John W. Rollins, FCAS, MAAA
Citizens Property Insurance Corporation
Presented at
Casualty Actuaries of the Southeast
Boca Raton, FL April 11, 2006

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April 11, 2006 John W. Rollins, FCAS, MAAA 2

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Citizens is the only property insurer of last resort chartered by the state of Florida
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FRPCJUA – statewide all-peril insurer created after
Andrew 1992
FWUA – coastal wind-only insurer created in early 1970’s by insurance industry
2002 statute merged the two into Citizens
Citizens is a “real” insurance company but operates under special statutes and supervision
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Board of Governors (8) appointed by Florida CFO (2),
Governor (2), House Speaker (2) and Senate President
(2)
Several Citizens-specific laws since 2002 govern operations
Board proposes and Office of Insurance Regulation (OIR) approves a Plan of Operation, Board makes most major decisions
Citizens is subject to all other insurance laws and regulations
April 11, 2006 John W. Rollins, FCAS, MAAA 3

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Three “accounts” maintained almost like separate companies:
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Personal Lines Account (PLA)
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Personal residential policies from FRPCJUA
Homeowners, Renters, condo Unit-Owners forms
All-perils, statewide eligibility
Commercial Lines Account (CLA)
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“Commercial-residential” policies from JUA
Apartment building and condo Associations
All-perils, statewide eligibility
High-Risk Account (HRA)
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Wind-only policies in defined eligible (coastal) areas from FWUA
Personal lines, commercial-residential and some
“true commercial” risks
April 11, 2006 John W. Rollins, FCAS, MAAA 4

Inland
Coastal
Personal
PLA
PLA (all perils)
HRA (wind only)
Commercial-
Residential
CLA
CLA (all perils)
HRA (wind only)
True
Commercial n/a
HRA
April 11, 2006 John W. Rollins, FCAS, MAAA 5

April 11, 2006 John W. Rollins, FCAS, MAAA 6

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Actuarial/Products
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Rates and Rules – PLA, CLA, HRA-PL, HRA-CR, HRA-
TC all separate lines (to us and OIR)
PLA, CLA, HRA-CR subject to standard rate regulation
Financing
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Assessments and Debt – PLA, CLA, HRA
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Florida Hurricane Cat Fund (FHCF) – PLA+CLA, HRA
Reinsurance – PLA, CLA+HRA
Operations
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Systems – PLA, CLA, HRA separate
Policy Admin – PLA, CLA separate from HRA
Claims – “Daily” (non-cat) and “Cat” separate
Public/Media
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Alphabet soup – all the rates are too high!
April 11, 2006 John W. Rollins, FCAS, MAAA 7

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All rates by statutes must be
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“Actuarially sound”
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“Noncompetitive” with private market
Easier said than done
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When 80% or more of your fair premium is for infrequent, severe cat events, what is the “right” rate (including cost of capital)?
With the diverse rate structures, underwriting and coverage in the private market, define
“noncompetitive”?
Personal lines easier than commercial – standardized products, lots of competitors, good rate information
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Statutes also more specific about how to test rates
April 11, 2006 John W. Rollins, FCAS, MAAA 8

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By statute and Plan, Citizens must finance
100-year event PML, which varies with
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Exposure – market share and risk attributes
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Which depends on private market health and private reinsurance prices/availability
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Modeled hurricane losses
FHCF coverage – set by statutes
April 11, 2006 John W. Rollins, FCAS, MAAA 9

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Current financing comprises
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Surplus (cash on hand) – zero right now
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Assessments
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“Regular” – up to 10% of property written premium from private insurers (due 30 days)
“Emergency” – sell bonds for an additional amount, serviced by annual assessment to all property insureds (including Citizens’) for up to 30 years
April 11, 2006 John W. Rollins, FCAS, MAAA 10

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FHCF
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Coverage (and premium, at actuarially sound rate) proportional to exposure, one season aggregate amount, fairly high retention
Much cheaper than private reinsurance because FHCF’s capital also provided by its
(separate) assessment authority on all P&C policies (except Work Comp and Med Mal)
Private reinsurance – “wraparound” FHCF cover the only current treaty
Debt (Pre-Event Notes)
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Fairly standard bonds with slight variations
Outstanding notes due in 2007 for PLA, 2019-
2024 for HRA
April 11, 2006 John W. Rollins, FCAS, MAAA 11

