Article published Aug 22,
2007
By Paige St. John
TALLAHASSEE DEMOCRAT
FLORIDA CAPITAL BUREAU
An outside auditor has told
state-run Citizens Property Insurance it needs to add
almost $300 million to reserves, thanks to hundreds of
hurricane claims reopening two years after the fact.
That could reduce Citizens'
surplus to pay any storm losses this year without
assessments. The company's last reported surplus is $1.8
billion.
''It's mostly Wilma,
really,'' said Bruce Douglas, chairman of the state-run
insurer's board of governors.
Citizens' governors were
given the bad news Friday in a round of calls placed by
the company's chief financial officer. Douglas blamed
the surprise on outsiders encouraging homeowners to seek
further payment for the October 2005 hurricane.
Florida's
Hurricane Catastrophe Fund will pick up $195 million of
the new bill, leaving Citizens to pull $102.5 million
from its own surplus, Douglas said.
A Citizens corporate
statement later said $20 million of that would be
covered by other private reinsurance. The statement also
characterized the review of its reserves as ''common
practice'' ''to assure that claims reserves to pay
developing claims from past events are adequate.''
It noted those reserves are
an estimate of claims not yet reported, and it ''does
not affect Citizens' current cash position.''
However, the added liability
nudges both consumer-backed funds closer to requiring
another bailout if hurricane claims this year exceed
cash on hand to pay them.
As of May 31, the state's
largest property insurer touted just under $2 billion in
surplus - enough, Douglas said, to cover a moderate
hurricane without triggering an assessment.
The Cat Fund can withstand a
$9.7 billion hurricane striking the state before wiping
out its cash reserves and pre-event financing, state
regulators told Gov. Charlie Crist's office earlier this
year.
Citizens officials maintain
the company's 2005 bill keeps growing through no fault
of its own. Douglas pointed the finger at those who
stand to profit from convincing South Floridians to
reopen old claims.
''They're not frivolous
(claims), but I think they may be encouraged by certain
public adjusters and attorneys,'' he said Tuesday.
Rep. Julio Robaina, a Miami
Republican who chaired a legislative task force that
looked at Citizens' still-open claims, shares the same
opinion.
''We've got cases where
public adjusters are willing to give people commissions,
and plasma TVs, to those who hire them, and who know
nothing about adjusting,'' Robaina said. ''It's
ridiculous, it's abusive.''
Robaina said he will
introduce legislation next year to stiffen state
regulation of public adjusters, and to reduce the amount
of time consumers have to file insurance claims.
A major lawyer who handles
those cases said Citizens is wrong to place blame
elsewhere.
''That's almost like a crook
blaming the police on being arrested and that's the
reason for the bad crime statistics,'' said Chip Merlin,
a Tampa attorney who specializes in insurance
litigation.
Merlin said 2005 claims are
just now being pressed by lawyers and independent
adjusters because that's how long it took homeowners to
give up hope of resolving disputes on their own.
He cited the case of a
Panhandle condominium association he represented last
month. After years of disputing the claim, Citizens
agreed to pay $300,000 within 10 days of Merlin's firm
being hired.
''Citizens wants to say shame
on their own customer,'' Merlin said. ''Citizens created
their own problem by underpaying people's claims.''
______________________________________________________________
REBUTTAL from
Christine M. Turner
Director of Communications & Legislative Affairs
Ctizens Property Insurance Corporation
850.513.3746 phone
850.528.3770 cell
A
story released Tuesday by the Florida Capital Bureau
of the Gannett News Service contained factual errors
and misleading information about Citizens Property
Insurance Corporation. The erroneous information is
as follows:
-
That an “outside auditor finds the state-run
Citizens Property Insurance is short almost $300
million in reserves”
At
no time was Citizens short almost $300 million.
What has actually occurred, as was discussed at the
August 2, 2007 Board of Governors’ meeting, is that
Citizens retained the services of an outside
consulting actuary to perform a reserve analysis.
It is common practice for property and casualty
insurers to periodically review reserve levels to
assure that claims reserves to pay developing claims
from past events are adequate.
-
That “Florida’s Hurricane Catastrophe Fund will
pick up $195 million of the new bills”
If
these losses develop as projected, the Florida
Hurricane Catastrophe Fund may have to reimburse
Citizens for as much as $175 million, with the
remaining $20 million payment coming from private
reinsurance.
A
detailed discussion of this reserve adjustment
appears below.
Due to the nature of loss reserves, in which the
ultimate cost of loss events cannot be known until
the claim is ultimately paid, insurers estimate loss
reserves. Admitted insurers are required to obtain
an actuarial opinion of the adequacy of loss
reserves annually. As those actuarial reviews are
completed, insurers adjust their reserves
accordingly. While Citizens is not an admitted
insurer, the corporation performs periodic and
annual reviews of loss reserves using an independent
actuary. As discussed at the August 2, 2007 Board
of Governors meeting, an independent actuary was
engaged to review Citizens’ loss reserves as of June
30, 2007. The results of the actuarial review
indicated an upward adjustment to reserves was
appropriate.
The gross increase to loss and loss adjustment
expense reserves recorded in the month of June
amounted to approximately $298 million. The gross
amount was offset by the amount estimated to be
recoverable from reinsurers (for Wilma claims) in
the amount of approximately $195 million. Of the
$195 million recoverable from reinsurers,
approximately $175 million is recoverable from the
Florida Hurricane Catastrophe Fund. The net
adjustment to the June reserves for Citizens
Property Insurance Corporation amounted to
approximately $103 million. This adjustment is to
record an actuarially determined amount for Incurred
But Not Reported (IBNR) claims; claims which may
exist but have not yet been reported to Citizens.
This adjustment to accrue for incurred but not
reported claims does not affect Citizens’ current
cash position. IBNR represents an estimate of
potential future claims and as such, may or may not
ultimately result in actual claims filed with
Citizens.
The increase to loss reserves relates primarily to
adverse development on Hurricane Wilma claims,
particularly new and re-opened claims from the 2005
hurricane. Information related to new and re-opened
Hurricane Wilma claims has been a subject of
discussion at recent meetings of the Task Force on
Citizens Property Insurance Claims Handling and
Resolution.
