2016 Member Informational Meeting

Transcription

1 2016 Member Informational Meeting March 14 th, 2016 Tim East, SISF Chair Daniel Sovocool, Nixon Peabody Grant Heinitz, SISF Credit Risk Manager Jill Dulich, SISF Claims and Operations Manager 1

2 Mission Statement: "To provide continuity of workers' compensation benefits to injured workers of insolvent, private self-insured companies at the lowest overall long-term cost, equitably distributed to the self-insurance community." 2

3 Purpose: Ensure the timely payment of workers compensation claims to injured workers in the event of default by a member Founded: Organization: Authority: July 6, 1984 by the State of California 501(c)(6) non-profit CA Labor Code Sections Governance: Board of Trustees 7 elected by member companies 1 ex-officio from CA Department of Industrial Relations ( DIR ) Membership: All non-public entity CA employers self-insured for WC 547 self-insured entities $8.8 billion exposure 3

4 Board of Trustees Tim East, Chairperson, The Walt Disney Company Theresa Muir, Southern California Edison (retired) Janice Murphy, Kaiser Permanente William Zachry, Safeway Steve Tolan, Nordstrom Anil Suri, Pacific Gas & Electric Toni Allen, Monterey Mushroom Lyn Asio-Booz, Acting Chief, Self Insurance Plans (OSIP), DIR [ex officio] 4

5 Board and Committees Board of Trustees Tim East, The Walt Disney Co., Chairperson William Zachry, Safeway Theresa Muir, So Cal Edison (retired) Janice Murphy, Kaiser Permanente Steve Tolan, Nordstrom Anil Suri, Pacific Gas & Electric Toni Allen, Monterey Mushroom Lyn Asio-Booz, Director Delegate, DIR/OSIP Executive Committee Tim East, Chair Theresa Muir Finance Committee William Zachry, Chair Tim East Audit Committee Janice Murphy, Chair Theresa Muir Credit Committee Tim East, Chair Janice Murphy Theresa Muir Anil Suri Claims Committee Steve Tolan, Chair Toni Allen, Monterey Mushroom Francisco Cano, So Cal Edison¹ Joel Sherman, Grimmway Farms¹ ¹ Advisory only 5

6 CA Self-Insurance Overview Public and Private Entities 13,012 Payroll Employees $207 billion 4.2 million (1 in 4 in state) Private Sector only Entities Payroll Employees 547 (including 26 SIG s) $90 billion 2.2 million (1 in 8 in state) Source: 2014 annual reports submitted to OSIP 6

7 Default History Defaults have been lumpy and generally in line with economic cycles Gross Outstanding w/ibnr SISF Payments 80.0 Security Deposit Data as of 12/31/15 SISF Payments are from date of Default to 12/31/15 (net of recoveries) 7

8 Number of defaults Default History (cont d) Defaults tend to occur in clumps following economic slowdowns Number of Defaults Data as of 2/25/16 8

9 Default History (cont d) A summary of recent defaults is as follows Default Estate 4/19/2011 Mainstay Business Solutions 5/17/2011 Interlake Material Handling, Inc 5/23/2011 Mid Valley Plastering, Inc. 8/8/2011 T & R Painting 6/22/2012 Administrative Concepts Corp. 7/6/2012 Grossman's Inc. 1/23/2013 Interstate Brands Corporation (Hostess Brands, Inc.) 4/10/2013 Health Industries Self Insurance Program (HISIP) 2/13/2015 White Rose, Inc. (formerly Di Giorgio Corporation) 8/6/2015 Federal Employees Distribution Company Data as of 2/25/16 9

10 Estates and Workers Compensation Claims D Estates Total (1968 to date) Active (1984 to present) Claims Open 1,625 2, Claim Liability (net) Paid ( ) $351,874,000 $321,438,000 $30,436,000 Open Case Reserves (EFL) $77,453,000 $98,580,000 -$21,127,000 IBNR + ULAE (actuarial estimate as of 12/31) $61,910,000 $76,298,000 -$14,388,000 $491,237,000 $496,316,000 -$5,079,000 OSIP Deposits turned over to Fund $247,365,000 $246,980,000 $385,000 SISF total net assets (as of 1/31) $284,173,000 $228,730,000 $55,443,000 Projected annual costs - claims - claims admin - Total $24,274,000 $40,571,000 -$16,297,000 $3,980,000 $6,412,000 -$2,432,000 $28,254,000 $46,983,000 -$18,729,000 10

11 Recent SISF Initiatives, Changes Renegotiated both TPA contracts RFP and award of new Financial Arranger contract (JLT) Hired part-time Claims and Operations Manager, closed nearly 400 open claims Extensive work on improved risk management framework and risk capital / hedging dashboard Moved offices to Oakland, reduced operational expense Member-only portal 11

12 Regulation Changes of Note Replaces minimum financial capacity requirement with financial statement and acceptable credit rating requirements ( (a)) Simplifies reactivation requirements for private self-insurers who previously voluntarily revoked ( ) Simplifies (and lowers) security deposit requirements for new self-insurers (60% of one year average incurred versus old three full years of incurred)(15210) States that self-insurer loses all right, title, and interest in deposit upon default (consistent with Labor Code) 12

13 Regulation Changes of Note, Cont d Eliminates requirement of 90-day OSIP audit of claims post-default (15216) Eliminates the minimum deposit requirement for ASP participants (15220) Broadens authority of OSIP to downgrade to partial status, including late submission of actuarial reports (15220) Strengthens authority of SISF to downgrade (15220) Streamlines the initial security deposit for new groups (15496) 13

