State Compensation Insurance Fund (SCIF) president Tom Rowe says the state's largest workers' comp carrier is sticking by its move to lower its pure premium rates by 7% in anticipation of SB 863 delivering on its promise of savings, but the lower base rate is having an impact on its bottom line. The carrier is reporting that earned premiums through the first half of the year are off by 6% to $452 million in spite of new business coming its way. No matter what it says any light shows that SCIF's results are worse than industry averages.
"We're not changing our position of the value of the reform," says Rowe of the SB 863 reforms. "We think it's working and are encouraged by the early signs."
"We're not changing our position of the value of the reform. We think it's working."
-- State Fund President Tom Rowe
But Bureau statistics report nearly a 3% deterioration in claims results including results from higher permanent disability payments agreed to in SB 863. Worse they will increase next year as SB 863 phases more increases in. The Bureau says these results are after any savings from the reform.
In spite of the lower premium year over year, SCIF insists its future is looking brighter and that the company is still growing. State Fund's chief financial officer Dan Sevilla says that estimated annual premiums are "significantly higher" than last year at this point. Overall he says State Fund's premiums are expected to grow 16% on an annualized basis when compared with a year ago. It's average policy size is also growing, climbing 23% to $8,200.
State Fund chairman Larry Mulryan says the carrier is not seeking growth just for growth's sake. Instead he says this increase is due both to the hardening California workers' comp market, as well as State Fund's move to a tiered rating system. He maintains that the latter is offering the market a fairer and more accurate pricing quote compared to State Fund's prior approach.
But brokers continue to stress that service levels both in placing accounts and in claims are far below reasonable.
Growth aside, State Fund's drop in premium and an even larger drop off in investment income pushed the carrier's net income for the quarter down 21% to $224 million compared to $245 million last year. SCIF's investment income amounted to $345 million at the mid-year mark.
Declining expenses though are helping the carrier to bring down its combined ratio, which is now running at 130.7%. A year ago this measure was at 138.5%. Still, this adds up to an underwriting loss of $140 million, compared to loss of $173 million last year.
This kind of underwriting loss year after year is unlikely to be tolerated or even possible in the private sector. They know where they are – their rates and results are not an accident. One could conclude that this is not the kind of "fairly competitive" fund the law envisions.