Citizens needs $2.94bn of new risk transfer to secure proposed $4.54bn of reinsurance for 2025

Citizens Property Insurance Corporation, Florida’s property insurer of last resort, will need to purchase an additional $2.94 billion of new private market risk transfer to secure reinsurance coverage of approximately $4.54 billion for 2025, with budgeted premiums of roughly $650 million.

Back in December, Citizens projected that it would need to secure roughly $4.453 billion of reinsurance from the traditional and capital markets for 2025, up on the $3.564 billion of reinsurance from across the traditional and capital markets secured for 2024, of which $3.064 billion was newly placed.

However, the projection for 2025 includes just $2.94 billion of new private risk transfer, as Citizens already has $1.6 billion of existing coverage still in-force from 2023 and 2024.

Citizens says that it will aim to secure private reinsurance coverage of approximately $4.54 billion with budgeted premiums of approximately $650 million, while the $3.564 billion secured for 2024 cost the insurer around $482 million.

“Staff will work with Citizens’ traditional and capital markets teams, as well as its financial advisor, to evaluate available options relating to the structure, terms, pricing, and other relevant matters with regards to the 2025 risk transfer program. Staff will present recommendations to the Board in April for final approval of the risk transfer program,” Citizens states.

Under the proposed 2025 risk transfer scenario outlined above, Citizens would expose all of its surplus and have a potential policyholder surcharge of $559 million for a 1-in-100-year event.

As we reported back in December, as well as the amount of private market risk transfer, the 2025 proposal reveals changes to some of the layers and the amount of surplus and FHCF coverage.

For 2025, Citizens’ proposal includes a Sliver layer which sits alongside FHCF coverage of $3.548 billion, providing approximately $394 million of traditional reinsurance coverage, in excess of $2.55 billion surplus, of annual, per occurrence coverage which covers personal residential and commercial residential losses. Citizens explains that this layer would work in tandem with the mandatory FHCF coverage.

For 2024, the Sliver Layer provided roughly $630 million of coverage, sitting alongside FHCF coverage of $5.02 billion, excess surplus of $3.154 billion, so the first slice of reinsurance coverage would attach lower for Citizens in 2025.

When compared to the projection in December 2024, the latest update puts the FHCF coverage roughly $100 million lower for 2025, although this is offset by the fact the Sliver Layer is now projected to be larger than the $200 million touted last year.

Above the Sliver Layer and FHCF coverage, for 2025, will sit Layer 1, structured to provide $4.15 billion of coverage for personal residential and commercial residential losses from the capital and traditional reinsurance markets.

This layer includes around $2.55 billion of occurrence and annual aggregate protection from the traditional reinsurance and capital markets, and also $500 million of in-force coverage from Lightning Re Ltd. (Series 2023-1), and $1.1 billion via Everglades Re II Ltd. (Series 2024-1), two catastrophe bonds sponsored by the firm.

All in all, the proposal for 2025 is for the top of Citizens’ risk transfer tower to extend to $12.859 billion, with reinsurance coverage exhausting at $11.089 billion of loss and loss adjustment expenses (LAE).

This is quite the change from 2024 when reinsurance coverage, both traditional and from the capital markets, exhausted at $15.733 billion of loss and LAE, while the top of the tower extended to $17.424 billion, although this did include billions of dollars in emergency assessment.

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