Citizens Property Insurance Corporation Depopulation Proposal - Requirements Checklist

Transcription

1 Citizens Property Insurance Corporation Depopulation Proposal - Requirements Checklist COMPANY: Southern Oak Insurance Company Depopulation with no bonus Depopulation with Bonus Depopulation with Bonus and without Bonus Official proposal must include: Copy of DFS Permit to form an Insurance Company or an existing Florida Certificate of Authority Identity, ownership, officers, history and financial resources of the company including most recent quarterly and annual statement and three year pro formas. Nature and extent of the company s residential insurance experience, particularly in the state of Florida; and its underwriting, policy administration and claims administration capabilities including catastrophe response. Include computer system capacity information. Number, type, geographic distribution, and other characteristics of policies to be removed Reinsurance program overview, including identity and ratings of reinsurers, attachment points, layers and integration with the FHCF; graphical representation of reinsurance structure to the 100 year PML Summary of Agency Management including approach to address Consumer Choice Law and whether or not the company is writing business in the voluntary market Premium to surplus ratio, gross and net Tab A B C D E F G A.M. Best, Demotech, Inc. and other ratings Detailed summary of Underwriting Rules, Policy Form and Rate differences between Citizens and Company H I Explain companies participation in depopulation bonus programs J For depopulation bonus, assurance that the policies meet requirements of secondary mortgage market, if required (e.g. mobile home not required) K State an understanding that Citizens will use its own discretion and judgment in the policy selection process L

2 Department of Financial Services - Permit TAB A Southern Oak Insurance Company has filed its application for Permit with the Department of Financial Services and anticipates issuance of the Permit and Certificate of Authority no later than December 6, 2004.

3 TAB B Southern Oak Insurance and Southern Oak Management, LLC are 100% wholly owned by Southern Oak Holding Company, LLC. The following is a summary of the Holding Company ownership. Owners Stephen John Pajcic, III & Family Gary Curtis Pajcic & Family Tony Alexander Loughman Titles: Treasurer Secretary President TOTAL

4 TAB B Assumptions Used in Pro-forma Financial Statements Initial Capitalization Holding Company started with $6.5M in cash and inv assets. Holding Co comprised of Southern Oak Ins. Co. (InsCo) and Southern Oak Managers (MGA ). $5.5M statutory surplus in InsCo. $1M starting equity in MGA. Takeout Portfolio 1st takeout of 12,500 pols in mo 1and 10,000 pols in mo 4 at inf prem of $ % annual increases on renewals, 5% from rate increases, remainder from exposure increases. Assumes a mix of 84% HO business, 15% DP, all comprised of annual statement line of business Fire, and 1% Inland Marine. Assumes uniform distribution of eff dates along with 3 month blackout period, leading to unearned prem=62.5% of inf prem. Ceding commission from Citizens of 16%. Attrition rates of 20%, 15%, 15% on takeout business in yrs 1,2,3. Voluntary Portfolio Ind Agent voluntary business starts in mo 7. Ramp -up in pols from 100/mo to 300 by end of mo 12, ramp up to 500/mo in yr 2, to 600/mo in yr 3. Attrition rates of 15%, 12%, 12% on voluntary business in yrs 1,2,3. Avg prem of $1100 thru mo 12, then 7% annual increases thereafter, 5% from rate increases, remainder from exposure increases. Reinsurance 50% quota share treaty, ceding commission of 27%. QS covers catastrophes. Company pays full FHCF premium. Company pays catastrophe reinsurance at market rates. Effect of 2004 FHCF expansion estimated. $0.75M cat retention yrs 1-2, $1M yr 3. PML:Prem of 3.5:1 in yr 1. Expenses $22 per policy inspection fee incurred by company for 20% of takeout policies, 60% of new business voluntary policies, and 25% of renewal voluntary policies. $1 per policy mapping fee incurred by company for takeout and new business voluntary policies. General expenses incurred by company including boards, bureaus, licenses, insurance, and legal costs of $349k, $193k, 122k yrs 1-3. Premium tax rate of 1.5% incurred by company. Agent commission rate of 13% paid by MGA. MGA commission rate of 22%, with company-paid expenses (licenses, per-policy acquisition costs, loss adjustment expenses) netted out. MGA is not paid commission for policies assumed from Citizens until they are renewed. MGA administers policy and claims functions. MGA pays salaries, computer systems costs, rent, most professional fees, telecommunications, and general office expenses. Loss and LAE Loss ratios of 35.4%, 33.0%, 31.8% in yrs 1-3. ULAE ratio of 6% of premium and ALAE ratio of 1.9% of premium in yrs 1-3. Other Assumptions Investment yield of 3% on non-cash assets, 1% on cash. Income tax rate of 40%. Income taxes account for IRS method of including 20% of change in unearned premium reserve and discounted loss reserves when computing taxable income.

