SAIF CORPORATION BOARD OF DIRECTORS MEETING Wednesday SAIF Corporation 440 Church 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: Jenny Ulum, Chair Kevin Jensen, Vice Chair Krishna Balasubramani Maurice Rahming Jeff Stone SAIF Corporation personnel present: John Gilkey, Interim President and CEO John Ferguson, Underwriting Director Kathy Gehring, Vice President of Claims 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 and Administrative Services Olivia Keefer, Actuarial Analyst Gina Manley, Chief Financial Officer Pat Morrill, Agency and Group Program Coordinator Joe Nhem, Actuarial and Research Director Alison Olson, Budget Supervisor Cathy Pollino, Chief Internal Auditor Shannon Rickard, Vice President of Legal Services and Human Resources Paul Weddle, Procurement Manager Assistant Counsel Pam Woods, Vice President of Claims Lyn Zielinski-Mills, Marketing Manager Kellie Lute, Assistant to the Board Other attendees: Mike Day, Day CPM Services Fred Granum Herb Lovejoy, Oregon Department of Justice Lynn Rosik, Oregon Department of Justice Dana Winkler, Bickmore Various SAIF employees attended the meeting in person and the meeting was webcast internally at SAIF. SAIF Corporation 400 High St Salem, OR 97312 P: 800.285.8525
Page 2 REGULAR BUSINESS MEETING Approval of board minutes Motion Mr. Balasubramani, second Mr. Jensen, to approve the minutes of the meeting of November 19, 2014. The vote was unanimous, and the motion was carried. Key loss reserve assumptions Joe Nhem and Olivia Keefer provided an overview of the key reserving assumptions analysis process, describing the methods used to determine the Permanent Total Disability (PTD) claim frequency rate, the future medical escalation rate, and the future growth of Loss Adjustment Expenses (LAE) (salary and benefits) rate. Mr. Nhem recommended that SAIF s current key loss reserve assumptions be maintained, as outlined in the board memo, for year-end 2014: maintaining the PTD claims frequency rate of.065 percent maintaining the medical escalation rate of 8.0 percent maintaining the LAE salary and benefit future growth rate of 4.5 percent Dana Winkler, with Bickmore, reported that the draft memo to the board and the back-up key reserving calculations were reviewed by Bickmore. With the exception of a few minor comments and changes, Bickmore agreed with SAIF s findings. Mr. Balasubramani inquired if the assumptions would change if the entire industry is reviewed compared to reviewing only SAIF s assumptions. Mr. Nhem explained that each state has its own criteria to determine PTDs. Since SAIF is the largest workers compensation insurer in Oregon, there would not be a change in the assumptions. In response to Mr. Stone s questions regarding a trend in the type of PTD injuries and preventative measures to help employers limit PTDs, Mr. Nhem responded that since the workers compensation reforms of the 1990s, claims designated as PTD are more severe in nature. Mr. Gilkey explained that SAIF assists employers in numerous ways with preventative measures to limit all injuries to employees. Over the last 20 years, the frequency of injuries generally has declined precipitously. The frequency of PTDs has also strongly declined. Motion Mr. Jensen, second Mr. Stone, to approve the key reserving assumptions as recommended by management. The vote was unanimous, and the motion was carried. Mr. Balasubramani added that he appreciates the thoroughness of the research, the external review, and the conservative approach of the three recommendations. Oregon Government Ethics Laws for Public Officials Lynn Rosik, an attorney with the Oregon Department of Justice (DOJ), spoke about her role with the Oregon Government Ethics Commission, and the ethics laws for public officials. Highlights included information regarding conflicts of interest, gift limits, and the Statement of Economic Interest form.
