Citizens Board Meeting Report: January 29

On Thursday, January 29, 2009, the Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) held a meeting to hear Finance and Investment Committee updates and vote on a Consent Agenda.  To view the meeting agenda, click here.

Chairman James Malone called the meeting to order with a quorum of Board members in attendance.  Also in attendance were: John Forney from Raymond James; Sharon Binnun, Citizens’ Chief Financial Officer; Scott Wallace, Citizens’ President; and Perry Cone, Citizens’ General Counsel.

Citizens’ financial advisor, John Forney from Raymond James & Associates, Inc. gave an update on Citizens’ 2009 Pre-Event Liquidity Program.  To view a copy of Mr. Forney’s report, click here.

Mr. Forney stated that because of $3.6 billion in surplus, Citizens is in the best financial position of its history as the 2009 hurricane season planning stage approaches.  Given the surplus amount and revised assessment structure implemented in 2007 and 2008, no assessments on external policyholders would be required absent a 1-in-50-year storm for the High-Risk Account (“HRA”) or 1-in-80-year storm for the Personal or Commercial Lines Accounts (“PLA/CLA”). 

Citizens’ probable maximum loss from a 1-in-100-year storm (the standard by which the Florida Office of Insurance Regulation measures capital adequacy) exceeds its surplus by $19 billion.  This funding gap means that Citizens is dependent upon external liquidity resources, including a potential $10 billion reimbursement from the Florida Hurricane Catastrophe Fund (“FHCF”) to help make up the coverage gap.

Mr. Forney recommended that Citizens renew its PLA/CLA bank line of credit for $400 million, which is substantially lower than the amount purchased to help cover the 2008 hurricane season gap ($1.667 billion).  This reduced amount is possible because of increased surplus accumulated in the PLA/CLA during the past year, as well as the significant decline in policies and exposure amount due to take-out activity.

For the HRA account, Mr. Forney recommended that Citizens purchase between $2 and $3 billion in external liquidity.  This larger amount is recommended because of the HRA’s weaker financial position relative to its total exposure, as well as becuase of $1.5 billion in HRA liquidity notes that are scheduled to mature in June 2009.

After discussion about the banks with which Citizens currently does business and whether these institutions will be receiving Troubled Assets Relief Program (“TARP”) funds, the Board authorized Citizens’ Staff to work with its existing financing team to create specific proposals based on Mr. Forney’s suggestions.

Citizens’ Chief Financial Officer Sharon Binnun presented revised Investment Policy guidelines, which include:

• Limitations in asset classes to ensure portfolio diversification
• A doubling in the percentage of investments required to be place in government and agency securities to 50 percent from the previous 25 percent level
• A limitation on investments per sector to 25 percent

The Board approved all Investment Policy revisions.  To view a copy of the revised Investment Policy, click here. 

The Board approved the following Consent Agenda items:

• Appointment of Wellington Management Company, Standish Mellon Asset Management, Evergreen Investments, Voyageur Asset Management, Inc. and First American Funds as investment managers
• Contracting with Bank of New York Mellon to provide monthly accounting services as well as an investment software and accounting system
• Approval of AT&T as Citizens’ telecommunication network service provider
• Selection of Aon Benfield as Citizens’ reinsurance broker for the 2009 hurricane season
• Renewal of the Risk Management Solutions contract for catastrophe modeling software
• Approval for Citizens’ Staff to negotiate a subscriber contract with Insurance Services Office’s ClaimSearch claims reporting database

To view the Consent Agenda, click here.

Specialty Claims Services, Inc. (“Specialty”) had filed an appeal regarding the Board’s December 12, 2008 decision concerning the award of independent adjuster contracts.   Specialty previously contracted with Citizens to provide independent adjuster services, but was not selected for the upcoming contract term.  To view a copy of Specialty’s appeal, click here.

Citizens’ Staff recommended the denial of Specialty’s appeal because it was not delivered to Citizens’ President within 21 days after the Board’s original selection as required by Citizens’ Plan of Operation.  After discussion, the Board denied Specialty’s appeal on these grounds.

The meeting was then adjourned.

 

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

 

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