Citizens Property Insurance Corporation Board of Governors Meeting Report: October 12, 2011

 

At its Board of Governors (“Board”) meeting today, October 12, 2011, Citizens Property Insurance Corporation (“Citizens”) ratified rate increases for nearly 1.5 million policyholders and voted unanimously not to pursue a phase-in schedule for sinkhole rates it approved in September.  

To view the agenda and meeting materials, click here.

The Board reversed its position on the rate increase phase-in because the rates ultimately approved by the Florida Office of Insurance Regulation (“OIR”) were substantially lower than what the Board approved.

Thus, the Board authorized an overall statewide and territorial premium increase for sinkhole coverage of 32.8 percent for homeowners, and a 96.5 percent increase for dwelling fire policies. 

Initially, the Board had voted to cap rate hikes for sinkhole coverage at 50 percent in 2012, and then phase in future increases over the next several years.  It had also approved a proviso that would allow it to review that implementation schedule if the OIR were to approve significantly different rates.

At today’s meeting, Board members received a report on sinkhole issues and loss results for 2011, but the presentation was postponed until next month due to lack of time.

After the minutes of three prior meetings were approved, Board Chairman Carlos Lacasa spoke about the importance of affordable insurance and its effect on Florida’s overall economic recovery.

“The impact of property insurance has a long-term effect on prospects in our state,” Chairman Lacasa said.  “In fact, the turnaround of the recession in Florida will come in part with the resurgence in the housing sector. Without access to adequate and affordable property and casualty insurance, buyers will be hard-pressed to support resurgence in Florida’s housing market.”

Citizens President Scott Wallace spoke about insurance trends that have affected the State-run insurer in recent years.

According to statistics, Citizens is consistently insuring older, less expensive homes, he said.  For example, 97 percent of all insured personal lines accounts and 82 percent of coastal account policies are written for values of $400,000 or less, he pointed out.

In addition, 78 percent of those homes are 20 years or older in both the Coastal and Personal Lines accounts, he added.  Mobile homes track the same way, with 75 percent of the policies being on homes that are 20 years or older.

Meanwhile, Citizens’ policy count continues to grow.  On January, 1 2010, the in-force policy count for all lines of business was 1,030, 000 policies.   As of January 1, 2011, that had grown to 1,283,000 policies, Mr. Wallace stated.

By September 30, 2011 the in-force policy count had reached 1,460,000 policies – a 42 percent increase in 21 months.

He also pointed out that Miami-Dade, Broward, Palm Beach and Monroe counties compose a market share of Citizens’ policies well in excess of 50 percent.  Citizens’ next biggest market share of 20 percent is in the counties of Pasco, Hernando, Hillsborough and Pinellas.

“When we look strictly at writing new personal residential business, we find 42 percent is written in those same counties I mentioned in Southeast Florida and the Tampa area,” Mr. Wallace said.

That translates to 71 percent of new Personal Residential business being written in Southeast Florida and Tampa-two areas the voluntary market is interested in reducing its exposure, Mr. Wallace stated.

“In many ways, Citizens is performing as the residual market in terms of the nature of risk and the concentration of business being written,” he added.

Personal Lines accounts grew from 609,000 policies as of January, 1, 2010 to 992,000 policies as of September 30, 2011, which equals 63 percent growth, he pointed out.

Of concern is the fact that Citizens policy count, which has historically decreased when there are no hurricanes, continues to grow.

 “We continue to see a steady flow of new applications with no end in sight,” he said.  Factors like a weak economy, financial turmoil and continued growth in sinkhole claims are part of the cause, he explained.

Mr. Wallace said he believes many insurers are waiting “on the sidelines” to see what the effects of SB 408 will be on the insurance industry.

 “Time will tell on that. We will certainly incur more sinkhole claims this year than we did the last year,” he said.

Citizens Chief Financial Officer Sharon Binnun then gave a summary of the June 30, 2011 financial statements.  To view the data, click here.

“We have been fortunate.  It’s been five years and we hope it will be six that a hurricane doesn’t strike Florida,” she told the Board.

