Citizens Property Insurance Corporation Board of Governors Meeting Report: March 30, 2011

 

The Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met on March 30, 2011 to review annual financial information, hear Committee updates and approve numerous consent agenda items, including the approval of multiple contracts for sinkhole and geotechnical engineering services.  To access the meeting materials, click here.

Citizens Board Chairman Jim Malone opened the meeting with a report on Citizens’ recent reinsurance-focused trip to Bermuda, where Citizens representatives visited with modelers, reinsurers and other insurance professionals.  Chairman Malone said he introduced Citizens “as it exists today” to representatives from nine companies, answered their questions about Citizens’ governance and finances, and asked them to list issues they considered important in relation to Citizens’ interest in reinsurance.

“They wanted to know, ‘Are you serious about doing this?'” he said.  He said it is financially important to Citizens to have knowledgeable staff members travel to Bermuda to research reinsurance, as well as to Lloyd’s in the United Kingdom.

Spreading Citizens’ burgeoning risk through reinsurance is an idea that demands attention because of the risk of not having adequate financial resources to pay claims after a major storm, explained Citizens Chief Financial Officer Sharon Binnun.  Resources like Florida Hurricane Catastrophe Fund reimbursements and assessments are not immediately available after a storm strikes, thus increasing the desirability of purchasing reinsurance, she said. 

“That is why Citizens has a pre-liquidity program.  That program serves to mitigate or help reduce high risk but it is still a high risk with respect to severity and frequency of claims,” Ms. Binnun said.  “Staff’s conclusion was it would be prudent to obtain additional pre-event liquidity for the High-Risk accounts for the 2011 hurricane season.”

The cost of pre-event liquidity for Citizens is borne by policyholders.  Since 1997, Citizens has engaged in pre-event liquidity financing to ensure that adequate funding is available to pay claims before a big storm, it was noted.

After hearing the report, Board members voted to authorize Citizens’ Finance Department to perform the due diligence necessary to obtain final details of a pre-event financing liquidity transaction and bring that information back to the next Board meeting for final approval.

The Board then voted to approve the hiring of Deborah Murphy as Vice President of Underwriting.  Ms. Murphy, with nearly 30 years of underwriting experience, will work out of Jacksonville and be responsible for leading underwriting across Citizens.

Ms. Binnun updated the Board on Citizens’ financials, noting there were 1.283 million policies in force as of December 2010.   She said the 2010 marketplace changes included a number of drivers, among which are the insolvency of several insurance companies, State Farm’s planned nonrenewal of over 100,000 policies, an increased overall concern of the financial strength of some insurance companies, a 2010 Florida Office of Insurance Regulation order allowing takeout companies to return policies to Citizens and lower depopulation activities in 2010 versus prior years.

“Unfortunately, Citizens continues to grow,” she said.  “As of March 25, we had grown an additional 30,000 policies to 1,313, 000.”

She said growth slowed to about 2,500 new policies per week, compared with the entirety of 2010,  during which Citizens averaged 4,900 new policies per week.  Pending legislation may provide some easing in the insurance marketplace, along with greater incentives for private insurers to re-enter the Florida market, she added.

In 2010, Citizens experienced a 25 percent increase over 2009 in terms of policy count and policies in force, and about a 26 percent increase over the budgeted amount, she explained.  Most of that is attributable to personal lines accounts, which increased by about 225,000 policies.  Half of those came from two insolvent insurers and a number of private market direct writers.  Citizens’ High-Risk Account tends to be relatively stable in terms of policy counts, whereas the number of policies in its Commercial Lines Account decreased slightly.

“We had a big increase and we hope fewer policies come with the some of the legislative and regulatory changes,” Ms. Binnun said.

Despite the in-force policy increase, Citizens had no increase in personnel, she noted.   In 2010, Citizens had 1,160 employees, compared with 1,164 employees in 2009.   Ms. Binnun attributed this to Citizens’ use of outsourcing to perform a significant portion of its underwriting, catastrophe claims and daily claims work.  Better information technology resources have been another factor in keeping employee numbers static.

She said Citizens has an excess of assets over liabilities as of December 31, 2010, with $12,156,083,907 in assets and $7,054,550,005 in liabilities, equating to a net total of $5.1 billion.