5 TAB C Plan of Operations Executive Summary Southern Oak Insurance Company (SOI) will be a Florida domiciled insurance company established to provide residential coverage to homeowners in the state of Florida. It will be privately funded and capitalized to $6,500,000. SOI s home office will be located in Jacksonville, FL. Three companies will be established. Southern Oak Holding Company. LLC (SOHC) is the parent company for the SOI and for Southern Oak Management, LLC (SOM). Investors and management will own SOHC. SOI and SOM will each be 100% whollyowned by SOHC. The management team s equity will establish an entrepreneurial attitude and commitment to success. A four-person team comprises the executive management team with support level employees added as needed. The management team has over 50 years of insurance experience. Additionally, SOM will enter third party agreements with respected firms that include the MacNeill Group, Guy Carpenter and Company, Premier Adjusting Services, Inc., and Colodny, Fass, Talendfeld, Karlinksy and Abate. With the assistance of its vendors, SOM s management team is poised to capitalize on its expertise of the Florida insurance marketplace and knowledge of Citizens Property Insurance Corporation s book of business. Underwriting strategies based on construction, year built, type of product form, geographic spread and pricing provide SOI with a unique opportunity to gain market share while managing underwriting loss. SOI will remove up to 30,000 40,000 policies from Citizens. Additionally, SOI will contract with independent agents and target high quality and profitable agents and other means of market distribution to maintain a policy count of approximately 30,000 40,000.

6 TAB C (A) Management The management team consists of a four-person team that has over 50 years insurance industry experience. SOM will contract with industry leading vendors to provide further insight. The vendors include the MacNeill Group for policy administration, marketing and financial, Premier Adjusting Services for claims, Guy Carpenter and Company for reinsurance, Premier Adjusting Services for claims adjusting, and Colodny, Fass, Talendfeld, Karlinksy and Abate. These vendors have worked together in the past with start-up insurance companies adding another advantage to this venture. The following is a summary of the SOM management staff. President Tony A. Loughman, CPCU, ARM Mr. Loughman has over 12 years of insurance experience having performed the duties of Claims Adjuster, Underwriter, Underwriting Operations Manager, Director of Corporate Underwriting and Agency Administration and Chief Underwriting Officer. As Chief Underwriting Officer Mr. Loughman directed all Citizens rate, rule and form filings, directed activities of a third party actuary, developed a Quality Assurance and Training Department and directed hurricane modeling analysis. During his career, Mr. Loughman has developed insurance products and rates and anticipated and responded to the insurance market. In recent years, he has performed detailed analysis on the top 20 companies in Florida including geographic rates charged and products offered. Additionally, Mr. Loughman has spent considerable time with hurricane modeling and working with reinsurance brokers. Mr. Loughman managed the first Wind Only Take out from Citizens Property Insurance and directed the Citizens Depopulation Program. He holds the Chartered Property and Casualty Underwriter (CPCU) designation, Associate in Risk Management (ARM) designation, Bachelors of Science degree as well as a Masters Degree in Business Administration. Chief Financial Officer To be named SOM will contract with MacNeill Group to fill this role the first 6-12 months. MacNeill Group provides this service to other insurance companies and can provide this function at a cost savings during the initial year while establishing benchmarks for the Board of Directors. The use of MacNeill to perform this function allows for an independent review of SOHC, SOI and SOM s financial plan and results at the early stages. A Chief financial officer will be hired within the first year. The CFO will be a Certified Public Accountant with approximately 10 years experience and at least 5 years specific to the insurance industry. Vice President of Claims Name withheld The Vice President of Claims has both claims and construction experience. He has scoped losses, overseen construction project managers, worked side by side insurance

