Citizens Finance Committee Holds Special Budget Review Meeting

The Citizens Property Insurance Corporation (“Citizens”) Finance and Investment Special Committee (“Committee”) met on November 27, 2007 regarding Citizens’ 2008 Budget. 

To view a copy of the meeting agenda, click here.

To view a copy of the 2008 Citizens budget, click here.

To view a copy of the budget presentation from today’s meeting, click here.

Finance and Investment Committee members:
• Bruce Douglas, Chairperson
• Andy Bennett
• Sharon Binnun
• Earl Horton, Jr.
• Allan Katz

Board of Governors (“Board”) Chairman Bruce Douglas prefaced the meeting by indicating that the reason the Committee was designated as “special” was because reviewing the budget was not the normal responsibility of the Finance and Investment Committee, but a vehicle was needed in order to allow the Board to review the budget prior to a subsequent vote on the budget.

He also established that today’s meeting would consist of Citizens’ management reviewing the budget process and explaining the assumptions utilized during budget preparation.

Chairman Douglas also stated that questions have been raised about how the Board functions and whether meetings have been “in the Sunshine” and indicated that it is Citizens policy that all meetings are conducted with respect to Florida’s “Sunshine Laws.”  He also said that Board members who do not belong to respective Committees have, and that it is his wish that all Board members are always invited to attend all Committee meetings in person or by phone, regardless of specific Committee assignment.

Scott Wallace presented the method by which the Citizens budget has been developed, emphasizing that each Citizens departmental review gave respect to utilizing sound fiscal responsibility and sound customer service, and that Citizens was committed to continually challenging the organizational structure to provide optimal efficiency.

Mr. Wallace related that numerous initiatives are scheduled for implementation in 2008 with the goal of improving operations and enhancing customer service.  Adding that “just because because we have a budget for 2008 does not mean dollars will be spent or staff will be added,” he explained that the cost of these initiatives was matched with anticipated expenditures. 

Citizens senior management is scheduled to meet every month to review status related to budget, goals and process in order to ensure staffing and expenditures are necessary and that checks and balances are in place to control expenses.  Citing “rigorous control” of any expenditure greater than $25,000, Mr. Wallace also said that any expenditure greater than $100,000 must be presented to, and approved by the Board.

Sharon Binnun then reviewed the assumptions used to establish the budget parameters.   Citizens is in growth mode, with $4.5 billion in premium budgeted for 2008.  However, as premium grows, operations must grow to match it.

The income statement of the budget is based on policy count and premium expectations, and that the average premium is higher than personal residential policy amounts.

A substantial depopulation/takeout of 76,000 policies was effected in November, 2007 and a greater one of over 100,000 policies—most of those coming from the Personal Lines Accounts (“PLAs”) is expected in December 2007.  Expectations of a “significant” depopulation in 2008 was also factored in as a budgeting assumption.  High Risk Account (“HRA”) policies will not experience any takeout for 2008, while Commercial Lines Accounts (“CLAs”) are expected to experience a 20% jump.

Chairman Douglas added that it is expected that Citizens will be writing policies during 2008 far in excess of what is being budgeted.

Wind-loss mitigation credits were also factored in.

A decision to purchase private reinsurance for Citizens has not yet been made.  An RFP solicitation for a private reinsurer is being designed and will be presented to the Board for approval in January.  Citizens Commercial Lines Accounts (CLAs) are not eligible for the Florida Hurricane Catastrophe fund.

The loss adjustment expense ratio (LAER) is also an assumption, with that figure being projected as lower for 2008 than what was experienced in 2007.   Operational improvements, such as bringing more claims processing in-house, was cited as the expected reason for the lower forecasted LAER.  Ms. Binnun reminded that even taken-out policies also still require service.

Unallocated loss adjustment expense (ULAE) represents yet another budgeting assumption, such as administrative funds being allocated to cover loss adjustment expenses.

Citizens’ administrative expenses were cited as low compared to the private market, for example, Board expenses were estimated to be well under the projected totals. 

However, a concern was raised by Andy Bennett that budgeting was not broken down and listed by department, but rather that all funds were showing up in a large “slush fund” into which all expenses (such as depreciation) were placed.  Ms. Bennett said that for a layperson, it was more conducive to understanding the budget and its ramifications if it could be viewed on a department-by-department basis.

Chairman Douglas stated that he felt all the information was exhaustively presented in the existing budget and that this was how Citizens “does business.”

Earl Horton Jr. said he would not be averse to having each department provide capital expenditure line itemization.

The Committee embarked on examining the budget on a line-by-line basis, but it was finally decided that Ms. Bennett would visit with Ms. Binnun in order to obtain adequate information to achieve a comfort level with the existing budget.  Ms. Bennett expressed that she did not feel that the Committee had been given adequate time to review the budget before next week’s vote on the budget.  However, Ms. Bennett  acknowledged later in the meeting that Ms. Binnun was able to present information that supplied answers to some of Ms. Bennett’s concerns.

Among other budget details discussed were:

• Citizens is actively recruiting a rating actuary
• Citizens’ six separate computer systems are being honed into one source of data for all systems, which is expected to result in positive insofar as staffing reduction and information accuracy.

Chairman Douglas reiterated Citizens’ commitment to holding meetings in accordance with Florida’s Sunshine laws, as well as the aforementioned purpose for the “special” designation of today’s meeting and then adjourned the meeting.

A series of Citizens meetings is scheduled for next week as follows:

Market Accountability Advisory Committee Meeting
December 05, 2007 9:00 – 10:30am

Finance and Investment Committee Meeting
Board Committee
December 05, 2007 4:00pm

Audit Committee Meeting
Board Committee
December 05, 2007 2:00pm

Board of Governors Meeting
December 06, 2007 9:00am