Citizens Insurance, again

Citizens Insurance is a state government-owned insurer of last resort for property insurance. A US Senate committee is asking if the federal government could be asked to bail out Citizens if Citizens is unable to pay its claims after a major catastrophe. Of course Citizens replies this will never be necessary.

Has the federal government ever been liable for a state government-owned insurer? Does this set a dangerous precedent?


i thought that citizens had a right to assess other insurers who write business in the state to make up shortfalls if needed? I am sure i simplified, but that’s what i recall.

if so, how could it be that the rest of the assessments failed?

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The more I read about the insurance landscape in Florida, the more I am convinced its going to implode eventually.


The Fed decided AIG was systemically important and stepped in to bail it out. I’d say that set a dangerous precedent, though I’d also say that was set well before when Bernanke started picking and choosing who was going to be bailed out and who wasn’t.

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While there is precedent for bailouts, I’d be particularly against bailing out a state that deliberately chose to take on this much cat risk. The Florida legislature/governors know exactly what risk they are taking, and should bear the responsibility.


Going to?

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I assume they will keep throwing taxpayer funds at it for a while longer.

But even that has a limit.

I Say Let 'em Crash - YouTube

I thought the basic premise behind Citizens was that if there were a major hurricane, the state would issue bonds to cover the claims, and then impose a premium tax to pay off the resulting debt.

Has Florida reached a point where Citizens is too large / the cat aggregation too great for this to be a viable plan?

Citizens is 20%+ of the HO market in FL ($3.5B)


I came to that same conclusion about 20 years ago, and quite frankly I’m pretty surprised that it hasn’t already happened.

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As a Florida resident, I can tell you that even before Hurricane Ian, many Florida homeowners decided the cost of homeowners insurance was too high and they went uninsured.

It is well-known that Florida has a high percentage of uninsured motorists. Consequently, the Florida UM rates are quite high relative to bodily injury rates.

A number of Florida insurers went bankrupt after Hurricane Ian.

So yes, both the property and auto insurance landscape in Florida are not great. Workers Compensation advisory rates continue to drop however.


I’d be pretty wound up if the federal gvt bailed out FL. It’s bad enough FEMA is funded peanut-butter style.


Florida is a purple state with 29 electoral votes. Of course they will get bailed out.

I agree with you that they shouldn’t; but they certainly will.


IMO: this is still viable for a single year but if we get hit multiple times in sequential years, it could be more of a problem.

It’s been a long time since I passed part 8 Jerry, but insurance company solvency is a state regulation issue for the most part.

However, AIG got a crap ton of money in 2008, but that was a balance sheet issue with CDO and MBS securities, not an underwriting issue per se.

I saw a state politician on the news talking about the supply of insurance in Florida. His stance was that it would be nice if the FL insurance market, instead of relying on Florida only, single state insurers, could bring in national writers to help spread the risk across more than one state.

I don’t know if he understood what he was really asking was that it would be nice if national insurance companies could arrange for 49 other states to subsidize the insurance market in the state of Florida.

The answer for Florida is probably more taxation.


The AIG bailout wasn’t even about bailing out AIG per se.

The money sent to AIG was immediately used to pay off a bunch of credit default swaps held by banks at full value. The AIG stockholders lost almost all of their value. The bond holders and credit swap holders got bailed out. The policyholders were never in any real danger. There were plenty of assets for them. The whole thing was more about using AIG to stop contagion spread in the wider financial market with the bonus of a single sacrificial goat company name to use.

Not saying the boys in London who issued all the CDS’s with no regard to overall risk weren’t criminally negligent. They were.


If only my whole street could chip in to help spread the risk of my house burning down across the whole neighborhood…


I think these are pragmatically true statements.


That’s just Canada with extra steps!