After two devastating hurricane seasons, property insurance companies pulling out of the state, and several other property insurance companies being shut down, Louisiana Citizens Property Insurance Corp. (LCPIC) management told the board of directors at the March 10 meeting that management expects to spend $100 million on $1.2 billion in reinsurance for the 2022 storm season.
LCPIC CEO Richard Newberry expects LCPIC’s policy count to be around 62,000 by September 2022 with a total insured value of $16.4 billion and premiums of $150 million. Newberry told the board of directors that the policy count and insured value are expected to be similar to LCPIC’s numbers at the end of 2014. For the months of January and February, according to Newberry, LCPIC provided agents with 36,373 quotes on new residential policies, and wrote 8,201 new residential policies. On the commercial side, the numbers are 3,580 and 550 respectively. “Right now, it is like drinking water from a firehose,” Newberry told the board.
According to Newberry’s report to the board, applying Hurricane Ida damage factors to various portfolio data vintages shows that the proforma loss is estimated to be around $1.0 billion or a little below a 200 year return period. Applying the Hurricane Katrina damage factors to the various data vintages, storm losses would be almost $830 million.
“This will be a tougher year for the placement of reinsurance because we have to project what our total insured value will be at the end of September,” Newberry said.
According to Newberry, there are some cost saving measures that LCPIC could use when placing the reinsurance plan. Increasing LCPIC’s retention from $50 million to $70 million, essentially dropping the $20 million excess of $50 million layer, would save LCPIC an estimated $5.7 million, and dropping to a 200 year return period by eliminating $100 million of the limit would save an estimated $3.3 million.
The board voted unanimously to give Newberry the authority to negotiate the reinsurance placement with the following parameters, a 200 to 250 year return period, and an increase in retention from $50 million to $70 million.
Newberry presented to the board the 2022 proposed reinsurance structure to be finalized by May 1. The reinsurance structure for 2021 had a $545 million cap that provided coverage for a 302-year probable maximum loss.
The $1.2 billion 2022-2023 reinsurance structure consists of several layers of coverage with a $50 million retention and possibly a $70 million retention that would provide a 250-year probable maximum loss.
Layer One consists of reinsurance that is per occurrence 100 percent of $20 million in excess of $50 million with one free reinstatement. (This layer could be dropped from the reinsurance purchase if LCPIC opts to have a $70 million retention.)
Layer Two consists of reinsurance that is per occurrence 100 percent of $80 million in excess of $70 million with one free reinstatement.
Layer Three consists of reinsurance that is per occurrence 100 percent of $150 million in excess of $150 million with one free reinstatement.
Layer Four consists of reinsurance that is per occurrence with a yet to be determined percent of $225 million in excess of $300 million and a New Cat Bond with a yet to be determined percent of $225 million in excess of $300 million, with no reinstatement of either.
Layer Five consists of reinsurance that is per occurrence with a yet to be determined percent of $225 million in excess of $300 million and a New Cat Bond with a yet to be determined percent of $225 million in excess of $300 million, with no reinstatement of either.
Layer Six consists of reinsurance that is per occurrence Top and Drop that is $45 million in excess of $300 million.
Layer Seven consists of reinsurance that is per occurrence $250 million in excess of $300 million with one 100 percent reinstatement.
Layer Eight consists of reinsurance that is per occurrence $100 million in excess of $300 million with one 100 percent reinstatement.
In addition to the Layer Eight, there is Cat Bond, Pelican 2021 Class B Aggregate, that is 100 percent of $50 million in excess of $75 million with no reinstatement, and the Sliver Layer that is $5 million in excess of $300 million with no reinstatement.
The reinstatements in the reinsurance tower will provide reinsurance coverage to LCPIC in the event there is a second storm during the 2022 hurricane season.
2021 year-end financials
In reporting on the 2021 year-end financials, LCPIC’s Vice President of Accounting and Finance Joseph Sciortino indicated that Louisiana Citizens ended 2021 with a surplus of $134.6 million compared to a surplus of $161.9 million at the end of 2020.
Sciortino reported that LCPIC had a net loss of $28.34 million for 2021, a total that is $28.85 million less than the budgeted income of $512,000. Sciortino attributed the loss to the 2021 storm season and the $50.3 million in net losses and loss adjustment expenses from the storm season. The net losses and loss adjustment expenses were $33.8 million more than the budgeted amount of $16.5 million.
He also reported that LCPIC ended 2021 with $206.7 million in total cash and investments compared to $178.1 million in total cash and investments at the end of 2020. Sciortino attributed the increase in cash for the year to a reinsurance advance that was to be paid back in 2022.
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 is due by June 1, and the GAAP (Generally Accepted Accounting Principles) audited financial statement is due by June 30.
After Sciortino’s report, the board voted unanimously to submit LCPIC’s 2021 Yellow Book financials to the Louisiana Department of Insurance.
Personal lines rate filing
Newberry informed the board that the Louisiana Department of Insurance approved LCPIC’s 2022 personal lines rate filing.
In January, LCPIC’s board voted to send its 2022 Personal Lines Rate Filing to the department. The rate filing, as passed by the board, was a 4.8 percent proposed overall average rate increase with a 5.1 percent rate increase in the FAIR Plan and a 2.2 percent rate increase in the Coastal Plan. Also part of that vote was the stipulation that if the department approved the rate filing without a change greater than plus or minus 0.5 percent, LCPIC’s management could implement the rate change without further board action.
The new rates are effective June 1, 2022.