At the May 12 meeting of the Louisiana Citizens Property Insurance Corp. (LCPIC) board of directors, the board was updated on the 2022/23 reinsurance and CAT bond placement and the 2021 actuarial opinion. In addition, the board voted on CAT claims-handling contracts, 2022’s 16th round of depopulation and the 2022 first quarter financials.
Vice President of Accounting and Finance Joseph Sciortino stood in for LCPIC CEO Richard Newberry who was absent from the meeting due to illness.
In his report to the board, Sciortino informed the board that the 2022 targeted reinsurance structure was not completed. “With the current status of the reinsurance market, it is taking more time than usual to place the reinsurance in the traditional market,” Sciortino said. “We do have the $225 million in CAT bonds in place, with the potential to add more,” Sciortino explained.
The board learned that LCPIC management is looking to use parametric limit reinsurance behind the tower to complete the placement. According to Sciortino, parametric reinsurance provides the flexibility to pivot, pending final traditional placement percentage, and is the most cost efficient way to address any shortfalls in the final reinsurance structure.
“The parametric trigger could be storm size, with the reinsurance triggering if Louisiana is hit with say, a Category 3 storm,” Sciortino said.
LCPIC Board Member Jeff Albright, IIABL, expressed concern that the 2022 reinsurance structure might not be adequate for the actual influx of policies coming into LCPIC, specifically from the commercial side of the market. “I know we set the structure based on 60,000 policies, but I think we might blow through that number,” Albright said.
“I am hearing from agents in the I-10, I-12 area that Citizens is way underpriced in the commercial market, and this could cause a much higher than expected TIV (total insured value),” Albright said.
In response to Albright’s concerns about the pricing of commercial policies, LCPIC Actuary Derek Haney said that, once LCPIC’s 2022 reinsurance tower is finalized and the final costs are known, it will take him about a week to put together a commercial lines rate filing to submit for peer review and then present to the board.
“I know when we voted to expand the commercial limits, we voted to place facultative reinsurance for the large commercial risks. How many of these policies has LCPIC currently written?” LCPIC Board Member Brian Chambley, Louisiana Farm Bureau Insurance, asked management.
In response, Sciortino told the board that LCPIC has received four large commercial policies with two written with the facultative reinsurance in place and two pending.
Haney told board members that he is “keeping an eye on” LCPIC’s increase in policies both on the personal lines side and the commercial side and will react accordingly, but at this time, he is not concerned with the amount of policies coming into LCPIC. “Even though we are getting approximately 500 personal lines submissions a day, currently, we are only binding around 20 percent of the submissions,” he told the board.
Sciortino told board members that LCPIC would keep them updated on the status of the reinsurance structure prior to the next board meeting.
Haney reported to the board the key findings in the 2021 actuarial opinion, which is that as, of Dec. 31, 2021, LCPIC’s reserves are reasonable on both a gross and net of reinsurance basis. The reserves on a gross of reinsurance basis are $196.9 million and on a net of reinsurance basis are $9.8 million. “Gross of reinsurance means that with no reinsurance this is what LCPIC would be expected to pay for losses,” Haney told board members.
The actuarial opinion related that the most significant areas of uncertainty in the estimated reserves are the 2020 and 2021 hurricanes, Haney reported.
LCPIC’s Senior Director of Claims Stephanie Jackson went through the 2022 proposed extended catastrophe commitments with the board. With the increase in the number of policies written by LCPIC, LCPIC management recognizes the need to increase the resources available to LCPIC in the event of a catastrophe. The additional claims resources that would be available to LCPIC in the event of a catastrophe are 206 independent field adjusters and 125 desk adjusters. These added catastrophe claims resources will bring the total number of independent field adjusters available to 866 and the number of available desk adjusters to 300.
Albright offered his praise to LCPIC staff for the handling of the catastrophes from the last two years.
The board voted unanimously to approve the added catastrophe resources.
Sciortino presented to the board the proposed requirements, dates and timeline for the 2022 depopulation process.
In the coming round of depopulation LCPIC will offer 8,000 policies. In 2021, LCPIC offered 8,000 policies with none being selected or authorized. In 2020, 4,089 policies were offered with 2,200 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.
In this round, because of the significant growth in policies, LCPIC proposes to allow companies to review LCPIC’s full book of business, and companies can submit requests for policies.
LCPIC will then analyze requested policies to project the financial impact. 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 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. (A PCS event is a catastrophe that causes more than $25 million in insured property damage, as defined by Property Claim Services a division of Verisk Analytics.)
Companies interested in participating would have to submit a signed non-disclosure agreement, and then financial documents and the policy data will be made available by June 1. Companies applying to participate in Round 16 of depopulation will be presented to LCPIC’s board at the Sept. 8 meeting. The companies will then be notified by Sept. 12 of the board’s decision.
Agents will be able to authorize policies starting Sept. 15 through Oct. 31. The system will close to agents and companies on Oct. 31, and assumption notifications will be sent to agents and policyholders by Nov. 14. Policyholders have until Feb. 28, 2023, 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.
Sciortino updated the board on the first quarter 2022 financials. He reported that LCPIC ended the first quarter of 2022 with $168.96 million in total cash and investments, which consists of $89.45 million in operating cash and $79.51 million in investments consisting of state or municipal bonds.
Sciortino reported that LCPIC’s surplus was $138.57 million at the end of the first quarter of 2022 compared to a surplus of $134.63 million at the beginning of 2022.
LCPIC’s net income for the first quarter of 2022 was $2.53 million which is $517,000 more than the budgeted income of $2.01 million for the first quarter of 2022.
He reported that LCPIC had 48,972 policies inforce at the end of March 2022 compared to 35,862 policies inforce at the end of the first quarter of 2021. LCPIC ended the first quarter of 2022 with $11.75 billion in total insured value compared to $7.0 billion in total insured value at the end of the first quarter of 2021.
During Sciortino’s report to the board, the board voted unanimously to submit LCPIC’s first quarter 2022 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.