Florida Workers’ Compensation Joint Underwriting Association Reinsurance Committee Meeting Report: November 18

The Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Reinsurance Committee (“Committee”) met via teleconference on Wednesday, November 18, 2009 to discuss the FWCJUA’s 2010 reinsurance program, participating reinsurers, and what negotiation options may be available.

The Committee reviewed catastrophe and excess casualty reinsurance quotes that have been received to date, and considered various related cost control strategies.

FWCJUA Executive Director Laura Torrence reported that the FWCJUA surplus is approximately $81 million and that premiums collected in 2010 are expected to be $8 million, which is the lowest they have been in several years.

She explained that the lower premiums were mainly due to the decrease in policies written and the level of risk those policies represent. For example, clerical and retail employees present much less risk than construction workers, which equates to smaller premiums for those employers.  Ms. Torrence predicted that when the construction industry begins to revive, the premiums will begin increasing again.

It was explained that the FWCJUA may pay higher reinsurance premium rates in 2010 because of the lower amount of premiums it now collects.  Also, the number of reinsurers has decreased, thereby lessening the competition (especially for an account as small as the FWCJUA has become).

There was extensive discussion on the value of maintaining relationships with companies that have been loyal to the FWCJUA over the years, even if that means paying a slightly higher premium or assuming more of the risk.  With the number of companies willing to bid on FWCJUA business, it was stressed that continuing relationships with existing vendors is important, especially with the uncertainty of what FWCJUA premium income will be in future years.

Reinsurance program decisions considered by the Committee included:

• What retention would the FWCJUA prefer below $5 million?
• A high retention with a low premium base could impact net loss ratio (i.e., a $1 million net loss equals 14.29 net loss ratio points).
• Roughly $80 million in policyholder surplus increases the ability to absorb fresh claims activity and adverse development for old claims (note: claims inventory is about 100).
• Retentions above $1 million may result in the loss of longstanding reinsurance partners.

Regarding the issue of runoff versus cutoff, the Committee considered:

• Pricing only has been secured on an in-force, new and renewal basis (with run-off at the FWCJUA’s option).
• With run-off, multiple retentions are possible if an occurrence involves multiple policies and each is subject to a different reinsurance structure.
• Run-off accounting may be more cumbersome to administer.

The Committee voted unanimously to adopt a reinsurance structure for 2010 that is similar to the four levels of coverage used in 2009, which are:

• $10 million paid by the reinsurance companies for claims in excess of $20 million;
• $10 million for claims in excess of $10 million;
• $5 million for claims in excess of $5 million; and
• $4 million for claims in excess of $1 million.

It was agreed that negotiation for the best possible rates should occur, while concurrently endeavoring to maintain relationships with companies that have been loyal to the FWCJUA over the years.

The meeting materials packet is attached.

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

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