In her update, she highlighted the difference between actual unaudited results and budgeted amounts for operations costs as of December 31, 2010:  The actual combined amount for Personal Lines, Commercial Lines and High-Risk was $744,729,177; the budgeted amount was $412,557,292.

Ms. Binnun said the increase in policies in force brought an increase in premiums written and other directly-related items, while an increase in new policies brought in additional revenue.  A large amount of depopulation was expected, but did not occur, she added.

Sinkhole claims were largely responsible for a big jump in loss adjustment expenses, which increased from $55,298,849 in 2009, to $159,023,347 in 2010, she noted.  Hurricane Wilma claims also were a factor in the large increase.

Citizens Chief Insurance Officer Yong Gilroy provided the 2011 Inspection Program update as of February 28.  Since the inception of the program, 49,886 total inspections have been made, he reported.  Underwriting processing has been completed on 20,045 residential and commercial inspections, resulting in $9,909,379 in premium increases when these policies renew.  Of the remaining 29,841 inspection assignments, 15,284 have been postponed and will be reassigned at a later date.  Still remaining are 14,557 open building assignments, of which 8,600 have been received and are being processed by Citizens’ Underwriting Department.

Of the policy adjustments, Mr. Gilroy further noted, 73 percent of residential inspections processed involve a premium increase averaging $442.  Over the next two years, Citizens should be able to process 343,000 inspections, resulting in $119,200,000 in estimated premium cost adjustments.

It also was reported that Citizens had 4,288 new claims litigation cases as of December 2010, up 63 percent from a year ago.

In other business, the Board reviewed and ratified charters for the Audit Committee and the Information Systems Advisory Committee. 

Citizens’ Chief Administrative Officer Susanne Murphy then briefly updated the Board on pending legislation that could affect the insurance industry.  She spoke briefly about bills that could increase Citizens “glide path” from 10 percent to 25 percent, thus effecting a significant rate increase for Citizens policyholders.

Another change, she said, would address eligibility.  Under current law, a policyholder is not eligible for Citizens if he or she has an offer from the private market, unless that offer is 15 percent higher than that of Citizens. The legislation would change that threshold to 25 percent, she said.

Other possible legislative changes include the exclusion of coverage for screened enclosures and lowering the upper limit of coverage for High-Risk Accounts from $2 million to $1 million.

The Board then approved the following consent agenda items:

• Sinkhole Geotechnical Services — Approved a multi-year contract with 21 vendors, totaling $105,000,000 for the life of the contract
• High-Speed Printer – Approved $168,211 for a high-speed printer and associated long-term maintenance
• Temporary Catastrophic Event Staffing – Approved contracts totaling $32,780,115 with 11 vendors
• Temporary Staffing for Daily Employment Services – Approved multi-year contracts with 16 vendors, totaling $5,500,000 for the life of the contracts
• Computer Sciences Corporation – Approved a one-year contract for continued software usage, totaling $2,295,000
• Information Technology Staff Augmentation Services using Florida State Term – Approved $3,805,000 for the 2011 calendar year expenses

After hearing a brief update on outstanding Citizens litigation, the meeting was adjourned as there was no further business.

Immediately afterward, Board members heard an appeal that was filed by the law firm of Buckner, Shifrin, Rice & Etter regarding the award in Request for Proposal (“RFP”) N-00067 for claims legal services.

A Buckner representative claimed the firm did not receive sufficient notice of the RFP, and requested their late-filed proposal be considered, or that the RFP process be re-opened.  Buckner had provided claims legal services for Citizens for approximately four years.

 A representative for Citizens said a bulk email was sent out about the RFP, an ad was placed in the Florida Bar News, and there was also notice on the Citizens Web site.

Both sides outlined the reasons for their positions, with Citizens stating that adequate notice had been provided and Buckner saying it had not.

After much discussion, the Board voted to deny Buckner’s appeal, with two Board members voting in opposition.

 

 

Should you have any questions or comments, please contact Colodny Fass.

 

 

To unsubscribe from this newsletter, please send an e-mail to bellis@cftlaw.com.