Florida Workers’ Compensation Joint Underwriting Association Board of Governors Meeting Report: June 13, 2012

 

The Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Board of Governors (“Board”) met on June 13, 2012, during which it considered and took action on several items.

 

Legislative Update

The Board heard an update on workers’ compensation-related bills passed during Florida’s 2012 Legislative Session. 

Considered to be a “headline” issue, the “drug repackaging” bill did not pass, which disappointed the insurance industry and many employer groups as well. 

HB 7105, which was signed into law by Governor Rick Scott, preserved a statute containing a public records law exemption that applies specifically to the FWCJUA.  The law was scheduled to sunset this year. 

Other successful bills were discussed, including HB 941, which repealed a 1979 law requiring carriers to refund excess profits to policyholders. 

HB 1277, which also passed, is intended to help prevent some forms of workers’ compensation premium fraud-especially in the construction industry-by adding various requirements to check-cashing businesses and strengthening the Florida Office of Financial Regulation’s ability to conduct corresponding investigations.

 

Safety Committee Report

The FWCJUA Safety Committee had met on April 24 to review the organization’s current mandatory safety program and the safety-related premium credit programs available to its policyholders.  Also reviewed were FWCJUA’s efforts to ensure its policyholders are aware of available credit programs and various online risk control resources.   The Committee also evaluated the 2012 Cause of Loss and Safety Program Analysis. 

A meeting participant said that the FWCJUA is writing policies for more “goods and services” industries than it has in the past, and that this shift in business might produce more frequent claims, as opposed to claims that are more severe in nature, since the business services industry tends to produce smaller injuries, usually causing an employee to miss work only for a day or two.  The construction industry, on the other hand, often leads to larger claims and payment of indemnity benefits.

The Safety Committee did produce any recommendations to modify the current programs, which it deemed sufficient.

 

Market Assistance Plan (“MAP”) Committee Report

At its April 27 meeting, the FWCJUA’s MAP Committee reviewed various market assistance efforts and quantifiable results of these programs. 

The Committee found that MAP efforts are effective and exceeding statutory obligations. Further, the Committee agreed that the FWCJUA remains strategically positioned to readily facilitate the placement of workers’ compensation coverage in the voluntary market for employers applying for, or securing coverage through the FWCJUA.  In 2011, the FWCJUA’s estimated market share was less than one-half percent.

 

Audit Committee Report

Board Member Raquel Rodriguez reported that the FWCJUA’s 2011 Statutory Financial Audit was accepted by the Audit Committee at its May 17 meeting and filed with the Florida Office of Insurance Regulation (“OIR”) on May 23, 2012. 

The Committee also reconfirmed its independent financial auditor for fiscal year 2012, which is the third and final year of that vendor’s engagement.

Ms. Rodriquez informed the Board that the FWCJUA is awaiting a letter ruling from the Internal Revenue Service on the FWCJUA’s position that it is an “integral part of the state,” and therefore, tax-exempt for federal purposes.

With regard to the Audit Committee’s Charter Procedures Checklist, Ms. Rodriguez said that items for the first two quarters of the year have been satisfied, and that the Committee believes management’s oversight of the financial reporting process has been adequate.

 

Investment Committee Report

At its May 24 meeting, the FWCJUA’s Investment Committee agreed to hold the Hewlett Packard, Citigroup, BellSouth and Amgen bonds within the FWCJUA’s portfolio as authorized exceptions to the FWCJUA Investment Policy, subject to reconsideration once a new FWCJUA investment manager is engaged.

Board Member Steve Solomon said that all three finalists for the investment manager position indicated that a Triple-B rating is “kind of the new A.”  He moved that the FWCJUA continue to hold those bonds.

It was noted that Cutwater’s (the outgoing FWCJUA investment manager) position is that the underlying credit on these issues remains acceptable, and the risk to hold these bonds to maturity is minimal.

The Board unanimously agreed to continue to hold the four bonds.

Next, the Board discussed the Coca-Cola HBC Finance BV bond, which was downgraded from A- to BBB (negative) on June 7, 2012, by Standard and Poor’s.  The downgrade is attributed to “Greek uncertainties.”  Like the other four bonds, this results in a compliance matter pertaining to the FWCJUA’s Investment Policy.

Prime Advisors, the recommended investment advisor replacement for Cutwater, has advised that the FWCJUA continue to hold the bond.

