Citizens Finance and Investment Committee Meeting Report

On Thursday, February 14, 2008, Citizens Property Insurance Corporation (“Citizens”) held a meeting of its Finance and Investment Committee (“Committee”) to discuss Citizens’ liquidity and claims-paying resources.

The meeting was called to order by Chairman Bruce Douglas, with the following Committee members in attendance: Andy Bennett, Sharon Binnun, Earl Horton Jr. and Allan Katz. Also in attendance was John Forney from Raymond James.

Mr. Forney reported that Citizens’ three investment accounts are in the best financial position to date from both claims-paying and liquidity standpoints. Citizens has accumulated significant financial resources and has several pre-event financing strategies in place to ensure ample liquidity in the event of a large storm.

According to Mr. Forney, liquidity is more important to Citizens than it has ever been for three reasons:

• Recent market turmoil has demonstrated that the financial markets cannot always be counted on to maintain liquidity.
• Citizens is increasingly reliant on the Florida Hurricane Catastrophe Fund for reimbursement.
• Statutory efforts recently have been made to encourage insurance companies to expedite post-storm claims.

Mr. Forney reported that Citizens probably has enough liquidity to meet 2008 hurricane season anticipated needs. In general, the Florida Office of Insurance Regulation requires registered insurers to have enough resources on hand to pay claims for a 1-in-100 year event. Although Citizens is not subject to this standard, it has worked to meet that level and currently has sufficient resources to do so.

Based on his own analysis, Mr. Forney’s conclusions are:

• Citizens may be able to reduce its on-hand liquidity by retiring some of its existing $4.75 billion of Auction Rate Securities (“ARS”), which are estimated to total between $1-2 billion.
• Citizens should seek to renew its $1 billion bank line of credit that expires in July, 2008. Regardless of whether ARS are retired, Citizens should consider replacing some of the remaining ARS with alternative sources of liquidity. The two most likely sources are a new bank line of credit and variable rate demand notes.

Mr. Forney’s additional suggestions for the Committee include:

• Establishment of a target liquidity amount for the 2008 hurricane season based on his analysis.
• Authorization of Citizens’ staff members and financial advisors to design a detailed plan to achieve liquidity, including analysis of which ARS to retire or replace.
• Establish firm indications of capacity and pricing for stand-by liquidity arrangements, direct-pay letters of credit and bond insurance.

The Committee agreed with his suggestions, and the final plan will be presented at the next Finance and Investment meeting on March 12, 2008.

To view a copy of Mr. Forney’s report, click here.

The meeting was adjourned.

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

 

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