CONFLICT OF INTEREST

CITIZENS PROPERTY INSURANCE CORPORATION CHIEF
RISK OFFICER RECOMMENDING ACTUARIAL SERVICES

To:        Name withheld at person's request (Tallahassee)

SUMMARY:

Under the circumstances presented, a prohibited conflict of interest under Section 112.313(7)(a), Florida Statutes, does not exist where the Chief Risk Officer of Citizens Property Insurance Corporation recommends actuarial services to his former private clients. CEO 09-1 is referenced.¹

QUESTION:

Does a prohibited conflict of interest exist where the Chief Risk Officer of Citizens Property Insurance Corporation recommends, for compensation, actuarial services to his former private clients?

Under the circumstances presented, your question is answered in the negative.

In your letter of inquiry and additional information provided to our staff, you relate that . . . serves as the Chief Risk Officer ("CRO") of Citizens Property Insurance Corporation ("Citizens"),² having begun his employment with Citizens on October 14, 2013; and that he is subject to Part III, Chapter 112, Florida Statutes (the Code of Ethics for Public Officers and Employees), pursuant to Section 627.351(6)(d), Florida Statutes.³ Further, you state that the duties and responsibilities of the CRO impact all of the operations of Citizens, including but not limited to managing the rate-making process (organizing/analyzing data to provide competent pricing recommendations), providing leadership for Citizens' depopulation and surplus notes programs, and reviewing underwriting financials and directing the development of solutions through product monitoring and rate structure. In addition, you relate that prior to becoming employed by Citizens, . . . was (and remains) president of a consulting company which provided (but which no longer provides) actuarial services to insurance regulators and policy makers, and to private sector insurance companies. Also, you state that in January 2013, . . ., as president of the consulting company, entered into an actuarial services referral agreement with another company (in which other company neither he, nor his consulting company hold any ownership or governance), under which agreement he would recommend, in exchange for finder's fees, the services of the other company⁴ to some of his former clients (two private sector insurance companies).⁵ The services recommended to one of the companies (a property and casualty company) are actuarial services supporting rate filings in the State of Florida and actuarial services supporting statements of actuarial opinions on loss+LAE (loss adjustment expense) reserves in all states. The services recommended to the other company are actuarial services supporting rate filings in the State of Florida; and you state that this company received approval from the State of Florida's Office of Insurance Regulation to be a takeout company for depopulation of Citizens' portfolio of policies, for assumption in January 2014. Continuing, you relate that in exchange for the referrals (recommendations) . . .company is entitled to receive fifteen percent of the other company's collected billings for the first year following a mutually-agreed-upon start date of March 1, 2013, and ten percent for the second year. Further, you state that no additional referrals have been made by . . . company to the other company; however, you relate that . . .is receiving residual income through his company as a result of the agreement, and will likely continue to receive such income through 2014. And, you state that neither . . . company, nor the company with which his company has the agreement, is subject to the regulation of or is doing business with (e.g., contracting with) Citizens.⁶

Within the Code of Ethics, Section 112.313(7)(a), Florida Statutes, is relevant to your inquiry; it provides:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.-No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee . . . ; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties.

We find that a prohibited conflict of interest under the first part of the statute does not exist for . . . under the situation described, inasmuch as it does not indicate that any business entity with which he would hold employment or a contractual relationship is subject to the regulation of, or is doing business with, Citizens (his public agency). Regarding the second part of the statute, too, we find that a prohibited conflict does not exist, in that . . . situation is not indicative of a continuing or frequently recurring conflict between his private interests and the performance of his public duties for Citizens, or an impediment to the full and faithful discharge of his pubic duties. More particularly, regarding the second part of the statute, we fail to see how he could have been tempted, as Citizens' CRO, to compromise the objective performance of his Citizens' duties in order to further his own private interests, those of his company, those of the company with which his company has the referral agreement, or those of his former insurance company clients encompassed by the agreement. This is so because the agreement puts vested, enforceable rights in . . . or his company, which became existent before he took his Citizens' CRO position, and because it does not appear that he would have duties at Citizens which could readily affect or target the interests of the company with which he has the referral agreement or the interests of his two former insurance company clients encompassed by the agreement.⁷

Your question is answered accordingly.

ORDERED by the State of Florida Commission on Ethics meeting in public session on April 25, 2014, and RENDERED this 30th day of April, 2014.

____________________________________

Morgan R. Bentley, Chairman

^[1] Prior opinions of the Commission on Ethics may be obtained from its website (www.ethics.state.fl.us).

^[2] Citizens is "a government entity that is an integral part of the state, and that is not a private insurance company." It exists to help alleviate shortfalls in the availability of property insurance from private insurance companies. Section 627.351(6)(a)1., Florida Statutes.

^[3] Section 627.351(6)(d)3., Florida Statutes, provides that "Senior managers and members of the board of governors [of Citizens] are subject to part III of chapter 112, including, but not limited to, the code of ethics . . . ." And, you relate that . . .is designated as a senior manager of Citizens, in Citizens' Plan of Operation. See CEO 09-1, finding that Citizens' board members are subject to Section 112.313(7)(a), Florida Statutes.

^[4] You state that neither . . .nor his company perform any of the services delivered by the other company to his former clients.

^[5] You relate that . . .performed actuarial services relating to rate filings and financial analysis, for the clients; but that neither he nor his company currently provides any services to the clients.

^[6] Regarding the two former clients, you state that Citizens does not regulate any insurance company; but that one of the former clients is doing business with Citizens as a participant in the clearinghouse network.

^[7] In this regard, you relate that the other company has no business interface with Citizens; that . . .company has no business relationship with Citizens, their last relationship ending in September 2011, prior to his attaining a Citizens' position; that many private insurers, not just the two former clients of his, have or will have relationships with Citizens based on participation in a clearinghouse shopping platform for personal lines policies; that the CRO's role involves an enterprise-wide management of risk which could affect Citizens' relationship with any and all private insurers, as well as their consulting firms, but that it is not possible for the CRO to unilaterally enter Citizens into a relationship with the other company or any insurance company served by it; that Citizens has no ability to affect the other company's income or its relationship with its clients, and no ability to affect . . .company's income, from the other company or from his company's clients; and that his company is a business in "runoff," one not doing work for active clients, and whose residual income is not related to the CRO's role for Citizens.