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Florida's insurer of last resort appears well-positioned for Hurricane Michael

A combination of lower relative amounts of exposure in the area likely to be hardest hit, a robust reinsurance program, and lessons learned from Hurricane Irma would seem to have Citizens Property Insurance Corp. prepared for the forecasted landfall of Hurricane Michael.

The state-run insurer lost the designation of Florida's largest personal and commercial residential property insurer several years ago, and its exposure in the 11 Florida counties that touch the Gulf of Mexico and were under a hurricane warning as of 2 p.m. ET on Oct. 9 has declined on absolute and relative bases since a hurricane last threatened that part of the state.

A review of Citizens data finds that the company's total amount of policies in force in Bay, Dixie, Escambia, Franklin, Gulf, Jefferson, Okaloosa, Santa Rosa, Taylor, Wakulla, and Walton counties across the combination of its personal lines, commercial lines and coastal accounts had fallen by 26.1% between Aug. 31, 2016, and Aug. 31, 2018. The earlier of the two dates was just prior to the landfall of Hurricane Hermine near St. Marks, Fla., in Wakulla County.

Similarly, the total dollar value of Citizens' exposure, with wind coverage in those 11 counties for personal and commercial residential property insurance, according to a Florida Office of Insurance Regulation database, tumbled by 33.1% between June 30, 2016, and June 30, 2018, to approximately $2.71 billion. That ranked 10th highest among individual companies that submitted data to the regulator, down from eighth highest two years prior. Citizens placed No. 6 in that region by both policies in force and direct premiums written with wind coverage as of June 30, down from No. 5 in each category two years earlier.

On a statewide basis, Citizens ranked second among individual personal and commercial residential property insurers behind Universal Insurance Holdings Inc.'s Universal Property & Casualty Insurance Co. in terms of the total dollar value of exposure with wind coverage, policies in force with wind coverage and direct premiums written with wind coverage. Heritage Insurance Holdings Inc.'s Heritage Property & Casualty Insurance Co. placed third by total dollar value of exposure and direct premiums written while Security First Insurance Co. ranked third by policies in force with wind coverage.

For Citizens and the various private carriers, the extent of their presence tends to vary widely across the state. Citizens had 51.2% of its outstanding policies in force and 58.7% of its higher-risk coastal account policies in force in the tri-county region of Palm Beach, Broward and Miami-Dade as of Aug. 31, up from 50.3% and 56.2%, respectively, two years earlier. The 11 aforementioned counties combined to account for 3.1% of Citizens' total policies in force and 5.2% of its coastal account policies in force as of Aug. 31 as compared with 3.8% and 6.3%, respectively, as Hermine prepared to make landfall in 2016.

That storm triggered only modest losses for Citizens and private Florida insurers. As a weak Category 1 storm, Hermine was more memorable for breaking a nearly 11-year-long drought of hurricanes making landfall in the Sunshine State than for the damage it caused. Weeks later, Hurricane Matthew approached Florida's Atlantic coast. But as Citizens President and CEO Barry Gilway later observed, the state and the industry "narrowly escaped" the worst of that storm.

Citizens and the industry as a whole also avoided the disaster that would have materialized from some of the most dire predictions for Hurricane Irma in 2017, though the state insurer of last resort still reported gross losses and loss adjustment expenses totaling $1.81 billion from that storm prior to estimated recoveries of $534.7 million from the Florida Hurricane Catastrophe Fund and $126.4 million from private reinsurers.

Its reinsurance program for the 2018 hurricane season in the personal and commercial residential portions of the coastal account incorporates a retention of $435 million prior to any recoveries from the cat fund and $1.76 billion before its private reinsurance layers kicks in.

With Irma representing the first major hurricane since 2005's Hurricane Wilma to make landfall in Florida, the storm also provided key lessons that should help Citizens address similar claims in future scenarios. Various actions taken by the company in recent months include implementing a field inspection services program to document a property's condition in the event of a loss. The company had to obtain an emergency order from the governor's office in 2017 to contract for such services as it struggled to locate the applicable resources after Irma struck.

As the 2018 hurricane season began, Gilway said that Citizens remained "extremely strong financially" despite the losses from Irma and litigation stemming from Irma claims. While Tropical Storm Gordon tracked across south Florida in early September, Category 3 Hurricane Michael may be the first catastrophe to put that strength to the test.