Citizens Property Insurance Corp. board of governors approved a $1.95 billion financing plan that includes a letter of credit and bond sales to cover future hurricane losses in Florida.
“A great deal has been accomplished in a short period of time on what almost everyone would agree is a great financial package,” said Board Chairman Bruce Douglas.
Citizens will obtain a $1 billion letter of credit and approximately $950 million in bonds to provide liquidity with which to pay claims should a hurricane strike in 2007.
Pending their use to pay future claims, investment earnings on the bond proceeds will provide for the debt service on the bonds. If claims are paid from these financing proceeds, Citizens anticipates that the moneys will be reimbursed to it by the Florida Hurricane Catastrophe Fund under the terms of its contract with Citizens. Final documents will be signed July 2.
With this financing, Citizens expects to have approximately $8.8 billion in available liquidity to pay catastrophic storm damages for this hurricane season, which starts June 1. By comparison, Citizens paid a total of $5.2 billion for all claims resulting from the 2004-05 storms.
John Forney, a representative from Raymond James Co., Citizens’ financial advisor, said in addition to the $1.95 billion package, Citizens also received a boost from a key insurance industry rating company.
He said Moody’s removed the “negative credit watch” rating Citizens received after it assumed more than 300,000 policies last summer as a result of the failure of three Tampa companies.
Moody’s changed the rating for Citizens’ Personal and Commercial Lines Account to “stable” and gave the company an overall rating of “A2.” At the same time Moody’s changed the ratings outlook on Citizens’ High Risk Account from “stable” to positive.”
Standard and Poor’s, another rating company, rates both Citizens’ credits “A+.”
The stronger and approved credit outlook for Citizens will allow the company to achieve lower financing costs on this and future transactions.
The board also agreed to increase the duties of its outside auditing firm to help Citizens review and enhance its internal audit procedures.
Douglas said he was pleased the outside audit resulted in an unqualified opinion and no material weakness in Citizens’ internal operations.
Source: Citizens Property Insurance Corp.
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