2003 Annual Report
April 30, 2004
Dear Member Self-Insurer,
During 2003, the Association was called upon to investigate insolvencies and/or litigate claims arising out of several new petitions in bankruptcy filed by current and former self-insured employers including but not limited to:
Bethlehem Steel
Cone Mills
Jannock
Harriet and Henderson
Pillowtex (2nd bankruptcy)
Wellington Leisure Products
West Point Stevens
The Association has recently investigated a March 31, 2004 petition in bankruptcy by former self-insurer Dan River in the United States Bankruptcy Court for the Northern District of Georgia.
Accordingly, beginning with its creation in 1986 and through March 2004, the Association has addressed and investigated 44 member insolvencies. (41 individual self-insurers and three (3) group self-insurers) A complete, updated listing of all member insolvencies may be found the Association website at www.ncsiga.org
In 2003, the Association also focused on legislative reform regarding the adequacy of member self-insurer statutory deposits. Senate Bill 471, the 2003 legislation initiated by the Association is now in effect and as of January 1, 2004 most self-insurers are required to post a security deposit equal to at least fifty percent (50%) of its estimated claims liabilities. The minimum deposit amount will increase to seventy-five percent (75%) on January 1, 2005 and one hundred percent (100%) on January 1, 2006. (A copy of Senate Bill 471, as ratified, is posted on the Association web site: www.ncsiga.org)
However, the Association remains concerned that a legislative exception written into Senate Bill 471 allows many large self-insurers to continue to post security deposits that may be inadequate to pay their self-insured liabilities in the event of the their insolvency. The claims liabilities represented by these under secured self-insurers far exceeds the amounts that would be available from the Guaranty Fund and the current system of member assessments would not raise sufficient sums to pay these claims in a timely manner.
To address the continuing challenge of inadequate self-insurer security, the Association is studying a system of security for self-insurance that would depart from the current statutory deposits or surety bond for each member self-insurer and create a pooled collateralization of all of the self-insured liabilities in North Carolina on a global basis. The Board of Directors will continue to review and investigate a proposed collateral replacement program in 2004.
Moreover, in 2003, the Association addressed several issues relating to the following insolvent self-insurers and self-insurers that have emerged from bankruptcy:
Kmart: This current member self-insurer emerged from bankruptcy and has remained a licensed North Carolina self-insurer throughout its bankruptcy proceedings. Because of questions regarding adequacy of the statutory deposit, the Association commissioned an actuarial and claims review of stated claims reserves and open North Carolina claims. Consulting actuaries for the Association have opined that Kmart is significantly under-secured as of September, 2003. The Association has therefore proposed that the NCDOI substantially increase the Kmart statutory deposit. The proposed increase is currently under review by NCDOI Actuaries.
Pillowtex: This successor to Fieldcrest/Cannon, a former N.C. self-insurer initially emerged from bankruptcy in 2002, but filed again in July, 2003. The Association had previously negotiated an agreement whereby Pillowtex paid a substantial number of its existing pre-petition claims, because the statutory deposit was only $500,000.00. However, the second bankruptcy resulted in several million dollars of additional unpaid Pillowtex claims. Nevertheless, over the course of almost four years, the Association has dramatically reduced the original estimated claims liability from approximately $13 million in an effort to avoid a post- insolvency assessment.
In addition, the Association has been involved in ongoing litigation in 2003 on numerous disputes and coverage issues relating to five (5) former self-insurance funds and one former self-insured employer:
N.C. Selective Fund
Burger King Franchisees Self-Insurance Fund
Professional Business Owners of America
American Yarn Spinners Self-Insurance Fund
SunHealth Group Self-Insurance Association of North Carolina
P.H. Glatfelter Company
The litigation has included three unprecedented lawsuits regarding the transfer of workers’ compensation claims from former self-insurance funds and former self-insurance employers. The Association has been involved in three separate actions questioning coverage issues and the propriety of transferring certain workers’ compensation claims either to commercial insurers or to employers that later became insolvent. It is anticipated that these three actions will require substantial attention by the Association for a period of at least two more years. As of this writing, the Association has prevailed in two cases in the Industrial Commission and appeals are pending. In the third action, the parties await a final decision by a Deputy Industrial Commissioner.
Finally, the growing number of recent under secured insolvencies, first reported to the Association in 2001 and 2002, continued in 2003 and combined with the costs of defending the Association in three aforementioned lawsuits has caused the unallocated balance of the Guaranty Fund balance to fall below the $5 million statutory minimum as of December 31, 2003. As a result, the Association has authorized an annual assessment of 0.13% of each Member’s annual premium equivalent will be invoiced and collected in 2004. Other than the initial assessments to create the Guaranty Fund in 1986 and the mandatory assessments in 1996 and 1997 to increase the Guaranty Fund to its current $5 million level, the annual assessment for 2003 marks only the fourth time that an annual assessment has been authorized in the seventeen (17) year history of the Association. None of the four (4) member assessments has exceeded) 0.25%. The magnitude of the contingent claims liabilities currently facing the Association, primarily as the result of terminated self-insurers and terminated group self-insurers, whose deposits have been inadequate and cannot be increased, make future annual assessments and post-insolvency assessments a distinct possibility during the next few years.
I invite you to review the summary of the audited financial information for the years 1999-2003 that follows. If you would like to receive a complete set of the Association’s audited financial statements for the period ending December 31, 2003 please contact the Association at P.O. Box 12442, Raleigh, NC 27605-2442.
I am also pleased to invite you to attend the Annual Meeting on July 21, 2004. It will be held at 9:00 a.m. at the Capital City Club, 21st Floor, Progress Energy Building, Raleigh.
Sincerely,
/s/ Stephen P. Gennett
Stephen P. Gennett
Chairman, Board of Directors
Note: 2003 financial data is now available using the following link. Selected Financial Data
2002 Annual Report
2001 Annual Report
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