SAIF CORPORATION BOARD OF DIRECTORS MEETING. 10:00 a.m. Salem, Oregon

Transcription

1 SAIF CORPORATION BOARD OF DIRECTORS MEETING Wednesday SAIF Corporation 400 High Street SE 10:00 a.m. Salem, Oregon After determining a quorum was present, the meeting was called to order at 10:01 a.m. Roll call: Catherine Travis, Chair Robb Van Cleave, Vice Chair John Endicott Jim Ford (by phone) SAIF Corporation personnel present: Brenda JP Rocklin, President and CEO Trevor Ansbro, Loss Control Program Adviser Jen Coney, Human Resources Director Chris Davie, Vice President of Corporate Policy and External Affairs Ryan Fleming, Vice President of Operations and Human Resources Kathy Gehring, Vice President of Claims John Gilkey, Sr. Vice President of Policyholder Services and Programs Michelle Graham, Vice President of Policyholder Services Rick Hanson, Vice President of Information Services and CIO Michael Hartman, Vice President of Policyholder Programs Bruce Hoffman, Vice President of Underwriting Services Gina Manley, Controller Theresa McHugh, Vice President of Financial Services Peter Merck, Research and Analysis Manager Michael O Connor, Claims Supervisor Cathy Pollino, Chief Internal Auditor Shannon Rickard, Vice President of Legal Services Christy Witzke, Marketing and Groups Director Pam Woods, Vice President of Claims Karen Zimmer, Human Resources Manager Kellie Lute, Assistant to the Board Other attendees: Scott Simpson, Moss Adams Michael Mueller, Oregon State Treasury Perrin Lim, Oregon State Treasury Michael Grant, Oregon Department of Justice Krishna Balasubramani, Attorney at Law Sarah Friend, The Partners Group SAIF Corporation 400 High St Salem, OR P:

2 Page 2 EXECUTIVE SESSION Pending Litigation At approximately 10:02 a.m., the Chair declared this portion of the meeting to be in Executive Session, pursuant to ORS (2)(f) and ORS (2)(h), to allow the board to discuss pending litigation. End of Executive Session At approximately 10:18 a.m., the Chair announced the conclusion of Executive Session. REGULAR BUSINESS MEETING Approval of board minutes Motion Mr. Van Cleave, second Mr. Endicott, to approve the minutes of the meeting of June 19, The vote was unanimous, and the motion was carried. External financial audit Scott Simpson, a partner with Moss Adams, reported that Moss Adams completed the 2012 external financial audit of SAIF. It was a clean audit, and the results were positive. The financial statements were presented fairly in all material respects. There were no material weaknesses or deficiencies found in the internal controls over financial reporting. Gina Manley added that Oliver Wyman also conducted its annual actuarial evaluation of SAIF s loss and loss adjustment expense reserves, and SAIF s financial viability as of December 31, Oliver Wyman concluded that SAIF has sufficient surplus and that SAIF s loss reserves are within a reasonable range. Financial reports 2013 second-quarter financial report Theresa McHugh reported that financial results for the second quarter were favorable, primarily due to medical costs being lower than projected. At the end of the second quarter, surplus totaled $1,079.8 million, an increase of approximately $57 million over the prior quarter. Earned and written premium continued to grow, and sales and retention continued to outpace forecasted levels. The premium retention rate is 99.5 percent, and the retention rate by policy count is 99.8 percent. Year-to-date investment income for 2013 was 8.6 percent less than the first half of This decline was primarily due to low interest rates. Claim counts for serious claims were slightly higher in the first six months compared to serious claim counts during the same period last year. In response to Robb Van Cleave s question regarding the increase in serious claims, Pam Woods replied that SAIF is writing business that has greater risk, and that the increase in serious claim counts was anticipated.

