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Fraction of liquidating insurer's policies expected to remain in Fla.'s Citizens

Amid discussion about the next steps for further reducing the size and scope of Florida's residential and commercial property insurer of last resort, Citizens Property Insurance Corp.'s overall book of business is expected to incrementally increase in 2019 before returning to a downward trajectory.

Citizens extended one-year guaranteed offers of coverage in October, on an opt-in basis, to policyholders of the liquidating Florida Specialty Insurance Co. who were unable to obtain replacement policies from private carriers. But President Barry Gilway said during a meeting of the company's board of governors that he was "very surprised" about the extent to which those offers did not swell Citizens' policy count.

Though Florida Specialty had 93,770 personal residential property insurance policies in force as of June 30, according to a Florida Office of Insurance Regulation database, a Citizens presentation indicates that the company picked up about 21,000 policies from the carrier, as compared with Gilway's initial expectation of up to 45,000 policies. The company's 2020 budget assumes that 16,000 of those policies will renew with Citizens.

"It really shows that the private market was willing to pick up ... that business," Gilway said.

Citizens reported 421,332 policies in force across coverages as of Sept. 30, down from 427,397 at year-end 2018. Its 2019 budget contemplated that the company would finish the year with 425,736 policies in force; the 2020 budget revises the estimated year-end 2019 figure to 432,876 policies and sets year-end 2020 and 2021 projections of 430,704 and 426,378, respectively.

The expected increase in policy count in 2019 would mark the first such rise reported by Citizens in a full calendar year since 2011. Citizens back then was playing a much more significant role in a market still recovering to a certain extent from extended industry and political fallout from the extremely active 2004 and 2005 Atlantic hurricane seasons.

The relative stability in budgeted policy counts come as discussion about Citizens' future role in the Florida property insurance marketplace has increased. The company's board of governors received a letter from state Sen. Jeff Brandes, R-St. Petersburg, requesting that they commission an external review to evaluate options for further reducing Citizens' footprint.

That review, as outlined during a Dec. 11 board meeting, would seek to accomplish the following: Identify opportunities for Citizens to further reduce its exposure while continuing to fulfill its mission as a residual market insurer; determine what might inhibit further depopulation and figure out strategies to expand depopulation; and identify mechanisms to eliminate or reduce the re-population of risk by Citizens following depopulation of that risk. Previous reports on the topic were conducted at earlier points in Citizens' evolution, Gilway said.

The prospective external researchers will be tasked with reviewing strategies employed by other residual market insurers to reduce their exposure and providing suggestions as to how it might improve Citizens' overall financial strength and, in turn, its bond rating. Citizens also will ask the vendor to examine the impact of any recommendations on the company's access to the capital and reinsurance markets, as well as its ability to respond to significant market fluctuations. Any recommendations would be subject to various constraints that include the maintenance of the company's tax-exempt status and its ability to provide levels of customer service that are comparable to the private market.

The Florida Specialty situation demonstrates the sort of capacity and flexibility Citizens' current structure affords. In that case, Florida Specialty was ordered into liquidation amid a dispute over its accounting for various items that, under state regulators' view of the situation, rendered it insolvent. While the company disputed the finding of insolvency and argued that an orderly wind-down of its business would have represented a more favorable outcome for policyholders, a judge ordered the liquidation to proceed as originally proposed.

The state has again moved for a finding of insolvency based on its finding that the company's Sept. 30 surplus allegedly totaled $715,986, well below the $10 million minimum for a Florida residential property insurer.

Gilway said that financial results for other Florida-domiciled personal property insurers have been challenged in 2019 by continued high levels of litigated claims and certain other factors. New challenges could emerge in 2020, he cautioned, as "all indications" are that the industry will confront "a far more difficult reinsurance market" from a pricing perspective.

For the time being, however, Gilway credited private carriers in the Florida market for showing an "enormous amount of resiliency." He noted that while some private carriers like Heritage Insurance Holdings Inc. have been re-underwriting their business to avoid the more litigious tri-county region of South Florida, Universal Insurance Holdings Inc. has been "aggressively moving into" that part of the state. And it is joined by new capacity from the likes of insurtech startup Kin Interinsurance Network.

Those trends give the company comfort in budgeting for a return to a shrinking book even as Gilway said that such an outcome seems, on its face, "totally contrary" to certain emerging market forces.