4,000
$3,000
$2,000
$1,000
$1998
1999
2000
2001
2002
2003
2004
18
Assessment Mechanics
• “Plan Year Deficit” not defined in enabling statute
• Timing of assessments allows for flexibility in timing
and amount of assessment
• Rate filing process statutorily defined for insurers’
recoupment of paid Regular Assessments
19
Claims Paying Resources - PLA
$3,325M
250 YEAR PML
1997 PRE-EVENT NOTES
$100 M
$3,225M
$3,500M
REGULAR ASSESSMENTS
$1,500M
$1,725M
FHCF RECOVERY
$1,000M*
100 YEAR PML
FHCF Attachment Point
$300M
$2,000M
$725M
ADJUSTED SURPLUS
$725M
As of June 1, 2004
excluding takeouts through 7/7/04
*Estimate
20
Claims Paying Resources - HRA
$7,200M
PRE-EVENT NOTES
$750M
$6,450M
PRE-EVENT NOTES
$1,000M
100 YEAR PML
$6,700M
$5,450M
PRE-EVENT NOTES
$300M
$5,150M
FHCF RECOVERY*
$3,300M
FHCF Attachment Point
$950M
$1,850M
REGULAR ASSESSMENTS
$750M
$1,100M
ADJUSTED SURPLUS
1,100 M
As of June 1, 2004
*Estimate
21
2004 Hurricane Season
22
2004 Hurricane Season
•
This has been an unprecedented hurricane season with 4 storms
•
•
Industry loss estimate between $15 - $20 billion
Shortage of adjusters and industry response
•
The stability of the insurance market after the storms
•
The cost of insurance and potential rate increases as a result of Hurricane
losses or assessments
•
All insurers in the State of Florida have responded effectively and efficiently to
a monumental task
•
The Department of Financial Services will continue to take steps necessary to
improve the insurance market and the availability of insurance for Florida
Citizens.
•
The success of the Cat Fund and Citizens
•
•
•
•
Ample resources on hand to pay claims
Cat Fund continues to build cash
Citizens able to rebuild surplus at amazing rate due to tax exempt status and rate
increases
Potential income tax refund of $200 million for the High-Risk Account (HRA)
23
Things Don’t Always Go as Planned…
What we planned for…
• Staff and members of the
Board put together a plan to
respond to one category 5
storm:
• Designed to respond to large
storm in small geographical
area
• 6 “dedicated” claim adjusting
firms
• Emergency Response Vehicle
(EOC)
• System capacity testing
• System designed dispatch
system
What happened…
• The 2004 Storm season
resulted in four major storms
with different challenges
• 110,000 claims geographically
spread over 67 counties
• Adjuster shortages
• Lost adjusting days
• OIR order and reporting
• Tallahassee Cat Center to
manage independent
adjusters
• System issues
24
Storm Losses
•
The estimated losses based upon Risk Management Solutions (RMS) footprint of each
storm is shown below. These numbers are unverified and preliminary and are based on
computer analyses, not actual reported and paid claims. In addition, please note that the
quarterly and annual financial statements prepared in accordance with accounting
guidelines would not record losses based upon the models. Ultimate losses from each
storm are based upon actuarially determined amounts which use factors other than
models and therefore may differ from RMS’s modeled loss projections.
ESTIMATED STORM LOSSES PROVIDED BY RMS
Storm
HRA
PLA
CLA
Total
Charley
$850 million
$60 million
$15 million
$925 million
Frances
$225 million
$50 million
$15 million
$290 million
Ivan
$220 million
$6 million
$6 million
$232 million
Jeanne
$250 million
$50 million
$27 million
$327 million
Total
$1.55 billion
$166 million
$63 million
$1.8 billion
25
Cat Models: Indemnity and Loss Dollar
Comparisons
Incurred Losses (in millions)
Current
RMS Model
Charley
Frances
Ivan
Jeanne
Aggregate
Reported Claims
Current
RMS Model
$319
$507
$404
$331
$925
$290
$232
$327
19,799
48,684
15,087
28,359
41,922
55,691
18,340
47,131
$1,561
$1,774
111,929
163,084
26
Citizens Reported Claims By Storm
Hurricanes:
Charley
Frances
Ivan
Jeanne
Approximately 111,000 reported claims
27
Industry Response:
The Financial Impact of 4 Storms
Cat Fund Assessment
$0
$16,000
$14,000
Cat Fund Assessment
$4,500
Cat Fund Cash
$3,000
$12,000
$10,000
Cat Fund Assessment
Cat Fund Cash
Company Funding (retention)
Cat Fund Cash
$ 6,000
$8,000
Company Funding
$12,000
$6,000
$4,000
Company Funding
$4,500
$2,000
$One Storm
Four Storms
28
To What Extent Was Company’s Reinsurance Triggered
(A Look at the Cat Fund:)
Cat Fund Recoveries
$3.3 billion
Charley $850 million
Cat Fund Recoveries $1
billion
Cat Fund Retention
$950 million
Jeanne $250 million
Frances $225 million
Ivan $220 million
HRA
•Retention applies separately to each storm
Cat Fund Retention
$330 million
Jeanne $77 million
Charley $75 million
Frances $65 million
Ivan $12 million
PLA/CLA
•No recoveries are anticipated for either account for any storm.
29
Closing Remarks
• Citizens and the Cat Fund have been a great success and exceed
expectations in responding to an unprecedented four storm season.
• Citizens will continue to work with DFS to seek legislative changes
to add to its claim paying abilities and to manage its risk profile.
• The growth in Citizens exposure has been offset by:
• Tax exempt status
• Rate increases
• Takeouts
• If Citizens has a Deficit actions will be taken to levy assessments.
• The Cat Fund has significant cash balances remaining after Charley,
Frances, Ivan and Jeanne.
• Both entities will continue to re-build cash balances.
30
APPENDIX
31
32
Citizens Exposure:
Overview HRA Total Insured Value (TIV) by County
Top 5 Counties in Total Exposure
County
Exposure as of 7/31/04
Dade
28,275,980,554
Palm Beach
20,756,842,790
Broward
18,438,396,281
Monroe
8,257,954,297
Sarasota
8,228,585,732
33
Citizens Exposure:
Overview PLA Total Insured Value (TIV) by County
Top 5 Counties in Total Exposure
County
Dade
Pinellas
Broward
Pasco
Palm Beach
$
$
$
$
$
Exposure as of 7/31/04
19,776,649,208
7,704,634,849
6,079,884,094
4,799,524,844
4,411,984,106
34