3 Page 3 Second-quarter investment report Ms. Manley reported that the investment markets were volatile during the second quarter as investors reacted to suggestions that the Federal Reserve may begin to scale back its monthly asset purchases. The performance of SAIF s total investment portfolio was a negative 2.41 percent for the quarter. SAIF s fixed income portfolio and equity portfolio recorded negative returns for the quarter. Year to date, returns on the equity portfolio are positive at 6.60 percent. At the end of the second quarter, SAIF s investment portfolio was in compliance with the approved policy. Budget report Ms. McHugh reported that direct operating expenses are under budget by approximately $1.9 million as of June 30, 2013, and are projected to be under budget by $2.6 million at year end. The majority of the year-end savings come from employee costs, primarily due to the move to SAIF s self-funded medical insurance plan for 2013, and from reductions in the PERS rates resulting from bills passed during this year s legislative session. Service agency fees are over budget as a result of the move earlier this year to accept credit card payments for policyholder premiums. The credit card fees have been higher than anticipated, and it is expected that credit card fees will remain higher than budgeted at year end. CEO s leave and expenses The board reviewed a summary of Brenda Rocklin s leave and expenses for the second quarter of There were no questions. Investment allocation policy Ms. McHugh reported that the Oregon Investment Council (OIC) reviewed and discussed the board-approved recommendations for modifications to SAIF s investment allocation policy. The OIC approved the drafting of amendments to the Oregon State Treasury s investment policies for SAIF to implement the recommended changes, pending final review and approval by the SAIF Board of Directors. The key change to SAIF s investment allocation policy is the addition of a policy for an approved real estate fund allocation with a range of 0.0 to 7.0 percent. Motion Mr. Ford, second Mr. Van Cleave, to approve SAIF s revised investment allocation policy. The vote was unanimous, and the motion was carried. Review and approve reinsurance proposal Ms. McHugh recommended that SAIF purchase $60 million of reinsurance coverage excess of $35 million retention, for a cost of just under $1 million. This is the same retention and limit that SAIF has selected since 2009 and will provide significant protection against a peak time 1-in-250 year earthquake or other major catastrophe.

4 Page 4 Motion Mr. Ford, second Mr. Van Cleave, to approve the recommendation to purchase $60 million of reinsurance coverage excess of $35 million retention. The vote was unanimous, and the motion was carried. Pricing update Christy Witzke provided an update on the pricing committee s activities. The committee has been meeting since June to assess SAIF s current performance and determine the need for any pricing changes. The committee looked at a variety of pricing elements and key drivers. After the Department of Consumer and Business Services (DCBS) announced that 2014 pure premium rates would decrease by 7.6 percent, Ms. Witzke reported that the committee looked at historical data pertaining to a similar rate decrease in The committee believes that SAIF has the ability to achieve a break-even result following the existing underwriting guidelines, and recommends no change to SAIF s rate tiers. The committee will continue to review the use of predictive analytics and how these analytics may enhance SAIF s current pricing model. Contract report Brenda Rocklin provided the board with the pending contracts list and discussed several contracts from the list. John Gilkey noted that the contracts for United States Insurance Services, Inc. (USIS) and Zurich American Insurance Company pertain to the Other States Coverage (OSC) program. The amount of each contract is a percentage based on the premium in the OSC program. Ryan Fleming reported that the buildings on the Salem campus are reaching the end of their designed lives, and it is becoming costly to keep them updated. SAIF has two pending contracts with SRG Partnership (SRG). The first contract is for an architectural, engineering, and mechanical study of the Salem buildings, which will address HVAC systems, lighting, etc. The second contract is for a distributed workspace design study, which will determine how much square footage may be needed for employee workspace if the buildings are redesigned. SAIF is also utilizing information from the working space and the working time tactic teams to assist with the SRG workspace design study. Ms. Rocklin noted SRG will provide an update of their findings to the board in the near future. Review and approve Associated General Contractors group contract Ms. Witzke reported that SAIF continues to have a successful partnership with Associated General Contractors (AGC). SAIF contracts with AGC to provide primary loss control and industrial hygiene services for group members. These services are outsourced due to the association s specialization in the prevention of injuries in the construction industry. There are 641 participating members, generating approximately $26 million in premium. The proposed contract is for one year, effective October 1, 2013, in the amount of $1,551,650. This represents a $25,250 increase from the previous year s contract. This increase is primarily driven by the scheduled replacement of a dedicated computer server for loss control and small salary increases for safety staff. Motion Mr. Van Cleave, second Mr. Ford, to approve the proposed one-year contract with Associated General Contractors. The vote was unanimous, and the motion was carried.

