Citizens Finance & Investment Committee Meeting Report

The Citizens Property Insurance Corporation (“Citizens”) Finance and Investment Committee (“the Committee”) held a meeting this morning, Monday, January 07, 2008 via teleconference to discuss Citizens’ position in regard to the Florida State Board of Administration’s (“SBA’s”) Local Government Investment Pool (“LGIP”) funds.  To view a copy of the meeting agenda, click here.

Citizens Board of Governors Chairman Bruce Douglas called the meeting to order with the following Committee members in attendance:  Andy Bennett, Alan Katz, Jay Odom, Citizens Chief Financial Officer Sharon Binnun (non-voting member).  Citizens Executive Director Scott Wallace and John Fornay of Raymond James were present, along with Bond Disclosure Counsel Randy Hannah.

Chairman Douglas gave an overview on the status of Citizens’ current investments with the SBA

In the wake of the sub-prime mortgage securities market turmoil, the SBA has split the LGIP fund into two separate pools. 

Pool A is considered the “quality” pool.  It is comprised of short-term maturities with an AAA bond rating

Because the maturities are short-term, Citizens is projecting it will be able to reduce its exposure in Pool A down to its own established 10 percent guideline.  Currently, Citizens’ exposure in this pool is approximately 15 percent.
 
Pool B is the “frozen” pool with questionable securities.

There is uncertainty as to whether these securities will pay out to par upon maturity.  It has been estimated that 70 percent of these funds will do so.

According to Mr. Douglas, Approximately $140 million worth of investments in LGIP-B “look good,” $30-40 million “look OK,” and $4-5 million are “questionable.”

Four securities are ranked in the “questionable” category:
• Exxon
• Two issues of KKR
• “No-name” or so-called “issuer securities”

During a recent meeting with SBA Interim Director General Bob Milligan, Chairman Douglas explained that Citizens’ monies must be available prior to hurricane season without any penalties.  Citizens is endeavoring to work in partnership with the SBA and philosophically does not want to be a party to a “run on the bank,” which might cause further havoc.  However, Citizens is resolved to withdraw approximately $500 million out of the LGIP within 90 days in order to meet its prescribed 10 percent exposure ratios.

It was noted in the Committee discussion that there is approximately $500 million more which Citizens owns via the SBA bond proceeds account.

Chairman Douglas reminded the Committee that Citizens has seen its operating cash increase dramatically due to the relatively calm 2007 storm season.

In other discussion, it was related that Citizens’ recent Request for Proposal for money managers has garnered 25 responses.  Citizens CFO Binnun then requested that the Committee afford her the authority to re-allocate incoming funds among new money managers as she deems appropriate.

A motion was adopted to authorize the requested procedure, with Committee member Jay Odom amending the motion to have written records and verification of telephonic conversations between CFO Binnun and Committee members be kept in relation to any financial placements.

Mr. Fornay was asked by Chairman Douglas to offer a proposal to expand Citizens’ use of investment banks, noting that there is one bank that continues to outperform the market.

In regard to the SBA, Chairman Douglas indicated that he felt it has become appropriate to redefine the role of Raymond James in order to enable Citizens to consult with them on all financial decisions. The Chairman asked that this be formalized by amending Raymond James’ contract to recognize that consultation and evaluation by Raymond James is desired on any investment decision that Citizens proposes to make.  Citizens Counsel Perry Cone was asked to draft an amendment to the existing consulting agreement for consideration by the Committee at its next meeting on January 23, after which it would subsequently be voted on by Citizens’ Board of Governors on January 24.

Mr. Odom asked that clarifying statements regarding the description and definition of the SBA and LGIP go on the record for this meeting so that any interested parties would have no confusion as to the terminology being discussed.

Chairman Douglas said that prior to late July and August of 2007, the LGIP had been a sound, performing money market fund.  At one time, LGIP assets were $28 billion.  Today they total only $9.7 billion.  It was noted that the Trustees of the SBA are Florida’s Governor, Attorney General and Chief Financial Officer.

Citizens began to consider moving money to the SBA as recently as February 2007, when its performance was found to be comparable to outside funds, and its management fees were considerably less.

The meeting was then adjourned.

To view Citizens Finance and Investment Committee meeting minutes from December 5, 2007, which includes an overview of Citizens’ investments in the SBA, click here.

 

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

 

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