ACTUARIAL & UNDERWRITING COMMITTEE, MARCH 17, 2015 BOARD OF GOVERNORS MEETING, MARCH 18, 2015

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1 ACTION ITEM BACKGROUND Insurers in Florida, including Citizens, approved by the OIR, designate risks that will be individually rated. Individually rated buildings (also known as Advisory or A-rated risks) are not subject to the insurer s filed rates, rating schedules, rating manuals or underwriting rules. Citizens has designated buildings with a Coverage A amount of $10 million or greater as A- rated. These A- rated buildings are not subject to the 10% statutory rate cap nor are the rates for these risks subject to approval by the Office of Insurance Regulation. Individually Rated Risk Characteristics with CRM or CRW Coverages As of 12/31/13, after adjusting for depopulation, there were roughly 600 individually rated buildings with annual premium of $100 million. 90% of the individually rated buildings are in the Coastal Account Rate Change History Commercial Residential Multi-Peril (CRM) 8.6% rate change effective 6/1/2013 for new and 7/1/2013 for renewal 19.1% rate change effective 3/1/2012 for new and 4/1/2012 for renewal 20% rate change effective 11/1/09 for new and 1/1/10 for renewal Commercial Residential Wind-Only (CRW) 3.0% rate change effective 6/1/2013 for new and 7/1/2013 for renewal 0% rate change effective 3/1/2012 for new and 4/1/2012 for renewal 20% rate change effective 11/1/09 for new and 1/1/10 for renewal 1 Page

2 2015 Analysis Separate indications were calculated for the CRM Coastal Account, CRM Commercial Lines Account and CRW A-rated buildings 1. For purposes of evaluating Citizens A-rated risks, the actuarial team took the following factors into consideration: Modeled catastrophe losses using AIR (Atlantic Tropical Cyclone Model V Program: CLASIC/2 V12.0). This model is licensed by Citizens and is an accepted model by the Florida Commission on Hurricane Loss Projection Methodology. Modeled catastrophe losses using RMS v 11 SP2. This model is an accepted model by the Florida Commission on Hurricane Loss Projection Methodology. Modeled catastrophe losses using EQE Build t55 - Florida Hurricane Model 2013a. This model is an accepted model by the Florida Commission on Hurricane Loss Projection Methodology. Modeled catastrophe losses using Florida Public Model Version 5. This model is an accepted model by the Florida Commission on Hurricane Loss Projection Methodology. A provision for the net cost of private reinsurance has been included. The provision was calculated based on the reinsurance that Citizens purchased in A separate risk load/cost of capital provision has been included for the layers up to 1- in-100 year risk level that Citizens retains. This provision is a proxy for private reinsurance that a private company would purchase in addition to the reinsurance Citizens actually purchased. A provision for expenses based on Citizens actual cost data. 1 CRW buildings are in the Coastal Account only. 2 Page

3 INDICATION SUMMARY Commercial Residential Multi-peril (CRM) Selected Indicated Rate Change: 15.8% Proposed Rate Change: 6.0% Proposed Effective Date: NB: 9/1/2015; RB: 10/1/2015 The indication by territory: In-force Indicated Proposed TERRITORY Premium Change Change Seacoast Zone 1 47,483, % 5.9% Seacoast Zone Seacoast Zone 3 2,459, % 6.6% Inland Monroe ex Key West Key West Overall Proposed Change 49,942, % 6.0% Indication is based on the results from the Florida Commission on Hurricane Loss Projection Methodology accepted AIR, RMS, FPM, and EQE hurricane models Citizens actual administrative costs were included in the indication. An estimated provision for a 1-in-100 year reinsurance cost was included in the indication. The hurricane model results are based on policies in-force as of , adjusted for depopulated policies. 3 Page

4 CRM in the Coastal Account To address the issue of inconsistency in the premium for a CRM policy in the Coastal Account and a CRW policy, effective in 2011, the Coastal territories overlapping Seacoast Zone 1 were added to the CRM rating plan. Instead of one broad CRM rate across Seacoast Zone 1, there are now 12 rates. The next exhibit displays the CRM indication for each of the Coastal territories within Seacoast Zone 1. Indicated Rates within Seacoast Zone 1 Indicated Selected Coastal Inforce Rate Rate County Territory Premium Change Change Broward , % 4.4% Broward 36 10,189, % 4.7% Broward 37 6,866, % 4.8% Dade 30 5,434, % 9.0% Dade 31 7,029, % 8.9% Dade 32 1,702, % 4.9% Dade 34 8,231, % 5.1% Indian River % 0.0% Palm Beach , % 5.5% Palm Beach 87 3,779, % 4.9% Saint Lucie , % 5.8% Coastal Subtotal 45,615, % 5.9% Remainder* 1,867, % 3.8% Grand Total 47,483, % 5.9% *Remainder is comprised of the area in Seacoast 1 that is located in the CLA and not the Coastal Account. Selected Rate Change The above numbers represent the average rate change in each territory. Individual policy rate changes may vary. All individual rate changes will be in the range of 0.8% to 10.2%. 4 Page

5 Commercial Residential Wind-only (CRW) Indicated Statewide Rate Change: -6.3% Proposed Statewide Rate Change: 0.0% In-force Premium: $57,652,083 Indication is based on the results from the Florida Commission on Hurricane Loss Projection Methodology accepted AIR, RMS, FPM, and EQE hurricane models Citizens actual administrative costs were included in the indication An estimated provision for a 1-in-100 year reinsurance cost was included in the indication. The hurricane model results are based on policies in-force as of , adjusted for depopulated policies. Selected Rate Change The recommendation is to make no adjustment to the CRW individually rated risks at this time resulting in a 0.0% rate change. RECOMMENDATION Staff requests that the Actuarial and Underwriting Committee discuss the 2015 recommended rate change for individually rated risks as set forth in this action item, and request the Board of Governors to approve the proposed rate changes for Commercial Residential Multi-peril and Commercial Residential Wind-only policies; both overall and by territory. Upon approval by the Board, appropriate changes will be applied to CRM A- rates rates by territory as described herein resulting in an average rate increase of 6.0%. A rate change of 0.0% will be applied to CRW A-Rated risks. 5 Page