Under the deal, Heritage will take out as many as 60,000 policies from Citizens, and receive up to $52 million in cash. Citizens has $6.4 billion in surplus, built up over seven years as no hurricanes have hit Florida since 2005.
The payment would be structured as a backdated "reinsurance" agreement, where Citizens essentially pays Heritage to cover Citizens’ losses on certain policies from Jan. 1 to June 28, 2013. Since the period of time is in the past, Heritage can actively select policies that had no losses, in effect making the deal low risk.
Homeowners who receive takeout letters from Heritage in the next two weeks will have 30 days to either opt-opt or be automatically shifted out of Citizens to the start up company.
The company, which has about $60 million in capital, has agreed not to raise homeowners’ premiums more than 10 percent each year through 2016 and to add another $10 million to its surplus.
Still, several board members at Citizens expressed concerns about the deal, calling it a “$52 million bonus” that lacked transparency. The proposal became public only a few days before the scheduled vote.
“My problem is with the means of how we’re doing it,” said board member Tom Lynch. “After all the criticism that Citizens has been through, I just feel that we’re doing it the wrong way.”
Heritage may have to pay up to 39.5 percent in taxes on the $52 million cash payment. As a government-run entity, Citizens is tax-exempt.
Two members of the board were not present at the meeting and Lynch abstained from the vote, allowing the proposal to carry with the support of only three of Citizens’ eight board members.
Citizens president Barry Gilway defended the proposal, saying it would reduce risk by $400 million and had undergone “more due diligence” than any other proposal in the recent past.
The OIR approved the unique proposal, even though the head of Heritage, Richard Widdicombe, has had run-ins with insurance regulators in the past.
Before calling the board “tone-deaf,” Scott’s office originally downplayed the $52 million deal, calling it “not special.”
Citizens officials and board members, however, characterized the proposal as: “Unique,” “outside-the-box,” a “big precedent,” “creative” and “never (before) seen.”
Toluse Olorunnipa can be reached at tolorunnipa@MiamiHerald.com or on Twitter at ToluseO.