Transcript 2015 Member Informational Meeting March 9th, 2015 Tim East, SISF Chair Daniel Sovocool, Nixon Peabody Grant Heinitz, SISF Credit Risk Manager Jill Dulich, SISF Claims.

2015 Member Informational Meeting
March 9th, 2015
Tim East, SISF Chair
Daniel Sovocool, Nixon Peabody
Grant Heinitz, SISF Credit Risk Manager
Jill Dulich, SISF Claims and Operations Manager
1
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
Purpose:
Ensure the timely payment of workers compensation claims to
injured workers in the event of default by a member
Founded:
July 6, 1984 by the State of California
Organization:
501(c)(6) non-profit
Authority:
CA Labor Code Sections 3740-3747
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
545 self-insured entities
$8.9 billion exposure
3
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
Jon Wroten, Chief, Self Insurance Plans (OSIP), DIR [ex officio]
4
Board and Committees
Board of Trustees
Tim East, The Walt Disney Co., Chairperson
Theresa Muir, So Cal Edison (retired)
Steve Tolan, Nordstrom
Toni Allen, Monterey Mushroom
Executive
Committee
Tim East, Chair
Theresa Muir
Finance Committee
William Zachry, Chair
Tim East
Audit
Committee
Janice Murphy, Chair
Theresa Muir
William Zachry, Safeway
Janice Murphy, Kaiser Permanente
Anil Suri, Pacific Gas & Electric
Jon Wroten, Director Delegate, DIR/OSIP
Credit
Committee
Theresa Muir, Chair
Janice Murphy
Anil Suri
Claims Committee
Steve Tolan, Chair
Toni Allen, Monterey Mushroom
Francisco Cano, So Cal Edison¹
Joel Sherman, Grimmway Farms¹
¹ Advisory only
5
Fund Staff
Adriana Mertinak
Controller
Grant Heinitz
Credit Risk Manager
Meaka Liu
Bookkeeper
Jill Dulich
Claims and Operations Manager
Becky Lysaght
Executive Assistant
6
CA Self-Insurance Overview
Public and Private
Entities
9,849
Payroll
$177 billion
Employees
4 million (1 in 4 in state)
Private Sector only
Entities
545 (including 26 SIG’s)
Payroll
$79.5 billion
Employees
2.1 million (1 in 8 in state)
Source: 2013 annual reports submitted to OSIP
7
Default History
Defaults have been lumpy and generally in line with economic cycles
100.0
90.0
177.1
136.5
Gross Outstanding w/IBNR
SISF Payments
88.2
Security Deposit
80.0
77.1
72.9
70.0
60.0
50.0
40.0
34.8
29.7
30.0
26.8
24.7
24.2
17.1
20.0
9.1
10.0
2.4 2.9
4.9 6.2
5.5
2.0 0.6 0.3
1.2
0.7
1.3 0.6
0.0
Data as of 12/31/14
SISF Payments are from date of Default to 12/31/14 (net of recoveries)
8
Default History (cont’d)
Defaults tend to occur in clumps following economic slowdowns
10
Number of defaults
8
Number of Defaults
6
4
2
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Data as of 2/28/15
9
Default History (cont’d)
A summary of recent defaults is as follows
Default
Estate
7/21/2010
Triple A Machine Shop
11/18/2010
Contractors Access Program
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)
10
Estates and Workers’ Compensation Claims
Estates
Total (1968 to date)
Active (1984 to present)
Claims
Open
Claim Liability (net)
Paid (1984-2014)
Open Case Reserves (EFL)
IBNR + ULAE (actuarial estimate as of
12/31/14)
80
46
2,022
$ 321,438,000
$98,580,000
$76,298,000
$496,316,000
OSIP Deposits turned over to Fund
$246,980,000
SISF total net assets (as of 1/31/15)
$228,730,000
Projected annual costs - claims
- claims admin
- Total
$48,495,000
$6,904,000
$55,399,000
11
New policies - SI admission
New criteria to be applied to cos. requesting admission into self-insurance
•
Minimum [3] years of audited financial statements
•
Minimum credit rating of B3 / B- consecutively for [3] years (formal or implied)
•
Company official certifying safety program is compliant
-
OSIP to conduct internal verification of safety program (through Cal OSHA /OSHA)
-
e.g. number of violations / citations – willful, unresolved, pending, etc.
12
New policies - SI admission (cont’d)
Reasons behind the new criteria
3 years of audited financials
•
Verified and reconciled financials
•
Ability to conduct credit rating analysis of cos. prior to admission into selfinsurance
-
covers several key metrics and is a strong indication of solvency
-
Identifies historical credit risk / trends
Minimum credit rating of B3 / B- (consecutively for 3 years)
•
Minimum credit rating level is consistent with existing policies
•
Cos. entering self-insurance will have a stable and verified track record
•
Potentially eliminates cos. that may ”flip-flop” in the future between ASP
eligibility (e.g. movements between B3 / Caa1)
Safety program compliance
•
Cos. will be self-certifying
•
OSIP to verify compliance
The new policy simplifies regulations (e.g. eliminates 3-year wait period, etc.) and brings
consistency across all policies and procedures.
