Louisiana Citizens Remains on Rating Watch Negative

Fitch Ratings said recently that the ‘BBB’ Issuer Default Rating (IDR) of Louisiana Citizens Property Insurance Corporation and the ‘BBB’ underlying ratings on Citizens’ $978.2 million assessment revenue bonds remain on Rating Watch Negative.

They were placed on Rating Watch Negative on Mar. 8, 2007, after the company announced due to computer problems it was having difficulty retrieving its last two years (2005 and 2006) of financial data and had yet to complete its 2005 financial statement audit.

Fitch said the problems have not had an adverse impact on the company’s ability to service its debt, but noted that the continued delay in producing audited financial statements severely limits the company’s financial flexibility. The ratings agency said it is particularly concerned that the statements may not be finalized before the traditional June 1st start of hurricane season, which would create uncertainty as to the company’s ability to issue additional debt and maintain its operations following significant catastrophe losses.

Fitch expects to resolve the Rating Watch following a review of the company’s audited financial statements. The company only recently completed its 2005 financials, and 2006 and 2007 financial statements are expected to be released to external auditors before the end of June 2008. Fitch anticipates that following the external auditor review the existing ratings would likely be affirmed and removed from Rating Watch.

Fitch noted that the company’s debt service function is kept insulated from the company’s operations. All assessable insurers remit assessments directly to the trustee, bypassing the company entirely. These assessment revenues can only be used to pay debt service, retire bonds, or to pay expenses related to the 2005 plan year deficit. Additional bondholder security is provided by a debt service reserve fund and emergency assessment stabilization fund that provides approximately two years of debt service coverage. Favorably, emergency assessment collections (the debtholders’ primary repayment source) have thus far been above forecasts due to strong growth in the assessment base.

Since the 2005 hurricanes, the state has continued to demonstrate a commitment to a viable insurance market, Fitch said. The market has also benefited from favorable court rulings on the issue of wind versus flood in Louisiana, including a recent Supreme Court of Louisiana ruling issued in April 2008.

Source: Fitch Ratings

Topics Louisiana