Citizens Board of Governors December Meeting Report

Dec 7, 2007

A meeting of the Citizens Property Insurance Board of Governors was held on Thursday, December 6, 2007.  The prior meeting minutes from October 25, 2007 were revised to reflect that Belinda Miller was present at that meeting. A request was also made to have minutes be summarized in the future.

To view the October 25, 2007 meeting minutes, click here.

Chairman Bruce Douglas gave the Chairman’s report, which  included the Finance and Investment Committee report.  Because of the publicity surrounding the recent State Board of Administration liquidity crisis, John Fornay from Raymond James was on hand to give an up-to-date situation report on Citizens Financial position.

Mr. Fornay reviewed the SBA investment statistics and noted that Citizens is conservatively focused in financial management and yet has sufficient liquidity and robust cash flow.  One Board member reminded that Board Members should be notified and kept “in the loop” during the early stages of any crisis situations similar to this.

Chairman Douglas said that Citizens was in constant communication with the SBA, but did not initially take action when trouble was first noted because it trusted the SBA managers and did not be a part of the panic by withdrawing its assets like others.  Later saying that the SBA would not have had a problem if the panic withdrawls had no occurred, Chairman Douglas explained that Citizens exposure has moved from the threshold norm of 10 percent to 14 percent, and that this spread represents approximately $500 million.  The goal is to reduce that exposure back to the guiding 10 percent level in the short term funds.

Thus, John Fornay will meet with Sharon Binnun to establish ground rules moving forward and understand Citizens’ liquidity rules.   Because Citizens presently has no liquidity needs, there are fortunately no demands on short term pool.  Citizens will also ask Florida Chief Financial Officer Alex Sink to “broaden her view” of Citizens’ investments.

Chairman Douglas expressed that Citizens intention is to stay with its investments.

Scott Wallace gave the President’s Report, after which the investment meeting minutes and the budget, which was reviewed at the November meeting, were approved by the Board, with one Board member, Andy Bennett, dissenting, citing the lack of time given to review the budget.

Executive Vice President of Operations David Emery gave his report, which consisted of a quarterly statistics report, which can be accessed by clicking here.

Mr. Wallace said that Citizens is working on a number of operational improvements, among which was a lower commission rate, however it was felt that this was inappropriate to incorporate at this time.

Sharon Binnun gave the CFO report, which can be viewed by clicking here.

Richard DeChene gave the Actuarial and Underwriting Committee Report, which is summarized below:

Filings Update

Windstorm Mitigation Credits – Citizens will begin offering higher windstorm mitigation credits for residential properties in 2008. The corporation worked closely with the Office of Insurance Regulation to establish appropriate credit “caps” in order to prevent scenarios where the total of all credits result in negative rates that trigger minimum premium rules.

New Commercial Non Residential Program – The Office of Insurance Regulation approved, by Order, the rates and rules for the new commercial non-residential program. Citizens will begin offering these policies on 1/1/08.

Commercial Non Residential Wind Only Rates – The OIR approved, by Order, a 15% rate increase for this program.  300% was originally requested.

These two types of policies are not eligible for coverage with the Florida Hurricane Catastrophe Fund, nor is “meaningful”private reinsurance coverage for these wind-only policies generally available. 

Citizens is considering creating an RFP for a private reinsurance carrier sometime during the second quarter of 2008. 

The topic of how a reinsurer would evaluate value of reinsurance among policyholders who have elected to mitigate was discussed.  The Board was asked to support a long term study of this issue.

A discussion of elimination of pool screen enclosure coverage took place.  The rationale is that these enclosures are non-insurable because they are vulnerable to destruction.  A request has been made to OIR that this coverage be discontinued.