7 TAB C companies in adjusting losses, filed permits and performed other activities related to the restoration of homes following an insurance loss. Additionally, while with an insurance company he served in catastrophe response operations and as company spokesperson. This individual holds an undergraduate degree in Banking and Finance and has a master s degree. Vice President of Underwriting Name withheld The Vice President of Underwriting has over 20 years underwriting experience and three years claims experience. His experience includes 13 years of managerial experience, including time as an Associate Territorial Underwriter Manager and Underwriting Operations Manager. He has been responsible for oversight of all aspects of processing. This person has also directed a nation-wide Quality Review program for the underwriting department and assisted with training. This indivdual holds a Bachelor of Science degree with a major in Finance. The following provides a summary of how each of the following areas will be handled by Southern Oak. (1) Marketing The MacNeill Group will appoint agents representing Citizens depopulation policies. MacNeill will continue to perform administrative activities in the acquisition of policies and licensing of agents. (2) Underwriting All members of the management along with input of MacNeill will be involved in establishing Southern Oak s underwriting guidelines. (3) Rating All members of the management along with the assistance of MacNeill will be involved in establishing Southern Oak s rates. Rates will be based on Citizens rates and then massaged based on rate of the top three to five insurance companies, while being balanced with marketing strategies to achieve company spread of risk. (4) Reserving - The CFO and VP of Claims with assistance from CatManDo, Inc. Adjusting and the MacNeill Actuarial Services will establish reserving techniques. (5) Reinsurance Southern Oak will employ the services of Guy Carpenter. (6) Claims Handling - SOM will contract with a CatManDo, Inc for daily claims, while also entering a contract to handle a catastrophic hurricane event. Additionally, SOM invoke consulting arrangements with Chuck Ross, CatManDo Adjusting to assist in auditing and other claims related matters.

8 TAB C (7) Accounting Accounting services will be performed by the MacNeill Group during the first 6-12 months until such time that a Chief Executive Officer can be appointed. Additionally, the use of an independent CPA to review MacNeill s work will be acquired. (8) Investments Southern Oak will employ the services of Merrill Lynch. (9) Managing General Agents Southern Oak Insurance Company will employ the services of Southern Oak Management, LLC. (10) Consultants actuarial, accountants, intermediaries Use of consultants has been described above.

9 TAB C (B) Market Conditions The Florida population has grown by 971,000 people over the last three years. In March 2004, the last month for which state-by-state statistics are available, more housing permits were issued in Florida than in any other state, a 33% increase from March The current admitted insurance companies have not kept pace with the growing demand for homeowner s insurance coverage. As a result, Citizens Property Insurance Corporation, the state s insurer of last resort, has grown from 67,000 policies in 2000 to over 400,000 policies as of September This scenario happened once before in In the years following Hurricane Andrew (1992), Citizens (formerly known as the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA)) grew to over 900,000 policies. Within a couple of years the state s insurer of last resort had become the second largest insurer in the state, second only to State Farm. To stem the growth and stimulate capital into the Florida private insurance market, the Legislature allowed Citizens to pay bonuses to admitted insurance companies willing to remove polices. The result was over one million policies were removed from Citizens bringing its policy count down to 67,000 policies in Ten companies either started or enhanced by Citizens depopulation that began after 1993 represent half the top 20 homeowner insurance companies in the state. These ten companies represent 20% of the entire homeowner s market. The following table identifies the top 20 residential property insurers in the state of Florida and illustrates the ten companies enhanced by Citizens depopulation. 1 Miami Herald, May 27, 2004 Land Shortage threatens South Florida home construction

