Citizens Property Insurance Board Approves 2011 Rates, Directors & Officers’ Coverage

Jul 27, 2010



Citizens Property Insurance Corporation’s (“Citizens”) Board of Governors (“Board”) authorized Citizens’ 2011 rate filings for submission to the Florida Office of Insurance Regulation (“OIR”) during a teleconference yesterday, July 26, 2010.   

Because of 10 percent rate cap imposed by the Florida Legislature, Citizens’ residential property policyholders would see a maximum statewide increase of 10.2 percent if the rates are approved by the OIR.  Without the regulation, these same rates otherwise would have risen nearly 56 percent in order to achieve actuarial soundness.

The rate indications, which, according to Citizens Senior Vice President Paul Palumbo, had been calculated for the first time based solely on actuarial analysis, showed capped and uncapped statewide rate changes by individual county.   The data included rate increase and decrease recommendations, inclusive of a provision for the cost of the Florida Hurricane Catastrophe Fund (“FHCF”) rapid cash build-up layer, which is not subject to the mandated 10 percent rate cap.   (Citizens did not purchase the FHCF’s Temporary Increase in Coverage Limits layer this year. )   To view the table, click hereA product line and policy type key chart can be accessed by clicking here.

Notably, Citizens will file a commercial residential multi-peril average statewide rate increase of zero for 2011, inasmuch as the AIR v.12 model used to calculate the amounts had produced a negative 6.6 percent overall indication.   However, once approved, Citizens plans to rebalance the zero rate using the AIR v.12 data to account for rate decreases, some of which include the southeast Florida coastal areas of Miami-Dade, Broward and Palm Beach counties.

Major components of the analysis used to develop the 2011 Citizens rates included a consideration of five years of Citizens’ non-catastrophic losses, which have steadily increased.  Also factored was five years of Citizens sinkhole-related losses, which have increased dramatically, as evidenced by Citizens’ earned sinkhole premium of S19.6 million in 2009, followed by its sinkhole-related losses of $97 million during the same period.

Multi-peril 2011 rates must be submitted to the Florida Office of Insurance Regulation by January 1, 2011.  Wind-only rates must be submitted by February 1.

After approving the 2011 rates, the Board briefly discussed how to ensure that claims-related issues were part of Citizens’ 2011 Florida Legislative agenda and what Citizens can do to assist the Legislature in understanding and preventing loss ratio issues.


Citizens to Purchase Directors and Officers Coverage

The sole item on the Board’s Consent Agenda was the purchase of Directors and Officers (“D & O”) coverage.   Ms. Everhart asked Citizens’ General Counsel, Dan Sumner, to explain exactly what Citizens is paying for.

Mr. Sumner explained that Citizens’ governing law provides for very good immunity with regard to acts performed in carrying out the duties of Citizens.  However, there are several exceptions, particularly relating to the issuance or payment of debt (such as securities).  By inference, the state-provided immunity would apply to corporation officers and directors; however, state law cannot immunize against a violation of federal law.  Therefore, most of the potential for liability is based on federal law.

Since Citizens is deeply involved in the issuance of financial transactions that could invoke federal legal issues, Florida law does not indemnify Citizens Board members.  Therefore, having a D & O policy to compliment the statute has been deemed as “a prudent step in putting  a protective shield around Board members or Officers   . . .”

In response to further questions by Ms. Everhart on the anticipated selection of Lexington Insurance Company/AIG as the carrier, Brown and Brown agent Rob Roth of Brown and Brown recounted that 20 different carriers were queried about cost, exclusions and coverages and Lexington Insurance endured in the selection process as the frontrunner.   Additional coverage was secured from Lexington in the negotiation. 

Citizens was not classified as a non-profit in underwriting the policy, which runs one year from August 16, 2010 and provides a $10 million annual aggregate limit for all claims made during policy period, including defense costs.  With a deductible of $250,000 for each claim, the policy directly insures individual Board members, officers and employees (past, present, future), except when Citizens has indemnified the individuals.  In regard to Citizens as an entity, the policy insures Citizens for claims made directly against Citizens and claims made against above individuals, but limited to extent to which Citizens indemnifies the individuals.  The annual premium is $251,688.40.

To view a summary of the policy, click here.

No additional business was presented and the meeting was adjourned.



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