Citizens Finance and Investment Committee Meeting Report: October 22

On Wednesday, October 22, 2008, Citizens Property Insurance Corporation (“Citizens”) Finance and Investment Committee (“Committee”) held a meeting to receive updates from Citizens’ investment company Raymond James and an overview of Citizens’ investment portfolio.  To view the meeting agenda, click here.

The meeting was called to order by Chairman James Malone with Committee members Sharon Binnun, William Corry and Jay Odom in attendance.   Also in attendance was John Forney from Raymond James.

Mr. Forney reviewed the current financial market, comparing it to the 1907 bank panic that prompted creation of the U.S. Federal Reserve.   He remarked that during 2008:

• $650 billion has been written down by major financial institutions
• For the first time, the stock market has lost over $1 trillion in one day
• $2 trillion in bailouts/rescues has been issued worldwide

Many of the markets upon which Citizens relies for liquidity (such as money markets) have been the hardest hit.   According to Mr. Forney, even given the state of the financial market, Citizens’ investment portfolio has fared well and still has ample liquidity to pay claims.

The Personal and Commercial Lines Accounts (“PLA/CLA”) are in good position, with enough surplus funds in each to pay a 1-in-60 year event without having to assess policyholders.  Currently, Citizens can pay a 1-in-75 year event before having to assess non-policyholders. 

According to Mr. Forney, there have been almost no storms of this magnitude in recorded history.  To view the PLA/CLA Claims Paying Resources chart, click here.

The High-Risk Account (“HRA”) status is also in good standing, with enough surplus funds to pay a 1-in-50 year event before having to assess policyholders.  To view the HRA Claims Paying Resources chart, click here.

Chairman Malone inquired whether there are any changes that need to be made to Citizens’ investment strategy.   Mr. Forney stated that flexibility is the key to liquidity, as evidenced by the PLA/CLA accounts.

Mr. Forney suggested that Citizens look at combining the PLA, CLA and HRA accounts to ensure that all resources can be used to pay claims in the event of a large catastrophe.  The statute governing Citizens’ accounts was written at the time of Citizens’ creation to encompass separate accounts, and the rationale for that initial legislative structuring is largely obsolete.

Chairman Malone inquired if this restructuring would reduce Citizens’ reliance on the Florida Hurricane Catastrophe Fund (“FHCF”).  Mr. Forney stated that Citizens would still have to rely on the FHCF, but that combining accounts would buy Citizens time before reaching the FHCF attachment point, therefore increasing Citizens’ liquidity and claims paying ability.

Mr. Odom asked if it would be simpler to pass legislation allowing the HRA account to borrow money from the PLA and CLA accounts that would be reimbursed by the FHCF.   Mr. Forney stated that such a plan of action would not fully address all potential assessments to Citizens policyholders from the HRA.

Ms. Binnun cautioned that CLA and HRA commercial nonresidential policies are not covered by FHCF reimbursement, and that any actual deficits and assessments could be significantly different than what an aggregated probable maximum loss report would indicate.  To view other notes and assumptions on claims paying resources, click here.

Ms. Binnun reviewed Citizens’ investment Portfolio.  As of September 30, Citizens’ investment portfolio represented approximately $1.924 billion in pre-event bond proceeds and $6.125 billion in total operating funds.  Approximately $513 million in operating funds and $95 million in Local Government Investment Pool Fund B funds present concern, inasmuch as they are in the form of asset-backed commercial paper, which, because of the current financial market, is expected to decline in value.  To view support tables, see agenda items 4A, B, C, D, E and F.

Citizens’ Investment Manager presented the Committee with the investment portfolio’s investment returns.  As of August 31, Citizens had approximately $820 million in actively-managed operating cash, approximately $307 million of which was held by Taplin Canida.  The management contract with Taplin Canida was terminated in September 2008, due to under-performance.

The under-performance was primarily due to recent changes in Citizens’ Investment Policy that altered the acceptable asset class and duration for investments.  To view the supporting data table, click here.  To view the August, 2008 internally-managed operating fund totals, click here.  To view the September, 2008 totals, click here and here.

The Investment Manager informed Committee members that approximately $9 million in managed funds have “broken the buck” and, due to bank error, were not moved from government funds to agency-discount securities when requested.  The Securities and Exchange Commission is currently investigating the matter.

The meeting was then adjourned.

 

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

 

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