Citizens picks Goldman Sachs for review of plan to shed customers [The Palm Beach Post, Fla.]

Oct. 20--In an emergency procurement Friday, Florida's state-run insurer Citizens named Wall Street firm Goldman Sachs as outside reviewer for a customer-shedding plan that critics slam as $350 million in corporate welfare for private insurers.

The Citizens board also approved another outside reviewer to be named later, with the idea both reports will come back to the panel by the time it meets again in December.

Company officials acknowledged Goldman has financial interests in the Florida insurance market -- including fees from Citizens bond and reinsurance deals -- but presented that experience as a boost to credibility, not a potential conflict.

"I think when you go with a known brand to conduct a review, it just adds to the credibility," board chairman Carlos Lacasa said.

A Citizens spokeswoman said Goldman would not have a financial interest in the incentive plan besides a $200,000 fee for the review.

The plan would spend up to $350 million from ratepayers' surplus as 20-year, potentially forgivable loans to private carriers who agree to take perhaps 300,000 Citizens customers. State-run Citizens has 1.5 million customers including 141,000 in Palm Beach County.

State Sen. Mike Fasano, R-New Port Richey, has called the plan corporate welfare. Asked about potential vetting by Goldman Sachs -- whose name came up last week for this role -- Fasano referred to "the fox guarding the henhouse."

Among criticisms aimed at the plan: Incentives aren't necessary and should not be rushed through without legislative input. Under existing depopulation plans without incentives, more than 300,000 potential transfers of Citizens customers this quarter alone put 2012 on pace for the biggest takeout year for Citizens in at least four years.

Rep. Frank Artiles, R-Miami, called the incentive spending "reckless" and wrote to Lacasa, "It appears that Citizens has been heavily influenced by lobbyists."

Citizens president Barry Gilway said the plan offers a way to shrink Citizens at a faster rate and reduce the risk of potential assessments to all insurance customers in Florida. To let the incentive plan slip away would be an "abandonment" of fiduciary duty, Gilway said Friday.

Citizens has about $6 billion in ratepayers' surplus available to pay claims. The company has recently spent about $280 million from the surplus to buy $1.5 billion of private reinsurance, which is typically more than twice as expensive as coverage provided by the state's Cat Fund. Goldman Sachs was the senior underwriter in bond deals where total fees and costs ran 19.1 percent, Citizens officials have acknowledged, but defended the purchase as a supplement to Cat Fund coverage in a bid to reduce assessment risk. Board member Tom Lynch of Delray Beach questioned the need, saying earlier this year the terms "just didn't make sense."

With no major storms hitting Florida for more than half a dozen years, few people dispute the largest single driver of rising insurance costs for homeowners in Florida has been the cost of reinsurance from unregulated, private offshore interests.

On April 5, the Goldman Sachs Group Inc. said it completed the purchase of Ariel Reinsurance's Bermuda-based insurance and reinsurance operations, noting it will operate as part of Goldman Sachs Reinsurance Group.

A company spokesman said Friday, "The Goldman Sachs employees involved in the current advisory assignment are in our Investment Banking Division and are not affiliated with Goldman Sachs' Reinsurance business. We have no financial interest in spending the Citizens Surplus and plan to give the best advice possible."

___

(c)2012 The Palm Beach Post (West Palm Beach, Fla.)

Visit The Palm Beach Post (West Palm Beach, Fla.) at www.palmbeachpost.com

Distributed by MCT Information Services