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Barry Gilway: No 'Doom and Gloom' Rate Scenarios on Citizens' Horizon

July 10, 2012 - 6:00pm

Less than a month into his new job as head of the bloated Citizens Property Insurance Corp., longtime insurance industry executive Barry Gilway said his expectations to reduce the size of the state-backed provider remain his most challenging endeavor.

In a meeting with the Tallahassee media on Wednesday, Gilway said its still too early to offer specifics for Citizens -- but he did elaborate on some of the company's greatest opportunities and challenges.

Citizens hired away the 66-year-old former chief executive of Seattle-based Mattei Insurance Services Inc. because of his experience both in running a large firm and shrinking the size of a company that had overextended itself.

He wouldnt commit to asking legislators to allow Citizens to break the 10 percent cap on annual rate increases, even for money-losers such as sinkhole coverage, something many have opposed.

Rates clearly are the 1,000-pound alligator in the room, Gilway said. At some point in time we have to address rates.

But bringing rates more in line with what private companies offer is needed.And Gilway said plans are also in the works to attract private insurers to Florida, expanding options for Florida property owners and in the end -- Gilway estimates this could take a few years -- lopping some 450,000 to 500,000 policies out of 10-year-old Citizens.

The difficulty there is that the company was created to be the insurer of last resort.

It does no good in moving business out of Citizens if our policyholders dont have quality insurers to take over that risk, Gilway said.

The Citizens board of directors will conduct a meeting on Monday at the JW Marriott in Miami to outline where the insurance provider may be headed in terms of size, coverage and costs.

The rate workshop will be a preview of the boards July 27 meeting, also at the Marriott in Miami, where potential increases and policy changes are recommended.

We certainly will have specific recommendations in terms of coverage changes we believe we should make, rate adjustments we believe we should make, and the impact of those decisions, Gilway said.

With 1.4 million customers, Citizens is equipped to handle a once-in-25-years storm, he said. Citizens, which collected $3.1 billion in premiums last year, has $6 billion in reserve and $13.5 billion available for claims-paying funds (which includes money that would have to be repaid through fees imposed on policyholders).

Gilway has started meeting with state legislators and Cabinet members. He has plans to discuss Citizens with strong opponents of the corporation, including Sen. Mike Fasano, R-New Port Richey, and Sen. Anitere Flores, R-Miami, after Mondays meeting.

We need to design a basic product that provides the coverage required by statute and that provides the coverage that the secondary mortgage market feels is essential.

Gilways Observations and Answers

Coastal accounts

If you take a look at the coastal accounts and the coastal account over the last 12 years, it was flawed at 475,000 polices 12 years ago, and its flawed at 475,000 policies today.

Does that mean we cannot make further impact on the coastal accounts? No it doesn't. There may be some risk transferwhere at least the exposure related to those policies can be transferred offshore or domestically.

Im not putting coastal on the back burner, but I dont think we can make a huge impact in the short term. My intent would be to move us closer to rate adequacy over the next three years.

Rate adequacy

Do we have adequate rates? The answer is yes and no. The answer varies by county, significantly. Particularly, in respect to sinkholes in the tri-county area.

Were looking at all aspects, its not a doom and gloom scenario from a rate standpoint. You will not be seeing a doom and gloom scenario. Youll see a set of rates that vary fairly significantly by territory -- but frankly, in the vast majority of territories are really not that far from rate adequacy.

You cant collect $50 million in premiums and pay out almost a half-billon (dollars) in losses as we did last year, and likely will this year, and not expect to show rate inadequacy.

However, what you will also see: Some of our projections, based upon initiatives under way,will reduce that. There is a six-point action plan that were working on relative to sinkhole.

Were looking at mitigation, were looking at coverage, were looking at a managed-care program, and we believe that when we implement these programs that will reduce the overall rate inadequacy associated with sinkhole.

Depopulation

Just based upon what Ive seen so far, it has to be has an intense focus for us. Theres huge opportunities for us here.

There are two-way opportunities: opportunities for Citizens to move policies to alternative marketplaces and opportunities for Citizens customers to be moved to markets in many cases with better coverage and without assessment risk.

Public Education

Its time to sit back and really explain to Citizens customers what were really doing, why were doing it, what are the expected results. We are approaching this, were approaching many of the decisions almost in a crisis environment because of the significant uptick in (personal LA) policies.

This involves not only Citizens customers but customers of other companies, because we need to make sure they have a good decision-making matrix when they decide where to place their policy. They need to understand the difference in coverage in a Citizens policy and the policies available in the open marketplace.

Public survey

We have a survey under way now, its been going on for a little over two weeks. And that survey is a phone survey, being done professionally, and were going out to both Citizens' and non-Citizens' customers and saying, 'do you understand the differences in coverage? Do you understand the differences in assessment risk?'

And based upon that feedback, well better refine the communications approach.

Risk Transfer

I think there is very little understanding of what weve accomplished this year. We had the single largest bond placement in history, not just in Citizens, not just for the insurance community in Florida, but worldwide.

The net result of that $750 million risk transfer was basically a $20 million savings when compared with standards risk and we havent seen the impact of that this year.

What it has done for Florida, it reinforces the fact that we have outside risk transfer opportunities and theyre looking to Florida, and our credit rating, and saying, 'Wow, what an opportunity to participate.' And there is more opportunity. Weve established a base of credibility in the London marketplace, the Bermuda marketplace, with domestic reinsurers that we can take advantage of going forward and competing more effectively for standard reinsurance placement and the emerging market of Cat (catastrophe) bonds.

Reach Jim Turner at jturner@sunshinestatenews.com or at (772) 215-9889.

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