Standard & Poor’s Ratings Services has raised its rating on Citizens Property Insurance Corp., Fla.’s $1.6 billion of high-risk account senior-secured debt to ‘A+’ from ‘A’ and assigned its ‘A+’ preliminary rating to Citizens’ new $3.2 billion high-risk account senior-secured bonds series 2006A. The outlook is stable.
The upgrade reflects the state of Florida’s continued active involvement and oversight of Florida’s insurer of last resort, including a commitment of substantial financial resources to offset the statewide assessments required to fund the 2005 hurricane season. Continued growth of the assessment base securing these bonds has also been factored into the upgrade.
“Strong state oversight and a significant statewide assessment base continue to provide a high level of bondholder security,” said Standard & Poor’s credit analyst Robin Prunty. “The assessment base is geographically diverse, and has expanded significantly over the past several years. However, the potential exists for significant additional debt issuance, which precludes a higher rating category.”
The rating on the series 2006A bonds is preliminary as a result of ongoing revisions to the bond documents prior to the bond pricing, scheduled the week of June 26. The series 2006A bonds are being issued to address liquidity requirements associated with insured losses following the unprecedented hurricane activity of 2004 and 2005. These pre-event bonds will provide resources for Citizens to fund claims as it enters the 2006 hurricane season.
Citizens paid more than $5 billion in claims for eight hurricanes in 2004 and 2005. During this period, Citizens had significant operational and governance challenges, prompting a significant response from the state Legislature. In addition, many management changes have been implemented to improve Citizens’ financial and operating structure.
A deficit of $516 million was recorded for fiscal 2004, and was addressed by a regular assessment of 6.8 percent. A deficit of $1.6 billion is forecasted for fiscal 2005. This will be addressed by assessments, offset by a $715 million transfer of the state’s fiscal 2006 budget surplus. A majority of this transfer will be directed to the high-risk account. While these deficits are significant, Florida has had unprecedented hurricane activity over the past two years, and Citizens was not designed to carry the balance sheet to fully absorb these losses, with the ability to levy regular and emergency assessments to augment its resources.
Property insurance rates have increased significantly across the state, and this trend will continue. Efforts continue to depopulate policies from Citizens and transfer them to the private market, and the rate increases will be an important part of this process.
Source: Standard & Poors
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