Louisiana Citizens Property Insurance Corp. did not receive approval Thursday from the State Bond Commission to borrow $100 million through bonds. The commission, failing to vote on the issue, sent it back to the Citizens board with orders to consider other options. Citizens CEO Richard Robertson and CFO Steve Cottrell argued the state insurer of last resort needed to...
Louisiana Citizens Property Insurance Corp. did not receive approval Thursday from the State Bond Commission to borrow $100 million through bonds. The commission, failing to vote on the issue, sent it back to the Citizens board with orders to consider other options.
Citizens CEO Richard Robertson and CFO Steve Cottrell argued the state insurer of last resort needed to borrow $100 million through bonds to cover a $70 million cash shortfall. This would cover costs from a class action lawsuit, a February hailstorm and $75 million in reinsurance costs.
"It's likely as of the end of May or June ... we'll be down to less than $20 million in cash. And for an insurance company, that is below any threshold," Cottrell said at the meeting, adding if the "wind blows one night," Citizens won't have cash to pay claims.
Citizens is expected to keep about $125
million in cash on hand, or enough to cover one hurricane season, along with
the company's yearly reinsurance costs. In 2006, it borrowed
nearly $1 billion to cover claims after Hurricanes
Katrina and Rita,
which it has been paying down by issuing an assessment, or fee, on every insurer
operating in the state. This is then passed down to all homeowners in the state.
Several members of the commission expressed opposition to the bond issue, highlighting that the cost would be passed onto Louisiana homeowners. According to Citizens board documents, the assessment rate would drop more slowly than previously expected over the next 13 years to finance the bond sale.
In the short term, the assessment rate could even jump from 3.74 to 3.92 percent after a bond issue. While the fee can be recouped through a tax rebate, only about 60 percent of Louisiana homeowners file for it. The remaining 40 percent of unclaimed rebates goes into the general fund.
Commissioner of Administration Kristy Nichols, who along with Insurance Department head Jim Donelon has been open about her opposition to the sale, highlighted the bond sale would hurt homeowners as well as hurting the state to the tune of about $5.4 million next year.
Cottrell responded by highlighting one of Citizens' only other options would be to issue a regular assessment on homeowners. Homeowners would end up paying an extra assessment fee every year on top of their current fee, which would not be available for rebate.
Nichols then suggested the Citizens Finance Committee return to the drawing board to consider other options. Jim Napper, Treasury Department Executive Counsel, said a bridge loan was made in 2006 after the initial bond sale and could be an current option.
The Bond Commission adjourned without holding a vote on the Citizens bond issue. Citizens will reconsider the issue in the next few months.