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2004 – Four hurricanes affected every area of Florida
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Millions of claims and logistical nightmare
Costs borne by primary insurers and consumers
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Multiple deductibles and retentions
No one storm was a mega-event
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Reinsurers and FHCF relatively unscathed
2005 – Four hurricanes affected Florida and Katrina blasted global reinsurers
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Wilma by far the most costly to Florida, driven by demand surge in area
Wilma struck “Citizens alley” in PB/Broward/Dade
2006 Results
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Massive Citizens (and smaller FHCF) deficits
Modelers woke up and adjusted short-term outlook
Global market saying “no mas” to Florida
April 11, 2006 John W. Rollins, FCAS, MAAA 12

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$12 Billion projected PML during 2006 season
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Financing only up to roughly $9.5B in place now
$1.7 Billion deficit from 2005
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“Deficit year” 2005 includes adverse runoff from
2004
Most of 2005 deficit in HRA (Wilma)
FHCF also broke (but less broke - $1.5 Billion)
Rapidly growing exposure in all accounts
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Reinsurance capital disappearing for Florida-only
“takeout” companies totally dependent on rental
$$$
The few commercial-residential specialists also exiting due to lack of reinsurance
April 11, 2006 John W. Rollins, FCAS, MAAA 13

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“Reform” of property insurance inevitable
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House and Senate both moving 100+ page bills
(see next)
Much discussion about using general revenue to pay off Citizens and possibly
FHCF deficits
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New revenue estimates arrive April 20 showing size of state budget surplus
Resumption of 2005 discussion about lowering FHCF retention and providing more coverage in working layers
April 11, 2006 John W. Rollins, FCAS, MAAA 14

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Creates a new Citizens account for non-homestead property with higher capital adequacy standards in rates
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Homestead rate standard reduced to 50-year PML
Nonhomestead rate standard increased to 250-year
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Deficits in nonhomestead assessed to only nonhomestead insureds – homestead still paid by everyone
Limits home values eligible for Citizens to < $1 million
Allows “flex rating” (small rate adjustments bypass OIR approval)
Removes “Panhandle exemption” from statewide Florida
Building Code
Requires private insurers to adjust claims for Citizens wind-only policies
Requires Citizens Board and employees to adhere to State
Code of Ethics
April 11, 2006 John W. Rollins, FCAS, MAAA 15

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Allows cost of (internal) capital to be included in rates
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Only actual reinsurance costs allowed before
Imposes 25% premium surcharge on vacation homes owned by nonresidents of Florida
Tougher standards for depopulation by takeouts
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Must retain policy for 5 years (up from 3)
Limits home values eligible for Citizens
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Started at $1M – now backing off
Moves certain OIR oversight of Citizens to Florida Cabinet
Makes Citizens more political and “ethical”
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Director to be confirmed by Senate
Many other strict audit/conflict provisions
Toughens standards for valid sinkhole claims
April 11, 2006 John W. Rollins, FCAS, MAAA 16

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Make getting into Citizens a hassle
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Require declinations from both admitted and surplus lines insurers
Quit automatically renewing HRA policies – reunderwrite annually
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Require extensive and quality risk data on applications
Make getting into Citizens expensive
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Achieve actuarially sound rates in all accounts
Monitor market concentration in all accounts and allow “presumed” rate changes in uncompetitive places based on market share
A-rate large risks based on market prices
April 11, 2006 John W. Rollins, FCAS, MAAA 17

If you were an agent, and
Citizens was not only cheaper, but required only a one-page document to allow entry, what would you do?
April 11, 2006 John W. Rollins, FCAS, MAAA 18