Ms. Rodriguez suggested scheduling an Investment Committee meeting specifically to discuss the Coca-Cola issue.  FWCJUA Staff members agreed to look into procedures for setting up a meeting on emergency notice.

The Board then unanimously agreed to hold the Coca-Cola HBC Finance BV bond within the FWCJUA’s portfolio as an authorized Investment Policy exception.

Prime Advisors was unanimously confirmed as the FWCJUA’s investment manager.  This followed an RFP process that yielded 13 respondents, which was narrowed to three companies that made presentations before the Investment Committee.

 

Rates and Forms Committee Report

The Board considered the FWCJUA Rates and Forms Committee’s recommendation to adopt revisions to the FWCJUA Policyholder Dividend Policy.

The recommended revisions have been proposed to:

• clarify that, in considering dividend declarations, each policy year will be reviewed on its own merits with due consideration being given to the overall profitability of all policy years. If a policy year result is deemed to have a positive underwriting gain after this review, each individual rating tier will then be considered on its own merit.
• establish that, once the policy year results are reviewed, any dividend declaration for a policy year shall be distributed among the tiers based upon each individual rating tier’s underwriting results.
• establish a “standard” expense calculation for any dividend declaration of $10 per policy issued within the dividend period.
• establish that a policy that qualifies to receive a share of any net declared policyholder dividend will receive its share based upon its proportionate share of its assigned rating tier’s positive underwriting results.

The Board unanimously agreed to adopt these revisions to the FWCJUA Policyholder Dividend Policy.

It also considered a Rates and Forms Committee recommended return of premium dividend declaration for Tier 1, 2 and 3 policyholders with a 10 percent underwriting gain retention. The retention of a 10 percent underwriting gain is based upon the negative cumulative tier results for policy years 2008, 2009, 2010 and 2011 as of December 31, 2011. 

The Board unanimously agreed to authorize a gross return of premium policyholder dividend of $12,254,369 with a 10 percent underwriting gain retention for the 2004-2005 policy year allocated among the Tiers as $1,689,869 for Tier 1, $2,195,435 for Tier 2, and $8,369,065 for Tier 3, recognizing that expenses will be deducted in accordance with the Policyholder Dividend Policy and a net dividend distribution will be made to the policyholders by Tier.

The next item on the agenda pertained to elimination of the 2011 Subplan D deficit.

The FWCJUA recognized a $75,254,263 surplus in 2011. Given that the FWCJUA is in a surplus position, it is not statutorily required to submit a deficit elimination plan to the Florida Office of Insurance Regulation.  However, with Subplan D posting a deficit of $1,320,893, the Board previously agreed to update its plan to eliminate this individual rating plan deficit and submit it to the OIR.

The Board unanimously agreed to authorize FWCJUA Staff to finalize the proposed correspondence to the OIR outlining the program to eliminate the FWCJUA’s 2011 Subplan D deficit through May actuals for submission no later than August 7, 2012.

A discussion of the 2012 Loss Ratio Selection ensued.

The Rates and Forms Committee has recommended that the Board confirm the FWCJUA Staff’s booking of the 2012 losses employing methodology adopted by the Board in 2008.

That methodology was recommended by Milliman and utilizes the current year’s latest filed rates, along with the loss ratios indicated from the loss experience evaluated as of the prior year-end. 

Milliman’s current loss ratio selection analysis utilizes the January 1, 2012 filed rate changes, along with the loss ratios indicated from the loss experience evaluated as of December 31, 2011 and produces the following 2012 loss ratios that are being booked by rating tier:

• Tier 1
  • Projected 2012 Net Loss Ratios: 28.6 percent
  • Projected 2012 Gross Loss Ratios: 32.6 percent

• Tier 2
  • Projected 2012 Net Loss Ratios: 35.0 percent
  • Projected 2012 Gross Loss Ratios: 39.8 percent

• Tier 3
  • Projected 2012 Net Loss Ratios: 38.5 percent
  • Projected 2012 Gross Loss Ratios: 43.9 percent

Milliman did not recommend any changes to the methodology at the Committee meeting.

A motion to confirm booking the 2012 losses utilizing the January 1, 2012 filed rate changes along with the loss ratios indicated from the loss experience evaluated as of December 31, 2011 was unanimously passed by the Board.

Complete meeting materials are attached in PDF format.

 

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