Citizens Actuarial and Underwriting Committee Meeting Recap, April 19

A meeting of the Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) was held on April 19, 2007.

The Committee’s first order of business was to discuss a motion for extension of the ten (10) day holding period for real estate closings. This would apply strictly to new purchases. The stated objective is to prevent a lapse of insurance coverage by assisting purchasers in obtaining homeowner’s coverage prior to closing. In order to qualify for the extension, the new purchase must have occurred within forty-five (45) days of the application date. Additionally, proof of sale or evidence of closing must be demonstrated (i.e., any closing document suffices). The motion to adopt this program was approved and will be presented to the Board of Governors (“Board”) next week.

Committee members raised the issue as to the recent Citizens rate changes in effect. No motions were proposed. The Committee reviewed the three (3) latest rate filings:

• A retroactive rate roll-back, effective January 1, 2007, placing in force the rates as of December 31, 2006;

• An expansion of coverage from the Florida Hurricane Catastrophe Fund (“Cat Fund”), reflecting the reduced rates in effect as of January 1, 2007; and

• Wind Mitigation, approved for Personal Lines Accounts (“PLA”), HO3 Policy Forms and High Risk Accounts (“HRA”).

The next topic discussed concerned properties with more than three (3) mortgages. Specifically, Citizens’ current underwriting guidelines prohibit it from writing policies for risks with an excess of three (3) mortgages. It was proposed that these guidelines be modified so that an exception could be made, on a case-by-case basis, for instances where there are guarantors for such mortgages or closing costs have been paid for the purchaser. The Florida Housing Finance Corporation would work in conjunction with Citizens to determine the eligibility for the exemption. The motion to modify the underwriting guidelines passed and will be presented to the Board next week.

With respect to replacement costs for personal lines coverages, it was proposed that minimum inspection requirements be instituted to aid in the determination of such costs. As regards commercial lines coverages, it was proposed that criteria be developed to enable agents and policyholders to provide the replacement costs. The Committee approved these recommendations for procedural changes and they will be presented to the Board next week.

The Committee discussed the two (2) most recent filings for multi-peril and sinkhole exclusions. The three (3) changes made to the multi-peril exclusion are as follows:

• Any references to “wind-only” were removed and replaced with “ex-wind;”

• The maximum coverage of one million dollars ($1,000,000) was eliminated so that there is currently no limit to coverage; and

• Multi-peril was made an optional deductible for homes valued over one million dollars ($1,000,000).

With respect to sinkhole exclusions, Citizens modified its rates pursuant to an Order issued by the Office of Insurance Regulation (“OIR”) in January. Citizens has decided to offer sinkhole coverage as an optional buy-back for an additional premium. Sinkhole coverage is to be removed from all base policies and Citizens will notify existing policyholders of same. If policyholders elect an optional ten percent (10%) deductible, they will automatically receive a ten percent (10%) discount on sinkhole coverage. All current policyholders will be receiving an initial notice of this change in forty-five (45) days by way of a replacement policy. The renewal notices will serve as a second notice that sinkhole coverage is no longer included in their current policies. These notices will also advise policyholders that catastrophic ground coverage has been added to their policies.

Belinda Miller, who represents the OIR, made it clear that the OIR prefers that sinkhole coverage be an endorsement to the base policies. The OIR has trouble with renewal notices advising policyholders to call their agents in order to “buy-back” sinkhole coverage. According to Ms. Miller, this amounts to a non-renewal policy rather than a renewal policy, and will potentially confuse policyholders into thinking that they have sinkhole coverage. Ms. Miller recommended that Citizens change the language of the renewal notices, application form and policies so as to inform policyholders to call their agents or Citizens directly if they wish to opt-out of sinkhole coverage. Ms. Miller indicated that it was the OIR’s recommendation that Citizens could proceed with its proposal for new business only, but not for existing or renewal business.

The Committee decided to present its proposal as presented to the Board, without the approval of the OIR. Chairman Richard DeChene (“Chairman”) stated that if the changes proposed by Ms. Miller result in a high cost to Citizens, the Committee will not recommend these changes to the Board. However, the cost to make these changes was not discussed. The Chairman also stated that the Committee would recommend to the Board that the implementation of this opt-in policy should be closely monitored for twelve (12) months, at which time changes could be made if necessary. The OIR will be kept involved and Ms. Miller will be drafting a letter that will state the OIR’s disagreement and reasoning, for comparison in twelve (12) months.

Also discussed was the Property and Casualty Joint Underwriting Association’s (“PCJUA”) Feasibility Study. The Committee voted to recommend to the Board that commercial business systems policy issues for rate and mailings be outsourced because Citizens does not have the capability to handle them internally.

Last on the Committee’s agenda was the issue of multi-peril policies. The Healthy Building Institute of America (“HBIA”) presented a plan for the transition of PCJUA policies to Citizens. The Committee voted to recommend this transition plan consisting of the following three (3) steps to the Board next week:

• Assumption of existing PCJUA policies whereby all assets and liabilities are properly allocated;

• That Citizens write wind-only coverage; and

• Commercial multi-peril products.

Should you have any questions or concerns, please feel free to contact this office.