Citizens Property Insurance Corporation Board of Governors Meeting Report: May 2010

Jun 2, 2010


Citizens Property Insurance Corporation’s (“Citizens”) Board of Governors (“Board”) met on May 27, 2010 in Fort Lauderdale. 

Before beginning the meeting agenda, Citizens Financial Advisor, John Forney of Raymond James, advised the Board that he had recently returned from Washington, D.C., where he participated in discussions on pending catastrophe insurance funding legislation that would potentially benefit Citizens.  

Mr. Forney provided a brief history on catastrophe-related insurance legislation and cited U.S. Congressman Ron Klein’s “Homeowners’ Defense Act” as a bill that could provide a more efficient approach to the insurance financial cycle.  However, if passed, the bill would not warrant the dismantling of the Florida Hurricane Catastrophe Fund, but rather, augment it by providing an additional layer of coverage over and above its current layers, conditioned upon Citizens’ rates being deemed actuarially sound.

“It’s not a bailout,” explained Forney, “in fact, it’s an anti-bailout.”

Mr. Forney explained that the Homeowners’ Defense Act would be funded by assessments, but that, even with the assessments, premiums would decrease, rates would be more actuarially sound and insurers would be generally more reliable.  

A Board member pointed out that the National Flood Insurance Program had experienced financial problems.  Mr. Forney explained that this was because a portion of the program was not required to maintain actuarially sound rates.   


President’s Report

In response to a brief presentation by Citizens President Scott Wallace, the Board ratified Lance Malcolm as Citizens’ Vice President of Claims and approved the promotion of Yong Gilroy to Chief Insurance Officer.    Paul Palumbo continues in his position as Senior Vice President of Underwriting.

Mr. Wallace continued his report, noting that “continued market disruption” has plagued the second quarter of 2010 with the liquidations of Northern Capital Insurance Company and Magnolia Insurance.  The demise of these two companies represents approximately 90,000 policies that must be placed either in the private market or with Citizens.    As a result, nearly 10,000 calls to Citizens per week have been logged, representing a 30 percent increase in call volume.   He warned the Board that the second quarter likely will manifest some deterioration in call response activities.  To date, Citizens has processed approximately 20,000 Northern Capital/Magnolia-related policyholders.

Mr. Wallace further cautioned that the current in-force policy budget may be understated and thus require a re-evaluation of expenses as a result of the cost of writing additional business.

Mr. Wallace discussed issues surrounding Citizens’ lease of Tallahassee office space.  Initially, the lender/lessor would not support the lease because of the Florida Department of Management Services’ (“DMS”) requirement that Citizens must lease space from the State unless no other options were available.  Citizens has worked with DMS to extend the current leases for an additional 11 months, which was viewed favorably by the lender/lessor.

Carlos Lacasa, a Board member, inquired about whether Citizens’ purchase of its own building and land might be a more optimal solution.  The Board discussed the merits of this idea briefly, after which Mr. Lacasa pointed out that the permanency of a purchase such as this would provide a good opportunity to educate the Florida Legislature about Citizens’ importance in the State.  This item was part of the Consent Agenda, which was later approved.


Financial Report

Director of Accounting and Finance/Controller Jennifer Montero reviewed Citizens’ consolidated financial position and the results of Citizens’ operations for the first quarter of 2010, noting that loss payments and adjustment expenses have increased significantly in the Personal Lines Account.  This increase is specifically related to the frequency and severity of sinkhole, fire, theft and water claims, as well as litigated claims.  Citizens will be evaluating and validating these numbers in the coming days to determine what is driving the increase.   

Board member Tom Lynch requested that multi-peril policies be segregated in the evaluation.  Mr. Wallace also added that more policies are being written within the High-Risk Account (“HRA”).

Citizens’ total assets increased to $361.8 million, or four percent. This relates primarily to a considerable increase in collected premiums, a decrease in non-admitted invested assets and no significant cash outflows for the first quarter of 2010, offset by the $96.2 million debt service payment on the 2007A HRA Refunding Bonds in March 2010.

However, premium receivables decreased $1.8 million, or two percent, during the first quarter, which was directly attributed to the continued reduction in policy counts through attrition and takeouts.

To view the complete management discussion and analysis, click here.


Actuarial and Underwriting Committee Report

It was reported that Citizens’ new multi-peril, multiplicative base rating plans for 2011 have been filed with the Florida Office of Insurance Regulation for all personal lines of business.   Some approvals have been received, while other filings are still pending.   The effective date of the new rating plans will coincide with the new 2011 rates.

Work has begun on the 2011 rates, which will be developed as follows:

  • Non-hurricane premium indications will be based on historical premium and loss data from years 2005 through 2009, with the losses evaluated as of March 31, 2010;
  • Hurricane premium indications will be based on the results from the hurricane model(s):
    • For personal lines, the Florida-approved AIR Worldwide Model will be incorporated into the indication, as well as the Florida Public Model. Commercial lines will be based solely on the AIR Model.


Mitigation Credit Inspection Program

The Board discussed the recent “significant media coverage” of Citizens’ contract with Inspection Depot for the ongoing mitigation credit inspection program.