5 Page 5 Review and approve NCCI contract Chris Davie informed the board that SAIF proposes to sign a new five-year contract with the National Council on Compensation Insurance (NCCI). NCCI is the national ratemaking organization licensed by the State of Oregon s Department of Consumer and Business Services (DCBS) to collect, process, and analyze workers compensation insurance statistical information. All Oregon workers compensation insurers are required to be members of NCCI. SAIF s current NCCI contract expires November 8, It is difficult to estimate the total cost of the five-year contract, because NCCI retains the right to increase fees unilaterally each year, and SAIF s payments are also dependent on the size of its premium, which may expand or contract over the life of the contract. Mr. Davie believes the total cost of the new contract will be approximately $8.5 million. Motion Mr. Van Cleave, second Mr. Endicott, to approve the five-year contract with NCCI. The vote was unanimous, and the motion was carried. Review and approve board-appointed actuary contract Ms. McHugh informed the board that the contract with the current board-appointed actuary, Richard Sherman of Bickmore, expires at the end of this year. Mr. Sherman has served as SAIF s board-appointed actuary since Earlier this summer, SAIF issued an RFP for the board-appointed actuary and received responses from six actuarial firms. SAIF interviewed four firms, and selected PriceWaterhouseCoopers to serve as the board-appointed actuary. Board member John Endicott was a member of the interview team. During this same time period, SAIF received notice that its chief actuary, Shawn Wright, would be leaving at the end of August. As a result, the interview team discussed the possibility of contracting with Mr. Sherman to provide assistance to the SAIF actuarial staff until a new chief actuary is selected. Mr. Endicott noted that the board values the experience that Mr. Sherman has brought to SAIF as the board-appointed actuary. Mr. Endicott added that he believes that due to the length of time that Mr. Sherman has been SAIF s board-appointed actuary, and the departure of SAIF s chief actuary, it is both the right time to select a new board-appointed actuary, and to continue to have Mr. Sherman and Bickmore provide support to SAIF staff. Motion Mr. Endicott, second Mr. Van Cleave, to approve the recommendations made by Ms. McHugh for a three-year contract with PriceWaterhouseCoopers to serve as the boardappointed actuary and to contract with Mr. Sherman of Bickmore to provide actuarial assistance and support to SAIF. The vote was unanimous, and the motion was carried. Industry Benchmark Report Ms. McHugh provided an overview of the annual Industry Benchmark Report comparing SAIF s results in key areas to other workers compensation carriers. Ms. McHugh highlighted data regarding SAIF s reserves and surplus, investments, operations, and SAIF s share of the Oregon workers compensation market. Overall, the results were positive for the past year.