Rank Company_Name
# 1 State Farm Florida Insurance Company
# 2 Citizens Property Insurance Corporation
# 3 Allstate Floridian Insurance Company
# 4 Nationwide Insurance Company Of Florida
# 5 United Services Automobile Association
# 6 American Strategic Insurance Corp.
# 7 Atlantic Preferred Insurance Company, Inc.
# 8 Florida Preferred Property Insurance Company
# 9 Liberty Mutual Fire Insurance Company
# 10 Allstate Floridian Indemnity Company
# 11 First Floridian Auto And Home Insurance Company
# 12 Tower Hill Prime Insurance Company
# 13 Vanguard Fire And Casualty Company
# 14 United Property & Casualty Insurance Company, Inc.
# 15 Florida Family Insurance Company
# 16 Tower Hill Preferred Insurance Company
# 17 Usaa Casualty Insurance Company
# 18 Gulfstream Property And Casualty Insurance Company
# 19 Universal Insurance Company Of North America
# 20 Clarendon Select Insurance Company
# 21 Florida Select Insurance Company
# 22 St. Johns Insurance Company, Inc.
# 23 Universal Property & Casualty Insurance Company
# 24 Hartford Insurance Company Of The Midwest
# 25 Florida Farm Bureau Casualty Insurance Company
Policies in Force Market Share
849,708 20.1%
334,719
278,552
224,698
7.9%
6.6%
5.3%
139,092
127,866
115,400
107,247
102,667
3.3%
3.0%
2.7%
2.5%
2.4%
89,609
89,005
82,437
70,371
68,722
68,233
66,766
66,103
61,356
59,300
56,787
55,902
55,554
54,953
48,777
48,026
1.5%
1.4%
1.3%
1.3%
1.3%
1.3%
1.2%
1.1%
2.1%
2.1%
2.0%
1.7%
1.6%
1.6%
1.6%
1.6%
Written Premium Market Share
$1,082,495,148 20.4%
$455,791,687
$303,674,819
$212,299,394
8.6%
5.7%
4.0%
$141,375,157
$118,542,951
$194,094,545
$168,366,245
$136,372,755
2.7%
2.2%
3.7%
3.2%
2.6%
$94,841,227
$114,168,061
$98,468,320
$78,679,766
$123,984,263
$53,823,813
$91,705,501
$84,486,475
$115,108,862
$75,292,842
$81,204,300
$62,046,117
$60,300,127
$69,722,051
$62,759,899
$46,508,647
2.2%
1.4%
1.5%
1.2%
1.1%
1.3%
1.2%
0.9%
1.8%
2.1%
1.9%
1.5%
2.3%
1.0%
1.7%
1.6%
Structure Exposure Market Share
$292,984,985,472 25.5%
$47,934,624,658
$39,918,889,901
$56,381,926,991
4.2%
3.5%
4.9%
$53,323,614,838
$25,592,830,597
$26,550,580,629
$29,017,396,717
$38,661,483,850
4.6%
2.2%
2.3%
2.5%
3.4%
$16,481,761,495
$27,284,765,077
$25,452,145,352
$17,700,644,481
$25,610,225,306
$7,222,159,524
$20,854,266,617
$23,847,334,973
$12,336,874,225
$15,493,847,300
$13,868,085,477
$9,078,354,405
$17,339,726,996
$11,427,434,599
$15,642,566,549
$14,468,118,572
1.1%
1.3%
1.2%
0.8%
1.5%
1.0%
1.4%
1.3%
1.4%
2.4%
2.2%
1.5%
2.2%
0.6%
1.8%
2.1%
Many of the tools needed for better public policy are already available, such as this quarterly analysis from OIR.
April 11, 2006 John W. Rollins, FCAS, MAAA 19

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Stop letting Citizens compete for business (above)
Streamline rate/rule regulation
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Flex rating is a good start, with appropriate transition plans
(phase-ins)
Restrict OIR use of “unwritten rules” to delay or disapprove
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Allow cost of internal capital to be included in rates
Allow any cat model approved by Florida Commission on
Hurricane Loss Projection Methodology to be used freely
Streamline post-disaster regulatory environment
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Standardize emergency orders/requirements
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Reduce “exit barriers” to nonrenewals
Supersize FHCF
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It has superpowers nobody else has (all-lines assessment authority)
Long-term: turnover housing stock and mitigate what’s left, and educate the public
April 11, 2006 John W. Rollins, FCAS, MAAA 20

John W. Rollins, FCAS, MAAA
Actuary
Citizens Property Insurance Corporation
101 North Monroe Street, Suite 1000
Tallahassee, FL 32301
(850) 513-3782 john.rollins@citizensfla.com