14 Partial Participating Category The fund has restructured the collateral requirements for the lower tier of the ASP Members will post a portion of their actuarially-determined liabilities on an individual basis Affected members are those with published or equivalent ratings between the following: - Ba3 / BB- and B3 / B- (level 13 level 16) S&P Fitch Moody's Credit level AAA AAA Aaa 1 Security deposit covered by SISF Collateral posted with OSIP 100% - AA+ AA+ Aa % - AA AA Aa % - AA- AA- Aa % - A+ A+ A % - A A A2 6 Fully 100% - A- A- A3 7 Participating 100% - BBB+ BBB+ Baa % - BBB BBB Baa % - BBB- BBB- Baa % - BB+ BB+ Ba % - BB BB Ba % - BB- BB- Ba % 10% B+ B+ B1 14 Partial 75% 25% B B B2 15 Participating 50% 50% B- B- B % 75% 14

15 Bps ASP Assessment vs. Surety Rates A comparison between surety rates and 2015/16 ASP assessment rates is found below ASP¹ Surety ² Surety ³ Credit Levels I Investment Grade I Non-Investment Grade I ¹ Assessment rates 2015/16 ² Marsh & McLennan general market indications of available terms 2015 ³ JLT Specialty general market indications of available terms

16 ASP Overview Successful implementation of 2015/16 Alternative Security Program 3 rd year post SB863 ASP and Composite Deposit decreased slightly (-0.59%) and (-1.44%) New policy development and implementation Expanded risk monitoring Financial strength of Fund at highest level since inception net $284 mill gross $477 mill Overall portfolio credit rating stable Baa2 Assessment rates increased across all rating levels vs. 2014/15 Source: SISF Monthly Financials 1/31/16 unaudited 16

17 Regulation Changes of Note Ratings Section participation in alternative composite deposit Fitch ratings have been included alongside Moody s and S&P in the amendment Ratings from all three agencies may be used to determine member participation and assessments S&P Fitch Moody's Credit level AAA AAA Aaa 1 AA+ AA+ Aa1 2 AA AA Aa2 3 AA- AA- Aa3 4 A+ A+ A1 5 A A A2 6 A- A- A3 7 BBB+ BBB+ Baa1 8 BBB BBB Baa2 9 BBB- BBB- Baa3 10 BB+ BB+ Ba1 11 BB BB Ba2 12 BB- BB- Ba3 13 B+ B+ B1 14 B B B2 15 B- B- B3 16 More flexibility has been created in procuring the rating so that the process is not overly restrictive and does not favor one group/size of employer over another. 17

18 ASP 2015/16 vs. 2003/ % ASP² 8, , , % Assets¹ Gross % Net (55.00) Assessments² $ (32.80) -25% ¹ SISF Monthly Financial 1/31/16 unaudited ² ASP liabilities and idealized assessment as of 7/1/15 18

19 New Self-Insureds

20 Number of new self-insureds' New Self-Insureds, Cont d Our portfolio base continues to grow with the addition of new self-insureds year over year New self-insureds' Data as of 3/9/16 20

21 ASP Industry Distribution Industry exposure is relatively unchanged across all groups 2015/ % Medical Services 3.0% 1.4% 1.7% 2.5% 1.4% 1.8% 2.4% 2.5% 13.2% 2014/ % 30.3% Utilities Food & Beverage Retl/Whsl Consumer Durables Retl/Whsl Consumer Products Retl/Whsl Telephone 3.2% 3.0% Business Services 3.4% 3.5% 4.3% 3.5% 3.5% 4.6% 5.1% 5.1% 7.2% 10.3% 11.2% 11.0% Food & Beverage Hotels & Restaurants Broadcast Media Air Transportation Oil Refining Aerospace & Defense Others <1% 7.4% 9.5% Source: Moody s Analytics Industry Groups, SEC, Company financial statements 21

22 ASP Assessment Components The total assessment comprises of two elements ELP (Excess Liability Protection) fee DLF (Default Loss Fund) fee ELP - covers expenses and admin costs - builds capital and pays current claims DLF General administrative Capital Risk transfer Claims Placement 22

23 Rate - basis points ASP Assessment Rates Considering the capital needs of the Fund and a deteriorating credit market, assessment rates increased across all levels Index Rating 2015/ /15 % Δ 1 Aaa / AAA % 2 Aa1 / AA % 3 Aa2 / AA % 4 Aa3 / AA % / / /2004 Assessment rates 5 A1 / A % 6 A2 / A % A3 / A % 8 Baa1 / BBB % Baa2 / BBB % 10 Baa3 / BBB % Ba1 / BB % 12 Ba2 / BB % 13 Ba3 / BB % B1 / B % 15 B2 / B % 16 B3 / B % Credit Index 23

24 ($ millions) ASP Financial Strength (Investments) Both gross and net assets continue to grow Net Gross ¹ ¹ SISF Monthly Financials 1/31/16 unaudited Source: Audited SISF Financial Statements Jun

25 $ Millions $ Millions ASP Financial Strength Claims reserves and claims costs continue to decline Claims & Admin paid (LHS) Investment Income (LHS) Gross Assets (RHS) Claim reserves, incl. IBNR (RHS) (0.3) 0-10 (12.0) (10.0) ¹ -200 ¹ SISF Monthly Financials 1/31/16 unaudited ² Per Claims & Admin YTD 1/31/16 - full year projected Source: Audited SISF Financial Statements Jun

26 26