FWCIGA Investment Committee and Board Meeting Recaps

Dec 4, 2007

The Florida Workers’ Compensation Insurance Guaranty Association recently held a meeting of its Investment Committee and its Board of Directors. 

Reports on each are below.  To view the notices for each meeting, click on their titles.

Should you have any questions or comments, please do not hesitate to contact this office.

 

FWCIGA Investment Committee

The Florida Workers’ Compensation Insurance Guaranty Association (“FWCIGA”) recently held a meeting of its Investment Committee. 

Randolph Pople of the Capital City Trust Company presented a portfolio review that charted account performance for the report period of March 31, 2005 through October 31, 2007. Based upon the report, the FWCIGA portfolio is currently invested at 58.51 percent in taxable bonds and 41.49 percent  in cash and equivalent investments.  86.43 percent of bonds within the portfolio are rated AAA and all are A- or above.

Given the speculation that the Federal Reserve (“Fed”) will reduce interest rates during its December 11, 2007 meeting, the recommendation was made to change the FWCIGA portfolio to an all-Treasury fund, where rates are expected to rise.   It was also proposed that there be no more asset-based commercial paper or mortgage securities in the account. 

Further, it is expected that the Fed will reduce rates to 3 percent during 2008. 

It was discussed that organizations such as Bear Stearns and Citigroup should be carefully monitored due to their overexposure to the subprime mortgage market.

Several changes were proposed to the Association’s investment policy:

1.  The addition of language to ensure the joint use of both Moody’s and Standard & Poors’ ratings to evaluate investments;
2. As obtaining independent approval of policy investments is cumbersome, more stringent guidelines were suggested by creating a combined flat limit of 50 percent  exposure for A-1 rated commercial paper and/or medium term corporate notes, rather than each having the current standard of  25 percent limits.
3. A recommendation was made to increase the quality of CDs in the portfolio, but reduce the percentage of investment from 25 percent to 15 percent.  Currently, because of maturity yields, only 1 percent of the portfolio is actually in CDs.  A decision was made to grandfather existing CDs.
4. Because single premium immediate annuities (“SPIAs”) were added to the portfolio in December, 2003, it was decided to add specific wording to the policy regarding the existence of SPIAs for Department of Financial Services reporting purposes.

A telephone meeting of the Investment Committee will take place to review the final version of the revised investment policy once it is finalized, the revised plan will be adopted at the next Board meeting after Committee revisions.  Therefore, no administrative action was taken at this meeting on the investment policy proposals.

It was explained that a minimum liquidity of $4 million is required for the portfolio, and FWCIGA’s is current liquidity is approximately $5.5 million. 

A 36-month maximum maturity standard is also being assessed.  The Association has been able to forego assessments based on past market performance.  It was recommended that the same maturity time period be maintained. 

The contingency account balance was also discussed.  No callbacks have ever been issued, however there exists sufficient cash on hand to fund any callbacks. 

The meeting was then adjourned.

 

FWCIGA Board of Directors

The FWCIGA recently held a meeting of its Board of Directors.

It was noted that Board members Earl Thomas and William Willingham have been re-elected to the Board and that Kelly Horton has since been appointed to the Florida Film Commission, leaving one vacancy on the Board which must be filled by Florida Chief Financial Officer Alex Sink.   There has not yet been any indication of whom that will be.

The FWCIGA had submitted the most recent revisions to its Plan of Operations to the Florida Department of Financial Services (“DFS”), which was deemed approved after 30 days, inasmuch as DFS did not disapprove of it.

The Florida Insurance Guaranty Association’s recent DFS audit was used as a benchmark to ensure that recommendations there were incorporated into FWCIGA’s Plan. 

FWCIGA Executive Director Sandy Robinson gave an update on the American Guaranty Fund and announced its 10-year anniversary since its October 1, 1997 inception.  Ms. Robinson recognized Tom Stahl, John Tickner and Richard Palczynski as original members of what was originally known as the Workers’ Compensation Guaranty Association.

The second phase of the current project to integrate all FWCIGA branches is underway with the transition of the Jacksonville office of the Florida Insurance Guaranty Association (“FIGA”) office into the FWCIGA systems.  

The third phase will be to transition the FWCIGA entire system into a paperless operation. This should be accomplished by January 2008. 

Contracts must be revised among the FWCIGA agencies to add accounting as an administrative service. 

It was also recommended that the contracts be revised to provide that the FWCIGA shall “recommend” best practices rather than “determine” them.

General Bob Milligan, who attended the meeting by telephone, expressed his concern over the potential loss of the FWCIGA Board’s fiduciary responsibilities in such a contract.  General Milligan recommended a clean-up of the FWCIGA bylaws and reiterated that anything that abrogates the Board’s responsibilities should be changed. 

A motion was also made to amend the “best practices” recommendation to include a stipulation that any changes of employee compensation by FWCIGA  agencies would be subject to approval by the FWCIGA Board.   In addition, a motion was provided that staff attorneys should work on the FWCIGA bylaws and revise them for approval at the next Board meeting. 

The Board then voted to approve these motions. 

The FWCIGA’s General Counsel next gave the Legal Report.  

Outstanding cases are

  • FWCIGA v. ADP—a settlement is anticipated
  • FWCIGA v. Tampa Services/Pacesetter0—a case management conference is scheduled for January 9, 2008.  A deposition will take place in Houston, Texas on December 11 and 12.
  • Jose Borrero v. Morningstar Construction, FIGA and FWCIGA—FWCIGA has become a party to the General Release and its dismissal will be without prejudice. 

The FWCIGA Claims Report for claims assumed from FIGA as of September 30, 2007 includes:

  • Total Open Claims:  1069
  • Total paid:  $683,629,557
  • Current reserves:  $362,392,179

The Budget Variance Report for the period ending September 30, 2007 yielded a favorable budget variance of:  $67,407 in administrative costs, $23,477 in direct estate costs, $145,768 in claims handling costs and $16,642,496 in claims payments.

The Board approved a request that bank signature cards be reviewed in order to make policies and procedures more consistent.  Action was requested of the Board to authorize Michelle Lovern to sign checks and that the current monetary requirement for two signatures be increased from $5,000 to $10,000. 

A slate of budget changes was then reviewed that included both increases and decreases as a result of the imminent effectuation of the shared services agreement with FIGA.

Notably, due to the acquisition of the new home office building in 2007, the $100,000-plus annual lease payment is eliminated (but offset with ownership costs).  The expense of the building is now shared with FIGA, along with other expenses, however it was debated as to whether a 50/50 cost sharing agreement is equitable, inasmuch as an 80/20 ratio in some categories is more realistic. 

An Investment Committee report was given.  Action then was taken to approve the election of new Board officers  for 2008.   Inasmuch as no new nominations had been received, the current officers were re-elected as follows: 

  • Tom Stahl—Chairman
  • John Tickner—Vice-Chairman
  • Sandy Robinson—Secretary
  • Michelle Lovern—Treasurer

The meeting was then adjourned.

 

Â