At its Sept. 10 meeting, the Louisiana Citizens Property Insurance Corp.’s (LCPIC) board of directors voted to approve sending the commercial property rate filing, an overall increase, to the Department of Insurance for approval. Also, because LCPIC’s board has not been able to vote since its March 12 meeting, the board voted to approve the following: sending the first and second quarter financials to the Department of Insurance, continuing Round 14 of depopulation, recertifying the 2005 deficit and the 2021 assessment rate. In addition, the board heard about LCPIC’s response to Hurricane Laura and LCPIC’s financials through the end of July.
The commercial rate filing amounts to an overall average 2.7 percent rate increase. The FAIR Plan’s commercial customers will see an average 0.2 percent rate reduction that affects 1,150 policies, and the Coastal Plan’s commercial policyholders will get an average 17.7 percent rate increase, affecting 160 policies.
The 160 commercial policyholders whose properties lie below the Gulf Intracoastal Waterway will see their annual premium increase from a current average of $4,790 to $5,640, according to LCPIC. In addition, the 1,150 commercial policyholders in the FAIR Plan will see annual premium go from a current average of $2,840 down to $2,830.
LCPIC has 1,315 commercial policies with a total insured value of $457 million.
The primary driver of the indicated rate change in the Coastal Plan, according to LCPIC CEO Richard Newberry, is the limited number of policies in the plan and a small shift in the mix of business written since the prior review, resulting in a significant increase in the average expected loss from catastrophes.
Included in the rate filing, LCPIC proposed using recently approved ISO loss costs. According to Newberry, the loss costs vary by type of business for Group I premium (covering primarily fire, lightning, and vandalism claims) and a property’s location and construction quality for Group II premium (covering primarily wind/hail claims.) ISO loss costs will put more emphasis on location and types of construction.
While the overall impact will be revenue neutral, Newberry told the board, individual policies will see changes, sometimes significant, but rate increases will be capped at 10 percent per year. A little over half of all policies will see a rate decrease, he said.
LCPIC’s commercial rate adjustment last year resulted in an overall rate increase of 0.2 percent with a decrease of 3.0 percent in the Coastal Plan and a 0.9 percent rate increase in the FAIR Plan.
LCPIC develops its commercial rates to cover all projected losses and expenses at breakeven.
First, the company compiles its commercial revenues, expenses and non-storm losses. Then, a combination of LCPIC’s losses and industry data is used to project future non-storm losses.
Next, expected storm losses are calculated based on a 50/50 blend of RMS and AIR catastrophe models.
LCPIC then compiles the numbers to determine total projected commercial expenses.
The board approved unanimously the proposal to send the rate filing to the department for approval. The board also voted unanimously that, if the department does not make a change that is plus or minus 0.5 percent, LCPIC can implement the new rates. The new rates will be effective Feb. 1, 2021.
LCPIC’s board voted unanimously to approve the first and second quarter 2020 financials presented by LCPIC management and reviewed by the members of the audit committee. LCPIC had already filed the first and second quarter financials with the Department of Insurance.
In his report, Newberry told the board that the 2020 plan for depopulation is to continue offering take-out opportunities to property insurers and to comply with all aspects of the revised statute.
LCPIC will manage the depopulation process so that the decrease in policies will still be limited for the sustained viability and operational planning of the organization.
For LCPIC, reducing the exposure of the corporation in the most optimal manner possible is a major factor in choosing the policies to offer for depopulation.
There are two companies signed up for the 2020 depopulation process, SafePoin Insurance Company and Southern Fidelity Insurance Company.
Newberry told the board that the authorization portal opens for agents on Oct. 1, 2020, and the system closes to agents and companies on Oct. 31, 2020. Then, LCPIC will send the assumption notification documents to companies and agents on Nov. 20, 2020, and policyholders have until Feb. 28, 2021, to opt out.
Newberry said that a scientific approach to depopulation allows LCPIC to generate a higher percentage reduction in reinsurance costs relative to the percentage of premium lost. The 102 policies taken out in last year’s depopulation resulted in a $16.9 million reduction in the probable maximum loss, he said.
Again this year, LCPIC will offer 4,000 policies for take out.
The board voted six to four to approve the depopulation plan for 2020.
Newberry reported that as of the end of July 2020, LCPIC has 35,837 policies in force with a total insured value of $6.94 billion.
According to LCPIC’s Vice President of Accounting and Finance Joe Sciortino, each year LCPIC has to recertify the current deficit from the 2005 storms. According to Sciortino, LCPIC’s deficit from the 2005 Katrina/Rita storms increased by about $1.64 million to $1,358,057,776 from 2019’s $1,356,420,776. The deficit certification is performed in-house with a review by LCPIC’s auditor as part of the company’s annual financial review.
The outstanding debt of the bonds, according to Sciortino, has a balance of $374 million and is scheduled to be paid off by 2026.
The board voted unanimously to approve the recertification of the 2005 deficit.
Sciortino reported to the board that LCPIC’s 2021 assessment rate will be 2.49 percent, a slight decrease from 2020’s 2.60 percent.
In making the calculations for the assessment rate, LCPIC uses the previous year’s assessable premium for property insurance and the expected debt service costs for the assessment year. The assessable written premium for 2019 was $2.7 billion, an increase of $69.4 million, according to Sciortino. The estimated debt service costs for LCPIC for 2021 will be $66.4 million, according to the Regions Bank bond trustee.
The new rate will be effective Jan. 1, 2021.
The board voted unanimously to approve LCPIC’s 2021 assessment rate.
Sciortino updated the board on the financials through the end of July 2020.
He told the board that LCPIC’s policyholders’ surplus grew from $186.4 million at the beginning of the year to $192.4 million at the end of July 2020.
LCPIC’s net income at the end of July was $5.3 million, he said, $1.59 million more than the $3.7 million net income that was budgeted for the end of July 2020. The driving force behind the increase, according to Sciortino, is net premium earned which is $2.0 million more than the $19.0 million budgeted.
He reported that LCPIC ended July with $223.95 million in total cash and investments, with $149.15 million of that amount in operating cash.
Sciortino emphasized that these financials are all pre-Hurricane Laura.
Newberry then gave the board an update on LCPIC’s response to, and results so far from, Hurricane Laura.
Newberry reported that as of Sept. 9, LCPIC received 2,268 claims with 94 percent of the claimants being contacted by an adjuster and 61 percent of the properties already inspected.
He said that LCPIC has approximately 11,000 policies in-force in the wind footprint of Hurricane Laura and that LCPIC has $560 million in reinsurance with a $35 million retention.
Newberry opined that, with its cash reserves and reinsurance structure, LCPIC is well positioned financially to handle a second storm.