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Citizens Property's underwriting profit sinks to new Q1 low amid water woes


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Citizens Property's underwriting profit sinks to new Q1 low amid water woes

Citizens Property Insurance Corp.'s challenges with non-weather-related water-loss claims may have continued in the first quarter.

The Florida state-run insurer generated its smallest underwriting profit in a first quarter since its August 2002 formation in a result that reflected a slower decline in incurred losses than in premium volume.

According to Citizens' March 31 quarterly statement, which the company posted to its website on the eve of the start of the 2017 Atlantic hurricane season, the net underwriting gain of $61.8 million marked a decline from $87.7 million in the first quarter of 2016. Its net income of $77.8 million declined from $99.1 million in the year-earlier period, also a new low for a first quarter.

Successful depopulation efforts have rendered Citizens' overall book of business much smaller than in years past, and the company reported a 14.2% year-over-year decline in net premiums earned. The $217.5 million in net premiums earned for the period represented the lowest value Citizens had posted in a first quarter since 2003. Citizens had 451,126 policies in force as of April 30, down from 455,843 at year-end 2016 and 489,083 as of the same date in 2016.

Net losses incurred, meanwhile, fell by only 7.2% to $65.2 million, and net loss adjustment expenses, or LAE, incurred increased to $30.4 million from $28.7 million. As such, S&P Global Market Intelligence calculates a net loss and LAE ratio of 43.9% for the first quarter, up from 39.0% in the year-earlier period.

Only once in the past 10 years had Citizens posted a higher net loss and LAE ratio in a first quarter: 44.0% in the opening three months of 2010, a period in which the company had been suffering from elevated non-catastrophe sinkhole claims. Prior to that, the company posted a net loss and LAE ratio of 50.6% in the first quarter of 2006. Its net loss and LAE ratio was 25.6% as recently as the first quarter of 2014, which represented the fifth time since its formation in which the first quarter net loss and LAE ratio was below 30%.

Citizens' net LAE ratio of nearly 14% for the first quarter of 2017 represented an increase from a ratio of 11.3% in the year-earlier period. It topped the 11.4% result in the first quarter of 2013 as the highest ratio in the opening three months of a year since Citizens' formation.

Citizens' first-quarter combined ratio of 72.9%, according to S&P Global Market Intelligence, marked an increase from 68.6% in the year-earlier period as the higher net loss and LAE ratio more than offset modest improvement in the expense ratio. The company had a much larger premium base in years past over which to spread its underwriting expenses, so its combined ratio had not previously equaled or exceeded 70% in a first quarter, including in the aforementioned periods when its net loss and LAE ratios were elevated.

Citizens reported policyholders' surplus of $7.48 billion as of March 31, up from $7.40 billion three months earlier, largely reflecting the impact of net income.

The quarterly statement did not include commentary about the company's financial results. The next meeting of the company's board of governors is scheduled for June 20. While an agenda for that meeting has not been released, Citizens officials generally discuss the first-quarter financial statements during the June board meeting.

President and CEO Barry Gilway said during a March board meeting that an increase in litigated water-loss claims through the utilization of the assignment of benefits led to Citizens' first net loss in a calendar year since 2005 and had begun to impact the company's financials in a dramatic way. Net LAE incurred surged to $167.1 million in full-year 2016 from $86.5 million in 2015 even as net premiums earned tumbled to $625.5 million from $760.7 million as the company said it expects that nearly 50% of the non-sinkhole, non-catastrophe claims in its personal lines account from accident-year 2016 would be litigated.

Gilway pledged in March to discuss various options to help address the assignment-of-benefits issue during the June board meeting as he warned at the time that Citizens had already revised the full-year 2017 budget it issued only months earlier to show a consolidated net loss of $8.3 million as compared with its previous outlook for net income of less than $4.6 million.