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.