Citizens Board of Governors Meeting Report: April 3

Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met on April 3, 2009.  To view the meeting agenda, click here.

The meeting was called to order by Board Vice Chairman Earl Horton Jr., with the following members in attendance:  Sherrill Hudson, William Corry, Carlos Lacasa, Allan Katz, Carol Everhart and Tom Lynch.  Mr. Lynch was recently appointed to the Board by Florida Senate President Jeff Atwater.  Citizens’ President, Scott Wallace; Executive Vice President, Susanne Murphy; and Chief Financial Officer (“CFO”), Sharon Binnun, also were present.

 

President’s Report

In his President’s Quarterly Performance Report, Mr. Wallace reported that Citizens currently meets all of its established performance benchmarks.  He cautioned, however, that Citizens may not meet certain other benchmarks during the next quarter as a result of the re-writing of its High Risk Account (“HRA”) policies. 

According to a customer satisfaction survey, 79 percent of policyholders who contacted Citizens’ Customer Service Department in the fourth quarter of 2008 (“4Q 2008”) were satisfied. 

Focus groups were held during 4Q 2008 for policyholders who reported either positive or negative claims experiences. 

The top five concerns reported by policyholders with a negative claims experience were:

• Inadequate Citizens policyholder awareness and information about the claims process;
• Inadequate communication regarding claims between Citizens Staff, adjusters and policyholders;
• Inadequate training of Citizens’ general staff;
• Inconsistent claims information, processing and communications; and
• Too much time required for receiving claims settlements.

Mr. Wallace informed the Board that these issues are being addressed through increased training of firms used for Citizens’ claims processing, better work flow management and Citizens’ “Claims School.”

To view Mr. Wallace’s report, click here.

 

CFO’s Report

CFO Binnun’s report included updated financial information for the year ending December 31, 2008, as well as Citizens’ 2008 Actuarial Report. 

At the end of 2008, Citizens was in the best financial shape of its history, with more than $7 billion in operating capital and approximately $1.75 billion in invested bond proceeds. 

Loss ratios, however, have increased throughout all operating accounts.  The Personal Lines Account’s (“PLA”) loss ratio has 55 percent due to policy depopulation.  For the Commercial Lines Account (“CLA”), the loss ratio has 21 percent due to condominium association sinkhole claims.  The High Risk Account’s (“HRA”), loss ratio has 19 percent due to claims from the newly-created multi-peril policies and Tropical Storm Fay.

To view the year-end financial report for 2008, click here.  To view the 2008 management discussion and analysis, click here.  To view the 2008 Actuarial Report, click here.

 

Finance and Investment Committee Report

Citizens’ financial advisor, John Forney of Raymond James, reported on the most recent Finance and Investment Committee meeting on April 2, 2009, during which Citizens’ Staff recommended that the Board approve the $400 million, 364-day revolving bank line of credit financing plan and related documents for the PLA/CLA.

Mr. Katz inquired about Mr. Forney’s confidence in whether the banks that are providing the line of credit would be able to pay if Citizens has to draw upon it.  Emphasizing that diversification of assets is the key, Mr. Forney stated that the selected banks are all large, well-funded agencies that have undergone an extensive vetting process, and that if one of the banks were to fail, there are six more that would be able to pay.  Almost all of the banks are recipients of the federal government’s Troubled Asset Relief Program funding, so the federal government also has some stake in their success. 

Regarding legal recourse if a bank were to refuse to pay, Citizens’ Bond Counsel indicated that it would first try to borrow the money from one of the other banks.  If the other banks refused as well, Citizens would then try to recover the money through litigation.  It was also pointed out that there is no penalty clause against a banks’ refusal to pay in the bond contract.  Research will be conducted to see whether a penalty clause can be added to the bond contract that would at least recover the bank fee.

The Board approved the revolving bank line of credit and supporting documents with Mr. Lynch voting against them because of the lack of a penalty clause. 

To view a summary of the April 2 Finance and Investment Committee meeting, click here.

 

Actuarial and Underwriting Committee and Claims Committee Reports

Citizens’ Senior Vice President of Underwriting Paul Palumbo and Senior Vice President of Claims Yong Gilroy reported on the April 2 Actuarial and Underwriting Committee meeting, as well as the March 31 Claims Committee meeting. 

Mr. Palumbo and Mr. Gilroy formed a Working Group to investigate and address an increase in non-catastrophe losses, specifically losses from water damage, which account for approximately 55 percent of reported non-catastrophe personal multi-peril claims each year. 

The preliminary analysis, which was reported to both Committees during their most recent meetings, identified two primary characteristics related to water-related loss that had occurred during the past three years:  the county in which the risk is located, and a plumbing leakage or break as the cause. 

The counties with the most frequent and severe water-related loss claims are Miami-Dade (18 percent), Broward (13 percent) and Palm Beach (seven percent).  Plumbing leaks or breaks accounted for 63 percent of all water-related losses from 2006 to 2008.

As a result of the analysis, the Working Group will concentrate on the following measures designed to address the increase in water-related losses:

• Controlling loss costs by mitigating damage to the insured property;
• Reducing litigated and disputed claims and identifying fraud;
• Clarify underwriting guidelines and policy language to avoid coverage confusion;
• Monitor loss trends through improved analytical tools and new data sources; and
• Engage consumers in loss prevention through education and outreach.

