Minnesota: State reinsurance association to assess $268 million to restore fund
According to officials, the state-authorized, nonprofit insurer ended the year with a $423.7 million deficit, due largely to the turbulence in the stock market that led to a nearly 25 percent drop in the association's investment portfolio.
From 1979-2008, the WCRA earned $1.36 billion in premiums paid by its member insurers and self-insured employers. During the robust financial markets of the early 1990s, officials said the association accumulated large surpluses. At that time, the commissioner of the Minnesota Department of Labor and Industry recommended that, because the WCRA is a nonprofit organization and can assess its members if needed, it shouldn't maintain large surpluses and should distribute those surpluses to its members and policyholders. Since 1992, the association has distributed more than $1.2 billion in surplus funds.
Carl Cummins, president and CEO of the WCRA, said the current deficit has much to do with the organization's decision to distribute those surplus funds.
"If we hadn't made those distributions, we would now have a surplus of $1.6 billion and would not have to make assessments today," Cummins said. "But just as our members and policyholders enjoyed the benefits of our positive investment results in strong financial markets by receiving more than a billion dollars in distributions, this Surplus Distribution Recovery Program is now necessary for the WCRA to have sufficient funds to reimburse our members for the state's most serious workers' compensation injuries."
Despite the most recent deficit, David Young, chairman of the WCR board of directors, said the association's investment record is strong.
"Since 1979, the WCRA has averaged a 9 percent return, exceeding the expected 7 percent return," he said. "However, because we did not have surpluses to provide a cushion in today's down markets, we must now recover about 20 percent of the surpluses we distributed to our members to create a fund balance that will be sufficient to meet our future obligations to our members and to injured workers."
If approved by Steve Sviggum, commissioner of the state DL&I, and Glenn Wilson, commissioner of the Minnesota Department of Commerce, the largest portion of the assessments will be charged to approximately 400 member insurers and self-insured employers and will be calculated based on their historic exposures with the WCRA. These assessments will be spread out in five annual installments, with the first payment due on Jan. 15, 2010. Separate assessments to all Minnesota employers will be collected as a small surcharge on workers' comp premiums paid from 2010 to 2014, officials said.
July 13, 2009
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