Citizens Not Happy To Be No. 1

By RANDY DIAMOND The Tampa Tribune

Published: Jun 29, 2006

TAMPA - It's just 3 1/2 years old and was supposed to stay modest in size. On Saturday, however, Citizens Property Insurance Corp., the state-sponsored insurer of last resort, will surpass State Farm to become Florida's largest insurer.

More than 1.2 million policyholders will be covered by Citizens on July 1, almost twice as many as were covered when Citizens first started writing policies in 2003.

"This is exactly the opposite of what we wanted to happen," said Bruce Douglas, Citizens board chairman.

On Saturday, Citizens will be assuming 330,000 policyholders from the insolvent Poe Financial Group. The Poe problem pushes Citizens' policy count ahead of State Farm Florida Insurance Co.'s 941,000 policies.

Other policyholders have been forced into Citizens because of a meltdown in Florida's homeowners insurance market. Citizens gets 50,000 applicants a month, Douglas said. At the same time, he said, private insurers that had agreed to assume Citizens policies have stopped doing so.

He said Citizens likely will reach 1.5 million policyholders by the end of the year.

A growing Citizens could be bad for every homeowner insurance policyholder in Florida because the more policies the company assumes, the more financial risk it takes on.

Despite changes enacted by the Florida Legislature this year, policyholders throughout Florida will be on the hook if Citizens has major losses.

If Citizens has losses more than $2 billion, its part-time resident policyholders will be assessed first, then its year-round residents will be assessed and, finally, non-Citizens policyholders.

Citizens lost more than $2 billion in 2004 and 2005, and taxpayers and insurance policyholders are picking up the tab.

Citizen's policyholders, meanwhile, are stuck with the highest rates in the state. Those rates could double in the next several years as Citizens charges higher rates to build reserves for future hurricanes claims.

Douglas said Citizens enters the 2006 storm season with $5 billion in reserves, a strong financial position - "except if there's a major hurricane."

But $3 billion of the $5 billion comes from a bond issue that would have to be repaid if the fund is tapped.

The insurer estimates that a major storm such as a Wilma-size hurricane could cost the company $7.7 billion in damage to coastal property. Those policyholders represent less than half of Citizens' covered properties. Those estimates were factored before Citizens absorbed the policies from Poe Financial Group.

Overall, Citizens is insuring property worth more than $387.6 billion.

The bottom line is that Citizens is insuring too many high-risk properties, said Bob Hartwig, an economist with the insurance industry-funded Insurance Information Institute.

"It's absolutely unavoidable with this current strategy that Citizens will go broke," he said. "It's like investing 100 percent of your portfolio in junk bonds; Citizens can't do it."

Hartwig blamed the state Office of Insurance Regulation for sitting on and denying rate increases requested by insurance companies. He said if insurers, including Citizens, had been allowed to charge the necessary rates, then private insurers would not be reluctant to do business in Florida.

But Bob Lotane, a spokesman for the Office of Insurance Regulation, said, "Under Kevin McCarthy, there has been no rate suppression."

Insurance Commissioner McCarthy is appointed, not elected, Lotane said, and has judged rate increase applications on their merits.

Lotane said the insurance crisis is the result of Florida's past eight hurricanes and a shortage of reinsurance for insurance companies.

CITIZENS' EXPOSURE

As the number of policies balloons at state-sponsored Citizens Property Insurance Corp., so does the company's financial exposure. Below is the amount Citizens says it would have been liable for had every property it insures been destroyed. The last figure is an estimate.

April 2003 - $164 billion

May 2004 - $195.7 billion

April 2005 - $200.8 billion

May 2006 - $237.6 billion

July 2006 - $387.6 billion

Reporter Randy Diamond can be reached at (813) 259-8144 or rdiamond@tampatrib.com.