Citizens Property Insurance Corporation Board of Governors Meeting Report: June 29
Jun 30, 2011
Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met via teleconference yesterday, June 29, 2011, to discuss pre-event bond pricing for the 2011 Hurricane Season and consider a proposal to replace the State-run company’s aging policy management, billing and claims system.
To view the agenda and meeting materials, click here.
Citizens Chief Financial Officer Sharon Binnun opened the meeting by announcing Citizens’ success in obtaining $900 million in pre-event bond financing for its Coastal Account (formerly the High-Risk Account), which covers hurricane-related property damage.
“With completion of this financing, Citizens will have over $6 billion of readily available cash resources in the Coastal Account and is well prepared financially to pay policyholder claims in event of a hurricane or hurricanes that may impact the State,” Ms. Binnun told the Board. She said the financing was designed to balance the benefits of Citizens liquidity program with the costs of financing.
The bonds have a final maturity date of 2020, marking the first time Citizens has sold pre-event bonds with a maturity date as long as nine years, Ms. Binnun noted. The bond issue included $750 million in fixed rate, tax-exempt bonds and $150 million in floating rate, tax-exempt bonds. Total interest cost on the bonds is 4.09 percent. The bond issue is scheduled to close on July 14, she added.
The Board then considered for approval the purchase of a $47 million information technology system to replace Citizens’ current outdated policy management, billing and claims system.
Citizens’ existing core system – which handles policy, billing and claims for the company – is 25 years old and composed of three tiers that were described as outdated, costly to maintain and difficult to manage. On June 24, 2011, Citizens Information Systems Advisory Committee unanimously recommended that the Board approve a proposal to purchase a replacement system manufactured by Guidewire Software, Inc. of San Mateo, California (“Guidewire”). The old system has limited functional capability that has contributed to creating a high-risk situation, it was noted.
After hearing a report on the advantages of switching to a new system, the Board unanimously voted to sign two contracts with Guidewire totaling $47 million for a total of 15 years. The two contracts encompass software, implementation and consulting services. The new system will be implemented over four years and is expected to generate $108 million in savings over 10 years.
However, before the final vote was taken, Board member Carlos Lacasa voiced concern about what might happen if Guidewire went bankrupt. He requested assurance that Citizens would be able to speed up the purchase of its software license, which, under the agreement, it would own after 10 years. It was explained that Citizens could accelerate payment for the license if bankruptcy became a concern.
The Board also unanimously approved the consent agenda, which included a breakdown of the software and contract costs for Guidewire.
Benefits of the new core system include interfacing with a single system, enhanced agency-underwriting capabilities, workflows integrated with the policy system, one billing system, faster adjuster speed, standard and streamlined billing and payments processing, and ledger interfaces to one system.
With no further business before the Board, the meeting was adjourned.
Should you have any questions or comments, please contact Colodny Fass.
To unsubscribe from this newsletter, please send an email to Brooke Ellis at bellis@cftlaw.com.