Question-and-Answer Session
Operator
(Operator instructions) Okay, it appears we have one question in queue, coming from Mark Vidal [ph].
Mark Vidal
Good afternoon, gentlemen.
Michael Braun
Hi, Mark. How are you?
Mark Vidal
Fine. Thank you. I haven't been associated with your company a couple of years but I remember when the State of Florida intervened in the market and basically told you, you couldn't raise the premiums to the – what the market would bear. And as a result, a lot of customers went to the State of Florida's agency. I take it from your press release, this has reversed. But, I was just wondering what the overall legal framework in Florida is now, such that in case there was a very bad year and every one is raising premiums, would the state do what it did last time which crippled you guys?
Michael Braun
Well, after these 2004 and 2005 seasons, rates went up considerably because of the high reinsurance cost. The state did a couple of different things to provide relief to the people of the State of Florida and that meant that they brought Citizens rates to an artificially low level and not being the insurer of last resort but rather really competing with us directly. They also provided an additional capacity with the Florida Hurricane Cash Fund which is where we buy reinsurance from. Those two have turned out to be problematic.
When you have things that aren't necessarily economically – have limitations to them, the FHCF did not have the liquidity and really didn't have the ability to pay, if all capacity was needed. So where they expanded dramatically up to $28 billion, now they are contracting it by $2 billion a year and they are increasing their rates on a certain layer. I think the state understands that private reinsurance was there for companies in '04 and '05 and is available in the future. So, I think that the state had very good intentions, but I think that they understand the meaning for a healthy reinsurance market.
Competing with Citizens clearly benefits certain people within the State of Florida. And now, what they are on is a glide path. A glide path is some areas the rates mainly to go up 40%, 50%, 60%, 70%, 80%; other areas, they are actually reducing the rates. No area and/or no policyholder will be going up by more than 10%. There are certain caveats with that that the state has. But, generally speaking, the glide path will bring people up about 10%. So in areas that has to go up 50%, just in rough math, it would take about five years for them to really get to the correct level.
- To read the full transcript on Seeking Alpha, click here »
