Citizens Property Insurance Corporation

Minutes of the

Board of GovernorsMeeting

Wednesday, December 10, 2014

The Board of Governors (Board)ofCitizens Property Insurance Corporation (Citizens) convened in Winter Park at the Alfond Inn onWednesday, December 10, 2014 at 9:00 a.m. (EST).

The following members of the Board were present:

Chris Gardner, Chairperson

Don Glisson, Vice Chair

Gary Aubuchon

Bette Brown

Juan Cocuy

Jim Henderson

James Holton

Freddie Schinz

John Wortman

The following Citizens staff members were present:

Barry Gilway

Constance Josef

Jennifer Montero

Fred Deeb

Barbara Walker

Jennifer Montero

John Rollins

Jay Adams

John Rollins

Kelly Booten

Steve Bitar

Christine Ashburn

The following people were present:

Kapil Bhatia Raymond James

Rick PattersonRaymond James

Corise MorisonUSAA

Matt WillamsBank of America Merrill Lynch

Subhashish DuttaGuy Carpenter

Mark WeinbergCiti

Celena ColdwellBank of America Merrill Lynch

John GeneralliWells Fargo

Nan BrunsonMacNeill Group

Scott CabalkaRBC Global

Matthew SansburyStifel Nicolaus

Trevor DorrAon Benfield

Sarah LehanAon Benfield

Sharon FrawleyLear and Associates

Ayanna Louis-CharlesMorgan Stanley

David UnsworthJLT

Albert Del CastilloGreenburg Traurig

Greg RokehWeston Realty Crop/Florida Realtors

Kevin StokesGuy Carpenter

Tim MeenanMeenan PA

Nathaniel JohnsonJP Morgan

Linda VanderperreRamirez and Co. Inc.

Vladimir MunezRegions Bank

Henry ReyesJP Morgan

Ken VincentWillis Re

Margaret LezcanoStifel

Steve Korducki BMS

Call Meeting to Order

Roll was called.

  1. Approval of Prior Meeting’s Minutes

A motion was made and seconded to approve the September 24, 2014 minutes. All were in favor. Motion carried.

  1. Chairman’s Report

Chairman Gardner stated, we’re really coming through a phenomenal year. I don’t want to steal Barry’s thunder, but we’ve had some real, tangible results and things we can be proud of. We are going to hear from Barry about a very effective and successful Core implementation. We know how successful this transfer program is this year and we are looking forward to a similar result next year. We’ve had phenomenal depopulation results. Barry has done a wonderful job building his executive leadership team. I would be remised not to mention the Clearinghouse. On behalf of the Board, thank you for a job well done this year.

  1. President’s Report
  1. 2014 Year in Review

Barry Gilway continued, we’ve had an extraordinary year. Looking back over the year, we’ve made significant progress in every single strategic and operational initiative. It’s a result of a truly extraordinary executive team and the individuals who work with them. In past Board meetings, I spent time highlighting the major initiatives that we report on to each of you on a monthly basis. I’m going to focus on four of those initiatives and recognize the employees who are responsible for them. I’ll focus on depopulation, Core, Clearinghouse, and Claims Litigation Management. This is the ninth year that no major hurricanes hit the United States, making it the first time since records began in 1851 that the United States has gone this long without a Category 3 or stronger hitting Florida. The odds of that occurring are 1 in 5,020. The absence of hurricanes improved investor confidence in the Florida insurance market. We have benefited greatly from market conditions.

Barry Gilway continued, depopulation is not a Citizens independent initiative. We must confirm all coverage eligibility for any incoming customers. It’s the law. We are required to do that. In fact, the development of the Clearinghouse was really developed as a result of a way to validate eligibility. One of our primary objectives is to find and to identify private market coverage for Citizens customers who previously had no options other than a Citizens policy. Let me share with you briefly how we have responded to this objective through a review of a few select slides. This first slide shows that in August of 2012 we peaked at slightly more than 1.5 million policies. In a period of less than 30 months, as of November of this year,we have 727,000 policies in force. That is over a 50% reduction in Citizens policy count and while the depopulation of policies is slowing, as we begin to look more like the market of last resort we were created to be, we are still forecasting that we will reach 670,00 polices by year end 2015.The second slide shows that just three years ago Citizens had over a half a trillion dollars in exposure on our books. That’s $510 billion. Today we are showing $229 billion, a 55% reduction in exposure.

