Florida Cabinet Meeting Report: June 10

On Tuesday, June 10, 2008 the Florida Cabinet held a meeting.   The following agendas were heard:

 

State Board of Administration

The Cabinet held meeting of the State Board of Administration (“SBA”), however,  the following SBA agenda items were deferred: 1, 4, 5, 6, 7, 8, and 10. 

To view the SBA agenda, click here.

 

Florida Hurricane Catastrophe Fund Finance Corporation

The Cabinet held a meeting of the Florida Hurricane Catastrophe Fund Finance Corporation (“FHCF Finance Corporation”), which is comprised of Governor Charlie Crist (Chair), Chief Financial Officer Alex Sink, Attorney General Bill McCollum, J. Ben Watkins, III and FHCF Senior Officer Jack E. Nicholson (President).

To view the FHCF Finance Corporation agenda, click here.

The FHCF Finance Corporation considered  a proposal to authorize the Florida Hurricane Catastrophe Fund (“FCHF”)  to approve Item 9 and Item 4 related to the FHCF Finance Corporation issuance of $625,000,000 in bonds to pay claims from the 2005 hurricane season primarily related to Hurricane Wilma.

Item 9 states:  “The Florida Hurricane Catastrophe Fund requests that the Trustees adopt a resolution which requests the Florida Hurricane Catastrophe Fund Finance Corporation to issue and sell by negotiated sale, not exceeding $625,000,000 Florida Hurricane Catastrophe Fund Finance Corporation post-event Revenue Bonds.  The bonds will have fixed interest rates, will be exempt from federal income taxes, and will be secured by emergency assessments and reimbursements premiums received by the Florida Hurricane Catastrophe Fund.  The proceeds of the bonds will be used for the reimbursement of insurance companies for additional claims paid due to hurricanes during the 2005 hurricane season. The Resolution provides that the Florida Hurricane Catastrophe Fund is authorized to execute such documents as are necessary for the issuance of the bonds.”

Item 9 was presented by General Bob Milligan, Interim SBA Executive Director.  During his presentation, Governor Charlie Crist, Chief Financial Officer (“CFO”) Alex Sink, General Bob Milligan and FHCF Senior Officer Jack Nicholson engaged in significant dialogue.  CFO Sink was concerned about the use of assessments as a mechanism to manage risk and remarked that the effect of this proposal would prolong FHCF assessments for two additional years.  She also questioned General Milligan about the significant number of new 2005 claims. 

Governor Crist suggested deferring this item until the number of possible fraudulent claims can be reviewed and ascertained. 

Upon assurances from CFO Sink that the FHCF has a recoupment mechanism for fraudulent claims, Item 9 was approved, after which Item 4 was approved without discussion. 

Item 4 seeks the approval of the FHCF Financing Corporation to issue the bonds, whereas Item 9 authorizes the Corporation issue the bonds.  Approval of both items was required to effect the plan.

Item 4 states:  “[t]he President of the Florida Hurricane Catastrophe Fund Finance Corporation requests that the Board of Directors of the Corporation to adopt a resolution authorizing the Corporation to issue and sell by negotiated sale, not exceeding $625,000,000 Florida Hurricane Catastrophe Fund post-event Revenue Bonds.  The bonds will have fixed interest rates, will be exempt from federal income taxes, and will be secured by emergency assessments and reimbursement premiums received by the Florida Hurricane Catastrophe Fund.  The proceeds of the bonds will be used for the reimbursement of insurance companies for additional claims paid due to hurricanes during the 2005 season. The resolution also authorizes the President to enter into any agreements necessary to retain a trustee for the bonds and to execute such documents as are necessary for the issuance of the bonds.”

Following approval of Agenda Item 4, the meeting was adjourned. 

Note:  Because Attorney General McCollum and Commissioner Bronson were absent from the meeting, the agendas previously scheduled to be heard (except for the SBA and the FHCF Finance Corporation items above) were deferred to the July 29, 2008 Cabinet meeting.  However, a special meeting was scheduled  for Tuesday, June 17, 2008, in order to review outstanding agenda items from today’s (June 10) meeting.

At the most recent FHCF Advisory Council meeting on June 9, authority was granted to seek approval from the SBA trustees to issue an additional $625 million in bonds for pre and post-event debt financing.  To view a summary of the June 9 meeting, click here.

 

Below is a statement issued by Citizens Property Insurance Corporation President and Executive Director Scott Wallace regarding today’s proceedings.

 

Statement by Scott Wallace, President and Executive Director of Citizens Property Insurance Corporation, Concerning June 10, 2008 Cabinet Meeting:
 
At today’s Cabinet meeting, extensive discussion surrounded the need to secure additional funding for the Florida Hurricane Catastrophe Fund (FHCF) to cover outstanding claims resulting from the 2005 hurricane season and particularly adverse loss development relating to Hurricane Wilma.

For many months now, Citizens and other property insurers, the Florida Insurance Guaranty Association, the FHCF Advisory Council and others have expressed concern about the alarming number of new and reopened claims from the 2004 and 2005 hurricane seasons. Mention was made at the Cabinet meeting that some of these claims may be “illegitimate.”

As good stewards of our customer’s premiums, Citizens would not knowingly or willingly pay fraudulent claims.  We have internal quality assurance processes in place to ensure that claims receive a thorough review with proper documentation before they are paid. 

It should not come as a surprise that Citizens represents the largest share of this adverse loss development since Citizens represents 40% of the FHCF’s exposure.  And, importantly, Citizens insures more policies with wind coverage in Broward and Palm Beach counties, the areas hardest hit by Wilma, than any other insurer.

It is Citizens’ responsibility to properly adjust and pay the claims of our policyholders.  We will continue to do so, in the most effective and efficient manner possible, in order to carry out our public purpose.

 

 

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

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