President s Report. December 9, 2015

Transcription

1 President s Report December 9, 2015

2 Budget to Actual Direct Written Premium (DWP) 2

3 Budget to Actual Depopulation Net Earned Premium (NEP) 3

4 Budget to Actual Policies-In-Force (PIF) 4

5 Assumption Comparison 2014 to ,600,000 1,400,000 1,359,138 1,200,000 1,000,000 1,109,634 1,064, , , , , , , , , , OIR Approved Requested by Insurers Assumption Offers Made Assumed 5 Note: November and December 2015 Assumed values are estimated.

6 Distribution of Policies by Account 6

7 Forecasted Financial Statements ( ) *Private reinsurance placements for 2016 and 2017 include $204M and $115M of ceded premium, respectively. The 2016 ceded premium includes a committed $164M on multi year contracts not expiring in 2015 as well as $40M of risk transfer. 7

8 PML Reduction: 2015 Risk Transfer Timeline Went to Market for 2015 Placement Placement of 2015 Coverage Modeled Losses as of Date 1 in 100 Year Single Occurrence PML ($ in billions) Coastal Account PLA/CLA Total 12/31/2014 $ $ $ /30/2015 $ $ $ Pro Forma 2016 Placement 06/30/2016 $ $ $ Coastal Account storm risk decreased over 8% or $680 million from initial 2015 pricing (year end 2014) to the beginning of hurricane season (June 2015) With the success of the depopulation program, Citizens could see an additional 25% decrease in storm risk before the start of the 2016 hurricane season (from June 2015 to June 2016) 8 Notes: 1) PLA and CLA are combined to be consistent with Florida Hurricane Catastrophe Fund (FHCF) account allocation. PLA/CLA combined PMLs are added to the Coastal PMLs to be consistent for surplus distribution. 2) PMLs include a provision for loss adjustment expense.

9 Historic Personnel Costs 9

10 Historic Resources 10 Notes: 1) "Year End" is as of 12/31 each calendar year; The 2015 YTD is as of 11/6/2015 2) "Service Carriers" are McNeill/CCC and MGI/Personal Lines only

11 Resource Demands YTD 2013 YTD 2014 YTD 2015 Litigated Claims Reopened 6,303 7,307 8,214-2,000 4,000 6,000 8,000 10,000 Litigated claims have been averaging 800 new cases per month, and that trend is expected to continue into 2016 Cycle time for litigated cases from FNOL is averaging 740 days and is expected to continue into 2016 Monthly transaction activity: Average of 11,000 new business policies/month stable Average of 95,000 Customer Care Center calls/month stable to increasing Average of 6,400 Personal Lines Customer Service calls/month stable Average of 230 Commercial Lines Customer Service calls/month stable Average of 1,500 IT service requests/month stable to increasing Depopulation transactions (tags and untags) have increased 25-30% year-over-year since

12 Depopulated Policies Serviced by CPIC Following depopulation, Citizens continues to service policies removed through renewal on the paper of the takeout carrier. The Policies Serviced metric provides the number of policies in that status as of each year end in the exhibit presented here. Services on the policy include the following: Endorsement billing/processing Policy change requests Collection and application of premium installments Customer Care/Call Center services In addition, for reference in the table below, policies serviced counts are shown as a percentage of year-end PIF. Therefore, as in the case of projected 2015 values, for every 100 policies in force, there are approximately 44 that Citizens will continue to service until such time as the policy renews. Account PLA 33.03% 53.07% 48.67% 21.05% 9.52% CLA 0.00% 45.57% 33.46% 27.78% 12.18% Coastal 10.21% 28.31% 38.88% 26.32% 11.63% Combined 24.15% 42.43% 44.47% 23.02% 10.21% 12

13 Expense Ratio Comparison The expense ratio; (Administrative and Underwriting Expenses / DWP) has been utilized as a measure of how efficiently Citizens operates in comparison to private market carriers within the state Provided below is a listing of expense ratios for a select group of Florida domiciled carriers Underwriting expenses as displayed have been adjusted to remove the effects of ceding commission on ceded and assumed reinsurance. Citizens estimates our rate inadequacy s impact on the expense ratio to be approximately 1-3% taking into consideration statutory and glide path requirements. Citizens combined expense ratio has increased as a result of the increasing rate at which policies have been depopulated since On the following exhibits, the Administrative and Underwriting Expenses are plotted year over year from actuals with preliminary forecasts for 2016 and