10 TAB C Rank Company Name Written Premium Market Share 1 State Farm Florida Insurance Company 754,331, % 2 Allstate Floridian Insurance Company 337,931, % 3 United Services Automobile Association 166,676, % 4 Nationwide Insurance Company of Florida 150,807, % 5 Clarendon National Insurance Company 131,134, % 6 USAA Casualty Insurance Company 86,895, % 7 Clarendon Select Insurance Company 81,674, % 8 Qualsure Insurance Company 59,967, % 9 First Floridian Auto & Home Insurance Co 57,848, % 10 Hartford Insurance Co. Of The Midwest 54,503, % 11 Liberty Mutual Fire Insurance Company 54,218, % 12 Atlantic Preferred Insurance Company, Inc. 54,020, % 13 Florida Select Insurance Company 53,905, % 14 Vanguard Fire & Casualty Co. 53,682, % 15 Southern Family Insurance Company 45,357, % 16 United Property & Casualty Insurance Co. 44,259, % 17 American Strategic Insurance Corp. 43,324, % 18 Regency Insurance Company 40,970, % 19 Axa Re Property & Causality Insurance Co 39,314, % 20 Cypress Property & Casualty Insurance Co 37,865, % Start Up Company through Depopulation Depopulation Assisted Companies In July 2002, Citizens Property Insurance Company was formed through the merger of the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm Underwriting Association (FWUA). With the merger of these two entities, new Consumer Choice language was created to protect the policyholder from having to switch agents without their consent. This new language resulted in a halt in depopulation as Citizens and the private companies tried to understand the impact of the new language and how to facilitate depopulation in the most effective way. In January 2004 this issue was resolved and depopulation of Citizens policies resumed. The combination of the growing demand for insurance and the affect of Consumer Choice language have created a large pool of Citizens policies to be removed. Many companies currently operating in the state of Florida are at their capacity to write new business and in some cases are looking to shed business in order to obtain a more geographically balanced portfolio to reduce reinsurance costs. Additionally, Citizens continues to grow at a rate of 20,000 new policies per month. All these current market condition set the stage for a new entrant into the Florida homeowner insurance market.

11 TAB C IT System SOI will utilize BIPT, an established insurance operating system currently utilized by Citizens. The licensing of this system will allow SOI, its vendors and agents to immediately transact business with minimal to no training. The system allows for internet access allowing for great flexibility for agents and the selection of SOI s third party vendors. Underwriting Partner MacNeill Group, an established Managing General Agency, will assist with the daily processing for SOI. MacNeill has an excellent reputation with the Department of Financial Services, Agencies and with the members of SOM through previous business. MacNeill currently utilizes the insurance operating system selected for SOI and has experienced underwriters and customer service personnel that can be dedicated to SOI. Additionally, MacNeill is contracted by Citizens as a third party administrator making them an ideal vendor to support SOM during the depopulation process. Claim Losses Daily Claims and Catastrophe Response Claim losses generally represent the largest cost for an insurance company. Therefore, the expertise in underwriting and claims management skills, which are the key strengths of Southern Oak s management team, are key to SOI s success. Claims Handling Process - Policyholders will contact their agent or phone SOI s toll free number that will allow them to report a claim. Southern Oak Management will initiate the claims process by taking the first notice of loss and then assigning the claims to CatManDo, Inc. Catastrophe Management SOM will design a catastrophe management plan to effectively handle a hurricane or multiple hurricanes striking the state of Florida affecting its policyholders. This plan will be interwoven with the abilities of CatManDo, Inc. as well as other agreements with additional claim companies to ensure claims are handled timely and accurately. To achieve a high level of service in a catastrophe, SOM will establish an on-site facility for its customers at the heart of its impacted policyholders. SOM will work with SOI s agents in the impacted area and also coordinate its response with the Department of Financial Services.