6 Page 6 Initial review of 2014 employee benefits Mr. Fleming highlighted key items in the benefits package proposal. The overall health benefit costs will increase by 7.6 percent, driven primarily by an anticipated increase in the cost of medical services and new charges under the Patient Protection and Affordable Care Act. The Executive Council approved an increase in the stop loss deductible, and is recommending that SAIF self-fund its dental plan with ODS. Mr. Fleming also reported that SAIF will offer a low, medium, and high cost medical plan for 2014, based on an employee s level of involvement in three wellness-related activities during Motion Mr. Van Cleave, second Mr. Endicott, to preliminarily approve the 2014 employee benefits package. The vote was unanimous, and the motion was carried. Review and approve policyholder dividend recommendation Ms. Rocklin recommended that the board declare a dividend of approximately $130 million, payable before October 31, 2013, to eligible policyholders with policy end dates in The recommendation was based on an independent actuarial analysis that SAIF s reserves fall within a range of reasonable values, that surplus exceeds the board-approved target surplus range, and that payment of the proposed dividend will leave sufficient surplus to protect against adverse operating results and loss reserve development. Mr. Van Cleave asked whether the board should consider a higher dividend amount. John Gilkey explained the $130 million recommendation was designed to keep surplus at the high end of the target range adopted by the board in June. There followed a general discussion on the dividend amount. Shannon Rickard reported a change to the dividend declaration language. Prior declarations included language excluding policyholders who had declared bankruptcy from participation in a dividend. Based on revised advice from the Oregon Department of Justice, that language likely would violate the federal bankruptcy code. Thus, the bankruptcy exclusion was removed from the dividend declaration, and the only policyholders who are ineligible for a dividend are those who are in default under ORS Motion Mr. Van Cleave, second Mr. Endicott, to declare a dividend of approximately $130 million, payable before October 31, 2013, to eligible policyholders. The vote was unanimous, and the motion was carried. Approve employee leave days Ms. Rocklin requested the board s approval for two additional leave days for all employees in recognition of their contributions to an exceptional year for SAIF. Motion Mr. Van Cleave, second Mr. Endicott, to approve two additional leave days for every SAIF employee. The vote was unanimous, and the motion was carried. CSP tactic team presentation Agricultural Business Michelle Graham introduced Trevor Ansbro and Michael O Connor, the two SAIF employees who have been the project leads for the Agricultural Business tactic. Mr. Ansbro and Mr.

7 Page 7 O Connor gave a brief overview of the research that was conducted to produce final recommendations. They noted that most of the recommendations are in progress, including the development of an Agricultural Council composed of employees and external partners. Legislative final report Mr. Davie provided a summary of the bills that passed during the 2013 legislative session that are relevant to SAIF. There were only a few bills that related to the workers compensation system. SB 678 restores exclusive remedy protection to members (owners) of limited liability companies. This bill takes effect for claims or causes of action that arise on or after June 24, SB 533 will extend the authority for nurse practitioners to treat injured workers and to authorize time loss to 180 days from the date of the first visit on the initial claim. This bill also will allow chiropractors to treat established patients who have been referred to managed care organizations, under the same conditions that apply to primary care physicians. This bill takes effect January 1, SB 414 gives the director of DCBS the authority to seek restitution on behalf of consumers who suffer actual damages as a result of insurers violations of the Insurance Code or breach of insurance contract. This bill takes effect January 1, President s report Forward-looking calendar Ms. Rocklin informed the board that the November board meeting will include information about the corporate strategic plan and a preliminary discussion about the 2014 budget. Leadership meeting The board was provided with a copy of the leadership meeting agenda for September 21, Miscellaneous Ms. Rocklin reported that when the Baker City office closed, SAIF donated a large conference table and other property to the Veterans Advocates of Ore-Ida office in Baker City. She provided the board with a copy of a thank you letter from the Veterans Advocates. Bruce Hoffman reported that DCBS informed a self-insured group, Oregon Employers Trust (OET), that OET would be decertified on August 6 unless OET increased the security held by DCBS. As a result of this announcement, SAIF processed more than 120 applications for insurance and quoted more than 60 applications before OET provided the additional security to DCBS, which stopped the decertification process.

8 Page 8 Report from Board Audit Committee Mr. Endicott informed the board that the Audit Committee met prior to the board meeting, with Mr. Ford attending via phone. Internal and external audit reports were discussed. Moss Adams reported that SAIF employees were cooperative during, and well prepared for, the external financial audit. Mr. Endicott also reported that he and Mr. Ford (via phone) met privately with the internal audit team and were satisfied that there has been no undue pressure placed upon auditors or other managers by executive management. Mr. Endicott and Mr. Ford also met privately with Moss Adams and a representative from the Secretary of State s office. Again, they were satisfied that no undue pressure was placed upon auditors or other managers by executive management. Adjournment Motion Mr. Ford, second Mr. Van Cleave, to adjourn the meeting. The vote was unanimous, and the motion was carried. There being no further business, the meeting was adjourned at 12:37 p.m. Kellie Lute, Executive Assistant to the Board