As part of an ongoing effort to hedge against a massive hurricane disaster, Citizens Property Insurance Corp. has completed a $250 million risk transfer in the capital markets.
The so-called catastrophe bond, which cost Citizens millions of dollars, could come in handy if the state gets slammed with a major storm between now and 2016. It follows a $750 million deal last year with the same company, Everglades Re.
Citizens said it was able to save more money on this year’s deal.
“This action continues Citizens’ goal of transferring risk to the private sector by working closely with nontraditional capital markets, and further protecting our policyholders and all taxpayers in Florida,” said Citizens board chairman Carlos Lacasa said. “Citizens has emerged as an international leader in risk transference and our achievements are being recognized by financial markets around the world.”
If Florida does not get hit with a big hurricane in the next three years, the bond investors will pocket the money, leaving Citizens with a smaller surplus.
The company is planning to announce additional risk-transfer measures in the coming days, including a multi-million purchase of private reinsurance.
Last year, a deal to buy reinsurance led to controversy at Citizens, because top officials traveled the globe to meet with insurers—staying in luxury hotels and dining on gourmet meals.
The company is hoping to bounce back from a year of tough publicity, and recently announced that it had reduced its risk of “hurricane taxes” by 42 percent. Some of that risk reduction ahs occured through higher rates on homeowners. Under a bill moving through the Legislature, Citizens would continue to raise rates--doing so faster than it has recently.