Citizens expects $3.05 B bond issue; appeal made to agents for help

Citizens Property Insurance Co. CFO Terri Slack announced June 23 that a $3.05 billion bond issue, believed to be the largest single bond issue in Florida’s history, was expected to be finalized June 29 in Miami.

The bond issue will more than double money available to pay claims this hurricane season, Bruce Douglas, chairman of the Citizens Board of Governors said.

“If you add it all together, we have about $5 billion in liquidity to face the hurricane season,” Douglas said. “This puts us in a very strong financial position.”

Slack said the bonds will be taxable, auction-rate bonds sold with maturity dates ranging from 2017 to 2026. Issuance costs will be about $47 million. She said Citizens had a similar sale in 2004, when it sold $715 million in bonds.

She also said the money from the Legislature helped Citizens raise its rating from “A” to “A-plus” with Standard & Poor’s, a bond rating company.

Investor bids for the bond issue were to be taken June 27 and the note was to be finalized June 29 in Miami, according to Bob Ricker, Citizens president and executive director.

Ricker said he was pleased the money was being made available at a time when Citizens is ready to provide coverage for 320,000 customers from the failed Poe insurance companies.

“This money will give us a very strong base for future claims payment,” Ricker said. “The new money will be used, if needed, to pay claims in Citizens’ ‘high-risk’ account.”

Taxpayer funds
In addition to the bond money, Citizens also will receive about $715 million from the Legislature soon after July 1. The money was appropriated to help Citizens deal with a $1.7 billion deficit incurred after eight hurricanes struck Florida in two years.

The appropriation prompted Fitch, another rating company, to raise Citizens high-risk account rating from “negative” to “stable” and assign an “A-minus” rating to the bond sale.

Citizens has paid more than $5 billion in claims as a result of hurricanes in 2004 and 2005.

In related news, The Associated Press reported that Florida officials also approved a two percent surcharge on all property insurance policies to help cover outstanding claims for Poe Financial, whose insolvent companies are being liquidated.

2% surcharge
Insurers must obtain permission from the state’s Office of Insurance Regulation to pass on the extra cost to policy holders, Michelle Lovern, deputy director of the state’s Insurance Guaranty Association told the AP. If that happens, policyholders would pay another $20 for a $1,000 premium and $60 for a $3,000 premium.

The guaranty association, which covers outstanding claims for insolvent insurance companies, approved the surcharge. It is expected to raise $225 million to help cover outstanding claims for Poe Financial’s insurance operations.

In May, the Tampa-based Poe handed over the last of its three insurance subsidiaries to the state after not being able to pay outstanding claims from 2004 and 2005 hurricane seasons.

FAIA agents briefed
The Poe situation is clearly on the minds of Citizens’ officials. Paul Palumbo, Citizens head actuary, and Suzanne Murphy, vice president, volunteered to field agents’ questions and provide a status report on Citizens during the Florida Association of Insurance Agent’s Conference in Orlando.

“We are as ready as we are going to be to face the 2006 hurricane season,” Palumbo said.

The duo appealed to independent agents to assist the firm with the unprecedented challenge of taking over more than 300,000 property and casualty policies from Poe and its subsidiaries.

Palumbo said Florida’s insurer of last resort received 50,000 to 60,000 applications per month.

“We need you to share our story with your customers and provide them with the correct information,” Murphy, said. “We are emphasizing partnering in which you, the agent, will be the face and voice of Citizens.”

They described Citizens’ growth as “explosive.” The company has streamlined its systems and crafted an efficient program.

June estimates show Citizens property/casualty policies jumped to more than 500,000. Palumbo predicted the company will have more than 1 million policies by the end of 2006.

Citizens officials said their goal is to work closely with 7,300 agents in Florida who service its customers and communicate better to help streamline the policy administration and claims settling procedures.

Murphy and Palumbo outlined changes they hope will make Citizens’ growth more manageable, including:

• Developing new claims tracking and software management to speed processing;
• Adding an agent-only hotline so agents can obtain faster responses;
• Adding 15 employees to beef-up catastrophe management;
• Hiring more than 140 former Poe employees to transitioning their accounts to Citizens;
• Using outside, licensed inspection firms to investigate claims; and
• Requiring its claims outsourcing provider to add new employees and streamline its operations.

Citizen’s goal is to complete quotes within five to seven days. Palumbo claimed Florida’s insurer of last resort has come “light years in improving its claims process.”

Citizens main communications, according to Murphy, is email. She said it is an efficient way to communicate, due to many agents trying to call them.

Agents expressed concerned about possible E&O claims, due to Citizens requiring 30 business days notice to approve a new contract. They said carriers often wait until a few days before a policy is about to lapse to notify them of a cancelation, which means the customer would be uninsured until Citizens completed its paperwork.

Palumbo vowed to provide the agencies with more timely quotes.