Page 3 Group contracts Lyn Zielinski-Mills proposed a new one-year, $10,600 reimbursable services agreement with Oregon Trucking Associations (OTA). The current contract expires December 31, 2014. SAIF has partnered with this association since 2013 and the agreement reimburses preapproved services that support OTA s safety efforts. SAIF currently insures 614 companies with the trucking principal class, representing $20.4 million in premium. Pat Morrill also proposed a new three-year Group Insurance Agreement and Group Member Services Addendum with Associated Oregon Industries (AOI). The current contract expires December 31, 2014. SAIF will pay $47,581 per year for a three-year total of $142,743. This is a 1.4 percent reduction from the last three-year contract. The decrease is primarily due to maintenance of a SAIF-specific microsite, rather than the development of the microsite, on AOI s website. SAIF insures 761 members in this group, representing over $18.3 million in premium. Motion Mr. Stone, second Mr. Balasubramani, to approve the two contracts as outlined by Ms. Zielinski-Mills and Ms. Morrill. The vote was unanimous, and the motion was carried. Operating and capital budgets 2015 Gina Manley reported that the Executive Council (EC) is recommending an 8.2 percent increase in the operating and capital budgets. Ms. Manley proposed that the board approve a total budget of $170.2 million for 2015, which is comprised of $162.9 million in direct operating expenses, $3.4 million for costs related to the Assigned Risk program, and $3.9 million for costs related to the Other States Coverage program. She also asked for the board s approval of a capital budget for 2015 of $1,531,865. Major budget drivers contributing to the increase are the addition of full-time equivalent (FTE) positions to respond to the continuing growth in business and claims, the inclusion of funds associated with the Salem campus renovation, and a significant rise in costs for property and casualty insurance, primarily related to the 2012 flood damage to SAIF facilities. Other significant drivers are equipment and software, employee salaries and benefits due to additional FTE, and retirement benefits due to a PERS rate increase in 2015. Ms. Manley also provided an overview of the 2015 budget exhibits. Rick Hanson reported on the IS budget items as outlined in Exhibit M, which contribute significantly to the budget increase. Most of the items are transformational purchases that will change the way SAIF delivers services. The new programs and equipment will position customers and employees to experience up-to-date, high-tech features that will keep SAIF current with the industry. Chair Ulum and Mr. Balasubramani asked if SAIF s technology lags in the worker s compensation industry, and the insurance industry as a whole. Mr. Hanson replied that SAIF does not lag in the worker s compensation industry and is mostly consistent in the general insurance industry. Mr. Gilkey added that compared to competitors, SAIF gets high marks from policyholders for the electronic tools offered, but the systems behind the tools are outdated. Other state funds around the country are in the same position as SAIF and are
Page 4 beginning the implementation of new core systems and electronic features for their customers and employees. In response to questions from Mr. Balasubramani and Mr. Stone regarding the availability of internal technical expertise to install the new equipment/programs, and the training needs for employees, Mr. Hanson said that the budget includes funding for outside consulting services for some systems, while other systems will be implemented by SAIF s IS staff. Employee training has also been included in the process. Mr. Stone stated that he is comfortable and satisfied with the rationale, and the need, provided in Mr. Hanson s report for the substantial increase in the IS budget for 2015. Chair Ulum agreed with Mr. Stone, and encouraged SAIF to continue to stay as current as possible, within reason, with IS technology. Mr. Jensen asked if the October 31, 2014, year-end forecast is accurate, and when the final year-end figures be available. Ms. Manley replied that although a few minor changes may take place, SAIF is comfortable with the year-end forecast. The figures will be available at the January board meeting. Motion Mr. Jensen, second Mr. Stone, to adopt the budgets as presented. The vote was unanimous, and the motion was carried. 2015 board calendar Mr. Gilkey asked the board to approve the revised board calendar that was included in the board packet. Mr. Rahming informed the board that the Portland office employees would like a few of the board meetings be held in Portland. Chair Ulum agreed, and will work with staff regarding the meeting locations. There was a consensus by the board to approve the 2015 calendar. President s report Forward-looking calendar Board members received a copy of the forward-looking calendar. Contract report The board was provided with the pending contracts list. Paul Weddle gave an overview and the history of the contract report. Almost every SAIF contract is listed on the report, with contract amounts ranging from $300 and below, to $20,000 and above. Mr. Weddle proposed that beginning January 2015, the contract report list only contracts in the amount of $20,000 and above. All contracts requiring board approval will continue to be listed on the report, as well as any other contracts that should be brought to the attention of the board. In response to Mr. Rahming s question regarding split contracts, Mr. Weddle said that he ensures that contracts are not split.
