Citizens Board of Governors Meeting

On Thursday, March 13, 2008, Citizens Property Insurance Corporation (“Citizens”) held a Board of Governors (“Board”) meeting.  The meeting was called to order by Chairman Bruce Douglas with a quorum of Board members in attendance.  To view supplementary documents from this meeting, click here.

John Forney, Citizens Financial Advisor, gave a report on the state of Citizens’ finances and investments.  Citizens currently has approximately $6.5 billion in surplus funds, and approximately $6.5 billion in borrowed funds to be reimbursed from the Florida Hurricane Catastrophe Fund (“FHCF”).  Approximately $4.175 billion (45 percent) of Citizens’ liquid funds were affected by the subprime crisis. 

Mr. Forney and Sharon Binnun, Citizens’ Chief Financial Officer (“CFO”), have developed a four-point plan to mitigate the damage.  This four-point plan would:

1.  Increase Citizens’ bank lines of credit
2.  Create more short-term fixed-rate transactions
3.  Expand the State of Florida’s liquidity program with Citizens by $750 million
4.  Place approximately $1 billion worth of short-term variable products with Dexia, a financial institution

CFO Binnun reported on proposed changes to Citizens’ investment policy.  These changes would strengthen the policy already in place, imposing restrictions on types and lengths of investments. 

The Board approved the four-point plan, as well as Ms. Binnun’s investment policy strengthening plan.  The Board also approved appointing CitiGroup, Goldman Sachs, UBN and Morgan Stanley as managers for a proposed liquidily restructuring financing plan. 

Citizens’ President Scott Wallace reported on the progress on recommendations previously made in a KPMG report, which are currently being evaluated and incorporated into plan of action, among other tasks. 

Citizens’ Executive Vice President of Operations David Emery reported on the Operations Department discussions during the previous day’s Market Accountability Advisory Committee meeting.

CFO Binnun provided an overview of Citizens’ financial statements for December, 2007, as well as a report on 2008 alternative liquidity financing, the purchase and redemption of ARS bonds, and proposed senior managers for Citizens’ 2008 HRA bonds. 

At the request of the CFO, the Board adopted the “Resolutions of the Board of Governors of Citizens Property Insurance Corporation Related to Liquidity Financing and Purchase and Redemption of ARS Bonds.” 

Ms. Binnun also refuted media reports claiming that Citizens experienced explosive growth in 2007.  She explained that Citizens’ policy count actually was reduced last year, and it continues to move in this direction. 

Susanne Murphy gave a report on proposed procurement policy revisions.  These revisions, which specifically create a Minority Business Enterprise (“MBE”) policy, provided three MBE options from which the Board may choose. The revisions also comprise language including Florida status of the vendors in the evaluation criteria for the procurement of goods and services. 

The Board chose MBE “Option Two,” which provides education and outreach to minority businesses regarding opportunities with Citizens.  It also educates Citizens staff and vendors regarding MBE opportunities, tracks and monitors MBE purchases and provides preference in the event of a tied bid. 

Board members requested that a staff member be assigned to oversee compliance with this program, and that a report be made on progress in one year.  To view a copy of the MBE Executive Summary, click here.

Richard DeChene recapped the February 28, 2008 Actuarial and Underwriting Committee meeting, in which discussion took place regarding mobile home attached structures hurricane coverage exclusion (which was approved by the Board), the 2009 rate filings, an update on Citizens rates and algorithms, regional and automated underwriting updates and occupancies for commercial residential wind-only product additions (also approved by the Board). 

Earl Horton reported on the March 12, 2008 Audit Committee meeting, at which an update on the status of the Office of the Internal Auditor and Audit Committee Charter was given.  The Charter was subsequently approved by the Board.   

Gloria Fletcher reported on the February 8, 2008 Claims Committee meeting, which included an overview of the ongoing claims organization modeling plan and a status update on the launch of Citizens’ Claims School in March, 2008.    

Among the matters approved by the Board on the Consent Agenda were a lease extension for the Jacksonville Cypress Plaza location, an agreement with Computer Sciences Corporation regarding commercial-residential product and licensing, and approval of a claims system requirements study. 

The Board meeting was then adjourned.

Below are reports on Citizens committee meetings that took place on March 12, 2008.

Market Accountability Advisory Committee

On Wednesday, March 12, 2008, Citizens’ Market Accountability Advisory Committee (“MAAC”) met and discussed the 2008/2009 implementation of statutory changes and the status of executive operations.  To view the complete MAAC agenda and meeting documents, click here.

MAAC Chairman George Grawe called the meeting to order, with a quorum of Committee members in attendance.  Also in attendance were Susanne Murphy and Christine Turner from Citizens.

Ms. Murphy gave a status report on executive operations for January, 2008.  In January, 2008, the following new policies were underwritten:

• 31,850 personal residential multi-peril
• 2,291 personal residential wind-only
• 410 commercial residential multi-peril
• 864 commercial lines wind-only

3,744 total claims were received for all accounts. 

Ms. Turner also reported on the 2008/2009 implementation of statutory changes affecting coverage eligibility, which included mandatory shutter requirements for homes valued at $750,000 and above, and Code-Plus building standards for properties located less than 2,500 feet from a coastal construction control line.  These changes, the details of which can be viewed by clicking here, will be made effective January 1, 2009. 

