Last Modified: Monday, September 24, 2012 5:42 PM
The insurance company of last resort for Louisiana property owners may have to borrow at least $100 million to meet its obligations.
The culprits for Louisiana Citizens Property Insurance Corp.? Insurance claims in the southeast portion of the state related to Hurricane Isaac and proposed settlements for two lawsuits.
‘‘We’re at least $100 million short,’’ said Steve Cottrell, Citizens’ chief financial officer.
The bill for property damage caused by Isaac is expected to run between $50 million and $75 million. The two lawsuit settlements could run more than $60 million.
Earlier this month, the board approved a proposal to hike insurance rates for commercial property covered by Citizens by nearly 57 percent.
Citizens finds itself in this predicament, in part, because it was forced to pay about $105 million when it lost a class action lawsuit over the length of time it took the company to begin the claims process in 2005 following hurricanes Katrina and Rita. Citizens is now offering $40 million to settle the second phase of the lawsuit.
It is also setting aside $21 million in settlement money over a second lawsuit regarding Citizens’ lay payment for Katrina and Rita claims.
The Citizens board is considering two ways to cover the shortfall.
One method is to issue more bonds that would be paid off over time by assessments that Citizens applies to other property insurance policies in the state. Citizens did this to cover the nearly $1 billion in Hurricane Katrina claims.
The new bonds would force Citizens to collect the assessment on property owners until 2029, three more years than is required to pay off the current bonds.
Commissioner of Insurance Jim Donelon said this approach would allow Citizens to spread the costs to all residents who buy property insurance.
Another option would be to declare a deficit and charge an assessment of up to 10 percent on all property insurance. Donelon said insurance companies would surely pass the cost of the assessment on to their customers.
The issuance of bonds appears to be the less painful to the consumer, but one thing is clear: property owners around the state are most assuredly going to be stuck with the bill.
This editorial was written by a member of the American Press Editorial Board. Its content reflects the collaborative opinion of the Board, whose members include Bobby Dower, Ken Stickney, Jim Beam, Dennis Spears, Crystal Stevenson and Donna Price.