TEST FWCJUA Executive Compensation, Operations, Rates and Forms and Reinsurance Committee Meeting Report: November 30

 

The Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Rates and Forms, Executive Compensation and Operations Committees (“Committee”) met jointly on November 30, 2010 to discuss budgetary issues, form revisions and compensation issues.  The meeting materials and agenda are attached for review.

FWCJUA Rates and Forms Committee

After reviewing the FWCJUA’s expiring actuarial contract with Milliman that was signed in 2008, Committee members voted to recommend that the FWCJUA Board of Governors (“Board”) extend it at the current rate for an additional three and a half years in order to ensure actuarial consistency during the Board’s transition.

Meanwhile, Milliman has indicated that it will perform the FWCJUA’s 2010 year-end reserve analysis for $40,000 and the September 2011 rate indication for January 1, 2012 for $30,000.  Milliman also has been asked to consider a one-year extension of its engagement at the current rates to include these analyses.  The extension would include the 2011 year-end reserve analysis and the September 2012 rate indication for January 1, 2013.

Operations Manual

The Committee then authorized submission of the reformatted Operations Manual (“Manual”) for Board approval at its December 7 meeting.   If approved, the Manual would be filed for Florida Office of Insurance Regulation (“OIR”) approval to be effective January 1, 2011.

To facilitate future updates, the Manual has been converted from an InDesign document to a Word document.  Headers, footers, tables and lists have a new look under the redesign, but there are no substantive changes.  The newly reformatted Manual also includes the complete definition of “Application for Coverage,” with appropriate references to the ACORD 130 FL & 133FL Additional Information Forms.  

The OIR also has reviewed the reformatted Manual and had no issues with the changes, according to the Committee’s report.  In addition, at the Producer Committee’s November 1 meeting, members voiced support for the reformatted Manual.

Application Forms

Revised application forms were approved and recommended for Board approval.  The following forms are affected:

• ACORD 130 FL Additional Information Form
• ACORD 133 FL (Addendum to ACORD 130 FL)
• Contractor Supplemental Application
• Employee Leasing Supplemental Application
• Horse Trainer Supplemental Application
• Trucker Supplemental Application

 

The most significant changes were made to the Contractor Supplement Application, which was split into two separate forms to make more room for labor contractors and their clients to respond to the questions related to leasing arrangements. 

One consistent change to all the forms is the standardizing of the notary language.

Rates

The FWCJUA filed revised rates with the OIR on November 17, 2010, thus effectuating an overall average premium level decrease of 5.5 percent, effective January 1, 2011.  The revised rates are applicable to new and renewal business.

The FWCJUA also filed to implement a voluntary market rate increase of 7.8 percent, effective January 1, 2011.  According to an actuarial memorandum from Milliman, the estimated premium effect of these rates on the FWCJUA book of business is an increase of 2.4 percent.  The additional premium level change after the implementation of the January 1, 2011 voluntary market rate increase is an additional decrease of 7.9 percent.

Compensation

Committee members discussed and recommended Board approval for three executive-related matters listed below:

• Increasing the FWCJUA paid Life Insurance/Accidental Death and Dismemberment Policy for FWCJUA executives to twice their salary amount with a maximum benefit of up to $450,000
• Correcting a benefit deficiency for the executive staff related to the long-term disability benefit level and adjusting it to coincide with the benefit provided to all other FWCJUA employees
• Approving a three percent increase in annual compensation paid to each member of the FWCJUA executive staff in 2011

Operations

A request for proposal for the provision of server co-location and cloud hosting services to the FWCJUA was discussed at length.  Although the Committee took no action, it decided instead to assemble a one-page analysis of the two different providers– DSM and SunGard –for further review.  Both companies currently have substantial government contracts in Florida and are reputable within the IT industry

The fundamental differences between “co-location” and “cloud hosting” were discussed.   Primarily, co-location affords a dedicated space for FWCJUA equipment, with all the responsibility and expense for maintenance and hardware support belonging to the FWCJUA.  Cloud hosting offers the FWCJUA’s virtual servers on the provider’s hardware. The provider then maintains and supports the equipment.