Actuarial Services – 2007 & 2008

  • A new Geographical Information Services (GIS) unit has been established to provide service to Actuarial Services for ratemaking. The functions of this unit include geocoding of policies and “temperature” maps that illustrate things such as policy counts and premium.  
  • A Rating Engine has been developed that can measure impacts of various rating scenarios. The rating engine will produce accurate results for filing components where they currently are either not available or are estimated.
  • Citizens expanded its Actuarial Services unit, which reduces the corporation’s dependence on outside actuarial services to perform analyses.
  • 2008 will be a busy year during which all of the components that will be included in the 1/1/09 rate filings need to be developed. Some changes being contemplated include revising the rating algorithms, separating the hurricane and non-hurricane rates and revising Hurricane Base Premium Percentages.

Product Development & Compliance – 2007 & 2008

A Product Compliance unit was established in April 2007. This unit is responsible for auditing Citizens’ products to ensure that they are underwritten and issued in accordance with filed rules, rates, and forms. Staff has thoroughly audited approximately 900 policies to date and the information found is helping to improve items ranging from processing to print output. The compliance area will grow in 2008 by increasing the volume of policies being audited and by expanding the transaction types being audited.

Product Development had its busiest year to date as shown by the number of product filings submitted to the OIR in 2007.

The types of projects completed in 2007 include substantial legislative changes, new coverage options and products, and a number of amended policy forms.

In 2008, the Product Development team will work closely with Actuarial Services on the many components that will be included in the 1/1/09 rate filings. In addition, development work will be initiated on two new products:

  • A Named Peril Homeowners policy
  • A Comprehensive Mobile Home policy

As Citizens moves forward into 2008, the objectives we are focusing on are 1) rate adequacy, 2) limiting exposure where possible, and 3) effective communication.

Commercial Non Residential Mitigation

Citizens is exploring the potential of offering expanded windstorm mitigation credits for commercial nonresidential buildings.

The committee gave its support for any initiatives that will appropriately encourage stronger building standards through adequate rate levels and pricing differentials.


Pursuant to Rules 69O-170.017 and 69O-170.0155, Florida Administrative Code, Citizens filed amended windstorm mitigation credits for residential properties, as promulgated by the OIR. The newly prescribed credits essentially double existing windstorm mitigation credits and reclassify a portion of the credits. The filings were approved in April and May of this year but have not been implemented. Citizens was unable to implement the credits because residential rates are essentially frozen until January 1, 2009, which means that rates and rating calculations cannot be properly adjusted to account for the impact of increased and reclassified windstorm mitigation credits.

Citizens has been working diligently with the OIR to develop a solution that will not adversely affect any single policyholder and will allow mitigation credits to be appropriately increased.

The largest revised windstorm mitigation credit, as originally promulgated by the OIR, is 92%.  Higher levels of windstorm mitigation credits such as these, in combination with other types of credits, create negative or inappropriately low premiums.

Although Citizens has minimum premium rules that prevent premiums charged from being negative, the minimum premiums are not representative of the level of pricing that Citizens should rely upon to appropriately implement the increased windstorm mitigation credits.

To resolve this issue, Citizens has been working closely with the OIR to develop caps for the combination of windstorm mitigation and other credits. The caps will ensure the total of all credits remain at an appropriate level, while not adversely affecting any policyholders.

In order to evaluate this capping strategy, Citizens developed a rating engine to perform the analysis and provided the OIR with various capping scenarios for personal residential policies.

The OIR recently provided its recommendation to the specific capping scenarios for personal residential policies and the appropriate filings are now being submitted. A similar analysis for commercial residential policies is currently ongoing and similar capping scenarios has been submitted for OIR review during November.



Actuarial Services works closely with Product Development to prepare filings. Although Citizens’ residential rates are frozen until January 1, 2009, the Product Development update shows the large number of filings made in 2007 which required actuarial work. The rate freeze actually increased the actuarial work necessary to implement required changes while ensuring compliance with the law (e.g. windstorm mitigation credits).

In addition, Actuarial Services made tremendous progress in 2007 by expanding the capabilities of the department.

This following is a summary of Actuarial Service’s progression, growth and accomplishments made during 2007:

• Geographical Information Systems (GIS) Unit – This unit was established to provide ratemaking analysis and other valuable information to departments throughout the organization. GIS functions include the geocoding of policies and “temperature” maps, which are visual aids for determining policy concentrations based on data such as exposure
or policy count.

