Florida Citizens has increased its reinsurance protection by 70 percent to $3.1 billion for the 2014 hurricane season, despite maintaining its existing reinsurance spend.
The state-backed entity has dramatically increased its reinsurance coverage for 2014, taking full advantage of the current soft market cycle.
According to Citizens, the $3.1 billion reinsurance package will cost the company approximately $300 million in 2014, roughly equal to the amount spent in 2013 for $1.85 billion in reinsurance coverage.
It said the cost savings have been possible thanks to sustained global interest in catastrophe bonds and Citizens’ continued efforts in these markets.
Citizens’ reinsurance spend includes a planned $1.5 billion Everglades Re cat bond, that will form part of its sizable alternative coverage. Citizens’ Everglades Re cat bond will be the largest single catastrophe bond issuance in history. It complements an outstanding $250 million catastrophe bond issued in 2013.
The 2014 transaction is unique for Citizens in that it provides coverage on an annual aggregate basis over the next three years, protecting the insurer from multiple smaller storms. The Everglades 2014 catastrophe bond was priced at a rate on line of 7.5 percent, less than half the 17.75 percent charged for the first Everglades bonds issued in 2012.
Citizens has meanwhile bolstered its participation in the traditional reinsurance market with the expected purchase of approximately $1.3 billion in coverage for the 2014 hurricane season, including $750 million that covers aggregate losses in the event of multiple storms.
Commenting on its reinsurance spend, Chris Gardner, chairman of the Citizens board of governors, says: “This is incredible progress and the result of a lot of hard work. Essentially, in the last three years, we have reduced the risk to our taxpayers of an assessment by more than $9 billion, or approximately 80 percent.”
Jennifer Montero, the chief financial officer of Citizens, adds: “We’ve been able to capitalise on favourable market conditions across the board to maximize our 2014 risk transfer programme. Such market conditions have allowed us to exceed our initial expectations in regard to the level of reinsurance coverage at the most efficient pricing.”