14 Administrative Expense Components CITIZENS SPECIFIC PROGRAMS AFFECTING EXPENSES Glide path Depopulation Program, Market Services Clearinghouse Litigated Claims Strategy Insource Strategy (KPMG) Field Underwriting, Field Agency Management Vendor Management Scalability (expand & contract based upon market conditions, catastrophe readiness for all policy count scenarios) Core Program STANDARD ADMINISTRATIVE EXPENSE Salaries and related employee costs Contingent staffing Professional services Office and equipment rental costs Software maintenance and licensing Telecommunications Depreciation Other operating expenses 16.3% Expense Ratio 27% VARIABLE UNDERWRITING EXPENSE Varies with direct written premium Producer commissions Taxes and assessments Servicing carrier fees Other underwriting expenses Other processing fees 10.7% 13

15 Underwriting Expense Results Underwriting expenses include: Producer commissions Taxes and assessments Servicing carrier fees Other underwriting expenses Other processing fees Underwriting Expense Results Underwriting Expenses $ 281,161,338 $ 210,377,381 $ 132,842,848 $ 97,489,360 $ 86,890,878 Direct Written Premium $ 2,761,637,564 $ 2,083,869,844 $ 1,285,273,193 $ 909,235,682 $ 838,353,727 Underwriting Ratio 10.18% 10.10% 10.34% 10.72% 10.36% Underwriting expenses respond to the overall level of direct written premium and policy transactions processed by third parties (ie. MacNeill). As a result, this expense category s overall contribution to the expense ratio is anticipated to remain at approximately 10%, despite the significant overall dollar value decrease in the category. 15

16 Administrative Expense Results Administrative Expenses include: Salaries and related employee costs Contingent staffing Professional services Office and equipment rental costs Software maintenance and licensing Telecommunications Depreciation Other operating expenses Administrative expenses for 2016 were budgeted to achieve an overall 5% decrease from the targeted administrative expense for the year ended 12/31/2015. Therefore, 2017 administrative expenses were forecasted and are displayed with a 7.5% decrease as compared to 2016 budget. 16

17 Historical Expense and Premium Comparison 04/ 05 Storm Season Poe Assumption Premium Rates held at 2006 rate level through 2009 Wind Mitigation Credits introduced; Discounts doubled in second year High volume of depopulation Wind Mitigation Inspection Outreach Insolvency of 3 domestic insurers Premium Rate Glide Path Core Policy System Implementation High volume of depopulation 17

18 Underwriting and Acquisition Costs Incurred on Depopulation ANNUAL CEDED WRITTEN PREMIUM DEPOPULATION P 2016 B 2017 F PLA $ (289,278,084) $ (261,513,840) $ (105,584,893) $ (47,012,807) $ (21,363,134) CLA (41,103,961) (10,721,420) (8,129,629) (3,055,483) CST (98,289,021) (153,228,561) (80,510,684) (77,095,754) (32,226,025) COMB $ (387,567,105) $ (455,846,362) $ (196,816,996) $ (132,238,189) $ (56,644,642) CEDING COMMISSIONS FOREGONE ON DEPOPULATED 10.5% P 2016 B 2017 F PLA $ (30,374,199) $ (27,458,953) $ (11,086,414) $ (4,936,345) $ (2,243,129) CLA (4,315,916) (1,125,749) (853,611) (320,826) CST (10,320,347) (16,088,999) (8,453,622) (8,095,054) (3,383,733) COMB $ (40,694,546) $ (47,863,868) $ (20,665,785) $ (13,885,010) $ (5,947,687) DWP $ 2,761,637,564 $ 2,083,869,844 $ 1,285,273,193 $ 909,235,682 $ 838,353,727 18

19 Coastal Account: 2015 Layer Chart (not to scale) Projection ($'s in millions) Combined PLA CLA Coastal Beginning Surplus $ 7,384.0 $ 2,487.6 $ 1,559.4 $ 3,337.0 Net income / (loss) $ 70.9 $ 77.8 $ 50.7 $ (57.6) Ending Surplus $ 7,454.9 $ 2,565.4 $ 1,610.1 $ 3, Surplus Exposed (%) 26% 16% 6% 43% 1 50 Surplus Exposed (%) 28% 18% 7% 46% Surplus Exposed (%) 47% 51% 19% 57%

20 PLA/CLA: 2015 Layer Chart (not to scale) 20

21 Coastal Account: Projected 2016 Layer Chart No New Reinsurance Purchase (not to scale) The following surplus exposed, net income and ending surplus detail by account includes a committed $164M on multi-year contracts not expiring in The effect of the budgeted private risk transfer spend in the Coastal Account of $40M in a lower layer (not included in the layer chart above) is shown in the final column. The percentage of surplus exposed varies depending on the composition of the risk transfer program placed ($'s in millions) No New Risk Transfer Private Risk Transfer Combined PLA CLA Coastal Spend of $40M Coastal Beginning Surplus $ 7,454.9 $ 2,565.4 $ 1,610.1 $ 3,279.4 $ 3,279.4 Net income / (loss) $ 53.4 $ 55.1 $ 26.0 $ (27.7) $ (67.7) Ending Surplus $ 7,508.3 $ 2,620.5 $ 1,636.1 $ 3,251.7 $ 3, Surplus Exposed (%) 23% 13% 5% 40% 29% 33% 1 50 Surplus Exposed (%) 29% 14% 5% 53% 38% 43% Surplus Exposed (%) 48% 43% 16% 68% 53% 57%