13
New policies – ASP participation
The purpose of the delegated authority policy is to support OSIP in its streamlined
application process and to approve eligible new self-insurers for immediate (mid-cycle)
ASP participation
Immediate participation:
•
Minimum - level 10 (Baa3 / BBB-)
Subject to credit committee approval:
•
Level 11 (Ba1 / BB+) to level 14 (B1 / B+)
Not admitted on a midyear basis:
•
Level 15 (B2 / B) and level 16 (B3 / B-)
Exceptions will be based on Board discretion (e.g. applicants with large exposures, other risks, etc.
14
ASP – Overview
• Successful implementation of 2014/15 Alternative Security Program
– 2nd year post SB863
– ASP and Composite Deposit relatively unchanged (2.1%) and (0.8%)
– New policy development and implementation
– Expanded risk monitoring / management
• Financial strength of Fund at highest level since inception
– net
$229 mill
– gross
$485 mill
• Overall portfolio credit rating stable – Baa2
• Assessment rates down 10% across all rating levels vs. 2013/14
Source: SISF Monthly Financials 12/31/14 unaudited
15
ASP – 2014/15 vs. 2003/04
ASP
2014
8,901.03
2003
4,699.02
∆
4,202.01
%
484.94
228.73
45.00
(55.00)
439.94
283.73
978%
28.08
0.32%
66.50
1.42%
(32.80)
-58%
89%
Assets
Gross
Net
Assessments
$
%
* Per SISF Monthly Financial 1/31/15 unaudited
Source: ASP security deposit and idealized assessment as of 5/15/14 lockdown
16
ASP – Industry Distribution
Industry exposure is relatively unchanged across all groups
2014/15
14%
Medical Services
Food & Beverage Retl/Whsl
14%
1%
2%
2%
2%
30%
2013/14
2%
2%
2%
Consumer Durables Retl/Whsl
28%
Consumer Products Retl/Whsl
Telephone
3%
3%
Business Services
3%
3%
Food & Beverage
4%
Hotels & Restaurants
Broadcast Media
3%
3%
Utilities
10%
Air Transportation
5%
Oil Refining
5%
5%
7%
5%
7%
11%
10%
Aerospace & Defense
Others <1%
11%
Source: Moody’s Analytics Industry Groups, SEC, Company financial statements
17
ASP – Assessment Components
The total assessment comprises of two elements
ELP (Excess Liability Protection) fee
- covers expenses and admin costs
DLF (Default Loss Fund) fee
- builds capital and pays current claims
ELP
DLF
General administrative
Capital
Risk transfer
Claims
Line of Credit
Placement
18
ASP – Assessment Rates
Considering the capital of the Fund and a benign credit market, assessment rates were adjusted
down 10% across all levels
Rating
2014/15
2013/14
Assessment rates
%Δ
1
Aaa / AAA+
5
9
-44%
2
Aa1 / AA+
9
10
-10%
3
Aa2 / AA
10
11
-10%
4
Aa3 / AA-
13
14
-10%
5
A1 / A+
14
15
-10%
6
A2 / A
19
21
-10%
7
A3 / A-
22
24
-10%
8
Baa1 / BBB+
30
33
-10%
9
Baa2 / BBB
36
40
-10%
10
Baa3 / BBB-
55
61
-10%
11
Ba1 / BB+
79
88
-10%
12
Ba2 / BB
102
113
-10%
13
Ba3 / BB-
135
150
-10%
14
B1 / B+
176
195
-10%
15
B2 / B
219
243
-10%
16
B3 / B-
270
300
-10%
600
2014/15
2013/14
500
Rate - basis points
Index
2003/2004
400
300
200
100
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Credit Index
19
ASP – Assessment vs. Surety Rates
A comparison between current surety rates and 2014/15 ASP assessment rates is found below
ASP vs. Surety Rates
300.0
250.0
Bps
200.0
150.0
ASP
Surety - low end
100.0
Surety - high end
50.0
0.0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Credit Levels
I
Investment Grade
I
Non-Investment Grade
I
¹ Assessment rates approved as of 6/17/2014
² Marsh & McLennan – general indication of available terms as of 1/6/2015
20
ASP – Financial Strength (Investments)
Both gross and net assets continue to grow
486
500
Net
485
484
Gross
450
400
379
($ millions)
350
363
315
300
250
216
229
218
208
191
200
153
150
109
100
142
155
144
112
103
100
117
58
52
50
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015¹
¹ SISF Monthly Financials 1/31/15 unaudited
Source: Audited SISF Financial Statements Jun 30. 2005-2014
21
ASP – Financial Strength
60
55.4
Claims & Admin paid (LHS)
52.6
Investment Income (LHS)
50
500
42.8
Gross Assets (RHS)
Claim reserves, incl. IBNR (RHS)
40
37.6
400
33.1
31.0
30
300
22.4
21.5
20
10
600
$ Millions
$ Millions
Gross assets generate investment income to help offset claims
17.0
16.0
200
17.1
10.6
8.4
7.9
7.5
3.1
8.0
7.7
5.8
100
3.9
0
0
(0.3)
-10
-100
(12.0)
-20
-200
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015¹
¹ SISF Monthly Financials 1/31/15 unaudited
² Per Claims & Admin YTD 1/31/15 - full year projected
Source: Audited SISF Financial Statements Jun 30. 2005-2014
22
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