Citizens Finance and Investment Committee Meeting Report: Liquidity Financing

Recently, Citizens Property Insurance Corporation (“Citizens”) Finance and Investment Committee (“Committee”) held a meeting to discuss investment reports and receive an update on liquidity financing. To view the complete agenda, click here.

The meeting was called to order by Chairman Bruce Douglas, with a quorum of Committee members in attendance. Also in attendance were Sharon Binnun, Citizens’ Chief Financial Officer (“CFO”) and John Forney from Raymond James, Citizens’ financial advisor.

Mr. Douglas stated that Citizens’ representatives have continued to communicate to the Florida Legislature that governmental borrowing of surplus funds from Citizens could have a negative impact on the company’s claims-paying abilities.

Mr. Douglas outlined three reasons that surplus funds should not be borrowed from Citizens:

1. There is no need for more money to go into the Insurance Capital Build-Up Incentive Program (“Program”). Thirteen companies have received money from the Program so far, and have expressed during talks with Mr. Douglas that they do not need any further funding or competition from other entities.
2. Since the Program was started in 2006, there have been no major storms to test whether the purpose of the Program has been realized.
3. Citizens is philosophically opposed to diminishing its claims-paying capacity because of the expected negative effect on policyholders.

Mr. Odom echoed Mr. Douglas’ sentiments, saying that the Program was a good idea, and that it accomplished the goal of taking policies out of Citizens. However, Mr. Odom added that by taking money out of Citizens’ surplus funds, a major storm during the 2008 season could result in more assessments to policyholders. The Committee expressed unanimous support of this position.

It should be noted that after this meeting, the Legislature did extend the Program and provide for funding in the amount of $250 million in the form of a loan from Citizens’ surplus funds.

Ms. Binnun then gave an update on liquidity financing, which included an announcement of co-manager appointments for High Risk Account (“HRA”) bond financing, a recap of the investment policy for tax-exempt bond proceeds, and the financing plan for the revolving line of credit and revolving credit line resolution.

At the March 25, 2008 Citizens Board of Governors meeting, a liquidity program for the HRA was approved that consists of a fixed-rate short term bond issuance not to exceed $2 billion. The Senior Manager Team and estimated costs of issuance also were approved.

Banc of America Securities, JP Morgan, Merrill Lynch, SunTrust Capital Markets and Wachovia Capital Markets were recommended as co-managers of the liquidity program. These five co-managers will assist with wider distribution of the fixed-rate bonds to achieve the lowest interest cost. The Committee approved appointment of these co-managers.

The investment policy for tax-exempt, pre-event bond proceeds was approved by the Committee as well. This policy will seek to maintain a stable short-term portfolio of tax-exempt securities or money market funds, while minimizing negative arbitrage and providing full liquidity within 15 days.

The revolving line of credit financing plan also was approved by the Committee. This plan will serve as a bridge between the funds Citizens currently has available for claims paying and the amount at which the Florida Hurricane Catastrophe Fund reimbursements begin.

Ms. Binnun reported on Citizens investment funds. To view the summary report table, click here. She cautioned the Committee that when reviewing the funds listed as “Operating Cash,” the figure on the table does not take into consideration the amount of money currently frozen in the State Board of Administration-operated fund, or the funds that could be withdrawn for use by the Insurance Capital Build-Up Incentive Program.

The meeting was then adjourned.

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