Citizens Board of Governors Meeting Recap

On May 24, 2007 this office attended the Citizens Property Insurance Corporation Board of Governors Meeting in Tallahassee, Florida.

After a reading of the antitrust statement and approval of the April 26, 2007 meeting minutes, Chairman Bruce Douglas gave his report.  He stated that Citizens is prepared for the upcoming storm season, in sound fiscal condition and has contracted with 45 companies and 6,000 adjusters for the 2007 hurricane season.

Chairman Douglas then introduced John Forney with Raymond James Financial to specifically discuss Citizens’ financial condition.  Mr. Forney outlined four fiscal goals: establish a liquidity program, stabilize Citizens’ financial rating, establish a long term platform of the PLA/CLA, and accomplish these goals in a cost effective manner.  Mr. Forney stated that the liquidity program will provide a cash bridge for claims where cash is not readily available.  He also stated that there is $2 billion available in the liquidity program.

Next, the Board considered and approved resolutions, which were previously adopted by the Citizens Finance Committee regarding the following subjects:

• 2007 PLA/CLA Bond Financing
• Letter of Credit for $1 billion

President Scott Wallace presented his report, which stated that the Claims Task Force Meeting, chaired by General Bob Milligan, the Insurance Consumer Advocate, went very well.  He stated that claims handling should continue to improve.  Second, President Wallace praised the hard work of staff regarding Citizens’ financial condition. Third, he reported on the option of purchasing reinsurance from Aon in the private market.  Citizens considered reinsurance for commercial/commercial lines policies, which are ineligible for Florida Hurricane Catastrophe Fund (FHCF) coverage.  However, considering the likelihood of large event and the cost of private market reinsurance, they chose not to purchase reinsurance outside the FHCF.  Sharon Binnum, the CFO, reaffirmed that the purchase of reinsurance is not cost-effective.

The Board considered and adopted a resolution to purchase mandatory and tickle coverage from the FHCF, but not private reinsurance. It was also noted that the probable maximum loss to the commercial/commercial policies in Citizens would be $711 million for a 1 in 25 year event.

Next, Sharon Binnum gave the CFO report. Citizens is receiving $300 million in premiums each month and over $1 billion in income.  She also stated that expenses are consistent month to month and that net income is $150 to $200 million each month.  Surplus is currently $1.5 billion, which reflects no impact of catastrophic expense.  Ms. Binnum next discussed the 2007 revised budget, noting that growth in policies has increased revenues, which has offset lost revenues from the rate rollback.  However, there were rate increases in 2006 that are shown in 2007. The revised budget is not significantly changed.  She also stated that Citizens had 1.3 million policies at the end of 2006.  Further, she expects growth to continue with additional multi-peril policies and as a result the loss ratio should decline. The loss ratio for the PLA changed from 50% to 45%, which is very conservative.  Finally, she stated that Citizens has a net income budget of $1.8 billion with approximately 3% in administrative expenses.

On a motion and second, the Board approved the Budget.

Ms. Binnum next reported on the independent auditor management letter.  She noted that the outside auditors gave a clean audit opinion with no reportable events.

Next, Perry Cone gave the General Counsel’s Report.  Mr. Cone briefly discussed the consent agenda.  He stated that regarding reinsurance, there would be no purchase pursuant to the Board’s vote.

On a motion and second, the Board approved the consent agenda.

Mr. Cone then reported on the possible purchase of insurance coverage for directors and officers for potential claims against them.  Mr. Cone stated that he would like to further research this issue, but he would not recommend offering insurance coverage at this time because the officers and directors have extensive sovereign immunity and there is an indemnification program.  Board member Allan Katz stated that he would like for the directors and officers to have additional insurance.  Mr. Cone was directed to gather more facts and a vote should take place at the next Board meeting.

There being no further business for the Board, the meeting adjourned.