As the peak of hurricane season approaches, the governing board for Louisiana’s property insurer of last resort agreed Wednesday to boost its bank line of credit, to give the company enough money to cover costs in case of a storm.
The Louisiana Citizens Property Insurance Corp. backed the plan without objection to increase its line of credit with Regions Bank from $75 million to $125 million. The decision also needs approval from the State Bond Commission.
Steve Cottrell, chief financial officer for Citizens, said the increase – combined with the company’s own insurance coverage – will provide financial protection through hurricane season and ensure Citizens doesn’t have cash flow problems even if Louisiana is hit with two significant storms.
“It really allows us to have protection against multiple storms. There’s no long-term cure in here for our financials, but it allows us to have time to come back and then decide the right course of action,” he said.
The bank line of credit works as short-term borrowing for the company, available to give Citizens upfront cash as needed to pay claims and other expenses if the insurer doesn’t have enough money on hand for the costs.
The money would have to be paid back with interest if the line of credit is used.
Insurance Commissioner Jim Donelon said the $50 million increase will be a big step toward relieving “the bulk of our concern for this hurricane season.”
Citizens provides property insurance mostly to coastal Louisiana homeowners and businesses that can’t get insurance through the private market.
The move to bump up the line of credit comes after a $100 million borrowing plan stalled at the state capitol, despite concerns about a looming shortfall because company expenses are projected to be larger than revenue in the next year.
The Bond Commission refused to vote on the borrowing, siding with Gov. Bobby Jindal and Donelon, who both opposed the plan. The borrowing would have been paid off through assessments on anyone with property insurance on the private market. It also could have cost the state, because the assessment can be claimed as a state tax rebate.
For now, Cottrell said Citizens is able to cover its costs with its own income while looking at other ways to close the budget gap.
“We continue to have cash in the bank. We continue to pay our bills,” he told the board.
Citizens’ shortfall stems from covering claims for Hurricane Isaac and a hail storm earlier this year and for settling class-action lawsuits for improper handling of past claims from hurricanes Katrina and Rita in 2005.
Also Wednesday, the Citizens’ board approved a $275,000 salary for its new CEO, David Thomas, who was chosen for the job last month. Donelon said a dozen candidates were considered.
Thomas, who has nearly 40 years of experience in the insurance industry, will receive more money than his predecessor whose pay package was $264,000. Thomas also was reimbursed $7,600 for moving expenses.
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