At the May 13 meeting of the Louisiana Citizens Property Insurance Corp. (LCPIC) board of directors, the board voted on 2021’s round of depopulation and the 2021 first quarter financials, and CEO Richard Newberry updated the board on the 2021/2022 reinsurance and catastrophe bond placement.
Newberry presented to the board the requirements, dates and timeline for depopulation Round 15.
In the coming round of depopulation, LCPIC will offer 8,000 policies. In 2020, LCPIC offered 4,089 policies with 2,171 being selected for take-out while 76 were authorized by agents. In 2019, LCPIC offered 4,000 policies with 2,400 being selected for take-out and 102 authorized by agents. In 2018, 2,000 policies were offered with 600 selected and 32 authorized by agents.
Again this round, LCPIC will use two analytical methodologies to identify policies for depopulation. LCPIC ensures a balanced evaluation of each policy’s risk and concentration metrics. The two methodologies used are, an individual policy’s estimated expected annual loss from a PCS (Property Claims Services) event based on a 50/50 blend from RMS and AIR modeling and a portfolio level that takes into consideration the geographic concentration of LCPIC’s total book of business by ranking policies based on the policy’s contribution to the 100 and 250 year probable maximum loss relative to the policy’s premium.
Companies interested in participating had to submit a signed non-disclosure agreement and financial documents by June 15. Companies applying to participate in Round 15 of depopulation will be presented to LCPIC’s board at the July 8 meeting.
LCPIC will make approved selected policies available for companies to analyze on Aug. 2 and the portal will open on Sept. 1 for companies to select policies.
Agents will be able to authorize policies starting Oct. 1 through Oct. 31. The system will close to agents and companies Oct. 31, and assumption notifications will be sent out to agents and policyholders by Nov. 19. Policyholders have until Feb. 28, 2022, to opt-out.
Coverage comparison worksheets and summaries of company financials will be available on LCPIC’s website for agents to review.
The board approved the depopulation plan set forth by LCPIC’s management.
Vice President of Accounting and Finance Joseph Sciortino updated the board on the first quarter 2021 financials. He reported that LCPIC ended the first quarter of 2021 with $182.85 million in total cash and investments which consisted of $104.23 million in operating cash and $78.62 million in investments comprised of state or municipal bonds.
Sciortino reported that LCPIC’s surplus was $162.35 million at the end of the first quarter 2021 compared to a surplus of $161.94 million at the end of 2020.
LCPIC’s net income for the first quarter of 2021 was $2.49 million which was $1.03 million more than the budgeted income of $1.46 million for the first quarter of 2021. Sciortino attributed this to lower than expected net losses and loss adjustment expenses incurred due to repayment of those costs by reinsurers.
He reported that LCPIC had 35,862 policies inforce at the end of March 2021 compared to 35,848 policies inforce at the end of the first quarter 2020. LCPIC ended the first quarter of 2021 with $7.0 billion in total insured value compared to $6.9 billion in total insured value at the end of the first quarter 2020.
During Sciortino’s presentation, the board voted unanimously to submit LCPIC’s first quarter 2021 financial statement to the Louisiana Department of Insurance.
Sciortino told the board that, again this year, the audit is progressing smoothly, and the audit is on track to be completed in a timely fashion. He reported that the statutory audited financial statement will be done by June 1, and the GAAP (Generally Accepted Accounting Principles) audited financial statement is due by June 30.
Newberry updated the board on the placement of the 2021/2022 LCPIC reinsurance structure. The 2021/2022 structure was finalized May 1. The reinsurance structure for 2020 had a $560 million cap that provided coverage for a 303-year probable maximum loss. The 2021 reinsurance structure has a $545 million cap that provides coverage for a 302-year probable maximum loss. In 2019, the reinsurance structure had a $610 million cap that provided coverage for a 302-year probable maximum loss.
The $545 million 2021/2022 reinsurance structure consists of several layers of coverage with a $35 million retention.
Layer One consists of reinsurance that is per occurrence 100 percent of $30 million in excess of $35 million with one free reinstatement.
Layer Two consists of reinsurance that is per occurrence 100 percent of $80 million in excess of $65 million with one reinstatement.
Layer Three consists of reinsurance that is per occurrence 100 percent of $100 million in excess of $145 million with one reinstatement.
Layer Four consists of reinsurance that is per occurrence 40 percent of $100 million in excess of $245 million and a catastrophe bond, Catahoula, that is 60 percent of $100 million in excess of $245 million with no reinstatement of either.
Layer Five consists of reinsurance that is per occurrence 25 percent of $100 million in excess of $245 million and a catastrophe bond, Pelican 2021 Class A Occurrence, that is 75 percent of $100 million in excess of $245 million with no reinstatement of either.
Layer Six consists of reinsurance that is per occurrence Top and Drop which is Top: $30 million excess $245 million, and Drop: $30 million excess of $5 million excess of $30 million annual aggregate deductible with no reinstatement. This layer is named storm only.
Layer Seven consists of reinsurance that is per occurrence $15 million in excess of $245 million with one 100 percent reinstatement.
In addition to Layer Seven, there is a catastrophe bond, Pelican 2021 Class B Aggregate, that is 100 percent of $50 million in excess of $70 million with no reinstatement, and the Silver Layer that is $5 million in excess of $245 million with no reinstatement.
Since the catastrophe bonds are not reinstate-able, all of the layers at or above the first catastrophe bond layer must “cascade down” or “drop down” and cover/fill any voids left by any erosion in that area from a storm, Newberry told the Reporter in an email when the Reporter requested clarification on LCPIC’s reinsurance placement for 2021/2022.
The Layer Six, top and drop, is for the second event retention (other than the $5 million retained by LCPIC). And then the top $50 million Pelican Class B Aggregate is for all subsequent events. The $35 million retention is first, the second event is $5 million on LCPIC and $30 million top and drop, followed by the Pelican $50 million on top of that, totaling$70 million for the first two storms, and then LCPIC’s $5 million kicks in, he added. The reinstatements in the reinsurance tower will provide reinsurance coverage to LCPIC in the event there is a second storm during the 2021 hurricane season.
Newberry explained to the board that the drop in the residual insurer’s total insured value is the reason that the 2021 reinsurance structure will provide similar protection as 2020 even though there is a $15 million drop in the reinsurance cap.
The 2021 reinsurance structure provides a 0.22 percent chance of a regular assessment and a 0.13 percent chance of an emergency assessment.
The placement of the 2021 reinsurance structure cost LCPIC $27.9 million but is $1.6 million under the budgeted amount of $29.5 million.
The placement was marketed to 147 reinsurers, and 39 reinsurers supported the placement with the average reinsurer’s line being $8.7 million.