Citizens is Florida largest property insurer, with a whopping total exposure of $462 billion. It has more than 1.3 million policies in force and provides the bulk of insurance for most of the state's coastline. While it has managed to build up its surplus over the past five hurricane-free years, there are fears that it still is not financially sound enough.

If Citizens has enough resources to pay claims, then it is less likely to need to borrow money after a storm. When Citizens has to borrow money, the cost is passed on through assessments—some would say a “tax”—that is added to Citizens' policies and most other insurance policies in the state, including auto insurance.

 “The whole issue is how we continue to reduce the exposure to the Citizens' policyholders as well as the policyholders of other companies,” Malone said. “How do we reduce the exposure of them and the state to assessments?”

Citizens is expected to have a surplus of $5.4 billion heading into the upcoming storm season. The carrier also can rely on $2.9 billion worth of bonds that it can use to pay off claims. Additionally, it will have access to $6.35 billion from the Cat Fund, the state's reinsurance fund. However, Citizens must first spend its money before it can trigger Cat Fund reimbursements.

An analysis done by Citizens' financial advisors shows that the carrier's high risk account—which covers many of the coastal properties—has about $1 billion below what it needs to tap into the Cat Fund. Second Storm Could Bring Trouble
Those who serve on the Citizens' board with Malone have so far been generally receptive to the idea of purchasing private reinsurance. They say it is not just a major 1-in-100-year type of storm that scares them. A series of smaller storms could quickly wipe out the surplus. “If there was a second storm, we would be in very serious trouble,” said board member Tom Lynch. 

The early prognosis is that as many 16 named storms, including nine hurricanes, will develop during the 2011 storm season. Colorado State University forecasters predict that five hurricanes would bring winds in excess of 110 miles per hour and that there is a 72 percent chance one major hurricane will hit the U.S. The forecast also suggests that there is a 48 percent chance a major hurricane will hit the East Coast, including Florida.

Citizens plans to bolster its finances don't stop with purchasing private reinsurance. The carrier also is considering borrowing anywhere from $500 million to perhaps as much as $1 billion ahead of the hurricane season.

Raymond James, the financial advisor for Citizens, laid out a series of options to Citizens' board that called for issuing somewhere between $500 million and $750 million in pre-event bonds that would be paid back with operating income, not assessments. The bonds would likely be paid back over a seven-year period.

Citizens' officials are expected to make a final decision this month, but some members of the board have already said they don't think borrowing $750 million is enough. They want to look at borrowing as much as $1 billion ahead of the June 1 start of the hurricane season.

“We don't want to be in a position where we are scrambling to raise cash when we have a deficit,” said board member Carlos Lacasa. Outlook Hazy for Citizens' Reforms
The push by Citizens to get more money to shore up its finances comes as the Florida Legislature is debating whether to let the carrier raise its rates.

 Currently, Citizens' rate hikes are capped at 10 percent a year. SB 1714 and HB 1243 were proposed during the annual session to allow the carrier to raise its rates—as well as to put additional limits on which homeowners could stay enrolled with the carrier.

The measures moving through the Legislature would increase the annual rate hikes anywhere from 15 percent to 25 percent a year, although the new rate hike cap would not apply to reinsurance costs.

Additionally, lawmakers are looking at scaling back the value of homes that can be covered by Citizens' coastal high risk account. The legislation would also make it harder for homeowners to stay with Citizens if they get an offer from a private insurance company.

“It's dead wrong for us to perpetuate the life of Citizens,'' said Sen. Alan Hays, R-Umatilla, and the Senate sponsor of the Citizens' legislation.  “We just cannot simply continue in this particular predicament. The rates of Citizens are so inadequate that the private market is unable to compete.”

Gov. Rick Scott also has called for changes to Citizens, but the legislation has come under fire as some lawmakers have complained that the Citizens' legislation could hurt consumers and cause problems for Florida's troubled real estate market.

 It has led to a hazy outlook for the legislation getting approved this year.

“Construction is at a standstill. People are not moving here anymore. The cost of living will absolutely go out of sight with this bill,'' said Sen. Gwen Margolis, D-Aventura.