FAJUA Finance Committee Meeting Report: April 13

The Florida Automobile Joint Underwriting Association (“FAJUA”) Finance Committee (“Committee”) met in Miami on Monday, April 13, 2009.

Report on Investments

Committee Chairman Kevin Leeman reported that Florida’s Special Purpose Investment Account (“SPIA”), a highly liquid, government-pooled account in which the bulk of the FAJUA’s investments are held, continues to be the most attractive investment option despite its lower yields.  SPIA, which has losses of under one percent, offers a return of approximately three percent over 12 months.  The FAJUA’s investments were transferred in 2008 from Wachovia to SPIA.

The Committee agreed to reevaluate investment opportunities when the institutional market recovers but will continue with the SPIA for the immediate future.  The Committee also agreed it would forward SPIA financial information to the FAJUA Board of Governors (“Board”).

Auditor’s Report

Bill Ferguson, of Thomas Howell Ferguson P.A., reported on the FAJUA’s financial audit for the first three quarters of 2008.  Total admitted assets were $9.6 million and total liabilities were $8.6 million, which includes loss and loss adjustment reserves of $6.9 million, and leaves an approximate $900,000 surplus.

Earned premium decreased $1.6 million during the same period of 2008, compared to $3.7 million in 2007.  The number of policies remains stable.  Net underwriting loss was $788,000.

FAJUA administrative expenses decreased slightly, as did miscellaneous income.  Operating expenses’ loss and loss adjustments decreased to $4.4 million, from $8.2 million in 2007.  Assessments from member companies totaled $8.9 million. 

Approximately a year ago, the FAJUA Pension Plan (“Plan”) separated and became a distinct entity from the Automobile Insurance Plan Service Office (“AIPSO”), which is administered by State Farm.  The accumulated pension obligation was $197,000, leaving the Plan underfunded by approximately $2,500, but in no danger of failing to meet current obligations, Mr. Ferguson said.  The expected long-term return on plan assets is eight percent.

Committee member Bill Graham asked if it would be necessary to investigate whether there is a minimum funding obligation for the FAJUA Pension Fund.  The FAJUA’s current obligation of post-retirement health and life insurance benefits is $152,000, which integrates Medicare.  The Committee agreed to study the issue.

Mr. Ferguson said that the FAJUA essentially “broke even,” and, with a small surplus, can assess members if cash needs warrant.  He concluded the report by stating that the audit showed no significant material weaknesses or deficiencies.

Cash Flow Projection

Mr. Leeman reported that there were cash flow deficiencies as of December 2008.  The negative cash flow was estimated at $250,000 to $500,000 per month.  The Committee previously had anticipated no need for assessments before December 2010.  That expectation has been revised; Mr. Leeman said that, in order to fund cash flow and distributions, an assessment of $8 million will be required before January 1, 2010.  The last assessment of $8.9 million, as stated in the auditor’s report, was in January 2008.

Mr. Leeman said the FAJUA has been following an annual assessment model, but that the Committee had other options, such as quarterly assessments.  The Committee decided there was no need to deviate from the annual model, and passed a motion to maintain the current model. 

Other Business

There was discussion regarding the FAJUA’s post-retirement benefits, which pay for 75 percent of the retiree’s health and life insurance, and post-employment benefits, which cover disabled employees and apply until retirement.

With one retired employee, the need for Pension Plan funding has been extremely limited,  so it has been funded on a cash-as-needed basis, as opposed to in advance.  Members debated whether it should be funded as an ongoing operational expense in the annual budget in anticipation of future retirement needs.  Mr. Ferguson reminded members that the benefits already are reflected in the FAJUA’s balance sheet.

A Committee member asked if creating a separate trust account in SPIA for a post-retirement plan would be worthwhile, given potential administrative costs.  The Committee agreed to investigate cost estimates and benefits of setting up such an account.

In addition, there is currently no formal policy for the post-retirement and post-employment benefit plans.  A member said the FAJUA needed to create a formal document, both to provide clarification for employees and information on anticipated costs for the Board.

The Committee agreed to draft recommended language for a formal document on post-retirement and post-employment benefits.

With all business completed, the meeting adjourned.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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