In its first attempt at transparency since the passage of SB 1145, State Compensation Insurance Fund (SCIF) held its first open board meeting in San Francisco. Much of the discussion was much ado about nothing with the exception of its 3rd quarter financials which generated some pointed public comment. SCIF is California’s workers’ comp market of last resort.
The most pertinent information including details on the development of 2009 rates was provided to the Board in part of the meeting closed to the public.
Jeanne Cain, chairwoman of the SCIF board and executive vice president of policy for the California Chamber of Commerce, lead the board as it went over retirement resolutions, bond transactions, and investments.
Jay Stewart, chief financial officer, told the board that net written premiums for the last nine months were $1.27 billion. He said that projected year end net written premium would be $1.7 Billion.
The net losses are tracking on budget at a 75% loss ratio at just under $950 million. The year- end loss ratio is expected to be on budget at 75%. The loss adjustment expense is higher than budget for the last nine months at 37.7% of premium and projected by year end to be 35.6%--still above budget.
Underwriting expenses through nine months were 37.2% of net written premium and year end is projected to be at 36.2%. The combined ratio was 150% as of September versus a budget of 141%.
Stewart says the LAE and the underwriting expenses are over budget because of the changes to the government accounting standards board rules for California, which require a material increase in the assessment for the post retirement benefit plans.
“In the past we’ve paid on a pay-as –you go basis for expenses incurred for retirees. The new rules require the state to assess [based] on a single payer plan basically one 30th of what would be deemed ultimate liability,” Stewart says. That amount comes to $140 million through nine months and $165M by year end.
“That get splits between loss adjustment expense and underwriting expense…as a result about 70% of it ends up in the loss adjustment expense,” he says adding that but for this assessment, SCIF would have been under budget.
Through nine month SCIF has $75 million in uncollected premium and it’s expected it to be $100 million at the end of the year. Stewart says that even though it’s been written it off, SCIF will pursue the collection and hopes to recover at least 50% of the amount.
After completing the financial report, the board received some pointed public comment, “I think what we’ve heard is a poor report,” said broker Don Bone. He specifically cited the 75% loss ratio assuming incurred but not reported, the 37% expense ratio, a total loss ratio of over 102%, and the $75 million in premium uncollected.
“You folks have a big job to do because what’s being developed at the State Fund is a large bureaucracy of piling on layer after layer of management that has partially caused this problem and improper oversight of the investment portfolio and improper oversight of the direct collection activity,” he told the board.
During the discussion about recruitment and education of new board members, Cain talked about the additional board members that will come on board next year. She pointed out that the governor will make the final decision on new members, but the board members can make recommendations, putting “a bug in their ears” to do so. “[We’re] interested in quality board members,” she said.
At the conclusion of the meeting, Workers’ Comp Executive asked Janet Frank if the governor was planning to appoint a whole new board. She said only new board members were being appointed.
She was also asked if SCIF planned to honor the governor’s pay furlough for state workers if it should become finalized. “It’s only a proposal right now,” and would be premature to discuss it, she said. Spokeswoman Jennifer Vargen stepped in to save her and said, “We don’t comment on the governor’s proposals.”
State Department of Personnel spokeswoman Lynelle Jolly tells Workers’ Comp Executive, “At this point, State Fund would be covered by the furlough. We don’t have all of the furlough details fleshed out. We expected it to be fleshed out during the legislative process,” Jolly says, adding that a final decision on compensation will either be done through the legislative process or through negotiations with the unions. SCIF employees are represented by the Service Employees International Union.
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