North Carolina Self-Insurance Guaranty Association
Post Office Box 12442
Raleigh, North Carolina 27605-2442
April, 2006
2005 Annual Report
Dear Member Self-Insurer:
In 2005, several years of Association work culminated in a number of outstanding achievements, including: the passage of legislation, Senate Bill 319, that significantly changed the way the Association conducts its business and renamed the Association the North Carolina Self-Insurance Security Association; the successful conclusion of state and federal litigation that removed millions of dollars of potential Association claims liabilities; and, successful claims and financial management practices that allowed the Association to meet its obligations without making a 2005 Annual Assessment.
The legislation, signed into law on September 14, 2005, became effective January 1, 2006 and authorized the establishment of a Collateral Replacement Program for individual self-insurers that will replace the current system of individual self-insurer bonds and deposits posted with the North Carolina Department of Insurance (“Department”). The Collateral Replacement Program provides a system of aggregate security through financial guarantees purchased by the Association using premiums collected from the individual self-insurers. Each individual self-insurer will pay its portion of the aggregate security premium based on its creditworthiness and its proportionate share of the aggregate liabilities. Group self-insurers will not participate in the Collateral Replacement Program and will continue to post individual security with the Department. Through the Collateral Replacement Program the Association will increase the size of the Security Fund (formerly the Guaranty Fund) over a period of years to both cover the liabilities retained by the Association before the aggregate security is activated and to eventually operate in future years without member assessments. On January 27, 2006 the Association filed its plan with the Department to implement the Collateral Replacement Program in June, 2006. The Department must approve or disapprove the implementation plan in 90 days.
For four years, the Association has been embroiled in litigation brought by the North Carolina Self-Insurance Guaranty Association (“NCIGA) relating to four separate and distinct loss portfolio transfers by former group self-insurers to an acquiring commercial insurer that subsequently became insolvent and was liquidated. In each case the Department had approved the loss portfolio transfer. After the North Carolina Supreme Court denied further review of the Association's Court of Appeals victory in a test case that found that the NCIGA was liable for payment of the claims against the former self-insurance group, all further disputes have been resolved. The NCIGA has conceded that the Association cannot be liable for claims if the acquiring insurance company subsequently becomes insolvent, thus vindicated the longstanding position of the Association and the self-insurance community.
In other litigation, the North Carolina Supreme Court declined to review the Court of Appeals decision that a former member self-insurer could not divest its North Carolina workers' compensation liabilities by contract and that even if the acquiring corporation filed for bankruptcy, the ceding member self-insurer was responsible for claims rather than the Association. The Association position was upheld following more than three years of litigation before administrative tribunals, state and federal courts and bankruptcy court.
The successful litigation with the NCIGA and with the former self-insurer reduced the Association's contingent liabilities by more than $20 million.
Through the successful pursuit of recoveries from the bankrupt self-insurers, reinsurance recoveries and responsible claims management, the Association was able to meet all of its obligations without reducing the Security Fund balance below $5 million and therefore there was no 2005 Annual Assessment. Please review the attached summary of the Association's audited financial statements for the years 2000-2005. Summary financial information is also available on the Association website at www.ncsisa.org .
The Association addressed new bankruptcy filings by three individual self-insurers (Shelby Williams Industries, Winn-Dixie and WestPoint Stevens) and one terminated group during 2005. Each of these member self-insurers has continued to pay its respective workers' compensation liabilities. In May of 2005, the Department liquidated the American Yarn Spinners group self-insurance fund (“AYS”) and the AYS claims were transferred to the Association. Although AYS had been terminated for several years it had been operating under Department supervision for a number of years to run off its remaining claims. The AYS claims were transferred to the Association when it became evident that the remaining American Yarn Spinner resources would be inadequate to pay the outstanding obligations.. A complete listing of the insolvencies referred to the Association can be found at the Association website.
Upon Department approval and Association implementation of the Collateral Replacement Program all Association members will receive detailed information on the operation of the program and the cost to each individual self-insurer prior to the formal implementation of the program in Summer 2006.
Sincerely,
NORTH CAROLINA SELF-INSURANCE SECURITY ASSOCIATION
Stephen P. Gennett
Chairman,
Board of Directors
Note: 2005 financial data is now available using the following link. Selected Financial Data
2004 Annual Report
2003 Annual Report
2002 Annual Report
2001 Annual Report