22 PLA/CLA: Projected 2016 Layer Chart (not to scale) 22

23 Coastal Account: Forecast 2017 Layer Chart (not to scale) Forecast includes $115 million for the purchase of new private risk transfer in the Coastal Account. The percentage of surplus exposed may vary depending on the composition of the risk transfer program placed Forecast ($'s in millions) Combined PLA CLA Coastal Beginning Surplus $ 7,468.3 $ 2,620.5 $ 1,636.1 $ 3,211.7 Net income / (loss) $ $ 38.3 $ 27.6 $ 60.3 Ending Surplus $ 7,594.5 $ 2,658.8 $ 1,663.7 $ 3, Surplus Exposed (%) 14% 13% 3% 20% 1 50 Surplus Exposed (%) 17% 14% 4% 26% Surplus Exposed (%) 41% 43% 11% 55%

24 PLA/CLA: Projected 2017 Layer Chart (not to scale) 24

25 Reconciliation of Storm Risk and Surplus 25 Notes: 1) Storm Risk is as measured by 100 year probable maximum loss (PML) plus estimated loss adjustment expenses using the Florida Hurricane Catastrophe Fund (FHCF) account allocation where PLA and CLA are combined. PLA/CLA combined PMLs are added to the Coastal PMLs to be consistent for surplus distribution. 2) Surplus, Florida Hurricane Catastrophe Fund (FHCF) & Assessments are as projected at beginning of storm season. Not all PLA/CLA surplus is needed to fund storm risk in 2014; a deficit in the Coastal Account results in the assessment. 3) In , a portion of private risk transfer covers a larger storm risk than shown above. 4) 2015 FHCF projections are preliminary and actual amounts may differ significantly from these projections. 5) PMLs from use a weighted average of 1/3rd Standard Sea Surface Temperature (SSST) and 2/3rd Warm Sea Surface Temperature (WSST) PMLs reflect only SSST and are based on 06/30/2015 exposures.

26 Appendix: Layer Chart Assumptions ASSUMPTIONS 2015 Citizens 2015 Budgeted DWP $1.67 Billion (Coastal $0.84 Billion; PLA/CLA $0.83 Billion) Citizens Policyholder Surcharge Maximum % Per Account 15% 2015 Regular Assessment Base (projected) $37.63 Billion Regular Assessment Maximum % Per Account 2% for Coastal; 0% for PLA/CLA 2014 Emergency Assessment Base $39.30 Billion PMLs are based on modeled losses as of June 30, 2015 per AIR Touchstone, Version 1.5 reflecting the Standard Sea Surface Temperature (SSST) Event Catalog including Demand Surge, excluding Storm Surge, and include 10% of loss to account for loss adjustment expense (LAE). Interim Return Periods are derived by Linear Interpolation 2015 Projected Surplus = audited 2014 surplus projected net income assuming no hurricanes. Citizens 2015 FHCF coverage is based on preliminary retention estimates and payment multiples. Actual Citizens FHCF attachment and limits of coverage could differ significantly from estimates. NOTES These charts are imperfect! They attempt to show projected claims paying resources, but they are approximations only. Four significant complicating factors are described below: 1) Coastal PML vs. PLA/CLA PML: An actual 100 year PML event in Coastal Account may not be a 100 year PML event for PLA/CLA. The relative magnitude of actual losses for Coastal and PLA/CLA will depend on the storm size and path 2) Combining PLA and CLA: The PLA and CLA are separate accounts for deficit calculation and assessment purposes, but are combined for FHCF and credit purposes. It is impossible to accurately show the PML resources situation of these accounts on either separate or combined charts since simplifications must be made in either case that could prove materially inaccurate. Although we show the combined accounts, there is no guarantee that they will have deficits at the same time or of similar magnitude 3) Non residential exposure: Commercial non residential (CNR) exposures in the CLA and Coastal Account are not reinsured by FHCF. Actual deficits and assessments may be significantly different than an aggregated PML would otherwise indicate. The charts include a provisional estimate for CNR losses of 14.5% in the Coastal Account for all return times for 2015, 15% for projected 2016 and CNR is a negligible portion of the PLA/CLA Accounts and so is not considered in those charts 4) Liquidity: These charts do not show the liquidity needs of the accounts. An account with ample PML resources may still require liquidity as many of the PML resources are not available immediately following a major hurricane. The timing and magnitude of receivables such as FHCF recoveries and assessments are unknown. 26