SCIF Secures $1.45 Billion In Reinsurance
By Caroline McDonald
NU Online News Service, Sept. 11, 12:47 p.m. EST?A new $1.45 billion reinsurance arrangement for the California's State Compensation Insurance Fund should satisfy solvency concerns of the state's insurance commissioner, a SCIF spokesman said after the agreement was reached.
California Insurance Commissioner Harry W. Low had warned SCIF to submit a financial stability action plan or risk "corrective actions" before the fund and its broker, Aon Re Worldwide, announced completion of a reinsurance program for $1.45 billion.
Aon Re said the transaction reinsures all losses from 1980 through 1998.
"We've had ongoing productive dialogue with the commissioner's office and I think we've addressed all of his concerns," said SCIF spokesman, Jim Zelinski in San Francisco.
Mr. Zelinski confirmed that Aon's reinsurance program with the State Fund is part of that effort. "We're solvent and doing our job serving California's injured workers and employers," he said.
Aon Re, which said in a statement it has long served as the fund's reinsurance advisor, structured and placed the transaction, which was underwritten by XL Financial Solutions Ltd. on behalf of XL Re Ltd.
Aon Re said it had "significant support" from ACE Bermuda Insurance Ltd. and its subsidiary, ACE Financial Solutions International, Ltd.
John W. Tornquist, senior vice president for Aon Re, said the treaty for the program reinsuring losses from 1980 through 1998 is effective Jan. 1, 2002, for "further development of those older years. That's how loss portfolios work, they are for years in the past, and that's for future development of the older years."
He continued that the years were "picked deliberately because they are a little more settled than the more recent years. Therefore, the reinsurers we deal with would be more conservative in their pricing than they would in the more recent years, which are pretty green as far as development."
In a letter addressed to Kenneth C. Bollier, president of SCIF, in early June (NU Hot News, June 12), Mr. Low said the department wishes to work with SCIF to bring the organization "back to the financial stability it has enjoyed for many decades."
SCIF was advised by the department to "develop a plan to address its capital adequacy, writings and loss reserve leverage issues, and action level risk-based capital problems."
Mr. Zelinski told National Underwriter in June that, "Certainly we're going to comply. We're going to respond in a comprehensive fashion to all of the issues that Commissioner Low raised."
Mr. Zelinski said that the State Fund writes about 40 percent of the workers' comp insurance in the state and has $3.6 billion in premium volume. At the end of March, SCIF's surplus was $1.38 billion, he said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.