Page 5 The board discussed the benefits of the contract report and the contract limit proposed by Mr. Weddle. The board agreed that contracts in the amount of $5,000 and above should be listed on the report with the understanding that the level of the contract amount that appears on the report may be revisited at a future date. Chair Ulum added that she would like to see a complete list of all SAIF contracts, regardless of the contract dollar amount, on an annual basis. Owner s project manager selection Mr. Weddle reported that SAIF is proposing a three-year, $1.2 million contract, with Day CPM Services, LLC, for construction management services for the Salem campus construction project. Following a formal solicitation process for an Owner s Project Manager (OPM), SAIF selected this firm as the best qualified for the project. Day CPM Services is a local company and insured by SAIF. In response to Mr. Jensen s question regarding the scope of the project, Mr. Weddle explained that the OPM will be SAIF s representative on a team that consists of SAIF, the general contractor, and the architect. This project will use the construction manager/general contractor methodology, in which the architect, the general contractor and the OPM will develop and refine the designs. Day CPM will assist SAIF in the solicitation process and in the development of the contracts for the architect and general contractor. Day CPM will be SAIF s advocate throughout the entire three-year process. Mr. Jensen asked if the $1.2 million is for one year, or the duration of the project. Mr. Weddle said that it is the total cost for OPM services for the duration of the project, exclusive of expenses. Chair Ulum asked if SAIF has worked with this company in the past. Mr. Weddle said that Day CPM Services has not worked for SAIF. Their references were checked very carefully, and they were highly recommended. Motion Mr. Jensen, second Mr. Stone, to approve the Day CPM Services, LLC, contract. The vote was unanimous, and the motion was carried. 2015-2017 Corporate Strategic Plan Mr. Gilkey presented the Corporate Strategic Plan (CSP), which was a final version of the draft form presented at the November board meeting. The EC has worked with a consultant from Willamette University regarding executive project management with high-level corporate initiatives similar to those identified in SAIF s CSP. EC sponsors and an EC steering committee have been identified for each project. Following board approval of the CSP, team memberships and timelines will be established. Regular updates will be provided to the board on the progress of the projects. Mr. Gilkey added that project plans and initiatives should be taking place over the course of the first quarter in 2015. Motion Mr. Stone, second Balasubramani, to approve the 2015-2017 Corporate Strategic Plan. The vote was unanimous, and the motion was carried.
Page 6 Chair Ulum would like a standing agenda item on the CSP to keep the board informed of the progress. Miscellaneous Mr. Gilkey informed the board that SAIF presented an insurance proposal to Nike for their campus expansion project in Beaverton, and is awaiting their response. Mr. Gilkey provided each board member with SAIF s 2015 Comp News Calendar. The calendar features SAIF policyholders that are in the hobby industry. The EC has personally delivered calendars to each of the featured policyholders. Mr. Gilkey informed the board that SAIF s Bend office had an open house at their new location in early December. Report from Board Audit Committee Mr. Jensen informed the board that the Audit Committee met prior to the board meeting. Internal Audit reported on several audits and noted that management is in compliance with the audit recommendations. Report from Board Compensation Committee Mr. Balasubramani provided a brief summary of the timeline for the interim president and CEO s performance evaluation and compensation review. Jen Coney reported that the performance review timeline memo is in the board packet. Mr. Gilkey will distribute his selfevaluation to board members no later than January 9, 2015. At that time, each board member will receive a blank performance evaluation form for Mr. Gilkey. The completed form must be returned to SAIF no later than January 26. The Compensation Committee will meet in a public meeting no later than February 13 to review evaluations and form a recommendation to present to the board at the March meeting. In response to Chair Ulum s questions regarding focal point, Ms. Coney explained that SAIF is a pay for performance company. Performance evaluations for the entire company are done at the same time each year. Focal point award is the compensation that comes along with the performance evaluation. There are five performance rating categories and corresponding to each rating is percentage award. All salary adjustments are effective March 1. CEO recruitment process Mr. Stone presented the board with a memo outlining a rough draft of the CEO search process and timeline. An employee survey related to the search will be conducted in January. Mr. Stone reported that he and Mr. Balasubramani conducted interviews with several recruitment consultants and selected Karras Consulting (Karras). Karras Consulting, SAIF s previous CEO recruitment consultant, had a contractual guarantee that requires Karras to conduct an additional recruitment at no charge, with the exception of travel expenses and advertising costs, because the last CEO left SAIF within a 12 month period. Shannon Rickard and Herb Lovejoy, DOJ, explained the executive session provisions and the public meeting laws regarding the search and hiring of a CEO.
Page 7 Chair Ulum noted that the Karras contract is a savings of approximately $100,000 compared to other HR consulting firms. Mr. Jensen asked if it was a not-to-exceed contract. Mr. Stone replied that the contract with Karras is a not-to-exceed contract. Mr. Balasubramani added that the cost of the contract is only for expenses and travel costs for potential candidates. Motion Mr. Stone, second Mr. Jensen, to enter into a contract with Karras Consulting to conduct the CEO recruitment. The vote was unanimous, and the motion was carried. Mr. Jensen informed the board that he received a suggestion to have more than one employee represent the various divisions at SAIF. Mr. Rahming agreed with the suggestion Mr. Jensen referenced, and reported that the employee participation continues to be explored. Results of the employee surveys will help to determine the final process. Mr. Balasubramani reported that Karras experience with employee involvement in executive recruitments may also be helpful with the process. An update for the process and timeline will be provided at the January board meeting. Adjournment There being no further business, the meeting was adjourned at 12:22 p.m. Kellie Lute, Executive Assistant to the Board