At Louisiana Citizens Property Insurance Corp.’s (LCPIC) Nov. 12 board of directors meeting, the board was updated by management on LCPIC’s response to claims from the 2020 storm season, voted unanimously to approve the corporation’s officers for 2021, approve the insurer’s 2021 budget, approve sending the third-quarter financial statement to the insurance department, and a potential RFP for the purpose of determining vendors for claims administration in the event of a catastrophe.
In LCPIC CEO Richard Newberry’s report to the board, he updated board members on the 2020 storm season. The storms that affected LCPIC’s insureds were Tropical Storm Cristobal, and hurricanes Laura, Sally, Delta and Zeta.
The claims statistics outlined to the board are as follows: Cristobal, 30 claims reported with 30 expected total claims, with 96.67 percent contacted, 96.67 percent inspected and 96.67 percent closed; Laura, 2,653 claims reported with 2,736 expected total claims, with 99.25 percent contacted, 96.91 percent inspected and 89.07 percent closed; Sally, five claims reported with five expected total claims, with 80.0 percent contacted, 80.0 percent inspected and 100.00 percent closed; Delta, 1,851 claims reported with 2,018 expected total claims, with 97.46 percent contacted, 95.35 percent inspected and 81.20 percent closed, and Zeta, 2,019 claims reported with 3,119 expected total claims, with 93.21 percent contacted, 69.89 percent inspected and 16.39 percent closed. The overall totals are 6,558 claims reported with 7,908 claims expected, with 96.86 percent contacted, 88.14 percent inspected and 64.52 percent closed. The data reported to the board is as of Nov. 10, 2020.
Newberry expects LCPIC’s obligation resulting from the 2020 storm season will be the $35 million net retention in LCPIC’s reinsurance structure.
The board voted to approve the following slate of corporate officers for 2021: Richard Newberry, chief executive officer; Paige M. Harper, general counsel and chief administrative officer/corporate secretary; Ricky R. Lindsey, chief information officer, and Joseph Sciortino, vice president accounting and finance.
Newberry gave the board an overview of the expected or forecasted end of the year financial results for 2020 compared to the 2020 budget and the proposed budget for 2021.
End of year financial results
LCPIC expects to end 2020 with a little more than $58.97 million in direct-written premiums, $3.97 million more than what was budgeted for 2020. Unearned premium reserves are $2.6 million under budget due to higher than budgeted written premiums.
Newberry told the board that LCPIC’s ceded premium (reinsurance expense) is forecasted to be $1.9 million under budget. “Our proactive approach of complete exclusion of the assignment of benefits, the addition of claim experience rating, as well as better defining of actual cash value has allowed us to procure protection at a 1:303 year event while saving $1.9 million from our budget in spite of COVID market disruption and up to 35 percent rate increases seen by other companies,” Newberry told the board.
Direct losses and loss adjustment expenses are $71.4 million over budget due to the impact of hurricanes Laura, Delta and Sally as well as Tropical Storm Cristobal. However, losses from these storms are limited to a $35 million retention on LCPIC’s reinsurance program. “This is reflected in ceded loss and loss adjustment expenses being $39.9 million over budget,” Newberry told the board.
The end of the year net underwriting loss is forecasted to be $30.3 million, $28.5 million more than the $1.8 million net underwriting loss budgeted for 2020.
The home office operating cost at year-end 2020 is expected to be $191,000 over the amount budgeted for 2020. The increase is attributed to external management fees that are $1.0 million more than budgeted due to external claims adjusting for the 2020 storm season, but that cost increase is offset by a decrease in wages and benefits resulting from staff attrition and liability insurance being $216,000 under budget due to lower than anticipated premium on professional liability insurance coverage.
LCPIC forecasted that at the end of the year, there will be a net operating loss of $28.2 million, $30 million less than the 2020 budgeted net operating income of $1.8 million.
The forecasted ending cash reflects a decrease of $37.1 million for the year. The negative cash is generated from 2020 storm activity and additional Oubre class action payments of $4.5 million, Newberry told the board.
2021 proposed budget
According to its 2021 proposed budget, the residual market insurer has budgeted a net operating income of $512,000 which is $28.7 million more than the company’s forecasted loss for the end of 2020 but $1.3 million lower than the 2020 budget. “This reflects slightly increased premiums written while allowing for the certain anticipated tightening of the reinsurance market,” Newberry told the board.
The 2021 budget is based on an increase in policy count of 600. The budgeted policy count for the end of 2021 is 36,200, up from 2020’s forecasted ending policy count of 35,600. The assumed increase of 600 policies, according to Newberry, is due to an expected migration of policies to LCPIC from the voluntary market as well as additional builders risk and builders renovation policies offered to those affected by 2020 storms. The expected influx of 660 policies is offset by the projected loss of 60 policies for depopulation.
LCPIC expects to spend $816,000 less in operating expenses in 2021 than it forecasted to spend by the end of 2020, and the amount is $625,000 less than the 2020 approved budget. The decrease is due to a decrease in external management fees of $1.0 million but an increase of $149,000 in additional bank service charges budgeted for the renewal of the line of credit.
LCPIC budgeted to spend $12.67 million in operating expenses in 2021 compared to the $13.29 million budgeted in 2020 and the $13.48 million that it expects to actually spend by the end of 2020.
The 2021 budget does not assume any hurricane losses. The 2021 budget does include a normalized number of $12 million for non-hurricane claims with $1.5 million ceded, resulting from the reinsurance aggregate layer triggered by the 2020 storms. Any property claims services event occurring prior to June 1, 2021, will be covered up to the $50 million excess of $35 million, the fifth aggregate dropdown layer of LCPIC’s reinsurance tower, Newberry told the board.
The 2021 budget forecasts that net earned premiums will be down $5.78 million dollars for 2021 to $29.96 million from the $35.74 million that LCPIC expects to have at the end of 2020.
The board unanimously approved LCPIC’s proposed budget for 2021.
In addition, the board voted to send the third quarter financials to the Louisiana Department of Insurance by the Nov. 15, 2020, due date.
Sciortino told board members that LCPIC has budgeted to have $190.25 million in cash and investments at the end of 2021 and forecasts to have $183.78 million in cash and investments at the end of 2020.
Citizens expects its surplus at year-end 2021 will be $162.63 million and expects LCPIC’s surplus at year-end 2020 to be $160.24 million.
The 2021 reinsurance budget is $29.5 million, compared to the $24.1 million that is expected to be spent by the end of 2020.
The reinsurance budget, according to Newberry, reflects a $5.4 million increase due to a hardening of the market for reinsurance and insurance-linked securities due to LCPIC’s ceded losses and trapped capital within the reinsurance market. Newberry expects to keep the 1:303 year protection and $35 million retention with top/drop coverage.
Sciortino also told the board that LCPIC, as of Sept. 30, 2020, had 35,717 inforce policies with a total insured value of $6.9 billion compared to 37,255 inforce policies on Sept. 30, 2019, with a total insured value of $7.2 billion.
Newberry reported to the board that the commercial rate change for 2021 was approved by the department and will go into effect on Feb. 1, 2021. The overall rate change is a 2.7 percent increase with a FAIR Plan indicated rate reduction of 0.2 percent and a Coastal Plan indicated rate increase of 17.7 percent.