Additional financial highlights include:

• In the last three years, surplus has grown from 3.1 billion to 5.1 billion as of June 30, 2011.
• Citizens has nearly $4 billion in additional claims-paying ability available through its pre-event liquidity program.
• Citizens purchased $575 million of private reinsurance for this hurricane season.
• It has more than 43 reinsurers participating in the reinsurance program

Ms. Binnun said Citizens continues to budget lower and lower depopulation amounts, and continues to depopulate much less than it budgeted for.  She said she does not expect to see a decrease in depopulation in 2012.

While the most significant growth has been in Personal Lines, Ms. Binnun said statistics showed a year-to-date loss ratio of 59 percent in those accounts, a number that would actually drop to 31 percent if the premium and losses for sinkholes were removed, she said.

The average loss in sinkholes is about $60,000 per claim, Ms. Binnun said.  The sinkhole issue has worsened, not because of severity, but because of frequency, she pointed out.

It was suggested that changes be made to Citizens policies so that perhaps they are not as generous as they currently are.

“We are not going to be able to depopulate unless we can bring up the rates.  I think we really have to go back to our underwriting situation,” a Board member stated.

Mr. Wallace agreed.

“I think everyone in senior management agrees we should not be issuing Cadillacs,” he said.  “We should be issuing standard coverages available to the marketplace – we are a residual market.”

He said Citizens’ staff has been studying what is “standard” in the marketplace and what is considered a “whistle” or a “bell.”

“There will be more on that to come,” he said.

In other action, the Board selected Rob Wallace to serve as vice chairman.

Chairman Lacasa also announced membership of the following committees:

Actuarial and Underwriting Committee

• John Wortman (Voting Board Member) – Chairperson
• Chris Gardner (Voting Board Member)
• Carlos Lacasa (Voting Board Member)
• Jeff Kucera ( Technical Advisor)
• Fred Strauss ( Technical Advisor)
• Yong Gilroy ( Staff)
• Debbie Murphy ( Staff)

Audit Committee

• Tom Lynch (Voting Board Member) – Chairperson
• Nancy Baily (Voting Board Member)
• John Wortman (Voting Board Member)
• Joyce Bellows ( Staff)

Claims Committee

• Nancy Baily (Voting Board Member) – Chairperson
• Carol Everhart (Voting Board Member)
• Chris Gardner (Voting Board Member)
• Rob Wallace (Voting Board Member)
• Jon Palmquist ( Technical Advisor)
• Yong Gilroy ( Staff)
• Lance Malcolm ( Staff)

Consumer Services Committee

• Carol Everhart (Voting Board Member) – Chairperson
• Nancy Baily (Voting Board Member)
• Chris Gardner (Voting Board Member)
• Greg Rokeh ( Technical Advisor)
• Gloria Strickland ( Technical Advisor)
• Susanne Murphy ( Staff)

Executive Committee

• Carlos Lacasa (Voting Board Member) – Chairperson
• John Rollins (Voting Board Member)
• Rob Wallace (Voting Board Member)

 

Finance and Investment Committee

• Carlos Lacasa (Voting Board Member) – Chairperson
• Carol Everhart (Voting Board Member)
• Tom Lynch (Voting Board Member)
• John Rollins (Voting Board Member)
• Rob Wallace (Voting Board Member)
• Sharon Binnun ( Staff)

Information Systems Advisory Committee

• John Rollins (Voting Board Member) – Chairperson
• Rob Wallace (Voting Board Member)
• John Wortman (Voting Board Member)
• Brian Foley ( Technical Advisor)
• Jim Harty ( Technical Advisor)
• Nancy Sampson ( Technical Advisor)
• Curt Overpeck ( Staff)

Market Accountability Advisory Committee

• Brian Squire – Chairperson
• Nancy Bonnell ( Technical Advisor)
• James “Skip” Boylan ( Technical Advisor)
• Curtis Gilbert ( Technical Advisor)
• Belinda Miller ( Technical Advisor)
• Christian Monnar ( Technical Advisor)
• Dave Newell ( Technical Advisor)
• Steve Roddenberry ( Technical Advisor)
• Greg Rokeh ( Technical Advisor)
• Phil Zelman ( Technical Advisor)
• Christine Turner Ashburn ( Staff)
• Susanne Murphy ( Staff)

 With no further business to address, the meeting was adjourned.

 

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

 

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