Pursuant to a request at the previous Board meeting, Ms. Turner reported on Citizens’ assessments:

Assessments are triggered when one of Citizens’ three deposit accounts registers a deficit.  The three accounts are:
• High-Risk Account (“HRA”) comprised of wind-only and multi-peril policies in certain locations
• Personal Lines Account (“PLA”) comprised of personal residential multi-peril policies
• Commercial Lines Account (“CLA”) comprised of commercial residential multi-peril and commercial nonresidential inland wind-only policy premiums

Assessments can occur in five different tiers, which include:

Tier 1.  Immediate Citizens Non-homestead Assessment—An assessment for all Citizens non-homesteaded policies of up to 10 percent if either of the three accounts registers a deficit.
Tier 2. Citizens Policyholder Surcharge—An assessment for all Citizens homestead and non-homestead policyholders of up to 10 percent if the deficit was not fully cured by Tier 1 assessments
Tier 3. Additional Citizens Policyholder Surcharge—An assessment for all Citizens homestead and non-homestead policyholders of up to 10 percent if the deficit was not fully cured by previous assessments.
Tier 4. Regular Assessment—An assessment for all admitted and surplus lines policies, including auto insurance, but excluding workers’ compensation and medical malpractice insurance of up to 10 percent if the deficit was not fully cured by previous assessments.
Tier 5. Emergency Assessment—An assessment for all Citizens policyholders of up to 10 percent if the deficit was not fully cured by previous assessments.

If all Citizens reserves are depleted, the maximum amount a homestead customer with a personal residential multi-peril (including wind) policy and annual premium of $2,000 could be assessed would be $1,800.  The maximum amount assessed to a non-homesteaded customer with the same policy would be $2,400. 

During the discussion of new business, Committee members requested that in addition to mail notification, policy take-out forms be made available on Citizens’ Web site to consumers and agents alike in order to simplify the process.

The meeting was then adjourned.

Audit Committee

On Wednesday, March 12, 2008, Citizens’ Audit Committee (“AC”) met to discuss an update on Citizens’ Office of the Internal Auditor (“OIA”) and to approve the Committee Charter. To view a copy of the AC meeting agenda and accompanying documents, click here.

The meeting was called to order by Chairman Earl Horton, with AC members Richard DeChene and Allan Katz in attendance. 

Citizens Chief of Internal Audit Joyce Bellows reported on the status of the OIA. 

A financial statement audit will be completed by external auditors Carr, Riggs & Ingram, LLC. 

The AC Charter was subsequently approved.

The meeting was then adjourned.

Finance and Investment Committee

On Wednesday, March 12, 2008, Citizens Finance and Investment Committee (“FIC”) met to discuss investments, auction results and Citizens’ 2008 liquidity program.  To view the meeting agenda and accompanying documents, click here.

The meeting was called to order by Chairman Bruce Douglas with a quorum of FIC members in attendance.

Citizens’ financial advisor John Forney from Raymond James gave a report on a plan to restructure pre-event liquidity arrangements in preparation for the 2008 hurricane season.  This restructure relates to the $4.75 billion in outstanding auction rate securities (“ARS”), which comprise approximately 45 percent of Citizens’ liquid resources. 

The four-point plan comprises the following actions:

1. Renew and expand Citizens’ PLA/CLA bank line of credit, to a total of $2 billion from the existing $1 billion, enabling Citizens to replace all of the current $950 million in ARS in the PLA/CLA accounts
2. Expand the existing State liquidity program for the HRA to $1.5 billion from the existing $750 million, currently under discussion with State legislators.
3. Complete a short-term fixed rate transaction for the HRA for approximately $1.5 billion.
4. Complete a variable rate demand note transaction for approximately $1 billion for the HRA, with liquidity provided by Dexia

Meetings to be held in New York have been scheduled during the week of March 17 among Mr. Forney, CFO Binnun and rating agencies, bond insurers and banks to enlist support and commitments from financing participants. 

The FIC scheduled a special meeting for March 21, 2008 at 9 a.m. via teleconference to discuss the outcome of these New York meetings and approve financing documents and cost parameters for some elements of the plan. 

CFO Binnun gave a report on ARS bond purchases and redemptions for 2008.  Due to market turmoil in the ARS public market, current Citizens’ ARS bonds are suffering unanticipated negative arbitrage.  To reduce this impact, Citizens has purchased back some of its ARS bonds for its own account and has begun redemption of some or all of the bonds. 

The FIC approved CFO Binnun’s “Resolutions of the Board of Governors of Citizens Property Insurance Corporation Related to Liquidity Financing and Purchase and Redemption of ARS Bonds,” and directed that it be presented to the Board of Governors for adoption.  To view a copy of this document, click here.

The FIC also approved appointment of CitiBank, Goldman Sachs, Morgan Stanley and UBS as the team of Senior Managing Underwriters for the proposed 2008 HRA Liquidity Restructuring Financing plan.  Each underwriter was chosen based on its past performance.  Morgan Stanley will replace Bear Stearns, inasmuch as the former has outperformed most other Citizens broker-dealers since 2006

CFO Binnun reported on Citizens investments and auction results.  Currently, Citizens has approximately $10.156 billion in bond proceeds, operating cash and reserve funds and approximately the same amount in actively-managed accounts and internally-managed operating cash and reserve funds. 

The meeting was then adjourned.

 

Should you have any questions or comments, please do not hesitate to contact this office.

 

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