Citizens Property Insurance Corp. has endured rate freezes, agent lambasting, unhappy consumers, and now the SEC is after it. You didn't know? Don't feel bad. Neither did Insurance Commissioner Kevin McCarty or most members of the Citizens' Board of Governors, or, for that matter, the press.
In a revelation made even more stunning by the tone-deafness of the few in-the-know, Citizens' general counsel announced at a Dec. 12 board meeting that the state-run insurer has been the subject of an SEC investigation since June.
The lawyers knew. The current chairman James Malone knew. The former chairman Bruce Douglas knew. But none of them thought the other sitting members of the board needed to know.
Christine Turner, Citizens' director of government relations, said that the company's senior management team, board chairman, and internal and external counsel "believed the best course of action was to keep the chairman apprised and allow the SEC to do their research without fully apprising the world of it." She characterized the inquiry as "routine."
McCarty was finally told of the subpoena in early December; most Citizens' board members were kept in the dark until the public meeting in Jacksonville.
I can't imagine that McCarty was happy about being kept in the dark, although a statement from his office after being informed was remarkably low-key: "The Office of Insurance Regulation is aware of the situation and will be monitoring to determine if there are any regulatory issues involved. We were not made aware of the matter until the first part of the month when we were notified by Citizens and the Office of Financial Regulation."
Citizens' board member and Tallahassee attorney Allan Katz was more direct. "Routine or not, you don't wait five months to tell board members. We are a public company. We should err on the side of disclosure," he said.
Turner said Citizens has done nothing wrong and no harm was intended in not notifying board members or the public. "We felt the SEC inquiry should quietly take its course," she said.
Citizens received a subpoena from the SEC's Washington office in June. The inquiry is focused on transactions involving more than $3 billion in auction-rate securities Citizens sold in 2007 and later repurchased. The SEC is seeking all internal and external e-mails concerning bids, all documents on Citizens' disclosure of its intention to bid for its own securities, and documents identifying the authorized auction broker dealers that placed the bids.
Citizens replied to the SEC in July. Florida's Office of Financial Regulation has confirmed that it has an open investigation of Citizens, but so far is keeping mum on the purpose of the investigation or when it started.
The news of the SEC investigation comes while take-out companies continue to whittle away at Citizens' policy count. In early November, Citizens reported some 1.1 million in-force policies, down from the 1.3 million reported in November 2007. But the insurer still holds the riskiest policies in the state — over 250,000 windstorm policies along the coast in South Florida, accounting for up to $134 billion in potential hurricane claims.
And while moving policies out of Citizens is a worthy goal, not everyone is comfortable that these take-out companies — usually small and new — have the financial wherewithal that will be needed if a hurricane strikes.
Florida's Chief Financial Officer Alex Sink has asked McCarty's office to evaluate the solvency of the take-out companies and to report the findings at the Jan. 13 Cabinet meeting. "We are relying on the Office of Insurance Regulation to perform the necessary due diligence around the financial strength and solvency issues," Sink said in a letter requesting the presentation.
At least that letter was made public.
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