12 TAB D Initial Summary of first policies removed from Citizens LOB Policies Total Insured Value HO3 11,153 2,343,877,778 HO4 1,973 66,677,225 HO6 5, ,931,961 DWF 1, ,179,594 Total 19,745 2,830,666,558 County Summary COUNTY TIV Policy Count PREMIUM % of Total Value DADE 1,398,732,445 7,907 13,872, % BROWARD 126,014,221 1,334 1,158, % BREVARD 119,838, , % LEE 116,193, , % PALM BEACH 109,096,489 1, , % ORANGE 106,829, , % DUVAL 79,833, , % ST LUCIE 64,724, , % MANATEE 54,075, , % MARTIN 48,539, , % HERNANDO 44,747, , % VOLUSIA 44,726, , % CHARLOTTE 44,709, , % SEMINOLE 44,514, , % PINELLAS 40,124,068 1, , % COLLIER 39,246, , % LAKE 38,756, , % ESCAMBIA 33,624, , % OSCEOLA 21,945, , %

13 TAB D MARION 19,754, , % CITRUS 17,809, , % SANTA ROSA 16,483, , % INDIAN RIVER 16,146, , % HILLSBOROUGH 13,556, , % OKALOOSA 12,814, , % PASCO 11,578, , % CLAY 11,066, , % ALACHUA 10,729, , % ST JOHNS 10,533, , % BAY 10,155, , % LEON 9,834, , % SARASOTA 9,727, , % WALTON 7,527, , % GADSDEN 6,612, , % SUMTER 6,367, , % HIGHLANDS 6,341, , % OKEECHOBEE 4,600, , % DESOTO 4,577, , % FRANKLIN 4,295, , % FLAGLER 4,152, , % NASSAU 4,035, , % WAKULLA 3,845, , % JACKSON 3,606, , % HENDRY 3,281, , % PUTNAM 3,251, , % MADISON 2,616, , % WASHINGTON 2,368, , %

14 TAB D LEVY 1,944, , % COLUMBIA 1,527, , % SUWANNEE 1,522, , % GULF 1,514, , % DIXIE 1,418, , % JEFFERSON 1,033, , % BRADFORD 825, , % TAYLOR 813, , % BAKER 778, , % GLADES 770, , % CALHOUN 736, , % GILCHRIST 640, , % LAFAYETTE 554, , % HARDEE 528, , % HAMILTON 514, , % POLK 503, , % LIBERTY 470, , % HOLMES 315, , % UNION 309, , % 2,830,666,558 19,745 23,686, %

15 Exposure Map Projected Portfolio TAB D

16 TAB E Reinsurance Reinsurance is a major part of the financial equation for any insurer to assure spread of risk and financial stability in the face of catastrophes. The Florida insurance market is unique in that it provides insurers the opportunity to purchase reinsurance cover at less than the market price through a state facility known as the Florida Hurricane Catastrophe Fund (FHCF). The private reinsurance market will be utilized to augment the FHCF coverage providing coverage up to the 1 in 100 year storm as required by the Department of Financial Services. Reinsurance Broker SOM has entered into an agent of record agreement with Guy Carpenter. Guy Carpenter, the world's leading reinsurance intermediary, provides highly specialized reinsurance services to clients worldwide. Guy Carpenter s role is to work with Southern Oak s management to obtain the most optimal spread of risk with cost effective reinsurance treaties. As part of their service, Guy Carpenter will provide hurricane analysis and operational expertise on managing hurricane exposure. Guy Carpenter s role in the policy selection process is essential since reinsurance expenses account for a significant portion of every premium dollar received. Capitalizing on the advantages of reinsurance today requires a unique combination of capabilities. It demands a high level of consultative and specialty reinsurance expertise and state-of-the-art analytical resources. Properly structured, reinsurance will help SOI manage balance sheet risk and control earnings volatility. At the core of Guy Carpenter is a team of the industry's foremost reinsurance professionals, with extensive experience and a clear-cut commitment to putting client interests first. Included in the services provided is the consulting support of Judith Durdan who has 30 years of insurance experience and 20 years in the Florida market. She has expertise in Operations Underwriting and Agency Management, has been involved with residual markets in a number of states and has experience with start up operations. While a bulk of the reinsurance for Florida is placed in the Bermuda markets, Guy Carpenter's well-established global network puts their professionals at a client's disposal throughout the Americas, the United Kingdom, Continental Europe, and Asia-Pacific. Southern Oak will utilize excess catastrophe coverage and quota share agreements to reduce its exposure during its formative years. Southern Oak will insure to the 1 in 100 year hurricane event and will utilize the Florida Hurricane Catastrophe Fund. Southern Oak will purchase private reinsurance for its quota share agreements and to provide coverage under FHCF if needed. It will use that support also for the FHCF co-pay and above the FHCF limits. Note too that either a Risk Excess cover or facultative