Barry Gilway continued,the third and final slide shows the assessment potential in the event of a 1-100 year storm. Just 3 years ago we had $11.6 billion that would have been assessed in the event of a major storm. As of June, through a combination of reduced exposure and increased risk transfer, taking advantage of highly favorable reinsurance and CAT Bond market conditions, we were down to 1.6 billion and will be well below that number by year end.Current estimates indicate $1billion by year end. The budget I will present today targets the elimination of any assessment in the event of a 1-in-100 year storm contingent upon continued improvement in the pricing, terms, and conditions in our 2015 Risk Transfer Program that we are expecting and meeting our significantly reduced written premium objectives. This depopulation just does not happen it takes dozens of highly motivated employees to handle literally millions of transactions. I credit the leadership of Steve Bitar and Jennifer Montero with this important initiative and dozens of their employees who’s behind the scenes efforts, dedication and intellectual contributions deserve a lot of credit.For Depopulation I will mention just two people. Bobbi Scott, Depopulation Manager oversees this highly visible area - the assumption process itself. This process effects hundreds of agents and dozens of insurers and despite the enormous volumes and tight deadlines Bobbi consistently led her team while moving policies to the private market.Judy Vick, Depopulation Program Administrator also plays a critical role in the compilation and exchange of the massive amounts of data required to make the assumption process work. Working simultaneously with multiple insurers across multiple product lines, she ensures that millions of data points exchanged every month are accurately distilled to ensure that each and every policy is correctly placed with the private market or retained by Citizens.

Barry Gilway continued, it is highly encouraging that the private market place is getting stronger with more restrictive financial requirements established by the Office of Insurance Regulation (OIR) and Demotech, Florida’s primary rating agency. I will take an opportunity to make a very key point. Demotech, as a rating agency, has to satisfy Fannie Mae, Freddie Mac and all mortgage agencies, that an insurer is able to meet its claim paying obligations. They only recognize AM Best and Demotech. Weiss ratings have their place in ratings and assessing financial stability but they have to meet no one’s standard and because they do not recognize the $16 billion reinsurance capacity of the Florida market provided by AM Best rated reinsurers they do not accurately assess the claim paying capability of Demotech A rated companies. The two primary sources for this evaluation in Florida are the OIR and Demotech. Unless depopulation companies meet their standards they cannot participate in depopulation. We are hard at work considering process changes that will make depopulation even more transparent and customer friendly. With Steve Bitar’s lead we have formed a work group that includes representatives from all parties to consider these changes.

Barry Gilway continued, Clearinghouse is my second area of comment. Our Clearinghouse program was recently recognized by Insurance Networking News (INN) Citizens was awarded 1st place for implementing the most innovative IT solution and recognized as one of the best IT solutions in the insurance industry nationally. Citizens was also among four companies recognized for their excellence in the growing importance of analytics for the insurance industry. The Clearinghouse implementation was an amazing accomplishment –the team delivered a brand-new technology and built all of the necessary integrations to Citizens other systems, along with Bolt Technologies, built the integrations to multiple companies in only five months with a virtually flawless launch. Today we have 20 insurance partners participating with us providing private market options to Citizens customers. I would like to recognize four of the many excellent employees who developed this solution. Sarah Harrell, Enterprise Program Director was responsible for the overall Clearinghouse program implementation. Kyle Brown, Clearinghouse Manager was responsible for establishing the “brand new” Clearinghouse Business Unit, defining all related operational functions and processes.Laura Lawson, Senior Business Analyst lead the business analysts responsible for developing Clearinghouse requirements and business needs, our policy system requirements, data analysis and testing. And finally Ravi Tadiparthi, Enterprise IT Architect IT’s single point of contact for Clearinghouse technical architecture and systems impacts.

Barry Gilway continued, I am entering my 45th year in this fascinating business and have participated in the development and implementation of at least a half dozen major technology implementations; with the launch this past weekend of the Personal Lines module, it has brought a formal close to a program under development for seven years involvingliterally hundreds of employees and contractors that accomplished nothing less than the replacement of our entire customer facing technology. I have never experienced an initiative of this size and scope delivered on time and on budget. Core Insurance Solution Implementation Program is Citizens’ next generation insurance operating system that combines current policy, billing, and claims systems into one integrated user-friendly platform. In addition to real and significant cost savings, implementation of this package software solution will allow Citizens to the following:

  • Increase its flexibility to adapt as the Florida marketplace changes;
  • Quickly implement rate and coverage changes;
  • Achieve staffing efficiencies and increase productivity;
  • Gain operational efficiencies for staff, agents and outsourced vendors from the use of one system platform;
  • Facilitate depopulation through automation and improved data;
  • Outsource additional functions, where appropriate;
  • Improve data quality; and
  • Provide better claims and policy service to policyholders and agents.

