FWCJUA Reinsurance Committee Meeting Report: August 19

On Tuesday, August 19, 2008, the Florida Workers Compensation Joint Underwriting Association (“FWCJUA”) held a Reinsurance Committee (“Committee”) meeting to discuss 2009 Reinsurance Program (“Program”), goals and market strategy, and to receive an update on commutation matters.

The meeting was called to order by FWCJUA Executive Director Laura Torrence, with a quorum of Committee members in attendance.

The Program, which was presented by Ms. Torrence and Bill Fleischhacker, took into account the FWCJUA’s current financial status; past performance; current book of business; and the 2008 premium, account mix and uncollectible premium amount, which are projected to remain static.

The Program was designed with a projected $12 million in earned premium and policy count of 1,700 for 2009. As of July 31, 2008, the FWCJUA had 1,689 policies in force, representing approximately $12.77 million in policy premium (down 749 policies from 2007). This policy number is expected to remain stable for 2009.

In 2008, the FWCJUA anticipates a continuation of policies due to a projected rate decrease in the voluntary market. The FWCJUA also anticipates that book of business development and reduced claim activity will continue favorably through 2009.

Goals for the Program include:

• A reduction in overall rate/product cost
• Inclusion of a one-way cancellation clause allowing the FWCJUA to deal with dramatic reductions in premium at a minimal cost
• Protection for the FWCJUA in the event of a reinsurer’s financial difficulties
• Determination of the optimum reinsurance coverage level; review of attachment levels and potential to reinstate exposure types that have previously been excluded
• Provision of alternate approaches to obtain equivalent, better or different reinsurance coverage
• Inclusion of more favorable minimum premium or other measures that would help reduce or eliminate any potential minimum premium penalty resulting from the FWCJUA’s decreasing premium volume
• Inclusion of statutory limits of coverage, if available, at a reasonable price

Concern was raised by Committee members about a possible reduction in reinsurance collateral requirements by the Florida Office of Insurance Regulation (“OIR”). It was determined that any possible impact this may present for the FWCJUA will be examined, although it is anticipated that if the FWCJUA has an existing contract with a reinsurer, and that reinsurer subsequently asks for a collateral reduction, the contract terms would prevail.

The 2009 Program market strategy has been designed to minimize policyholder resources devoted to reinsurance, create a program that reflects the proper balance between price and coverage and provide the flexibility to accommodate unexpected growth or further depopulation.

To view the 2009 Program and market strategy, which were approved by the Committee, click here.

Commutation Update

In April, 2008, the FWCJUA provided an initial offer to PMA Capital Insurance Company (“PMA”). While that offer was viewed as excessive by PMA, since that time, the reinsurance broker has been working with PMA to address individual open claim and Incurred But Not Reported issues. The commutation offer has since been rescinded, due to acquisition activity involving PMA.

Communication may resume between FWCJUA and PMA once the sale is final; however, it is unknown when the sale will be finalized, and what effect that will have on the average claims-paying time (which has shown a slow pattern of deterioration over the last few years).

As of this date, PMA is current on all of its obligations to the FWCJUA. FWCJUA staff members will continue to monitor the issue, but since the sale date is unknown, no action was required from the Committee at this time.

The meeting was then adjourned.

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.