Citizens to review investment policies

Dec 14, 2007

Palm Beach Post, 12/14/2007

TALLAHASSEE Citizens Property Insurance Corp. will review its investment policies after a recent run of withdrawals on a state-run pool jeopardized nearly $2 billion of its assets, its chief financial officer told the Florida House Insurance Committee Thursday.
‘I certainly did not anticipate the run on the pool, the fact that the pool would be frozen and that the amount that is now fund B (isolated) is such a large dollar amount,’ Citizens CFO Sharon Binnun said. ‘In hindsight, I might have made a different decision.’

Binnun’s comments came during a two-hour hearing in which she explained to lawmakers why the state-run insurer did not pull its assets from the local government investment pool during an unprecedented two-week, $13.5 billion run of withdrawals. The run started after staff for the State Board of Administration, which manages the pool, acknowledged on Nov. 14 that some investments had been downgraded because of the subprime mortgage crisis.

Citizens, the state’s biggest windstorm insurer, did withdraw about $800 million during those two weeks, but that was to comply with its own investment policy of keeping its balance below 10 percent of the state-run pool’s total value. Binnun said Citizens didn’t withdraw more because it didn’t want to participate in a ‘run on the bank and further exacerbate the problems.’ Plus, she said, Citizens doesn’t need quick access to its money until next hurricane season.

But Rep. Carl Domino, R-Jupiter, said Citizens isn’t responsible for the pool.

‘Where’s your fiduciary responsibilities in this thing?’ said Domino, who owns an investment firm. ‘Certainly those who got out didn’t care too much about your money.’

When Gov. Charlie Crist and other state board trustees stopped the run and agreed to impose restrictions on future redemptions, the result for Citizens was that it could freely access just $254 million of its $1.97 billion balance.

Of the remaining $1.7 billion, $276 million is untouchable, probably for at least the next year. It represents the insurer’s share of $2 billion in the pool’s investments that the pool’s new temporary manager, BlackRock Inc., has deemed a credit risk. That portion of the pool cannot be redeemed until the mortgage crises passes, which consultants said is unlikely to be before the hurricane season starts in June.

Citizens’ remaining $1.4 billion in the fund is subject to a 2 percent withdrawal fee, which would total $29 million if Citizens withdrew it all. BlackRock said those withdrawal fees could be in place through at least March.

Binnun told the insurance committee that Citizens officials are reviewing the agency’s investment policies.

‘It is a lesson learned for us,’ she said.