2001 Annual Report
May, 2002
Dear Member,
The Association was called on to respond to a growing list of bankruptcies and potential insolvencies for former member self-insurers. During 2001, the Association was called upon to investigate and litigate claims arising out of several new insolvencies including but not limited to:
- CMI Industries
- Washington Furniture
- Pillowtex (formerly, Fieldcrest/Cannon)
- Burlington Industries
- This End Up
Although Pillowtex filed a petition for bankruptcy in late 2000, the Association spent almost 10 months in 2001 working with various Bankruptcy and Corporate officials in view of the staggering contingent liability to the Association and to the self-insurance industry as a result of asbestos claims which had been filed against the company. When Pillowtex acquired Fieldcrest Cannon, it terminated its self-insured status in 1997, however it also inherited millions of dollars in claims which allegedly accrued during the period of self-insurance.
Initial reports in the Delaware Bankruptcy Court estimated potential North Carolina liabilities to be approximately $12.9 million. However, the statutory deposit on file with the North Carolina Department of Insurance was only $500,000.00. In view of the potential devastating impact to the self-insurance industry, the Association was able to work in concert with Pillowtex officials to reduce the enormous volume and cost of the Pillowtex claims.
First, the Bankruptcy Court afforded Pillowtex a Transitional Period of relief from the Automatic Stay in which the Association and Pillowtex were able to mediate more than 100 cases to a successful resolution. Second, in view of Pillowtex's desire to reorganize and emerge from Bankruptcy, the Association negotiated an agreement with Pillowtex and its current insurers whereby the Association assumed payment responsibility for a defined class of claims incurred during the period that Fieldcrest/Cannon was self-insured. Pillowtex, with the consent of the Bankruptcy Court, retained responsibility for the remaining claims. It is anticipated that the remaining claims can now be paid with the proceeds of the $500,000.00 statutory deposit posted by Pillowtex and that any eventual impact on the Guaranty Fund will be minimal.
The Pillowtex experience demonstrated an area of ongoing concern to the Association that was also addressed during 2001: Are the statutory deposits required by the Department of Insurance sufficient to satisfy all contingent liabilities of the Association. In 2000, the Association, with the cooperation and assistance of the Department of Insurance, commissioned a study by Marsh, USA to examine and recommend changes in the way that the Department of Insurance determined the appropriate amount of security deposit/bond for an individual self-insurer.
The Marsh study was completed in April, 2001 and concluded that the majority of self-insurers in North Carolina were under-secured and that the use of various formulae for predicting the financial stability of companies indicated that a significant number of North Carolina self-insurers were in potentially hazardous financial condition. The result of the Marsh study was to make new tools available to the Department to both determine the appropriate amount of security bonds/deposits and to evaluate the financial soundness of individual self-insurers. Many security deposits/bonds were reevaluated and were increased by the Department during 2001.
Nevertheless, insolvencies of former self-insurers, like Pillowtex, was not addressed by the Marsh study for the reason that the Department has no statutory authority to require financial reporting or to require an increase statutory deposit for a terminated self-insurer.
Finally, this growing number of insolvencies in 2001, a trend we note that has continued in the current year caused in the Guaranty Fund balance to fall below the $5 million statutory minimum in December of 2001. As a result, the Association must authorize an annual assessment of 0.25% of each Member's annual premium equivalent which will be invoiced and collected during 2002.
I invite you to review the financial information for the years 1997-2001which follows.
Sincerely,
Stephen P. Gennett
Chairman, Board of Directors
Note: Unaudited 2002 financial data is now available using the following link. Selected Financial Data
2002 Annual Report
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