Citizens Property Insurance facing $223M investment loss
TALLAHASSEE, Fla. ? Oct. 24, 2008 ? Citizens Property Insurance, the state-run insurer, may face losses of more than $223 million from investments ? mainly in asset-backed securities that have declined sharply in value as the mortgage and credit markets have fallen apart in the past year.
Sharon Binnun, Citizens? chief financial officer, told the company?s board of governors meeting in Tampa on Thursday that there is about $500 million in troubled securities on its books right now. Market value is about half of that amount, she added.
The insurer has a total of $8 billion available to pay claims, including money it has borrowed and invested until needed.
Binnun said the insurer ?has tightened our investment policies over time? and ?we have mitigated? the negative impact of the market?s decline by limiting the amount of any one type of security Citizens can invest in. It invests only in short- and long-term U.S. Treasury, agency and corporate securities as well as money market funds.
Still, Citizens hasn?t been able to avoid the market?s slide. It has unrealized losses of more than $36 million in the Treasury, agency and corporate securities it holds.
But the biggest losses ? $186 million ? are in asset-backed commercial paper, supported by mortgages including some sub-prime loans, that were purchased by the State Board of Administration, a state agency that manages a number of funds that include private and public money. In early 2007, Citizens had given the board the bulk of its cash and funds from bond financings to manage, hoping the agency would earn a higher return than other money managers and charge the insurer a lower fee.
?There really isn?t a market for these securities right now,? she said. ?We don?t have the ability to take our losses [on these securities] and move forward.?
Likely markdowns
Binnun said it was likely that Citizens will permanently write down the value of these securities when it completes its Sept. 30 financials in a few weeks. She said Citizens already took an $88.9 million write-down on these securities in December. The remainder will be written down in the Sept. 30 quarter. That leaves the remaining unrealized loss at $134.5 million.
?This is money Citizens could have used to pay claims,? said Barney Bishop, president of Associated Industries of Florida. He has been concerned about Citizens? large size ? it?s the biggest insurer in the state ? and the risky coastal policies it has on its books.
Citizens also has more than $94.9 million invested in the short-term Local Government Investment Pool Fund ?B? that also is managed by the State Board of Administration. This fund was frozen last fall after concerns about the mortgage market sparked a run on the fund. Binnun said the securities held in the frozen portion of the fund have declined significantly in market value and will see a write-down in value on the insurer?s books.
Binnun also told the board that Citizens? net premium earned ? which included premiums directly booked on policies minus premiums passed on to ?takeout? companies that take over policies from the state-run insurer ? is down 8 percent to $1.43 billion. Its net underwriting through June 30 was $747 million, down 9 percent from its budget projections at the beginning of the year.
Binnun said net premium was lower than expected because the company is writing fewer policies, takeouts have been more aggressive and it has been required to double the mitigation credits offered to homeowners who harden their homes against future storms.
Citizens anticipates that 50 percent of its policyholders will apply for mitigation credits next year, gaining an average of 42 percent off the premiums they pay. This means Citizens anticipates crediting back about $640 million to these homeowners.
So far this year, 46 percent of policyholders have applied for credits and the company has credited back $470 million.
Copyright ? 2008 The Miami Herald, Beatrice E. Garcia. Distributed by McClatchy-Tribune Information Services.
TALLAHASSEE, Fla. ? Oct. 24, 2008 ? Citizens Property Insurance, the state-run insurer, may face losses of more than $223 million from investments ? mainly in asset-backed securities that have declined sharply in value as the mortgage and credit markets have fallen apart in the past year.
Sharon Binnun, Citizens? chief financial officer, told the company?s board of governors meeting in Tampa on Thursday that there is about $500 million in troubled securities on its books right now. Market value is about half of that amount, she added.
The insurer has a total of $8 billion available to pay claims, including money it has borrowed and invested until needed.
Binnun said the insurer ?has tightened our investment policies over time? and ?we have mitigated? the negative impact of the market?s decline by limiting the amount of any one type of security Citizens can invest in. It invests only in short- and long-term U.S. Treasury, agency and corporate securities as well as money market funds.
Still, Citizens hasn?t been able to avoid the market?s slide. It has unrealized losses of more than $36 million in the Treasury, agency and corporate securities it holds.
But the biggest losses ? $186 million ? are in asset-backed commercial paper, supported by mortgages including some sub-prime loans, that were purchased by the State Board of Administration, a state agency that manages a number of funds that include private and public money. In early 2007, Citizens had given the board the bulk of its cash and funds from bond financings to manage, hoping the agency would earn a higher return than other money managers and charge the insurer a lower fee.
?There really isn?t a market for these securities right now,? she said. ?We don?t have the ability to take our losses [on these securities] and move forward.?
Likely markdowns
Binnun said it was likely that Citizens will permanently write down the value of these securities when it completes its Sept. 30 financials in a few weeks. She said Citizens already took an $88.9 million write-down on these securities in December. The remainder will be written down in the Sept. 30 quarter. That leaves the remaining unrealized loss at $134.5 million.
?This is money Citizens could have used to pay claims,? said Barney Bishop, president of Associated Industries of Florida. He has been concerned about Citizens? large size ? it?s the biggest insurer in the state ? and the risky coastal policies it has on its books.
Citizens also has more than $94.9 million invested in the short-term Local Government Investment Pool Fund ?B? that also is managed by the State Board of Administration. This fund was frozen last fall after concerns about the mortgage market sparked a run on the fund. Binnun said the securities held in the frozen portion of the fund have declined significantly in market value and will see a write-down in value on the insurer?s books.
Binnun also told the board that Citizens? net premium earned ? which included premiums directly booked on policies minus premiums passed on to ?takeout? companies that take over policies from the state-run insurer ? is down 8 percent to $1.43 billion. Its net underwriting through June 30 was $747 million, down 9 percent from its budget projections at the beginning of the year.
Binnun said net premium was lower than expected because the company is writing fewer policies, takeouts have been more aggressive and it has been required to double the mitigation credits offered to homeowners who harden their homes against future storms.
Citizens anticipates that 50 percent of its policyholders will apply for mitigation credits next year, gaining an average of 42 percent off the premiums they pay. This means Citizens anticipates crediting back about $640 million to these homeowners.
So far this year, 46 percent of policyholders have applied for credits and the company has credited back $470 million.
Copyright ? 2008 The Miami Herald, Beatrice E. Garcia. Distributed by McClatchy-Tribune Information Services.