Citizens General Counsel Dan Sumner provided a detailed recap of specific events surrounding Citizens’ decision to contract with Inspection Depot.  He cited Board meeting minutes and a convergence of events relating to the 2009 Florida Commission on Hurricane Loss Projection Methodology’s Windstorm Mitigation Committee hearings to illustrate how Citizens followed a proper procurement process in its decision to award the emergency contract and an extension to Inspection Depot.

Ultimately, a long-term contractor will be selected to complete the project.  The vendor will be required to oversee the project, which will entail administration of a contractor that actually performs the inspection.  Of the $125 budgeted for each inspection, on-site contractors will receive $95. 


Information Systems Advisory Committee

Chairman Malone announced that Brian Foley from Blue Cross and Blue Shield of Florida has been appointed as Citizens’ technical advisor.   Mr. Foley joins two other technical advisers who have served since 2008.

Using specific examples, Chairman Malone emphasized the critical importance of technology to Citizens’ operations, especially over the remainder of the year.

In regard to the $1.75 million telecommunications contract in the Consent Agenda, Chairman Malone explained that the cost spans seven years and augments Citizens’ existing telephone staff.  He reviewed the applications in which efficient telecommunications will be crucial to Citizens’ operations, such as intracity internal communications and Citizens’ disaster recovery center.


Market Accountability Advisory Committee (“MAAC”)

Dave Newell presented the MAAC report on behalf of MAAC Chairman Brian Squire. 

During the May 26 MAAC meeting, a lengthy discussion took place about issues surrounding the transition from the prior version of the Uniform Mitigation Verification Inspection Form OIR-B1-1802 to the February 2010 updated version of the Form.  Given the Form’s five-year lifespan, questions were raised about whether an old Form used within that time frame is acceptable for new business, and whether inspections completed on the old Form would be valid if they were first-time inspections or otherwise.

Discussion also took place regarding the restriction of private carriers, who are approaching condominium association insurance pools through the Florida Market Assistance Program, resulting in some Citizens policies being canceled and rewritten mid-term.

Positive feedback on Citizens’ ongoing mitigation credit reinspection program is being attributed to Citizens handling of the program with its policyholders, according to Citizens’ Chief Administrative Officer Susanne Murphy.  She explained that the re-inspection process allows the policyholder to decide at the policy renewal date how to handle any inspection results.

At the May 26 MAAC meeting, Citizens’ Legislative Affairs Director Christine Turner had remarked that, should SB 2044 be vetoed, similar provisions to tighten regulation of Uniform Mitigation Verification Inspection forms are contained within HB 663 (which was signed into law on June 1).

Agency Appointment Agreement Revised

Mr. Newell further reported that, with input from agents and other insurance industry members, Citizens’ Agency Appointment Agreement has been revised and updated for the first time “in years.”  

While the current Agent Appointment Agreement uses a single document to appoint an agency and its agents, the working draft revision amends the agreement structure so that the primary document is between the agency and Citizens as an “Agency Appointment Agreement” with an “Agent Rider” that will become the contract between Citizens and the individual agents.  An Agent Guidance Manual will be introduced to further define more generalized areas within the Agreement.

At its May 26 meeting, the MAAC had agreed to provide 30 additional days in which feedback on the Agent Appointment Agreement could be collected and presented to the Board at its August 2010 meeting.

A special MAAC meeting has been scheduled for July 1, 2010 to review the draft agreement and discuss any comments received.

To review the draft documents, click on the hyperlinks below:


Legislative Summary

Susanne Murphy reviewed  the Citizens-related points of CS/CS/CS/SB 1196  (which was signed on June 1) and CS/CS/SB 2044 (which was vetoed the same day).

Effective July 1, 2010, CS/CS/CS/SB 1196  relating to Condominium Associations effects the following:

  • Repeals the requirement that condominium unit owners must maintain property insurance coverage and the requirement that the condominium association must be an additional named insured and loss payee on policies issued to unit owners;
  • Repeals the provision that allows a condominium association to purchase property insurance at the expense of the owner when the unit owner does not provide proof of insurance; and
  • Requires that residential condominium unit owner policies issued or renewed on, or after July 1, 2010 include loss assessment coverage of $2,000 for certain assessments with a deductible of no more than $250 per direct property loss.


Consent Agenda

The Consent Agenda, which was approved without discussion, included the following items:

  • Underwriting Business Outsourcing 01 05 27 10.pdf
    • Awarded to the MacNeill Group, Inc., the purpose of this contract is to assist Citizens in underwriting and processing a portion of all underwriting transactions for both personal and commercial lines of business, including the servicing of agent phone calls. MacNeill will be responsible for processing a planned percentage of Citizens’ forecasted transactions and be responsive to short-term changes in market conditions that could cause those transaction volumes to increase or decrease.
  • Replacement Cost Estimation 04 05 27 10.pdf
    • As the selected contractor, XACTWARE SOLUTIONS, INC. will provide Citizens with services and software capabilities to help establish accurate replacement cost estimations for select residential and commercial buildings, along with actual cash value estimates for manufactured /mobile homes.

To view an index of other significant Consent Agenda items, click here.

To access complete May 27 Board meeting materials and agenda, click here. 

Citizens’ next Board of Governors meeting has been rescheduled from June 28 to July 26, 2010.


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


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