Citizens Board of Governors Meeting Report: February 18

Feb 19, 2009

On Wednesday, February 18, 2009, the Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) held a meeting.  To view the complete agenda, click here.

Board Chairman Jim Malone called the meeting to order with a quorum of members present.  Citizens executives in attendance included President Scott Wallace, Chief Financial Officer (“CFO”) Sharon Binnun, Chief Financial Advisor John Forney of Raymond James & Associates, Audit Manager John Fox, Senior Vice President of Underwriting Paul Palumbo, and Senior Vice President of Information Technology Curt Overpeck.


Finance and Investment Committee

The Finance and Investment Committee, which met on February 17, was briefed on Citizens’ 2009 Pre-Event Liquidity Program, changes to Citizens’ investment portfolio, and investment returns as of December 31, 2008.  To view a summary of the meeting, click here.  


Audit Committee

Mr. Fox gave an update on the February 17 Audit Committee meeting, prior to which the 2008 Auditor General Examination Report was issued to Citizens’ Management and Board on January 28, 2009.  This Report, along with the Florida Office of Insurance Regulation (“OIR”) 2008 Market Conduct Examination Report issued on February 1, 2009, will be monitored by Citizens’ Office of Internal Audit’s (“OIA”) Open Items Process.

The OIA also completed its Annual Audit Report, which can be viewed by clicking here

In his President’s Report, Mr. Wallace reviewed Citizens’ book of business and operations statistics.  He also updated the Board on the Citizens Mission Review Task Force, State Farm Florida’s proposed withdrawal from Florida’s property insurance market and Citizens’ efforts to control expenses. 

As of September 30, 2008, Citizens held a total of 1,080,948 policies that account for:

  • 27 percent of Florida’s residential property insurance market
  • 22 percent of Florida’s personal residential market
  • 62 percent of Florida’s commercial residential market

To view an overview of Citizens’ book of business, click here.  To view the quarterly operations comparison charts, click here.

Mr. Wallace reported that Citizens’ operations statistics show a significant increase in non-catastrophe water-related claims during 2008.  Citing State Farm Florida as an example, Mr. Wallace explained that Citizens has not been the only insurance company affected by an increase in these types of claims.  Therefore, Mr. Wallace has directed Citizens’ Staff to conduct a study on non-catastrophe water-related claims to determine why they have increased.  Board members requested that the study be conducted quickly, and that it should provide detail on the number of claims per operating account. 

The Citizens Mission Review Task Force (“Task Force”) submitted its Final Report to the Florida Legislature on February 2, 2009.  During the Florida Legislature’s February 16-20 Interim Committee Week, Task Force Chairman Bruce Douglas reviewed the Report’s findings before House and Senate committees.

Mr. Wallace stated that, although there were a few proposed operational revisions included in the Task Force Report, none of its recommendations seem to be detrimental to Citizens.  Highlights of the Report include:

  • Implementation of a “glide-path” to actuarially-sound rates
  • Allowing Citizens to stop writing commercial non-residential policies
  • Requiring agents to prove they have appointments with at least one other carrier operating in Florida
  • Requiring policies to be re-underwritten every three years
  • Requiring agents and policyholders to certify their continued eligibility on a yearly basis

To view a copy of the Task Force’s Final Report, click here.

Mr. Wallace reviewed State Farm Florida’s announcement of its intention to withdral from Florida’s property insurance market within the next two years.  To view more information on State Farm’s proposed withdrawal, click here.

The OIR has approved State Farm’s withdrawal plan on the condition that none of State Farm’s policies would be placed with Citizens.  To view a complete report on the OIR’s conditional approval, click here

So far, Citizens has not seen an increase in policy applications since State Farm’s announcement.  Any change will be reported to the OIR. 

Mr. Wallace stated that he believes State Farm is “serious” about leaving Florida.  Deputy Florida Insurance Commissioner Belinda Miller echoed this sentiment, but also said that the OIR is “very serious” about not allowing State Farm’s policies to be placed with Citizens.  She said that several companies already have expressed an interest in assuming State Farm policies, and that one company has expressed an interest in taking most, if not all, of the policies.

Mr. Wallace updated the Board on current expense control measures.  Many cost-saving measures were implemented in Citizens’ 2009 budget and operating costs are being reduced even further.  During early February, 2009, Florida Insurance Commissioner Kevin McCarty urged all state joint underwriting associations and other governmental entities to review their expenses.  Accordingly, Citizens’ expense review is being prepared and a report will be made to the Board upon its completion.


CFO’s Report

Ms. Binnun reported on Citizens’ financial statements for the year ending December 31, 2008.  To view Ms. Binnun’s report, click here.  Highlights include:

  • Citizens has the highest surplus in its history available for the 2009 hurricane season
  • Citizens’ High Risk Account has enough surplus to reach the Florida Hurricane Catastrophe Fund attachment point
  • Citizens’ total policy count is down 17 percent from the previous year
  • Citizens’ non-catastrophic claims have increased from the previous year; water and fire damage account for the highest percentages of claims
  • The average exposure per $1,000 in premiums paid has increased approximately 30 percent from 2007
  • Payroll, office space, computer software and postage were the largest administrative expenses in 2008

To view supporting financial data charts, click here.

Citizens’ reserve position is currently under review by an outside actuary.  Based upon preliminary actuarial findings, it is not anticipated that the draft actuarial reserve report will undergo significant changes.  To view the December 2008 draft actuarial reserve report, click here


Actuarial and Underwriting Committee Report

Mr. Palumbo reported on Citizens’ Actuarial and Underwriting Committee’s January 29 meeting, a summary of which may be viewed by clicking here

During this meeting, the Committee voted to revise Citizens’ current animal liability exclusion to explicitly state that bodily injury and property damage inflicted by an animal owned or kept by the insured is not covered under his or her homeowners’ policy, regardless of what caused the animal to commit the injury or damage.  The Board approved adoption of the clarified language and directed that appropriate filings be submitted to the OIR for approval.

The concept of contiguous flooring also was discussed in response to a noted increase in both the frequency and severity of personal residential claims in which payment of undamaged flooring represents a large portion (or even majority) of a loss. 

The insurance industry has not adopted specific limitation standards for this type of claim, although it is typical for claims limits to be based on the portion of flooring that is actually damaged.

Citizens’ Staff is in the process of researching contiguous flooring limitations and is expected to present a proposal on its findings by the next Board meeting.


Information Systems Advisory Committee Report

Mr. Overpeck reported that the Information Systems Advisory Committee Charter was adopted at the most recent Citizens Information Systems Advisory Committee meeting.  To view the Charter, which was approved by the Board with no discussion, click here.


Consent Agenda

With no discussion, the Board unanimously approved the following Consent Agenda items:

Chairman Malone concluded the meeting by cautioning that the term “surplus” in reference to Citizens’ liquid assets is misleading, and that it would be a mistake to trivialize or politicize the exposure presented by Citizens’ policies to Floridians. 

Chairman Malone urged Citizens to secure more pre-event liquidity reserves and warned that if Florida experienced a catastrophic storm, the impact on Floridians could easily rival that of Hurricane Katrina’s on Louisianans.

The meeting was then adjourned.


Should you have any questions or comments, please do not hesitate to contact Colodny Fass.


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