Photo: Thomas M Perkins /
12 May 2014ILS

Citizens halved rate on line in four years

Florida Citizens has managed to halve its rate on line for both traditional and convergence reinsurance capacity since 2011, as it has taken advantage of “seriously competitive dynamics”.

That is the word from Jennifer Montero, CFO at Citizens, who tells Bermuda:Re that the rate on line for Citizens’ reinsurance spend fell from 21 percent in 2011, to 10 percent in 2014, with the past year seeing a particularly precipitous fall in price.

“While capital markets are tending to act as the leading driver of this compression, the competitive dynamic is evident in both the traditional and alternative sections of the market,” explains Montero.

Thanks to changing market dynamics, Citizens was able to upsize its reinsurance coverage to $2.88 billion for just under $300 million of reinsurance spend; which compares extremely favourably with the $575 million of coverage it bought in 2011 for $124 million.

“With this much capacity you can’t set the price, the market sets itself.”

Montero says that pricing has dropped dramatically due to surging capacity, which has in turn peaked Citizens’ buying appetite.

She says that the insurer is attracted to the level of capacity that the capital markets can bring to bear, but adds that the insurer has been “consistent” in its support of both traditional and alternative capacity. Citizens’ reinsurance spend is a nearly even split between traditional and alternative forms.

Montero says that Citizens has extended the typical wrap around the cat fund to the traditional market as well as adding commercial non-residential risks into the mix—both of which have been well-received. “It is important we remain loyal to the traditional markets,” she explains.

Citizens has also sought to deliver this same level of consistency through its capital market placements says Montero, which have been attractively priced and oversubscribed as a result. Its recent Everglades Re transaction was well received by the market.

Montero says that Citizens will continue to pursue risk transfer while the reinsurance pricing environment is so attractive, adding that the intention is to acquire coverage up to a 1 in 100 PML.

“What we are trying to do is reduce exposure and protect Floridians against future assessments.”

Citizens recent reinsurance buying has done exactly that in recent years, with the insurer aggressively transferring significant chunks of risk into the private market. “Our aim is always to transfer as much risk as we can,” says Montero. The present cycle is certainly proving conducive.