SCIF Fires PwC After Reserve Clash
Californias State Compensation Insurance Fund after a $1 billion difference of opinion over reserve requirements made a "business decision" to dismiss PricewaterhouseCoopers, its auditing firm, a fund spokesman said.
"On Oct. 1 State Fund informed PwC that it was not going to renew its contract and it also informed the CDI [California Department of Insurance] of the decision," spokesman Jim Zelinski told National Underwriter. "This amounts to simply a business decision. State Fund, like all businesses, periodically reviews its contracts and relationships with vendors and decided it would solicit other firms."
"There was obviously a significant difference of opinion regarding our reserves. But we simply decided not to renew," Mr. Zelinski, based in San Francisco, said of the firm that had worked as State Funds auditor for about 20 years.
Steven Silber, a spokesman for PwC in New York, told NU that PwC is "proud of our work and we believe the report speaks for itself."
Last spring PwC recommended that State Fund raise its reserves by $800 million. The State Funds appointed actuarial firm, Milliman USA, however, deemed the reserves adequate.
"As far as the claims reserves issue, we felt we were right then and we feel we are right now," Mr. Zelinski said. "Milliman USA, our appointed actuary, validated our opinion." He added that "Milliman said our 2002 claims reserves met actuarial standards, were reasonable and more than met the requirements of California insurance law."
The State Fund, which now writes more than half of all workers compensation policies in California, has experienced exponential growth in recent years as many private insurers left the market.
In a letter sent in May to agents and brokers, State Fund said it has "$8.8 billion in reserves to ensure that we can meet all of our obligations." The letter also called PwCs recommendation an "overreaction" to a difficult comp climate.
Norman Williams, spokesman for the California Insurance Department, told NU that the department backs the decision.
"Any insurance company is within its rights to select the appropriate auditor. We have every reason to believe that State Fund is acting in good faith and we look forward to working cooperatively with management into the future," he said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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