Citizens Committee Meeting Reports: December 2009

A series of Citizens Property Insurance Corporation (“Citizens”) committee meetings took place on December 10, 2009 in Tampa.  These meetings preceded the Citizens Board of Governors (“Board”) meeting scheduled for today, December 11, at which the same committees will report on their respective developments.

The following is a brief summary of the activities that occurred during yesterday’s meetings.  

 

Audit Committee

The Audit Committee meeting included a report from Citizens’ Chief of Internal Audit Joyce Bellows on the 2010 internal audit plan and budget.  To view the complete meeting agenda, click here.

The Committee approved the 2010 audit plan, as well as the 2010 audit budget, which reflects a 10 percent increase from 2009. 

Citizens’ Chief Financial Officer Sharon Binnun reviewed the September 2009 financial statement.  She also reminded the Committee of the pending procurement process for an external actuary and independent external audit firm.

Ms. Binnun reported that Citizens’ surplus and reserves continue to improve, which is partially attributable to another mild Florida hurricane season. 

Citizens’ loss ratio is high, primarily because of its status as a residual insurer.  Also contributing to the loss ratio are the mitigation credit issues, which result in less premium being collected.  Administration expenses are 20 percent under budget, which is partially due to job vacancies.  As of September 30, 2009, Citizens has $3.7 billion in surplus and $9 billion in assets.

Following an extensive procurement process, Ms. Binnun recommended that Citizens should change its outside auditing firm to Johnson Lambert & Co. The Committee agreed with her and voted to recommend this firm to the Board.

She also recommended the appointment of an outside actuary because of Citizens’ loss of that internal function.  The committee approved this item.

Citizens’ Director of Special Projects J.D. Lester reported on Citizens’ enhanced Code of Ethics programs and policies.   The Committee approved a recommendation to present the new Code to the Board for approval.

 

Information Systems Advisory Committee

Information Systems Advisory Committee Chairman Bill Corry opened the meeting and recognized Citizens’ Senior Vice President of Information Technology Curt Overpeck, who briefed the Committee on the 2010 information technology (“IT”) budget.  To view the complete meeting agenda, click here. 

Mr. Overpeck noted that, at approximately $58 million, the 2010 IT budget is 16 percent greater than it was in 2009.  To view a briefing on the 2010 IT budget, click here.

Reports on key IT projects outlined the progress of telephony and IT migration logistics among Citizens’ various administrative and disaster management locations.  To view the key project report, click here.

Because of the complexity involved in the migration of Citizens’ IT systems, the IT strategy team recommended the use of a single vendor to develop and deliver a plan to accomplish it.  The procurement process will begin with a Request for Quotation.  Vendor selection will begin during the first quarter of 2010.  To view an update on Citizens’ IT system migration, click here.

Establishment of a hosted data center facility for production services will require a formal procurement for data center real estate services relative to a managed, co-location center. This process will begin during the second quarter of 2010.  

Mr. Overpeck reviewed the Committee Charter, to which several changes were recommended for approval by the Board. 

 

Financial and Investment Committee Meeting

Citizens’ 2010 Operating Budget contains increases in the areas of Information Technology, Risk Management, Corporate Governance and others.  Significant discussion took place regarding the Budget line items.   Some costs are higher due to a deferral of some projects into 2010.

The Budget is based on the expectation that Citizens’ policy count will remain static, with about 110,000 new policies offset by the departure of 110,000 current policies.  It also assumes there will be no hurricanes in 2010, but provides a contingency budget in the event of a major storm. 

Ms. Binnun noted there is no significant change in the expected loss ratio.  This was followed by some discussion regarding the uncertainty of the Budget in light of potential legislative changes to Florida’s windstorm mitigation credit system or other factors.  She added that reinsurance costs have increased. 

Citizens’ Senior Vice President of Underwriting Paul Palumbo indicated that the impact of pending wind mitigation re-inspection results would be reported to the Committee once they are available.  Also, financing costs will increase due to the imminent expiration of a $700 million pre-event five-year financing agreement.  

After further discussion, the 2010 Operating Budget , which can be viewed by clicking here, was approved for presentation to the Board. 

Citizens’ Financial Advisor John Forney reported on Citizens’ 2010 pre-event liquidity program and investment policy.  He explained that the investment policy goal is to meet liquidity needs following a major catastrophic event.  Mr. Forney reported that Citizens does not need to seek outside liquidity measures for the personal and commercial lines accounts due to the accumulation of surplus. 

Ms Binnun presented two Committee consent agenda items, both of which were approved:

• Extension of the existing reinsurance co-broker agreement with Aon Benfield and Guy Carpenter.  
  • Ms. Binnun noted that, while there has not been a decision about purchasing private reinsurance, it may be discussed in more detail at the next Committee meeting.
• An investment performance, compliance and analytical software contract with Clearwater Analytics. 
  
  • To view the contract, click here.

In light of improved market conditions and the current low yield of short-term interest rates, Ms. Binnun outlined various investment policy options that could produce greater returns.  This suggested policy shift had been discussed during the previous Committee meeting.  A motion was adopted to submit Ms. Binnun’s report for consideration by the Board.  To view the various investment options presented in her report, click here.

 

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

 

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