Audit Faults Louisiana Citizens' Reserving

Chris Westfall
Chris Westfall

A report issued last week questions Louisiana Citizens’ Property Insurance Corp.’s reserving practices and says that state’s insurer of last resort does not have adequate processes to develop accurate loss and loss adjustment liabilities.

The report was compiled by the Louisiana Legislative Auditor, the state’s financial watchdog, and covered the period ending on Dec. 31, 2008.

The audit gave several examples of what it described as Citizen’s “inadequate” reserving practices, including not properly reserving for four hurricane claim class action lawsuits, case basis loss reserves that do not appear to include all appropriate amounts and failure to properly reserve for several actual claims.

The audit argues that Citizen’s reserving problems stemmed from a broader breakdown in its systems technology and reserving methods.

“These conditions are the result of inadequacies in Citizens’ information systems and inadequate procedures to ensure that loss information is complete and accurate,” the report said.

In response to the audit, Citizen’s CEO John Wortman argues that although the company agreed with some of the criticisms concerning systems and procedures, the state’s auditor “does not understand property casualty insurance reserving practices.”

“The auditor does not understand claim handling and the reserving process and is asserting misinformation despite many explanations. It is clear the examination was of individual pieces without understanding the entire process,” the letter says. “The result is a waste of time and effort.”