Workers Compensation Reinsurance Association

“During 2014, the workers' compensation reinsurance association made the following substantive changes to their plan of operation: article i.b. The definition of "actuarial excess or deficient premium" is expanded to include the unfunded liabilities that became funded once the prefunded limit was eliminated in statute. Article i.f. The term "surplus or deficit" is changed to "capital or deficit" to be consistent with the definition used in our financial statements under generally accepted accounting principles. Article i.z. (deleted) definition for the prefunded limit is deleted because a statutory change eliminated the prefunded limit. Article vi.d.1.a-c. References to the prefunded limit are removed to reflect the statutory elimination of the prefunded limit.”

“The workers' compensation reinsurance association (wcra) was created by the minnesota state legislature in 1979. Minnesota (mn) law requires all insurers and self-insurers to purchase workers' compensation reinsurance by becoming members of the wcra. State law specifies the composition of the board, which includes: four insurer representatives elected by insurer members of the wcra and approved by the mn commissioner of labor and industry; two self-insurer representatives elected by self-insurer members of the wcra and approved by the mn commissioner of labor and industry; two employer representatives, two employee representatives, and one public representative appointed by the mn commissioner of labor and industry; the mn commissioner of finance (or designee); and the executive director, mn state board of investment (or designee). Due to the structure of the wcra and the board, self-insurer and insurer board members have a business relationship with the wcra; their employers are all insured by the wcra.”

“By statute, certain decisions made by the wcra board of directors are subject to approval by the minnesota commissioner of labor and industry as indicated in item 6 above, such as approval of membership assessments or surplus distributions, reinsurance rates charged by the wcra, the wcra board annual stipend, and per diems paid to the board and committee members.”

“The wcra outside auditors, pricewaterhousecoopers llp, prepares the draft form 990. The wcra staff and vice president and cfo conduct a detailed review of the draft form 990. Pricewaterhousecoopers llp completes the final form 990. The wcra staff then reviews the final form 990 and the ceo signs.”

“Annually, wcra directors and officers are required to review the policy and complete a conflict-of-interest disclosure statement. Answers are reported to the full board to determine if action is needed. In addition, the policy is reviewed with all new board members during their orientation and any disclosures are shared with the board. Board members and the ceo are also required to report any conflict that may arise throughout the year to the board chair or at a board meeting to see if further action is required. Other wcra officers are required to report any conflict that may arise throughout the year to the ceo, another officer, or a board member.”

“The ceo's performance is reviewed and compensation is compared to market via salary surveys and then presented to wcra personnel committee, made-up of independent persons, who review the information and make a recommendation to the full independent board regarding performance evaluation and compensation changes. The board reviews the performance review information and compensation data and approves any change in compensation. The other officers are reviewed by the ceo. Compensation is compared to market and changes in compensation are based on performance review rating and compensation structure, which is reviewed by the personnel committee and changes approved by the board, but the individual officers are not reviewed by independent individuals.”

“The wcra makes available its governing documents, conflict of interest policy, and financial statements to the public by means of its website, www.wcra.biz.”

“The wcra provides reinsurance protection for serious workers' compensation losses to all primary workers' compensation insurance providers and self-insured employees in the state of minnesota. The association provides full indemnification to its members for workers' compensation losses in excess of a member's retention limit, as provided for under minn. Stats. Chapter 176. Through 2014, funded reinsurance premiums are being billed annually to its members to cover the estimated present value, using an annual discount rate of 6.5%, of the estimated ultimate liability for members' incurred losses, up to and including the prefunded limit of $9.6 million per occurrence. Premiums also cover the estimated loss expenses, operating, and administrative expenses of the wcra. Premiums are invested in bonds, equities and other investments with an objective of earning a 6.5% annual return. Securities are stated at fair market value. Securities are frequently sold to maximize investment return. In april 2013, the state of minnesota enacted legislation eliminating the prefunded limit effective january 1, 2015. Historically, when the association recorded its liability for unfunded losses, it recorded corresponding unfunded deferred premiums and deferred premiums receivable. The deferred premiums receivable represented the amount that was to be billed and collected in future years as unfunded losses were paid. After the law change in april 2013 that eliminated the prefunded limit, the association no longer had the right to collect the deferred premiums receivable. Although the law change is not effective until january 1, 2015, the asset was no longer collectible as of the enactment of the law change in 2013. Accordingly, in the 2013 financial statements, deferred premiums receivable of $175 million were written off and corresponding negative unfunded deferred premium revenue of $175 million was recorded in the income statement. The wcra anticipates paying claims of $7.6 billion for losses and loss expenses incurred on or before 12/31/2014. Losses paid from wcra's 1979 inception through 12/31/2014 equal $1.2 billion. The wcra is exempt from federal income tax under irs section 501(c)(27)(a). To qualify for this exemption, any membership organization must meet all the following requirements: 1) it was established by a state before june 1, 1996, exclusively to reimburse members for losses under workers' compensation acts; 2) the state requires that the membership consist of all persons who issue insurance covering worker's compensation losses in the state and all persons and government entities who self-insure against those losses; 3) it operates as a nonprofit organization by returning surplus income to its members or workers' compensation policyholders on a periodic basis and by reducing initial premiums in anticipation of investment income.”

“Emerging markets fund countries: china, india, indonesia, korea, malaysia, philippines, taiwan, thailand, czech republic, egypt, hungary, greece, poland, qatar, russia, south africa, turkey, uae, brazil, chile, colombia, mexico, peru, belarus, kenya, nigeria, panama, saudi arabia, uk, ukraine and vietman.”

“Deficiency assessments and deficient premium assessments: $18,405,778”