The governing board of the Louisiana Citizens Property Insurance Corp. has agreed to increase the company's line of credit by $50 million.
The plan, which still needs approval from the State Bond Commission, would allow the insurer-of-last-resort to borrow up to $125 million from Regions Bank. Citizens' current limit is $75 million.
Steve Cottrell, Citizens' CFO, says that the increase would provide a short-term source of borrowed money to ensure the company doesn't have problems paying claims even if Louisiana is hit with two significant storms this year. Citizens' current reinsurance deductibles are $50 million each for two seasonal hurricane events.
“Louisiana has a lot of coastal exposure and is subject to huge losses in case of a hurricane,” says Cottrell. “The loan is an additional source of funding we can utilize to pay for a hurricane event during the float time in which we wait for the reinsurance company to reimburse us for claims.”
In March 2013, the State Bond Commission shot down Citizen's proposal to borrow $100 million through bonds, which Cottrell and Citizens' then-CEO Richard Robertson said would cover a cash shortfall of $70 million.
A local news source quoted Cottrell during a meeting with the Commission saying that as of June, Citizens would be down to less than $20 million in cash, “below any threshold” for an insurance company.
However, in a conversation with PC360-NU, Cottrell says the company has enough capital to “pay for storms that would cost up to $650 million; that is, to pay for a 100-year storm.”
Opposition to the original borrowing plan included Insurance Commissioner Jim Donelon and Gov. Bobby Jindal, who said Citizens should instead turn to a line of bank credit if money was needed.
Citizens is expected to keep about $125 million in cash on hand, enough to cover a hurricane season, along with the costs of reinsurance.
In 2012, Citizens paid a $104 million penalty in a class-action lawsuit for taking too much time to adjust claims after Hurricanes Katrina and Rita, and was hit by $75 million in claims from Hurricane Isaac.
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