Md. Injured Workers Fund surplus is reduced by 26%

Insurer is found solvent but needing corrective action

September 21, 2001|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

A first-time financial examination of the state Injured Workers Insurance Fund has produced "a very significant reduction" of $45 million in the surplus of the agency, which provides workers' compensation coverage for 23,000 Maryland businesses.

Stressing that IWIF is solvent, state Insurance Commissioner Steven B. Larsen said yesterday that because of the reduction, the fund's managers are being required to file a corrective action plan.

New reserve and other requirements cut IWIF's surplus from $169 million to $124 million, a drop of more than 26 percent. The required surplus is determined by a formula.

"Let me state clearly that notwithstanding this very significant reduction in IWIF's surplus, IWIF is currently solvent" Larsen wrote in a letter to Gov. Parris N. Glendening and legislative leaders.

He warned, however, that new accounting rules, which recently took effect, could have a further negative impact on IWIF's finances.

The financial review by the Maryland Insurance Administration was required by a year-old state law that also expanded IWIF's board to nine members from seven members and exempted the panel from the state Open Meeting Law. The governor appoints its members.

The new law also requires that IWIF join a state guaranty fund if it meets the financial standards imposed on commercial insurance carriers. The fund was established to protect policyholders in the event of insolvency.

The Injured Workers' Insurance Fund insures employers that are unable to obtain insurance from private companies, or choose not to, and are not self-insured. The fund also acts as claims administrator for all state employees for workers' compensation insurance.

"At this point I would not consider them to be eligible for the fund," Larsen said.

Preston D. Williams, IWIF's chief executive officer, said he was pleased with the report's conclusion that IWIF was solvent and said many of the recommendations of state insurance examiners already were being implemented.

Williams noted that questions about IWIF's solvency were raised during hearings last year conducted by a task force appointed by the governor. He said the report contained "no great surprises, nothing to cause any need for concern."

"Everyone has to know that we're solvent," he said.

Other findings in the examination report range from deficiencies in the security system for data processing operations and failure to update or renew contracts with fund investment managers to overstating the value of the fund's headquarters in Towson.

Under state law, IWIF must file its corrective action plan within 45 days. Larsen will then have 60 days to approve or reject it. If Larsen rejects the plan, he said, he could issue his own corrective action plan.

But the commissioner acknowledged yesterday that such a development could lead to a confrontation with IWIF because officials of the fund contend the new law does not give him the authority to order corrective action.

"They have indicated their belief that the law, as written last year, does not allow us to compel them to take action. I disagree with that," Larsen said, adding that he hoped a confrontation could be avoided.

IWIF officials say they were given less time than commercial insurance carriers to meet new, tougher accounting standards. Williams said IWIF's competitors had three years to adjust but that IWIF had less than a year.

The commissioner said the $45 million surplus reduction was the result of a required increase of $38 million in the reserves against losses and a $4.7 million downward adjustment in funds that IWIF holds for the state of Maryland.

He said the size of the surplus reduction was well beyond the threshold triggering the need for a corrective action under industry-wide standards. He noted that IWIF's surplus dropped from nearly $200 million at the end of 1999 to the current $124 million.

"It's a situation that certainly requires us to monitor them closely," he said, adding that insurance examiners will likely be returning to IWIF for an updated review in March.

Williams said IWIF raised its base rates a year ago by about 4 percent, or $4 million, and that a further increase might be considered when the governing board meets next month. He said the agency has also stepped up its fraud investigation efforts, prosecuting 15 cases this year.

The IWIF executive said his agency, like other insurance providers, is certain to face cost increases as a result of the recent terrorist attacks in New York and Washington.

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