Each July, Citizens is required by statute to file rates with the OIR for approval and implementation. Citizens held an actuarial & underwriting committee meeting to present the work of the in-house and external actuaries for consideration and approval. Just a reminder: these rate filings are a recommendation by Citizens to the OIR and are not approved yet. The OIR, once they receive the rate filings from Citizens, has 45 days to review and approve those filings. The actuarial & underwriting committee did approve the rate recommendations by staff and Citizens’ Board of Governors voted today to recommend the rate filings as well.
Citizens is still governed by a 10 percent cap except in two areas, sinkhole and A-rates. These two lines of coverage are not subject to the 10 percent glide path; specifically, sinkhole filings allow for actuarially-sound rates to be filed for the peril of sinkhole. Before we get into A-rates and the sinkhole filing, since that is where most of the questions are coming from, let me outline the other types of policies in this rate filing first.
The statewide average for both commercial and personal lines, including the FHCF build up but not sinkhole and A-rates, is 8.8 percent. All personal lines policies to include multi-peril and wind have an overall rate increase of 8.6 percent. Commercial residential wind has a statewide average of 13.6 percent and commercial residential multi-peril of 6.6 percent. The recommendation for commercial non residential wind is 10 percent.
Citizens will file some 14 rate filings over the next few weeks, affecting over one million policyholders and adding approximately $200 million dollars of additional premium to Citizens in 2012. If approved by the OIR, the rates will go into affect on January 1, 2012, for multi-peril, with changes to the wind rates beginning February 1, 2012.
Now, for A-rates. Based on conversations with Citizens’ senior management, I recently blogged that A-rates will not be adjusted for the remainder of 2011. Once the rate filings for non-A-rates have been submitted to the OIR, Citizens’ staff will review A-rates for adjustments in 2012. The actuarial & underwriting committee will be reviewing A- rates this year before those recommendations are sent to the full board for approval. Just a reminder A- rates are not subject to OIR approval.
Last but not least, Citizens’ rate filings for the peril of sinkhole. SB 408 contained a provision that FAIA supported whereby the peril of sinkhole was not subject to the 10 percent glide path. The peril of sinkhole is one of the main cost drivers that Citizens and other carriers point to when describing the cost of doing business in Florida. The cost to investigate a sinkhole claim coupled with the cost to remediate that loss are a direct reflection on the reduction of surplus each carrier, including Citizens, has to deal with. Sinkhole losses cannot seek reimbursement through the Cat Fund or private reinsurance like the peril of wind.
With that in mind, Citizens’ staff recommended actuarially-sound rates for the peril of sinkhole with a statewide average increase of 428.6 percent. As you can imagine, many territories will see very large increases for sinkhole coverage as these rates reflect achieving actuarial soundness for the peril of sinkhole in 2012. Instead of listing a few territories, I have posted the recommended rate increases for all territories including the peril of sinkhole on our home page under the Property Market Resource Center. In addition, when reviewing the recommended rate filings for sinkhole, pay close attention to column 8 & 9, as they indicate the current premium for sinkhole coverage per territory versus the proposed premium in each territory. In column 10 the filing lists the recommended percentage of increase per territory.
Since most of the sinkhole coverage is purchased in personal lines, questions regarding banks requiring sinkhole coverage have come to the forefront. Citizens acknowledged that Fannie Mae does not require sinkhole coverage, but Freddie Mac does. Some banks are requiring the coverage, but several are not as sinkhole coverage by Citizens has been an option to the policyholder since 2007. Eighty percent of the policyholders in Pasco county currently do not carry sinkhole coverage on there policy.
As you review those spreadsheets by peril and territory, you will notice that the sinkhole increases are for personal lines only, as the experience on the commercial side does not warrant a rate increase at this time.
Will continue to monitor the rate filings for Citizens and provide additional information as it becomes available.
Article by Dave Newall