The FWCJUA’s Evaluation Team recommended proceeding with a cloud hosting solution, inasmuch as it should provide more reliability in disaster recovery situations, as well as and lower costs as compared with server co-location hosting. 

Committee members also discussed and took action on the following:

Agreed to recommend Board approval for the purchase of a $33,370 phone system for the FWCJUA office.  Submitted by Shared Technologies, the winning proposal includes a five-year warranty, with primary technical support.  The current system is outdated.

• Confirmed the modifications to the Disaster Recovery and Emergency Preparedness Plan. Employee and FWCJUA Board of Governors emergency contact information was updated, as well as some access protocols and network infrastructure
• Agreed to recommend Board approval for the 2011 FWCJUA Business Plan and Forecast

FWCJUA Reinsurance Committee Meeting Report:  November 30

The Florida Workers Compensation Joint Underwriting Association (“FWCJUA”) Reinsurance Committee (“Committee”) met on November 30, 2010 to review the FWCJUA’s 2010 reinsurance program and  discuss related 2011 market conditions.  The meeting materials and agenda are attached for review.

2010 Reinsurance Program Summary

A representative from the FWCJUA’s reinsurer discussed the expiring reinsurance structure, which is divided into four layers, each with a base of $8 million and a minimum premium of 70 percent of the deposit.  In 2009, the bound percentage for all layers was finalized at 100 percent participation.  All other terms and conditions have remained steady.

Program decisions

It was explained that both the 2009 and 2010 reinsurance programs share continuity in terms of projected subject bases, similar participants and an established group of reinsurers that has shown commitment to the FWCJUA.   

Premium forgiveness has been secured from some of the larger participants, with $223,000 having been returned to the FWCJUA.

It was explained that, with a retention level below $5 million, inflation can have a negative effect.  

When impacted by a severe claim, a high retention with a low premium base would significantly escalate the FWCJUA’s net loss ratio.  However, a strong policy surplus creates an ability to absorb more loss.  Pricing has only been secured on an in-force, new and renewal basis.

A pattern of efficiently settling large claims continues to lower the FWCJUA’s excess loss costs.  However, a large claim from 2005 that was reported in in 2010 has negatively impacted the FWCJUA’s excess experience. 

Excess Reinsurance Quotations and Analysis

The Committee also reviewed the Catastrophe Quotation summary, explaining that it was similar to that of 2009.  Recent focus has been on realigning the pricing of coverage layers.   

It was reported that midterm cancellations are slowing and renewals have been steady.   

A review of excess working layers below $10 million/exposed to single life losses showed that many of the same companies continue to submit quotes with few new submissions by other reinsurers.  Many of these reinsurers have also requested an increase in the minimum premiums percentage.   For instance, Munich Re has requested 90 percent.

The meeting materials, which are attached, provide a detailed comparisons of authorizations by rate on subject earned premium and experience loss cost key drivers, which were said to be the key concern. 

FWC JUA’s purchase of reinsurance was reviewed, which prompted a discussion of various financial and pricing considerations.

After much discussion, the Committee voted to recommend approval of a rate structure which was deemed to afford less risk.  The 2011 rate for this option is only slightly higher than that of the FWCJUA’s 2010 reinsurance purchase, representing an increase from 3.0 percent to 3.2 percent.   

The Committee also agreed to recommend terminating all existing reinsurance coverages on a cutoff basis effective December 31, 2010 in order to afford negotiation flexibility.

The Committee also discussed whether to offer Excalibur Re a chance to commute outstanding reinsurance liabilities from 1995 through 2001, as well as from 2003, but decided against it because, although the company is behind schedule, it is paying what is due. 

The Committee agreed to monitor the situation and reconsider it if any significant developments occur.

With the Committee having no further business to discuss, the meeting was adjourned.

 

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

 

 

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