TALLAHASSEE, Fla. – July 14, 2011 – Admonishing lawmakers for making a shaky insurance pool even more precarious, the chairman of the Citizens Property Insurance Corp. on Wednesday said the insurer should be allowed to sell off a large chunk of its business to private interests. Citizens Chairman James Malone says the move would reduce exposure and allow it to continue offering coverage to the state’s riskiest property.

The change would probably raise rates dramatically for hundreds of thousands of policyholders, but Malone says it must be done because the insurer is expected to have 1.4 million policies under its umbrella before the end of next week.

Of those 1.4 million Citizens policies, up to 900,000 are likely uninsurable in the private market because they cover older homes, mobile homes and residences along the coast.

Malone estimated that the remaining policies could be marketed to some private entity because they involve billions of dollars in assets and a widely dispersed premium base. He envisioned a return to Citizens’ roots – a true insurer of last resort.

“That has a value someplace in this open market,” Malone said. “The state of Florida needs money, and (some Citizens policies) could be turned into an asset that had a value that people were willing to purchase in the private sector.”

Created as the insurer only for those who couldn’t get policies from private companies, Citizens has gone beyond that role to become the largest property insurer in the state. The insurer continues to charge rates that are actuarially too low, many say.

Coupled with carrier insolvencies and private market decisions to reduce books of business, Citizens adds about 1,000 policyholders every day. Because taxpayers back the company, critics say the addition of so many policies leaves the state a major hurricane away from financial fiasco.

“If the right decision had been made politically, let’s say five years ago … we wouldn’t have this exposure,” Malone said. “We could have (had) a huge event and everybody in this state could feel comfortable that resources were available to take care of the loss.”

Malone made the comments at the second to last board of governors meeting before all board members are removed from office July 31. After Aug. 1, a new governing board will be seated.

Florida officials have been trying to depopulate Citizens for years. With premium rates held artificially low by lawmakers, however, the gap between Citizens’ insurance rates and private insurance rates continues to widen. So far, lawmakers have tried to provide financial incentives for private insurers to take Citizens policyholders from the pool.

“Today we use depopulation as a method to try to use the (private) carriers currently in the market to … take on our exposure and remove it from Citizens,” said Christine Ashburn, Citizens spokeswoman. “It sounds like what (Malone) is talking about is a bit different.”

Sen. Garrett Richter, R-Naples and chairman of the Senate Banking and Insurance Committee, said Malone’s idea should be given serious consideration. After years of unsuccessful efforts to reduce the number of Citizens’ policyholders, Richter said lawmakers would be receptive to anything that works toward that end.

“All our efforts to deal with this issue have so far been unsuccessful,” Richter said. “I respect the chairman’s intellect and business acumen and will approach the idea with an open mind.”

Malone said he is skeptical that lawmakers will be able to accomplish much on the issue next year. Despite a strong push by Gov. Rick Scott and a cadre of new lawmakers swept into office in November, legislators were unable to reverse growth in the company’s customer base this past year. Legislators did pass a law that will make it easier for private insurers to raise rates to meet their obligations, but Citizens was not given the ability to significantly to reduce its exposure.

“If they weren’t willing to take a tough vote in this cycle, I can’t imagine anyone is going to take a tough vote during an election year,” Malone said.

Malone’s comments come a day before Citizens finalizes a $900 million pre-event financing deal to shore up the fund’s liquidity for the remainder of the 2011 hurricane season and beyond. The sale is expected to conclude today. A Citizens financial consultant said the sale went better than expected. Not only did the state receive more favorable rates, but the market was willing to purchase bonds of longer maturity.

“Financing by any measure was extremely successful,” said John Forney, consultant with Raymond James. “It enabled Citizens to meet its liquidity goals for the 2011 hurricane season and beyond at very attractive interest rates while expanding the investor universe and taking advantage of the excess demand that is here to lower those rates even further.”

Source: News Service of Florida, Michael Peltier