What happens when the insurer of last resort is about to go bankrupt? We begin to question our faith in the insurance industry and wonder if all the dollars we paid for our home insurance might go bad.
Such is the plight of Citizens Property Insurance Corp after having made huge payouts on account of the infamous hurricanes, Rita and Katrina. It is being touted that the state run insurer is left with enough money to make payouts for another week. According to a company spokesperson, the insurer is left with about USD 64 million and has been making average daily payouts of about USD 5 million, with the rate of payouts slowing down now.
The board of the insurance company is making desperate efforts to raise bridge loans and has approached JP Morgan to recommend a strategy. It is believed that JP Morgan Chase has agreed to extend a loan of USD 125 million and will attempt to raise another USD 25 million through syndication. While, this amount will serve as a bridge loan, the insurer is expected to raise USD 200 million through a bond issue, which will hopefully pull it out of its travails.
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