17 TAB E reinsurance treaty will be established to assure coverage for higher valued risks in the portfolio. Southern Oak will also purchase reinstatement cover to protect the company against a second event. Southern Oak s Core Reinsurance Program will be comprised of: 50% Quota Share - $1.5M occurrence limit Property Catastrophe Excess of Loss up to $70M Reinstatement Premium Protection FHCF - estimated 90% of $53.9M excess $14.4M SOI will also ask for quotes on the following coverages: Aggregate Excess of Loss - $1.5M excess $750,000 Top and Drop Cover Core Reinsurance Structure Reinsurance is a major part of the financial equation for any insurer, assuring spread of risk and financial stability in the face of catastrophes. The Florida insurance market is unique in that it provides insurers the opportunity to purchase reinsurance cover at less than the market price through a state facility known as the Florida Hurricane Catastrophe Fund (FHCF). The FHCF is a reinsurance entity created by the Legislature in 1993 to provide reinsurance for companies at reduced rates compared to the private reinsurance market. During the 2004 Legislative Session, which ended April 30, 2004, the Legislature passed SB 2488 increasing the capacity of the Florida Hurricane Catastrophe Fund (FHCF) for the Contract Year up to $15 billion dollars and resetting the insurance industry aggregate retention to $4.5 billion. Southern Oak will elect the 90% option for coverage from the Florida Hurricane Catastrophe Fund. The FHCF premium calculation related to the first takeout of policies (20,000) is $1,978,805 which equates to approximately 8.35% of the gross annual premium. Therefore we would expect that the FHCF for the upcoming wind season to be 90% of $53,979,370 xs $14,367,506. Southern Oak s core purchase of reinsurance is expected to consist of Quota Share, Property Catastrophe Excess of Loss and Reinstatement Premium Protection Excess of Loss to supplement the coverage provided by the Florida Hurricane Catastrophe Fund.

18 TAB E $70 m Catastrophe Excess of Loss $30 m xs $40 m RPP $20 m xs $20 m FHCF 90% of $53.980m xs $ $18.5 m xs $1.5 m Quota Share and Net Retention The company will purchase Property Catastrophe Excess of Loss up to $70,000,000 which will secure the company for loss occurrences up to the year event as modeled by RMS version 4.4. The Florida Hurricane Catastrophe Fund will inure to the benefit of the Property Catastrophe Program. The company would also request quotations for Reinstatement Premium Protection for each of the layers listed above. Southern Oak will purchase a 50% Quota Share Reinsurance Agreement which will provide Property Catastrophe coverage for 50% of the first $1,500,000 of catastrophe losses on an occurrence basis.

19 TAB E In addition to the core purchase of reinsurance, Southern Oak will seek to purchase coverage for multiple events in a single storm season with an Aggregate Excess of Loss Program that will provide coverage of 100% of $1,500,000 xs $750,000 in the aggregate, after one $750,000 retention from a catastrophe loss. The coverage afforded by the aggregate excess reinsurance to the company is for the second and third retention in the event of multiple storms. This would be a top layer of catastrophe protection (referred herein as Top and Drop ) that would provide coverage of the first and second excess layers ($20,000,000 xs $750,000) in the event of a third occurrence. $70 m Catastrophe Excess of Loss $30 m xs $40 m RPP $20 m xs $20 m FHCF 90% of $53.980m xs $ $18.5 m xs $1.5 m 1st Reinstatement of Catastrophe Exces of Loss (Optional) Top and Drop Cover Quota Share and Net Retention Aggregate Excess

