Executive Director's Report

June, 2005

Dear Self-Insurers' Security Fund Member

This is the first of periodic reports which I, as Executive Director, intend to make to you on this web site. I hope that these comments will give you a better understanding of the issues which currently face the Minnesota Self-Insurers’ Security Fund. If you have any questions or comments, I would be happy to hear from you. My e-mail address is: Koll@KMCHlaw.com. In addition, Kim Osthoff, the SISF Administrator, will also be available to assist you. Her e-mail address is: Osthoff@KMCHlaw.com.

The major issue which we have is the bankruptcy of National Steel Pellet Company and its fall-out. On June 13, 2003, the Minnesota Commissioner of Commerce issued an Order requiring the Minnesota Self-Insurers’ Security Fund to undertake payment of workers’ compensation liabilities for National Steel Pellet Company, a bankrupt self-insurer. The surety bond which was posted to secure those liabilities with the Minnesota Department of Commerce was $4.8 million. The liabilities of National Steel Pellet Company initially were estimated at between $9 million and $10 million. These estimates now appear to be low, which could cause an even larger deficit.

As a result, SISF was required to levy a 6% membership assessment in December 2004. Unfortunately, litigation in the bankruptcy proceedings held up any reimbursements that SISF might otherwise have been entitled to from the WCRA and other reinsurers. More importantly, the inaccurate and incomplete data which we received from National Steel Pellet Company with respect to its claims administration prior to its bankruptcy significantly hampered SISF’s third-party administrator, Sedgwick Claims Management Services, Inc. and its actuary, Mark Doepke of Actuarial Advisors, Inc., from accurately estimating the amount of SISF liabilities resulting from National Steel Pellet Company claims. This in turn resulted in a qualified opinion on the SISF financial statements from SISF’s auditors, McGladrey & Pullen, for both FY 2003 and FY 2004.

Recent developments indicate that we are making some progress in resolving these problems.

First, our general counsel, Andy Morrison, and our bankruptcy counsel, Steve Meyer of the Oppenheimer Law Firm, reached an agreement in the bankruptcy proceedings which enabled SISF to recover several hundred thousand dollars and removed an obstacle to obtaining WCRA reimbursements for National Steel Pellet Company claims.

Because of the inaccurate and incomplete data which Sedgwick received from National Steel, the WCRA still has questions on a number of possible WCRA reimbursements to SISF. However, the WCRA is working closely with Sedgwick to try to resolve those issues and determine the amount of reimbursements due to SISF. Moreover, SISF will consider at its next Board Meeting, a proposal to obtain payment data from other sources in order to satisfy any concerns which the WCRA has. We appreciate the cooperative spirit of the WCRA staff as they work with Sedgwick on these issues.

We will continue our efforts to provide an accurate actuarial estimate of the National Steel Pellet Company liabilities and will keep you advised of our progress.

In the meantime, SISF’s general counsel, Andy Morrison and his associate, Brian Thompson, have advised us that several SISF initiatives designed to help prevent similar situations from developing in the future were passed into law. These include:

• An amendment to Minn. Stat. § 79A.04, subd.2, whereby an actuary, in determining a self-insurers estimated future liability, cannot take credit for excess insurance or reinsurance which is provided by a wholly-owned captive insurance company.
• An amendment to Minn. Stat. § 79A.04, subd. 10, to grant SISF the right to immediate possession of all relevant workers’ compensation claim files and data of self-insurers who become bankrupt, insolvent, or are in default.
• An amendment to Minn. Stat. § 79A.06, subd. 5, to authorize SISF to engage an actuary to prepare and file an opinion on outstanding workers’ compensation liabilities if an employer, which terminates its authority to self-insure, fails to file an opinion within 120 days of the date of its termination. If this occurs, SISF can assess the cost of the actuarial opinion against the self-insurer. If the self-insurer fails to pay, the Commissioner of Commerce can issue a Certificate of Default against the self-insurer. Finally, this provision is amended to require the payment of interest to SISF if a self-insurer fails to pay its buy-out assessment in a timely manner.

The SISF Board may examine additional measures toward that end in the next legislative session.

A second major issue which the SISF Board faces is whether or not to implement the MMC Collateral Replacement Program. This would replace the security posted by individual self-insurers with one blanket posted security for all self-insurers. You have recently received a letter from SISF’s Board Chair, Dave Hennes, regarding this matter. If you have any thoughts or opinions with respect to its application to Minnesota, we would like to hear from you.

Very truly yours,

Original Signed

Laurence F. Koll
Executive Director
Minnesota Self-Insurers’ Security Fund