There are a variety of GIS functions currently being outsourced by Citizens. It is in the process of evaluating the functionality that the new internal GIS unit can assume. In addition, Citizens’ GIS unit has begun to review and validate the GIS work preformed by outside vendors. The benefits of the in-house GIS unit include; validated accuracy of information, reduced expenses and less reliance on outside vendors.

• Rating Engine – The rating engine is a ‘re-rating’ tool that enables the measurement of the impact of various rating scenarios on Citizens’ entire book of business. Developing this capability has taken several months and is near completion. It is designed to provide the accurate information necessary for rate filings such as earned premium, earned premium at
current rate level and overall rate impact.

Another benefit of the engine is the ability to perform and analyze “what if” scenarios. This will allow Actuarial Services to fully evaluate the effects of contemplated changes so that senior management is better positioned to make informed decisions regarding its product changes.

• Rate Filing Historical Information – Actuarial Services is now providing current and historical rate change information, including specific rate changes by territory, for internal viewing by Citizens’ staff. Providing staff with instant access significantly enhances the service associated with requests for this type of information. .

• Staff Expansion – Citizens is expanding internal resources and enhancing in-house actuarial services. The goal of this expansion is to reduce costs associated with actuarial labor and provide the ability to handle a greater volume of work. Citizens has assembled an actuarial team consisting of ten members, with three more positions to fill. The additions will give Citizens the ability to provide more internal analytical information and meet 2008 rate filing goals.


Since Citizens’ residential rates are frozen until January 1, 2009, the ability to revise rates or rating calculations has been limited. During 2008 Citizens plans to submit actuarial rate filings for all accounts to be implemented in 2009. These rate filings will encompass many changes as outlined in Product Development’s 2008 preview.

One of the biggest actuarial challenges will be a review and restructuring of rating calculations and algorithms. The need to restructure and modernize Citizens’ rating calculations has become a higher priority as enhanced credits and new coverage options are implemented.

Changes being contemplated for a revised rating structure include, but are not limited to:
• Separate calculations for hurricane and non-hurricane premiums
• Use multiplicative approach instead of additive
• Revise the method for calculating the Hurricane Base Premium Percentages
• Capping discounts

Much of the 2008 Actuarial & Underwriting Committee meetings are expected to be spent reviewing and discussing the analysis and detail of the proposed changes.

A recent workshop was held to discuss the commercial residential market and Citizens’ application to provide coverage for this market.   The workshop consisted of a discussion of whether or not the market could provide coverage in excess of Citizens $2.5 million cap.  It was said that:

  • Additional market capacity is improving
  • Rates appear to be decreasing
  • For first time, there is an expressed interest by capital build-up incentive program to assume some of citizens commercial residential business

More discussion dealt with how to create a proper structure to provide for coverage limits above the $2.5 million cap.  It was felt by some members of the Board that amending underwriting guidelines would require a legislative effort.  Other Board members felt that amending policies should best be done administratively, from a rulemaking standpoint.

Chairman Douglas reminded that legislation would soon take effect that any home with a value of over $750,000 must have shutters or it will not be insured by Citizens and be dropped by 2009.  A staff member reminded that this would only apply to designated coverage areas.

A discussion of Builders Risk coverage took place. Chairman Douglas mentioned that a letter from Insurance Commissioner Kevin McCarty was received that asked Citizens not discontinue this coverage, inasmuch as “no one else will sell it.”

Board member Andy Bennett pointed out that aging commission and revitalization were two issues that were brought before the Board without going through the Committee process. She stated her hope that the Board doesn’t have to make decisions without both sides of risk being known.  Chairman Douglas said he was comfortable with management’s decisions, whereas Ms. Bennett stated that the Board makes policy decisions, not management.