To view a summary of the March 31 Claims Committee meeting, click here.

Mr. Palumbo also reported on Citizens’ 2010 rate re-structuring and underwriting projects. 

Citizens’ 2010 rate filing will include modified rating steps for all personal residential policies, as well as actuarial indications for all lines of business.  It is anticipated that the rating steps will allow Citizens to develop appropriate premiums based upon a property’s rating characteristics, including wind mitigation features. 

The rating plan has been finalized and the actuarial indications for all lines of business were completed in April 2009.  Citizens’ Staff also is preparing for the possibility of a legislatively-mandated cap on policy premium increases. 

To view Mr. Palumbo’s report on the rate restructuring process, click here.

Mr. Palumbo updated the Board on the following underwriting projects:

• Underwriting School-The first student underwriting school session was scheduled for April, 2009.
• Inspection Proposal-An inspection and loss control proposal is being developed that would help ensure that policyholders have the correct coverage amount and receive the proper mitigation credits.
• Actual Cash Value Loss Settlement for Older Roofs-The Florida Office of Insurance Regulation has disapproved Citizens’ filings that would introduce an actual cash value loss settlement option for risks with roofs that do not meet eligibility guidelines. 

To view a summary of the most recent Actuarial and Underwriting Committee meeting, click here.

 

Market Accountability and Advisory Committee

Mr. Palumbo recapped the most recent Market Accountability and Advisory Committee meeting, which was held on April 2.  During this meeting, the Committee elected a new Chairman and received an overview of Committee duties, Citizens’ operation and Florida’s property insurance marketplace.  To view a summary of the April 2 meeting, click here.

 

Executive Vice President’s Report

Ms. Murphy updated the Board on Citizens-related activity in the 2009 Florida Legislature, which is currently in Session.  Within the past few days, both the Florida House of Representatives and Florida Senate have released their respective property insurance proposals.  The Senate version, SB 1950, provides a “glide path” to increase Citizens’ rates to actuarial soundness, with a 10 percent average statewide increase per-year cap.  The House version, HB 1495, sets the cap at 20 percent.  Both bills provide that 10 percent of the newly-generated revenue must be allocated to My Safe Florida Home mitigation grants.

 

Audit Committee Report

Citizens’ Chief of Internal Audit Joyce Bellows reported on the Audit Committee’s April 2 meeting, during which the Committee approved the Audit Committee Charter, Office of the Internal Auditor Charter and 2009 Audit Plan.  To view a summary of the April 2 Audit Committee meeting, click here.

The Board approved the Audit Committee’s suggestions with no discussion.

 

Consent Agenda

The Board approved all items on its April 3 Consent Agenda with no discussion.  Consent Agenda items included:

• Appointing Aon Benfield and Guy Carpenter as reinsurance advisory co-brokers
• Contracting with Wellington Management Company, The Dreyfus Corporation, Evergreen Investment Management Company and Tattersall Advisory Group, Voyageur Asset Management, First American Funds/FAF Advisors, and MBIA Capital Management Corporation for bond and operating funds investment manager services
• Selecting J.P. Morgan, Wells Fargo/Wachovia and Loop Capital as 2009 HRA Bond Co-Managers
• Extending Wachovia Bank’s Commercial Banking Services Contract
• Extending the MacNeill Group’s Policy Servicing Contract
• Selecting vendors for the 2009 PLA/CLA Line of Credit

 

Other Matters

Mr. Lacasa inquired about procurement contracts exceeding $100,000, most of which include a “cone of silence” period during which bidders are not allowed to contact the Board to discuss the bid.  Mr. Lacasa stated that he has noticed some inconsistencies in a cone of silence duration.  For example, in some contracts, bidders are not allowed to contact the Board until it has considered the bid, whereas in other situations, no contact is permitted even after the Board has reached its final decision. 

Mr. Lacasa recommended that Citizens adopt a uniform “cone of silence” policy that would allow bidders to contact Board members for discussion while Staff suggestions for the contract award are being considered.  Citizens’ General Counsel Perry Cone stated that it has always been Citizens’ policy to prohibit contact between the Board or Citizens’ Staff and bidders while the Board considers Staff recommendations.  The only communication permitted is between the Staff bid coordinator and the bidder.

Some Board members suggested letting Citizens’ Staff handle the entire procurement contract process; other members suggested that the amount listed in the statute governing such contracts be increased to $500,000.

After discussion, the Board determined that any procurement contracts valued between $100,000-$500,000 should remain on the Board’s Consent Agenda for final approval, and that any contracts of more than $500,000 should be fully approved by the Board. 

The Board authorized Citizens’ Staff to work with the Florida Legislature to increase the value authorization portion of the statute governing procurement contracts up to $500,000.

Mr. Lynch inquired about borrowing from one account to pay claims in another in the event of a large storm.  Ms. Binnun stated that Citizens has looked into combining operating accounts before, but to do so would require individual investor approval.  Mr. Cone said that it would be preferable to combine the accounts statutorily, but that any such proposal would most likely have to wait until the next Legislative Session.

Following discussion of the Board recommendations, the meeting was adjourned.

 

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

 

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