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Hurricanes
What Ifs ...
- Citizens brings in about $400 million a year in premiums, so any storm that doesn't produce more than $400 million in damage claims to Citizens will leave the insurer in no worse condition than it started -- and shouldn't result in any additional assessments.
- Storms producing between $400 million and $1.3 billion in insured damages to Citizens customers mean Citizens will have to assess customers and non-customers alike. The last two seasons produced insured losses of $2.5 billion and an estimated $2.4 billion, respectively.
- After $1.3 billion in insured losses, Citizens' reinsurance through the state catastrophe fund kicks in. After Citizens uses up its premium revenue and assesses policyholders to cover damages up to the $1.3-billion level, reinsurance will cover 90% of damages up to the $4.9-billion level. The other 10% will have to come from an assessment, additional reinsurance or a line of credit or bonds, both of which would require additional assessments to pay off.
- To cover damages ranging from $4.9 billion up to $6.9 billion, Citizens will issue bonds. They will have to be repaid -- you guessed it -- by assessments on all policyholders.
- The nightmare scenario. Citizens' probable maximum loss -- loosely defined as what would happen in a once-every-100-years storm -- was raised this year from $7.6 billion to $12 billion. Citizens is working on a plan for that level of destruction that involves reinsurance or bonds. Bonds would have to be repaid by assessments. Citizens' worst year, 2004, which led to its first $68 assessment per $1,000 of premium, saw damages only about a fifth the size of what it can expect from a 100-year storm.