In other discussion, Richard DeChene announced that Citizens has employed a senior vice president of claims.  With other claims statistics being cited, including the reminder that policyholders should know that Citizens has “extraordinarily large amounts available for paying claims,” it was noted that there has been an increase in new and re-opened claims from 2005, and that the Legislature may address this issue in the coming session.  Attorneys in these actions do not seem to be accepting the Supreme Court decision and are moving forward with cases.

Chairman Douglas said that Citizens must pursue an understanding of what the scope of exposure is in the current SBA crisis.  He asked staff to determine as quickly as possible what Blackrock is going to do about it and that perhaps Citizens should work in concert on a full-scale review with them to manage the situation.  A preponderance of money is invested into corporate and U.S. government securities and some are asset-backed. 

Ms. Bennett said that it is her hope that in its investigation, either Citizens or Blackrock takes into account the underlying securities in those investments.

The consent agenda was then reviewed, which consisted of the following items:

IT Infrastructure

Information Technology, Staff Augmentation and Other Contracted Services

Jacksonville Build Out

Citizens will be contracting with DOCS of Tallahassee, dealers for Herman Miller and Global furniture.

Sinkhole Adjusting Services

ROL Insurance Consulting–approximately $900,000. The contract terms are similar to Citizens’ current agreements for Claims Administration Services in Citizens’ daily claims operations. However, the base term of this agreement with ROL is for six-months, and there is one six-month renewal option. It was determined by the Board that sinkhole adjusting contracts have not been put out for bidding for quite some time.  Staff indicated that an RFP will be completed by the end of the first quarter for sinkhole adjusting services.  Meanwhile, the contract should be extended on a three-month basis, pending the RFP to be written and presented during the first quarter of 2008.

Outside Legal Counsel

Discussion included the need for diversity among outside counsel legal firms, as well as Citizens administration.

Appraiser Firms for Disputed Claims

Administrator of Disputed Claims Appraisals – Collins Center

Investment Accounting

Auction Rate Bonds


Florida Market Assistance Plan Board of Governors Meeting

After discussion regarding the consent agenda, the Board meeting was concluded, and immediately thereafter, a meeting of the Board of Governors of the Florida Market Assistance Plan (“FMAP”) was held. 

After a review of the prior meeting minutes, the 2008 FMAP operating budget was reviewed and approved.  To view a copy of the budget, click here.


News coverage of the meeting from The Miami Herald is below:

Citizens assesses its risk
The state-run insurer is the biggest investor in a troubled investment pool, and it wants to reduce its holdings.
Posted on Fri, Dec. 07

Florida’s state-run insurer is looking to reduce its holdings in the troubled investment pool that has been rocked by massive withdrawals in the past two weeks.

Citizens Property Insurance, the largest investor in the Local Government Investment Pool, now has nearly $2 billion of its surplus in this short-term fund.

It has about $1.7 billion in Part A of the fund, which has been reopened for withdrawals, and about $260 million in Part B, which remains closed.

In all, Citizens has about $7 billion of the $10 billion it has stockpiled — in cash, credit lines and borrowings to pay future claims — invested with the State Board of Administration, which runs the investment pool and other funds. It began to move funds over to be managed by the SBA last fall because of its good investment results and also to save money on management fees.

At Citizens’ monthly board of governors meeting Thursday, held in Gainesville, officials discussed the need to reduce the insurer’s holdings in the Local Government Investment Pool to meet Citizen’s own guidelines of holding no more than 10 percent of any one fund.

In recent weeks, Citizens already has withdrawn about $800 million, according to spokesman Rocky Scott, to begin reducing its holdings. The investment pool currently holds about $14 billion.

Also Thursday, the Citizens board approved the insurer’s 2008 operating budget, projected at $169.7 million, up from $103 million. The big surge in the budget is due primarily to increased salary expenses as Citizens continues to expand its staff next year, said Scott. Citizens expects to have 1,200 staffers by the end of 2008, up from its current 900. It has employees in Tallahassee, Tampa and Jacksonville.

Agents were cheered — at least for the time being — when Citizens President Scott Wallace told the board that the insurer has decided not to lower its agent commission rates right now. But it still would like to reduce this expense.


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