20 TAB E Following is a list of the primary reinsurers used to place Florida business. These reinsurers have significant experience in the state, are familiar with the needs of start ups and provide the stability essential for a new insurance organization. They will be augmented by others as the final reinsurance program is designed. A copy of proposed reinsurance agreements which highlight the kind of language follow under tab 3-G. Upon finalization of reinsurance contracts, a copy will be submitted to the Office of Insurance Regulation. Reinsurer Details Reinsurer Name AM Best Rating AM Best Rating Date S&P Rating S&P Rating Date Surplus Surplus Date Allied World Assurance U/W by IPCRe U/W Svc A+ American Re-Insurance Company-Brokered Group A+ G 6/30/2004 A FSR 6/30/2004 3,401,209, /31/2004 Arch Reinsurance Ltd A- 6/30/2004 1,807,393, /31/2003 AXIS Reinsurance Company A G 6/30/2004 A FSR 6/30/ ,503, /31/2004 Converium Reinsurance (North America) Incorporated A- G 7/20/2004 A- FSR 7/20/ ,499, /31/2004 Employers Reinsurance Corporation A G 3/31/2004 A+ FSR 3/31/2004 5,157,468, /31/2004 Endurance Specialty Insurance Limited A 6/30/2004 A- FSR 6/30/2004 1,633,022, /31/2003 Everest Reinsurance Company A+ G 6/30/2004 AA- FSR 6/30/2004 1,842,510, /31/2004 Montpelier Reinsurance Ltd A 5/25/2004 A- FSR 3/31/2004 1,769,979, /31/2004 National Indemnity Company A++ G 3/31/2004 AAA FSR 3/31/ ,862,560, /31/2004 Odyssey America Reinsurance Corporation A G 7/6/2004 A- FSR 3/31/2004 1,601,286, /31/2004 Platinum Underwriters Reinsurance, Inc A G 6/30/ ,667, /31/2004 Quanta Reinsurance Ltd. A-G 12/31/ ,896, /31/2003 Swiss Re U/W (US) o/b/o Swiss Re America Corp A+ G AA FSR Swiss Reinsurance America Corporation A+ G 6/30/2004 AA FSR 6/30/2004 2,499,155, /31/2004 Transatlantic Reinsurance Company A++ P 6/30/2004 AA FSR 6/30/2004 1,851,758, /31/2004 XL Re Ltd A+ G 6/30/2004 AA- FSR 6/30/2004 2,622,855, /31/2002

21 TAB F Agency Management SOI will be started with an initial Citizens depopulation of up to 40,000 residential policies. This strategy will allow SOI to generate substantial revenue streams with minimal marketing costs. The 40,000 policies will be managed to ensure proper classification and rating of risks during the first 12 months. The financials created for SOI project a conservative policy retention rate of 70%. To ensure that retention rates meet or exceed the 70% projection, a competitive commission rate will be paid to the agencies servicing the policy, providing agents a financial incentive to keep the policies with Southern Oak. SOM will contract with MacNeill Group to appoint agents for the policies selected for Citizens removal. This approach provides an efficient means to completing the agency appointments with an expected 90% appointment success rate that allows for a more stable financial model to be produced. Contracts with independent agents will be established with competitive commission rates paid to agents. Initial contracts are limited to servicing and renewing those policies removed from Citizens. During the first 6-12 months SOI will review the profitability of its agents and its spread of risk throughout the state of Florida and then develop an Exposure Management program that allows agents to write new business in order to maintain Southern Oak s policy count between 30,000 and 40,000 policies. This policy count range is determined to be the optimal number of Florida policies in light of reinsurance cost and probable maximum loss that can be sustained by an insurance company. Agencies are the primary point of contact for policyholders, and as such, SOI is committed to developing an internet based system that allows agents to perform any action for a policyholder and quote the effect of that change. The agent will perform all data entry functions while interacting on-line with the SOI system. The following is a workflow.

22 TAB F Agencies will receive a range of commission based on geographic location of the property insured. Enhanced agency commission plans, including quality review and profitability, will be established to encourage agents to write profitable business. Profitable business is defined by the agency s loss ratio; simply stated the amount of dollars paid for claims to the total premium dollar collected by the agent. As defined, agent profitability will be monitored and those who produce results above acceptable levels established by management will cease doing business with Southern Oak.

