Citizens Board Opposes Cat Fund Reduction
The Board of Governors of Citizens Property Insurance Corporation voted 5-3 to oppose legislation designed to reduce the size of the Florida Hurricane Catastrophe Fund. The FHCF is Citizens’ primary source of reinsurance.
The FHCF has been promoting a plan to reduce its size through a combination of decreasing its maximum liability, increasing the co-participation requirement, and increasing the underlying retention. The proposal also would extend the FHCF’s collection of a rapid cash build up factor. According to the FHCF, the changes are appropriate because its existing contractual agreements imply coverage in excess of its one-year post-storm capacity.
Board members opposing the FHCF’s proposed reduction suggest that doing so will be counter to the goal of protecting Citizens and its policyholders, and ultimately all policyholders in the state. Opponents of the motion argue that Citizens’ wishing the FHCF could pay its full obligations does not make it so.
Although the FHCF seeks to reduce its size, some private market participants are concerned with the proposal, in part because of the competitiveness of Citizens. If the private market must purchase more reinsurance in the open market, its capacity will diminish and its rates will increase. Both of these effects will push additional policies toward Citizens, offsetting any efforts by policyholders to shrink the size of the residual market. Revisting the size of the FHCF therefore should be done only in conjunction with an overall look at public policy relating to the Florida property insurance market, or policymakers could find that the changes produce an effect that the opposite of what is desired.