With $16.8 billion in reserves, can Citizens Property Insurance survive a major catastrophe?</p><p>The question is growing as insurance regulators, legislators and critics debate the impact of previous rate freezes on Citizens’ ability to manage risk.</p><p>For Keys property owners, an even more immediate question has been raised about across-the-board 10 percent rate hikes that kick in Jan. 1, and whether those should be applied in the Keys.</p><p>Citizens is the largest insurer in Florida, covering 1,057,829 homes, condos and apartment buildings. The biggest chunk of its policies — $232.1 billion worth — are written on coastal properties considered most at risk.</p><p>As forecasters keep an eye out for late-season storms in the Atlantic, this question looms large for Citizens: Will the company have enough money to pay claims a massive hurricane that may hit only once in a 100 years crashes into Florida?</p><p>With Citizens’ rates frozen since 2007, the big worry is that the insurer hasn’t been able to accumulate the reserves it needs given its exposure. </p><p>“We write wind coverage. That’s why we primarily exist,” says Sharon Binnun, Citizens chief financial officer. “When rates are frozen, that reduces the amount of resources we have to pay claims.”</p><p>To get Citizens’ rates back on course, a law passed in May requires the insurer to raise rates 10 percent a year over the next five years. The smaller annual increases soften the rate shock. But eventually, rates could end up about 60 percent higher. </p><p>However, when Citizens’ staff did the analysis for the 2010 rate filing, it found that homeowners in some areas of the state would see rate decreases. Most of those policyholders are inland and live in northern areas of the state, but a fortunate few in South Florida could see a rate cut. </p><p>For instance, condo owners and renters in some sections of Miami-Dade and Broward counties — as well as a handful of Key West homeowners — could see decreases of as much as 10 percent because they were paying too much before based on the risk model the Citizens staff used.</p><p>Fair Insurance Rates in Monroe (FIRM) is hiring an actuary and attorney to fight across-the-board rate hikes, making a case that tougher building standards in the Keys actually make the loss from windstorm damage far less likely than in other areas of the state.</p><p>Monroe County and five municipalities contributed $150,000 to help FIRM pay for the team of experts to challenge the state’s risk models for the Keys.</p><p>FIRM was founded in February 2006 by a small group of Key West property owners frustrated with skyrocketing windstorm insurance premiums set by Citizens, the state’s insurer of last resort.</p><p>In most parts of the state, private insurance is still available for windstorm coverage, but in the Keys, Citizens accounts for virtually all residential windstorm coverage.</p><p>The statewide rate changes will kick in on renewals and new policies starting Jan. 1.</p><p>But Citizens isn’t totally in dire straits. The insurer should have nearly $3.9 billion in cash in the bank by the end of the year, says Binnun. </p><p>Add in a guarantee from the state of Florida to buy $750 million of Citizens bonds, a bank credit line and proceeds from municipal bonds it has already sold and the total of available funds comes to $6.9 billion. </p><p>Safety net</p><p>Citizens also buys back-up insurance from the Florida Hurricane Catastrophe Fund to cover some of the losses it might face. This year, it purchased nearly $9.8 billion in coverage. </p><p>All that gives Citizens the ability to cover up to $16.8 billion in claims.</p><p>But even with all the funds it could tap, Citizens could fall short if “the big one” hits the state. Such a storm could rack up claims totaling about $22 billion, Binnun says. And it would fall to Florida homeowners to make up the shortfall.</p><p>Policyholders get a surcharge — up to 45 percent of their policy premium in one year. If the insurer needs more cash, then every policy in the state is taxed, up to 18 percent in one year. Right now, Florida insurance policies are already carrying a 1.4 percent surcharge that will run through 2017 to cover Citizens’ 2005 deficit. </p><p>Critics say Citizens shouldn’t cover expensive waterfront residences or vacation homes for Floridians or snowbirds. </p><p>Two years ago, lawmakers passed a law to charge higher rates to non-homesteaded homes, but the provision was removed in 2008.</p><p>However, after Jan. 1, homes and condo units valued at more than $2 million are no longer eligible for Citizens windstorm coverage, with one small caveat: They could retain a Citizens policy for three more years if they find no private carrier to provide insurance.