Louisiana Citizens Bond Ratings Upgraded
Commissioner Donelon is pleased to announce that Fitch Ratings has upgraded to “A-” from “BBB” the rating of the Louisiana Citizens Property Insurance Corp. (Citizens) $576,965,000 assessment revenue bonds, series 2006B. Additionally, Fitch has assigned an “A-” rating to Citizens outstanding $279,235,000 assessment revenue bonds, series 2006C, and declared that the rating outlook is stable. Fitch says that this change was made in conjunction with the publication of updated criteria for rating assessment secured debt issued by state sponsored insurers in April 2011 and the transition of lead coverage for this credit from Fitch’s Insurance Group to the Public Finance Group. The bonds are payable from pledged revenues, primarily emergency assessments, and the rating is derived from Citizens’ ability to levy emergency assessments on nearly every property insurance policy holder in the state for an unlimited duration and in a sizable, cumulative amount to pay debt service on the bonds.
“I am very pleased with Citizens new rating which reflects the hard work and professionalism of Louisiana Citizens’ management team as well as the prudent stewardship of its Board of Directors. This rating upgrade is a strong indication that Citizens is in good hands and can continue to provide protection to insureds in our state as the insurer of last resort for those unable to get property insurance elsewhere, ” said Donelon.
The ratings primarily reflect an increased confidence in the security derived from those emergency assessments. Additionally, following no significant catastrophic losses since Hurricanes Katrina and Rita, and improved financial oversight, Citizen’s financial position has strengthened with growth in claims paying resources. To achieve the new rating, Citizens also produced a fiscal 2010 comprehensive financial statement with a clean audit option and resolved prior issues with its financial management system.
While the emergency assessments are a key driver in the rating, they are not the first source of liquidity for Citizens to meet catastrophe-related claims. In the event of a catastrophe, Citizens would first tap available funds on hand, which include both accumulated surpluses, currently estimated at $150 million and a $50 million line of credit. Citizens also maintains a reinsurance program that provides additional protection up to $500 million, net of a $75 million deductible. Together, these funds would prove sufficient to cover an approximate 1-in-70 year storm event. Should losses exceed those resources Citizens would first levy a regular assessment to insurers which would produce potential annual revenue of approximately $200 million. Insurers can then recoup those amounts from their policy holders in subsequent years. Citizens has only levied a regular assessment once in its history, following Hurricanes Katrina and Rita. Additionally, Citizens has the authority to issue post-event bonds as they also did after the hurricanes in the amount of $1 billion. Those outstanding bonds are the subject of this ratings upgrade by Fitch Ratings. In 2010, Citizens refinanced $300,000,000 of Auction Rate Bonds to Fixed Rate Special Assessment Revenue Refunding Bonds.