Florida Workers’ Compensation Joint Underwriting Association February 2013 Meeting Recaps

 

Below are summaries of Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) meetings held during February 2013:

 

Reinsurance Committee

At the FWCJUA’s February 20 Reinsurance Committee meeting, it was reported that the FWCJUA filed its 2013 Reinsurance Program with the Florida Office of Insurance Regulation (“OIR”) on January 7, 2013.  A summary of the program, including a list of participating reinsurers with respective participations by layer, is provided in the “Reinsurance Committee” meeting materials, which can be viewed by clicking here.

In addition, the FWCJUA’s 2013 Reinsurance Contracts have been signed by the FWCJUA and await final execution by the reinsurers.

During the meeting, the Committee was updated on the status of the FWCJUA’s reinsurers, including  commutation matters.

Since the Committee’s last update, the financial strength rating of one of the FWCJUA reinsurers had changed; the changes, however, do not create a contract performance violation/noncompliance, it was explained.

Following its December 12, 2012 meeting, the FWCJUA Board made a commutation offer to Excalibur, which has made no official response to date, even though one had been promised by the company.  It was cautioned that, if Excalibur ultimately presents an attractive counteroffer, the Board may need to act on it quickly.

As anticipated, the FWCJUA continued to experience tremendous repopulation in 2012. For reinsurance purposes, the FWCJUA projected $16,250,000 in written premium and $12,600,000 in earned premium for 2012.  As of December 31, 2012, the FWCJUA anticipates booking written premium of $18,888,874 and earned premium of $13,231,087 for 2012. In fact, the FWCJUA’s written premium actually grew by 16.2 percent, which was more than anticipated.

Early indications suggest that the FWCJUA may have underestimated its anticipated continued growth in 2013. As of January 31, the FWCJUA had bound 107 new business accounts, with $2,274,358 in total estimated annual premium (“TEAP”), compared with binding a total of 45 new accounts with a combined TEAP of $795,896 in January 2012.

It was noted that this growth clearly surpasses that anticipated by the implementation of the overall premium level increase of 6.8 percent, effective January 1, 2013.

Upon the conclusion of a competitive bidding process to secure an FWCJUA reinsurance intermediary, the Committee unanimously agreed to recommend that the Board engage Aon Benfield as the FWCJUA’s reinsurance intermediary for the next three years, with the option of two one-year extensions by mutual agreement of the parties.

Questions asked of the two respondents at the final interview were:

• Who do you consider your major competitors for workers’ compensation reinsurance intermediary services, to include specifically workers’ compensation residual markets?
• Why should your firm be selected to provide reinsurance intermediary services to the FWCJUA?
• What is the number one reason why your firm would do the best job as the FWCJUA’s reinsurance intermediary?

 

Operations Committee Confirms 2013 Business Plan; Hears Update on Market Conduct Exam

During a brief meeting on February 14, 2013, the FWCJUA Operations Committee heard updates on the 2013 FWCJUA Business Plan and Forecast, and the organization’s Disaster Recovery and Emergency Preparedness Plan. 

To view the meeting materials, click here.

After brief discussion, the Committee agreed to confirm the finalized Business Plan, which will be reviewed by the Board for final approval.

Since the December 2012 Board meeting, the Business Plan was updated to include the December 31, 2012 average policy year uncollectible premium percentage for policy years 1994 through 2010 of 14.15 percent.  Hence, the FWCJUA’s 2013 objective is to hold uncollectible premium at or below 14.15 percent.

Further, the 2013 Forecast was revised to reflect a reduction in the reinsurance premium, resulting in an overall improvement in the Forecast results of $220,440.  The FWCJUA capital expenditures remain unchanged.

The complete FWCJUA Business Plan is provided in the aforementioned meeting materials.

The Committee also approved recommended revisions to its Disaster Plan that incorporate a proposed company-issued laptop program as another layer of disaster preparedness.  It was explained that the intent of issuing laptops and related equipment is to simplify disaster recovery and enable employees to be productive when they are not able to work from the office.

FWCJUA Executive Director Laura Torrence then gave a brief update on an in-progress market conduct exam of the FWCJUA, noting that examiners began their work in mid-December and are still requesting information. 

