To those of us in the insurance business, an industry built on assessing and transferring risk, the actions of Citizens Insurance in Florida (see here for background) seem a little unusual for an underwriting operation. Not only does it appear that Citizens has taken significant catastrophic exposure with limited resources and little diversification, but now it appears that they have doubled their risk by concentrating their assets in the governmental pool run by the SBA (the State Board of Administration). You might remember that this governmental pool had to freeze withdrawals because of a run initiated by losses from their subprime investments (see here).
Citizens had approximately $2.0 billion invested in this pool, and approximately $7.0 billion in total managed by the SBA (see here & here, and here for more detailed information and an overview). One comment (from here):
Citizens has said that while the securities are a concern, they don't present a liquidity problem as long as there is not a major hurricane.
Well of course not - that is what the securities are for: when there is hurricane. Note that the investment managers at the SBA received performance bonuses last year (see here). Additional information & commentary from Risk Prof here.
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