Citizens Board Meeting Report: December 11

Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met in Tampa today, December 11, 2009. The following is a brief summary of the activities that occurred during the meeting.  To view the complete meeting agenda, click here.

Chairman James Malone opened the meeting and recognized Board member Alan Katz for his recent nomination by President Obama to serve as Ambassador to Portugal.

Mr. Katz, who reported on yesterday’s Finance and Investment Committee meeting, noted that there had been a lengthy discussion on Citizens’ 2010 operations budget.

Citizens’ Chief Financial Officer Sharon Binnun said that, for the first time, Citizens has no need for external liquidity in its Personal or Commercial Lines Accounts for the 2010 hurricane season. However, even with a reduced liquidity target of 75 percent of the mandatory Florida Hurricane Catastrophe Fund layer, Citizens needs approximately $2 billion of additional external liquidity for its High-Risk Accounts. Ms. Binnun discussed financing options that include debt issuance, credit lines or the purchase of private reinsurance.  To access an overview of the 2010 Pre-Event Liquidity Program, click here.

Ms. Binnun outlined options for revisions to Citizens’ investment policy that could yield a higher return. The Board voted to adopt the recommended new investment policy, which maintains the current asset mix, but extends the investment duration to one year.  To view an analysis of Citizens’ investment policy that includes the suggested options, click here.

Citizens’ President Scott Wallace outlined a plan to thoroughly review Citizens’ various expenses. Many 2009 expenses were deferred to 2010, which is reflected in some of the corresponding budget increases.

Board Member Tom Lynch moved to amend the Budget, but not to approve the information technology (“IT”) portion until a detailed explanation can be provided on how the IT systems are being used by Citizens’ employees. Other Board members remarked that significant discussions have taken place regarding IT changes. 

Mr. Katz offered a substitute amendment to approve the 2010 Budget with only 50 percent of the IT allocation.  However, the Board voted against the amendment and approved the Budget as initially presented.

In his President’s Report, Mr. Wallace noted that Citizens’ business has been static since the fourth quarter of 2008, and that Citizens is beginning to look more like a residual market insurer based on the average age of its covered structures.  To view policy and coverage trend tables, click here.

Citizens’ Vice President of Underwriting Paul Palumbo reviewed Citizens’ pending wind mitigation credit re-inspection program.  A pilot contract has been finalized for the independent inspection of 500 to 1,500 homes.  Letters announcing the program have been sent to policyholders and the preliminary round of inspections will take place during the first week of 2010. Results will be reported to the Board.

According to Mr. Katz, any premium differential resulting from the inspections should be analyzed.  Board member Carlos Lacasa suggested that Citizens should implement a written policy to allow for retroactively billing policyholders who have engaged in fraud. 

Based on results from the 1,500 pilot re-inspections, Citizens will re-evaluate the need to continue the program.  Homes for which new policies have been issued also will be re-inspected.

Ms. Binnun recapped her Chief Financial Officer Report from yesterday’s Audit Committee meeting, during which she had discussed her recommendation to hire Johnson Lambert & Co. as Citizens’ new external audit firm for a three-year term.  To view information on the contract, click here.  Ms. Binnun also discussed the hiring of Paul Erickson, a new outside actuary, who works with the Insurance Service Office.  

She then reviewed the annual evaluation of the emergency assessment as required by law. The current emergency assessment to cover the 2004 and 2005 Florida hurricane seasons is 1.4 percent. The Board approved maintaining the current assessment percentage.  To view the Emergency Assessment Plan, click here.

Other actions:

• The Board also approved Citizens’ revised Code of Ethics policy. To view the new policy, click here.
• Mr. Lacasa recommended that Citizens’ Information Systems Advisory Committee Charter be revised to include a clause addressing cost controls.  To view the Information Systems Advisory Committee Report, click here.
• A discussion regarding Tallahassee office space was deferred to January 2010. Mr. Lacasa expressed his support for Citizens to purchase its own building.
• A contract for investment performance compliance and analytics software was approved unanimously.  To view information on the contract, click here.
• An amendment to extend the current reinsurance advisory brokerage service contract with Guy Carpenter and AON Benfield was approved unanimously.  To view information on the contract, click here.

The Board also discussed incorporating a formal process to consider legislative issues. 

The next series of Board and committee meetings is scheduled for February 17-18, 2010.

A January 25 telephone conference call has been scheduled to discuss pre-event financing.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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