Since that time, the FWCJUA Staff has responded to numerous and ongoing examiner requests related to the FWCJUA’s practices and procedures. One preliminary advisory suggested the need for formal documentation of IT practices.  However, per the examiner, this is not considered a significant issue.  The FWCJUA’s response to the advisory, along with the now-documented IT practices, is included in the meeting materials.

“Other than that it’s been really silent,” Ms. Torrence said.  To date, the FWCJUA has received invoices from the examiners totaling more than $60,000, a number that is getting close to the originally predicted maximum cost of $89,000, she noted.

“I do not know how much longer this might go on or how much more (in) fees might accrue,” Ms. Torrence added.  “At this point, no news is good news, I guess.”

A list of FWCJUA operational objectives that have been addressed since mid-December 2012 through February 2013 are also provided in the meeting packet.

  

Rates and Forms Committee Reviews Milliman’s Report on Unpaid Claim Estimates

During a short meeting on February 15, 2013, FWCJUA Rates and Forms Committee members heard an actuarial review by a Milliman representative on the  best estimates of the reserve for ULAE, net and gross, for reinsurance for the years 1994 through 2012 and unpaid loss adjustment expenses as of December 31, 2012. 

To view the meeting materials, click here.

Based on Milliman’s preliminary analysis of FWCJUA reserves, the Committee was asked to determine the appropriateness of adjusting the FWCJUA’s carried ultimate liabilities for year-end 2012 and formulate a recommendation for Board consideration.

Generally, there was overall favorable development for accident years 1994 through 2011; however, the development in 2012 was worse than anticipated given increased claim activity, particularly as a result of a December 22, 2012 claim for $833,000.

After some discussion, the Committee voted unanimously to recommend that the Board authorize FWCJUA Staff to book Milliman’s estimates.

The Committee also unanimously agreed to recommend the Board authorize the FWCJUA to work with the OIR to develop an arrangement to close Subplan D and return the funding received from the State over that amount needed to fund the actuarial deficit as of December 31, 2012.

In other business, the Committee unanimously agreed to recommend that the Board authorize FWCJUA Staff to file the proposed “clean-up” revision of the FWCJUA Operations Manual, including the specified forms to be presented for OIR approval to become effective March 1, 2013. 

Sections in the Manual to be revised are:

• Part Four-(A) Agency and Designated Producers
• Part Four-(E) Policy Change Procedures
• Part Seven-Forms
  • ACORD 133 FL
  • Contractor Supplemental Application
  • Assessable Policy Notice Endorsement

 

Investment Committee approves bond tender offer

During its February 14 meeting, the FWCJUA Investment Committee reviewed the organization’s current investment portfolio with its investment manager, Prime Advisors, to ensure it is consistent with the FWCJUA’s Investment Policy Statement and Guidelines.

The Committee also heard a commentary from Prime Advisors on the general financial market.  Topics covered in this presentation included the economy, interest rates, market activity, key indicators, sector allocation, and curve positioning.

The Committee unanimously agreed with Prime Advisors’ advice to accept the UBS tender offer for the $1 million bond being held within the investment portfolio.

To view the meeting materials, click here.

 

Board of Governors

 At its meeting on February 21, 2013, the FWCJUA Board of Governors took the following actions:

• Unanimously agreed to authorize FWCJUA Staff and the FWCJUA General Counsel to work with the Florida Office of Insurance Regulation (“OIR”) to develop an arrangement to close out Subplan D and return funding received from the State of Florida in excess of that needed to fund the actuarial deficit as of December 31, 2012.
• Unanimously agreed to authorize FWCJUA Staff to book Milliman’s best estimates of the FWCJUA’s reserve for unpaid loss and loss adjustment expenses, both net and gross of reinsurance for 1994 through 2012, as well as ULAE as of December 31, 2012.
• Unanimously agreed to authorize staff to file the proposed “clean-up” revision to the FWCJUA

Operations Manual, including the specified forms as presented, for OIR approval to become effective March 1, 2013.

• Unanimously agreed to rehire Aon Benfield as the FWCJUA’s reinsurance intermediary for the next three years with the option of two one-year extensions.
• Unanimously agreed to adopt the proposed Laptop Policy to establish parameters for the safe and effective use of FWCJUA-issued equipment.

To view the meeting materials, click here.

 

 

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