Dear Member Self-Insurer:

I am pleased to report on another successful year of stewardship of the North Carolina Self-Insurance Security Fund by the North Carolina Self-Insurance Security Association (“Security Association”) on behalf of all member self-insurers.

2008-2009 Association Aggregate Security System (“AASS”)

In November 2008, the North Carolina Commissioner of Insurance approved an amended implementation plan for the third annual AASS. As you are aware, the AASS replaced the prior system of individual security deposits with the purchase of aggregate security for the workers’ compensation liabilities of all member self-insurers. Each member self-insurer now pays a portion of the cost of the aggregate security based on its credit rating and its pro-rata share of the aggregate workers’ compensation liabilities. Participation in the AASS is mandated by statute pursuant to N.C. Gen. Stat. § 97-185(a1). 

Implementation of the 2008-2009 AASS was hampered by the economic downturn in the second half of 2008 and the accompanying tightening of the credit markets. In December the Security Association successfully closed the 2008-2009 AASS that now covers 115 member self-insurers with approximately $419 million of aggregate workers’ compensation liabilities. The Security Association continues to evaluate the structure of the AASS and alternative means of protecting the aggregate member risk portfolio as part of its due diligence and management of the Security Fund. [For a complete discussion of the 2008-2009 AASS please visit the Security Association website at www.ncsisa.org.] 

In December, 2008 the Security Association assessed the six (6) group self-insurers for the first time since 2005. No additional assessments of individual or group self-insurers were needed in 2008.

The 2009-2010 AASS should close in the fourth quarter of 2009. Notices for the 2009-2010 AASS assessment will be provided to all eligible member self-insurers at least thirty (30) days prior to the date the assessment is due.

Security Association Financials

Attached is a summary of the Security Association audited financial statements for the years 2006-2008. [A copy of the Security Association 2008 audited financial statement is available upon request.] Please note that beginning in 2006 the Security Association financial statements are stated on an accrual basis and its liabilities for those years are based on an actuarial report that includes incurred but not reported (“IBNR”) liabilities for insolvencies that have resulted in claims against the Security Association. The December 31, 2008 actuarial report reflects estimated claims liabilities of $7.67 million based upon insolvencies that had already been referred to the Security Association as of that date. Note that the estimated claims liabilities at December 31, 2008 are approximately $2.44 million less than the $10.11 million claims estimate at December 31, 2007.

Security Association assets are invested pursuant to an investment policy that is reviewed and approved annually by the North Carolina State Treasurer. Again reflecting the 2008 economic downturn the Security Association experienced investment losses of approximately $1.36 million in 2008 and net Security Association assets decreased by approximately $403,000. In the fourth quarter of 2008 the State Treasurer approved the 2009 investment policy.

Member Insolvencies

During 2008, three member self-insurers, Wellman, Inc., Dan River, Inc. (successor to the former self-insurer The Bibb Company) and Flying J filed for bankruptcy protection but continued to pay their respective workers’ compensation liabilities incurred during the period of self-insurance.

The Security Association has continued to work in connection with the 2004 Interstate Brands bankruptcy proceeding to ensure that the debtor continues to post an adequate statutory deposit especially in view of the protracted bankruptcy proceedings. The Security Association worked with the N.C. Department of Insurance in 2008 to maintain Interstate’s security deposit at a level sufficient to cover is approximately $4.6 million in self-insured workers’ compensation liabilities in North Carolina. Interstate has continued to pay its claims during its bankruptcy proceedings.

The Security Association paid covered claims during 2008 brought against the insolvent group self-insurer, American Yarn Spinners (“AYS”). In 2008 The Security Association identified, liquidated and obtained court approval to use the proceeds of a $600,000 letter of credit for AYS claims.

During the course of the year, the Security Association addressed claims transferred from insolvent former member self-insurers, including but not necessarily limited to: American Yarn Spinners Self-Insurance Fund, Burlington Industries, Inc., Collins & Aikman Corporation, Joan Fabrics Corporation, Pillowtex, Inc., SCT Yarns, Vintage Enterprises Inc., WestPoint Stevens, Inc., CMI Industries, Sanders Brothers, Washington Furniture Manufacturing Company and Dan River, Inc. A complete list of member self-insurer insolvencies with active claims is detailed on the Security Association website.

In 2008 the Security Association realized recoveries as a creditor in bankruptcy proceedings and recoveries on surety bonds and excess policies totaling $840,417.

Board of Directors

Pursuant to the Plan of Operation, the Security Association will nominate and elect candidates for its Board of Directors. Board member, Delphine Goines of Duke University is Chair of the Nominating Committee that is reviewing potential candidates. If you are interested in serving or want to recommend a candidate for the Board of Directors, please contact Ms. Goines on or before May 15, 2009 at:

Duke University
Workers' Compensation Administration
P.O. Box 90448
Durham, NC 27708
goine001@mc.duke.edu
(919) 684-6821

The Security Association will elect Directors at its Annual Meeting at 12:00 noon on July 23, 2009./p>

Again, thank you for your continued support of the self-insurance industry. As always, on behalf of the Security Association Board of Directors, we welcome your insight and participation.

Sincerely,

NORTH CAROLINA SELF-INSURANCE SECURITY ASSOCIATION

/s/ Stephen P. Gennett

Stephen P. Gennett
Chairman, Board of Directors

Enclosure