Barry Gilway continued, in addition to Kelly Booten, our executive in charge of Systems and Operations, I would like to recognize just a few of the individuals responsible for this success: Constance Josef, Enterprise Program Director was responsible for the overall Core program implementation ensuring timely completion and co-ordination of all program components. Constance has been with this program from the very beginning through strategy development, solicitation of services and vendors, and implementation. Chris Jobczynski, Director IT Planning and Delivery was responsible for IT delivery of the new technology working with IT leadership, ensuring compliance with architectural standard and ultimately achieving program goals. Suzanne Cricks, Gary Watson, and Kelly Gudmunson are IT Managers who were with the program through the entire implementation working thousands of hours to ensure systems were developed, tested, and supported. And finally,systems this complex cannot be accomplished without the support of product owners who represented their business units and external customer needs:

  • Angela Lockwood, Accounting,
  • Sarai Roszelle, Product Development,
  • Barbara Arnold, Consumer and Agent Services,
  • Jan Klocko, Personal Lines Underwriting,
  • Greg Rowe, Claims,
  • Stephen Mostella, Commercial Underwriting,
  • Clint Roszelle, Enterprise, and
  • Dennis Royer, Document Management.

Barry Gilway continued, we would also like to recognize our vendor partners who walked by our side and enabled us to reach our goals. Guidewire Software and Capqemeni. Citizens’ customers, agents, and employees will benefit from this platform for years to come. The last component of this initiative Personal Lines PolicyCenter and BillingCenter for the most complex was launched this weekend with over 8,000 policies, 4,000 per hour going through the system, with a 99.71% success rate. Absolutely incredible results! Over 560 agents went on line the first day of operation with no significant issues. Kelly and our Core Team have just done a fantastic job!

Barry Gilway continued, and finally you cannot look back on 2014 without recognizing the enormous progress we have made in Litigation Management.Scott Link, Coordinating Counsel in partnership with Dwane Tyson, Director – Assistant General Counsel Claims, have worked closely with Plaintiff Counsel representing policyholders that have litigation disputes for sinkhole claims to attempt resolution without further legal proceedings to insure our policyholder’s homes are repaired in a timely manner. Citizens entered settlement agreements with multiple Plaintiff Attorney firms which represented 2,451 litigated claims. Through November 2014, 1,516 settlement agreements have been entered which will providestabilization services and cosmetic repairs and in turn settle the pending litigation. We are expecting additional positive results before this program is complete.Jeff Lambert, Assistant Director of Claims, has provided the leadership required from Claims in order to satisfy the settlement agreements as they are received and was key to helping to establish the Sinkhole Stabilization Managed Repair program that is utilized for conducting the stabilization repairs utilizing fully credentialed vendors that provide performance and payment bonding as well as a 5 year warranty to our policyholders.Kyle DeBoer, Claims Manager, has managed the actual repair process and scheduling of work assignments. Kyle’s team is responsible for working with the policyholder until all repairs are completed and the final warranty is issued.

Barry Gilway continued, needless to say I am extremely proud of our Citizens employees and Executive staff that are delivering truly extraordinary results for Citizens customers and, in fact, all Floridians.Now as we begin to close the books on 2014 we are already hard at work planning for the 2015 Annual Planning initiatives you have supported (included in your board book). So if you have no questions I would propose that we move to the annual plan and budget proposed for 2015.

Jim Henderson stated, it’s wonderful to hear a report that doesn’t wear out the words “I” and “my.” Thank you for doing that and recognizing people.

Barry Gilway stated, I appreciate the work of the team.

  1. 2015 Annual Plan and Budget

Barry Gilway stated, we provided each Board member with a budget package. Fred Deeb provided an extensive overview and commentary. We’ve had individual discussions with each of our Board members. They provided enormous input in the creation of the budget. I want to thank every Board member for working with staff and providing input. It still amazes me how each Board member volunteers his/her time and it’s not just for this meeting. The committee meetings are becoming more robust. We recognize that it takes an extraordinary amount of time and commitment. Staff would tell you that we know we have an extraordinary Board.

Barry Gilway continued, we don’t intend to spend a significant amount of time on the budget. I’ll highlight some of the underlining assumptions. We want to continue to decrease policy count. We think it’s going to slow down in 2015 as we come closer to being the residual market we’re supposed to be. We are still servicing well over a million policies because we continue to service the policies until we meet the assumption date and the expiration date of the policy. We have a reduction of premium in earnings but we are still projecting $177 million in net income. Loss adjustment expense (LAE) and unallocated adjustment expense (ULAE) are the same in the budget. In the future, as we become more residual, you have to expect the LAE to increase. The book of business is a more suspect book of business. We don’t anticipate in seeing that in 2015 but it will be a discussion in 2016. We are looking at a reduction in the claims count. Two years ago, we have 75,000 claims and we anticipate 32,000 this year.

Barry Gilway continued, one-time costs are included in the budget. Things like the Jacksonville relocation is a one-time cost of $5.6 million. Even with that $5.6 million in costs, the numbers provided initially of $13.4 million in net savings still hold. We still think the consolidation will result in the savings. Jennifer will go over things that are increasing costs for good reasons, such as the expansion of the Clearinghouse and its products. Inspector General costs will be going forward. Core implementation and training costs will be there. Agents have indicated that they wish private companies could come close to the level of training Citizens provides. We still present an Administration budget that’s down to $12 million, which still remains three to four points lower than the private market.