Citizens Board of Governors Meeting Report: March 18, 2010

Mar 22, 2010

The Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met on March 18, 2010, during which it reviewed reports from various Citizens committees and acted upon their recommendations.    To view the agenda and complete meeting documentation, click here.


Dan Sumner Approved as Citizens General Counsel

The recommendation of Dan Sumner as Senior Vice-President and General Counsel of Citizens by Citizens’ President Scott Wallace was approved by the Board.


2010 Legislative Guiding Principals Adopted  

Prompted by discussion during its December 2009 meeting about the need to provide the Board with a mechanism to clearly and concisely communicate its priorities to the 2010 Florida Legislature, Citizens has created a document entitled “2010 Legislative Guiding Principles.” 

The Board voted to approve this document, which will be formally transmitted by Chairman Jim Malone to Florida’s legislative leadership, as well as to the Chairmen of the standing legislative committees with jurisdiction over insurance.  The Principles are written in broad language to enable their application to different proposals.

Mr. Wallace advised that, also pursuant to previous discussion, each Board member would be provided with weekly legislative updates until the conclusion of the 2010 Florida Legislative Session in May.  


No Citizens 2010 Private Reinsurance Purchase

In her report, Citizens’ CFO Sharon Binnun reiterated the Finance and Investment Committee’s recommendation that Citizens purchase only the Mandatory Layer of Florida Hurricane Catastrophe Fund (“FHCF”) coverage for the 2010 hurricane season, not the optional FHCF Temporary Increase in Coverage Limits (“TICL”) coverage. 

Mandatory FHCF coverage is estimated at approximately $5.8 billion at 90 percent of covered losses after retention, yielding a premium of approximately $371 million.  FHCF reinsurance is only available for residential coverages (personal and commercial residential lines).  Commercial non-residential policies are not covered by the FHCF.

Ms. Binnun explained that, primarily because of Citizens’ inability to recoup private reinsurance costs resulting from the implementation of the mandated rate “glide-path” for the 2010 hurricane season, it was not recommended that Citizens purchase private reinsurance.  It was reported that there is a relatively low probability in 2010 that a storm of sufficient size to trigger TICL will occur, and if TICL is not purchased, emergency assessments would not be required until losses in the High-Risk Account (“HRA”) are over $8 billion.

Ms. Binnun reported that an audit of Citizens is currently in progress, the interim figures of which show that the insurer has $4 billion in surplus for claims paying capacity and $8 billion in consolidated assets. 

The impact of wind mitigation credits on loss ratios was noted, after which Ms. Binnun added that Citizens’ loss ratios are increasing for a variety of reasons that are being analyzed for a determination of cause.   She explained that costs associated with loss tend to increase correlative to repair costs. 

After Ms. Binnun’s report, the Board voted to approve the Finance and Investment Committee’s recommendation to purchase the FHCF Mandatory Layer of coverage.  A revised Citizens investment policy for operating funds and tax-exempt pre-event bond proceeds also was approved.  


Purchasing Review Committee Policy Revisions Approved

The Board approved all recommendations made by the Purchasing Review Committee, which recently was created to review Citizens’ procurement process and related timelines.  Headed by Board Member Carlos Lacasa, the Committee recommended substantive changes to Citizens’ procurement policy, as well as quarterly reporting to the Board on Citizens’ competitive solicitation activities.  These reports will include the procurement of contracts on an emergency or sole-source basis.  Continuing efforts to streamline and reduce Citizens’ procurement cycle timeline also were approved. 


Claims Committee Report

In addition to reviewing operations-related and administrative items, Claims Committee Chairman Earl Horton requested Board approval of a statewide multi-year contract with several vendors to handle the demolition and removal of Citizens-insured mobile home units that have been declared a total loss in claims processes.  Subject to local regulations, Citizens is responsible for the salvage or demolition and removal of these units.   

The request was later approved by the Board as part of the Consent Agenda.  To view the mobile home salvage contract summary and vendors, click here.


Actuarial and Underwriting Committee Report

Wind-Only Boundary Legislative Recommendation Adopted

After the Actuarial and Underwriting Committee had discussed section 627.351(6)(o), Florida Statutes, which mandates the reduction of Citizens’ wind-only map boundaries on December 1, 2010 if the 100-year probable maximum loss does not reflect a reduction of at least 25 percent from a benchmark set in 2001, the Board adopted a recommendation to the Legislature calling for the statute to be amended to provide for the boundary reduction only after Citizens achieves actuarially sound rates. 

Citizens’ Staff is in the process of analyzing the changes to the HRA-eligible boundaries that would be necessary to achieve the mandated reduction

Minimum Appraisal Standards Approved

Mr. Horton noted that it is imperative for Citizens to ensure that an appraisal submitted to substantiate building limits includes an accurate replacement cost valuation, especially since Citizens’ Staff is seeing a marked increase in varying quality and completeness of submitted appraisals.  The goal of this recommendation is to establish standards for appraisals and stop unacceptable practices.  

The Board approved the Actuarial and Underwriting Committee’s recommended appraisal procedures,  which include implementing minimum requirements for all appraisals submitted to Citizens, such as:  appraiser’s name, year built, total square footage, number of stories and construction type. 

Chinese Drywall

In regard to the presence of Chinese drywall in properties covered by Citizens, Mr. Horton reported that the basic recommendation of the Actuarial and Underwriting Committee is to take no action based on these claims, because defective and/or improperly manufactured materials are not covered under any Citizens policy.  

To date, there has been no adverse underwriting action based solely on Chinese drywall.  As noted, over 30 claims have been submitted to Citizens alleging damage from Chinese drywall.  However, no related covered cause of loss has been identified in any claims investigation.   Further, any causal relationship between the presence of Chinese drywall and any covered losses such as water or fire is unknown.  

Citizens policyholders have the ability to continue their coverage if a covered property is temporarily vacated for the purpose of remediation.  Homes that are permanently vacated or abandoned are ineligible for coverage.  


Rate Analysis and Implementation Update

Recently approved Citizens rates were implemented for new and renewal policies with effective dates as follows:

  • January 1, 2010 for multi-peril (not including commercial non-residential multi-peril)
  • February 1, 2010 for wind-only

Along with the new rates, Citizens Board also approved the implementation of a new rating structure for all personal residential policies, which is being applied as part of Citizens on-going efforts to improve risk-based premium calculations.

Components of the new rating structure, which is currently being reviewed by the Florida Office of Insurance Regulation, include:

  • Splitting base rates by category of peril
  • Applying premium credits as multiplicative and not additive
  • Consistency for wind rates between wind-only and multi-peril policies

Development of the new rate analysis and subsequent filings to be made in 2010 has begun.  By law, the annual filings must be made on or after July 15, 2010.  Approved rates will then be scheduled for implementation on January 1, 2011 for multi-peril policies and February 1, 2011 for wind-only policies.


Citizens Inspection and Outreach Program

It was reported that Citizens is moving forward with the development and implementation of its wind mitigation credit re-inspection program, while simultaneously preparing a solicitation for ongoing inspection management services.


Consent Agenda

Contracts approved by the Board in its adoption of the Consent Agenda included:

The next Board and Committee meetings will be held on May 26 – 27, 2010.


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


To unsubscribe from this newsletter, please send an email to