Florida Workers’ Compensation Joint Underwriting Association September 2011 Committee Meeting Reports

 

FWCJUA Investment Committee

At its September 7, 2011 meeting, the Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Investment Committee (“Committee”) unanimously voted to re-confirm the continued holding of three bonds that have been downgraded below an “A” rating as authorized FWCJUA investment policy exceptions.

The bonds include two Lehman Brothers bonds and one CitiGroup bond.  Committee members agreed to continue holding the bonds during a compliance review of the FWCJUA’s investment portfolio.  Cutwater Investment Services Corporation (“Cutwater”), the FWCJUA’s investment manager, also recommended the bonds’ continued holding.

A Cutwater representative told the Committee that market volatility and nervous investors have combined to make it a poor time to sell the bonds. 

“I think we are comfortable holding the bonds and looking for opportunity,” he said.

Speaking generally, Cutwater representatives reviewed some of the individual investments and told the Committee that the overall health of the FWCJUA’s investment portfolio is very strong.  The weakest links in the portfolio include Bank of America and Merrill Lynch, but they are still considered “money good,” one of the representatives said.

FWCJUA Executive Director Laura Torrence told the Committee that the FWCJUA has approximately $100 million in cash and invested assets.  She briefly explained that the organization has practiced a “buy and hold” investment strategy, due to the current investment environment.  Cutwater has recommended a more active approach and the FWCJUA staff is working with them to develop a position statement for future Committee consideration.

The Committee was advised of the following future meeting dates:   November 18, 2011; February 10, 2012; and May 25, 2012.  All three meetings will begin at 10 a.m.

With no further business before the Committee, the meeting was adjourned.

 

FWCJUA Rates and Forms Committee

The FWCJUA Rates and Forms Committee met on September 8, 2011, during which it voted to recommend that the FWCJUA Board of Governors (“Board”) effectuate an overall premium level change of -9.7 percent, effective January 1, 2012.

The proposed change would apply to all new or renewal business and be adjusted to reflect any approved voluntary market rate level and class relativity changes that might become effective January 1, 2012.  The -9.7 percent figure is based on an FWCJUA staff projection of $18 million in written premium and contemplates a credit of $750,000 to the State General and Administrative expenses, Ms. Torrence said.

The Committee voted unanimously to approve the recommendation after hearing lengthy reports by actuaries from Milliman, the company hired by the FWCJUA to perform an actuarial evaluation of its loss and loss adjustment expense history.  Milliman used data evaluated as of June 30, 2011 to determine whether to effectuate a premium level change effective January 1, 2012 for new and renewal business.

It was explained that the National Council on Compensation Insurance has filed for an 8.9 percent increase, effective 2012.  If the FWCJUA targets a decrease, it would lower its surcharges, thus resulting in a net decrease, even though voluntary market rates are increasing.  In this way, the two rate levels would be brought closer together.

Ms. Torrence explained that Milliman prepared three different rate indications based on written premium projections of $12 million, $18 million and $24 million.

The FWCJUA staff based its recommendations on the $18 million in projected written premium, Ms. Torrence explained.  The Committee also had the option to assume the FWCJUA would receive the $750,000 credit back from the State.

“I would suggest because the law provides for it, that we continue to use it,” Ms. Torrence stated.  “However, realize that you may not get it.”

If the FWCJUA does not receive that credit, that sum could likely be covered by other means, such as surplus, she said.

Calculations by Milliman actuaries indicate that, if a -9.7 rate indication is approved, based on $18 million in projected written premium with the $750,000 credit from the State, the surcharge on Tier 1 would remain at 10 percent, but drop from 109 percent to 69 percent on Tiers 2 and 3, she said.

“You are not going to know what the actual surcharges are going to be until after the voluntary market rates are known.  But it does look like the difference between the voluntary market and residual market is closing,” Ms. Torrence noted.

In other action and with minimal discussion, the Committee also voted to recommend that the Board authorize FWCJUA staff to file several proposed revisions to the Operations Manual related to the Complaint Resolution Procedure for Florida Office of Insurance Regulation approval.

The revisions were characterized as cleanup measures that eliminated certain wording and added some additional specificity in order to eliminate confusion in the dispute resolution process and procedures that must be followed by FWCJUA insureds.  The proposed dispute resolution procedure specifies for insureds the process and procedures required by Florida’s Administrative Procedures Act.

With no other business before the Committee, the meeting was adjourned.

The FWCJUA Audit Committee held a brief meeting earlier in the day, but took no formal action.  Instead, Ms. Torrence reviewed the Audit Committee’s mission and tasks for new members, and gave a brief summary of the FWCJUA’s audit history, charter and Committee communications.

Meeting materials for all of the above referenced committees are attached.

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