23 Southern Oak Insurance Company Premium to Surplus Ratio TAB G Southern Oak 2004 Data Analysis Data Facts: Total Policies 19,745 Total Portfolio Value 2,830,666,558 Total Value A 1,760,938,555 Total Value C 881,435,714 Total Value D 188,292,289 Total Premium 23,686,275 PML to Premium Ratio 2.777

24 TAB H Financial Rating - Demotech, Inc. Detailed documentation of Southern Oak Insurance Company is currently being reviewed by Demotech, Inc. to determine the proper financial rating of Southern Oak Insurance Company. Demotech will release its final rating upon issuance of the Certificate of Authority.

25 TAB I Underwriting Rules, Policy Forms and Rates Southern Oak Insurance Company has taken Citizens Underwriting Manual as it starting point. Modifications have been made to the manual to place Southern Oak more in line to the voluntary market. Southern Oak will utilize ISO 2000 as its base policy form and modify with approval from the Office of Insurance Regulation. Citizens currently utilizes the HO 0091 ISO. In general, ISO 2000 provides additional coverage and more clarity to the coverage provided under the 91 form. Initial rates (prices) will be established at no greater than 99% of the approved Citizens rates with reduced rates in geographic based on marketing strategies balanced with catastrophe models and reinsurance costs. Rates will be reviewed no less than two times. Initially SOI will provide residential property insurance coverage to Florida risks. Coverage forms will include Homeowners Type 3, Homeowners Type 4, Homeowners Type 6, Mobile Homes and Dwelling Fires as these are the personal residential product lines that Citizens Property Insurance Corporations provides. Additionally, SOI will explore adding other lines of profitable business such as personal article policies that insure jewelry, art work, etc. for the homeowner at stated value. This product line would further expand SOI s portfolio of business by providing the agents with an add-on product to the homeowner s policy. Personal article policies are not subject to high reinsurance cost. This creates a positive impact on SOI s financial model as reinsurance costs are driven by building values. Department of Financial Services - Code Direct Line of Business 0010 Fire 0040 Homeowners Multi Peril 0090 Inland Marine To provide an optimal spread of risk, hurricane modeling will be utilized to balance exposure over the entire state of Florida. SOI will provide coverage limits up to $1.5 million dollars with an average building exposure of $170,000. The amount of coverage for any one risk will be managed based on geographic locations, construction type and other underwriting criteria during the Citizens depopulation selection process. This strategy allows for management to spread property exposure to achieve favorable reinsurance costs. The selection of policies insured by SOI will consider many underwriting features such as age of home, type of construction, coverage form, geographic location, use of varying deductible levels, coverage amount levels as well as other information to maximize underwriting profitability through reduced claims.

26 Depopulation Bonus Participation TAB J Southern Oak Insurance Company is looking to qualify under Depopulation Plan A. Takeout Incentive Program A 1. The takeout company must remove a minimum of 10,000 policies with wind coverage from the Personal Lines Account during the takeout contract period. 2. Of the policies with wind coverage removed from the Personal Lines Account, at least 40% must cover residential properties with HO2, HO3 or Dwelling Fire policies located in Miami-Dade, Broward or Palm Beach Counties. 3. A takeout bonus will be paid at the rate of 12.5% of policy premium for each policy with wind coverage in coastal counties removed from the Personal Lines Account. Additionally, Southern Oak Insurance Company is looking to be a long term player in the Florida Insurance Market, and as such, it may select policies that are not eligible for bonus. Two policy selection files will be submitted to Citizens, one that is eligible for bonus and another that is not. Southern Oak will work with Citizens management as required to facilitate.

27 Mortgage Requirements TAB K Southern Oak has assurance from Demotech, Inc. that they will provide proper information to the mortgage market to assure that policyholders are not negatively affected.

28 SOUTHERN OAK INSURANCE COMPANY TAB L December 3, 2004 Robert L. Ricker President Citizens Property Insurance Company 101 North Monroe Street, Suite 1000 Tallahassee, FL RE: Southern Oak Insurance Company Dear Bob: Southern Oak Insurance Company acknowledges that Citizens will utilize its own discretion and judgment in the policy selection process. Additionally, we look forward to working with you and your staff to make this depopulation a positive experience for all parties. Sincerely, Tony A. Loughman, CPCU, ARM President ONE INDEPENDENT DRIVE, SUITE 1900 JACKSONVILLE, FL PHONE: (904)