Louisiana Last Resort Insurer Missing Audit

Daryl Purpera, first assistant legislative auditor, explained to National Underwriter that the office learned Citizens' financial auditing system cannot produce a financial audit.

He said a separate system for handling clients and claims is working, but the financial auditing system cannot access that data to produce a report.

Citizens, the state's residual property market, was unable to produce a report as required by June 30, 2006 due to its claims volume from Hurricane Katrina and Rita, Mr. Purpera explained. The legislature granted Citizens an extension to Dec. 31.

After the deadline passed and no report was produced, the auditors office investigated the delay and discovered the reporting problems, he said.

He said Citizens has invested $6 million over four years in software improvements to produce financial reports, but apparently the system has failed to work.

Mr. Purpera said the systems containing customer data and claims information are working, and claims are being paid, but the financial reporting data is inaccessible.

"We hope it's just a glitch," he said.

In the meantime, said Mr. Purpera, the Department of Insurance has stepped in and hired a new auditing firm for Citizens. He said in the past, Citizens has hired its own outside auditors to furnish reports to the state's Legislative Auditor.

Mr. Purpera said Mr. Theriot recommended Citizens not produce a 2005 audit, but instead perform a two-year audit for 2005 and 2006.

Chad Brown, chief of staff for the insurance commissioner and chairman of the board of Citizens, said that the department's officials are confident no data has been lost. A conference call was held today with rating agencies to assure them of that. He said the glitch will not interfere with the continued payment of claims or affect bondholders.

A firm named "i4″ out of Florida has been called in by the department's professional examiner, Bostic Crawford, based in Plano, Texas, to reconstruct the financial data and correct the problem.

The problem occurred, he said, when the scheduled testing of the conversion from an old system to the new one took place at the same time Hurricanes Katrina and Rita hit. The crush of claims prevented the system from adequately being tested, which produced the problem.

Citizens was forced to convert to a new software system after the old software developer refused to turn over its proprietary data to the corporation when it was created in 2003. Citizens replaced the states Insurance Underwriting Plan and Joint Reinsurance Plan.

"The basic system is sound and probably would have worked properly with more testing," said Mr. Brown.

Mr. Brown said Citizens expects to have a report produced within 60 days and will probably follow the auditor's recommendation to produce two years of reports.

Terry Lisotta, the chief executive officer for Citizens said, "The ability to generate a financial report is important, and we don't want to minimize its importance. But, the data is there and all we are having is a problem summarizing it into a credible format. And we need to get that done as soon as we can."

In an e-mail statement Marie Centanni, press secretary for Gov. Kathleen Blanco said, "These problems stem from our insurer of last resort growing too rapidly. Governor Blanco is considering legislation for the upcoming session to keep Louisiana Citizens' growth at a responsible and manageable level. The Governor has indicated no option is off the table at this point."

According to reports by the auditor, this is not the first problem Citizens has had with its books. A December 2006 report from the Legislative Auditor said Citizens had not collected $4.3 million of the $192 million in assessment surcharges from insurers.

The report also said an additional $4.8 million was not assessed by Citizens because data submitted by the Department Of Insurance to Citizens "erroneously omitted" 26 insurers.

Due to the volume of claims Citizens was unable to make the assessment corrections at the time of the report.