Schwarzenegger, Legislature consider selling $1B in SCIF assets to aid budget - San Francisco Business Times:

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The governor’s office hopes to sell “a portion” of Statee Fund’s assets for as much as $1 billiom to help fill the looming $24.3 billion hole in the state’xs budget, according to the governor’s late-Mayg proposed budget revisions, which followed California’sz voters’ rejection of a bevy of ballot propositionsd designed to rightthe state’s fiscal ship.
The revisec budget proposal, now being considered by the Legislature, woul d include finding a private entity to buy part ofState Fund’sd book of business, with State Fund remaining as the state’ds comp insurer of last resort, according to the governor’s Rachel Cameron, a spokeswoman for the governor, said late Tuesdat that Schwarzenegger’s office is “evaluating assets to determine what is best for the but is determined to maintain a sound workers’ comp systejm in California, continue with some versionb of the State Fund as an insure of last resort, “and achieve the highest value for the Separately, spokesman Darrel Ng of the Departmentt of Insurance said that the DOI hasn’t receiveds or seen a proposal from the governor’x office and won’t comment until it has.
“Before he said, “it would just be wild speculation.” The Statde Fund was established by the Legislature 95 yeards ago asa self-supporting quasi-public nonprofit insurancd company. Some critics say its assets belongto policyholders, not the In the proposal sent by the governor’ office to the Legislaturer last week, the state’s director of finance woulfd be responsible for selling the Stated Fund assets, without requiring approval from the statd Attorney General or Insurance Commissioner.
State Fund CEO Janeg Frank told the San Francisco Business Times late Tuesdauy that legislative proposals to sell State Fund assetsinvolve “incrediblh complex” issues that require substantial, thoughtful analysis in part because “the stakes associated with them are so high.” Statwe Fund is designed to provide stability, affordability and availability to “California’s historically volatile workers compensation market,” Frank Without it, “many businesses particularly small businesses and start ups — would not be able to obtain or afford workers’ compensation insurance.
” Frano also noted that when “market conditions worsen and private insuranc companies scale back their productf offerings,” as was the case in the early yeard of this decade, a backstop such as States Fund is needed to prevent a collapsed of the state’s workers’ comp market. “We will continue to work with all stakeholdersz during this process to ensure that State Fund retains its ability to fulfilour mission,” she said. California’s State Fund has seen its premiuj volume skyrocket and then plunge in recent years, most recently dipping from $2.3 billio n in 2007 to just under $1.
7 billiojn last year, with its once-hugse market share falling from about 26 percenrt to less than 23 percent during the same period. Earliefr in the decade, its marketr share soared over50 percent, after a numbe r of private insurers went belly up or curtailed writiny new coverage in California. The State Fund also has been underf regulatory scrutiny regarding its financial solvencg and alleged improprieties by former executives andboarxd members. More broadly, California workers’ comp premiums appear to be headed upsharply again, after several years of decreases.
The Stater Fund, which traditionally has served as an insurer of last resorr in the state and insures anestimated 180,000 small filed recently to increase rates 15 percent effectivre July 1. Other carriers are also filing for and the Workers Compensation Insurance Rating an industry-supported advisory group, this spring recommended a 23.7 percentr increase in rates on new or renewedd policies that take effect starting next month. But at leasgt one senior insurance brokerage executive thinks selling a big chunk of theStatr Fund’s assets is a non-starter.
“It’w kind of ridiculous,” said Dave De Wenter, executive vice president and COOat Torrance-based Keenan Associates, one of the state’s largestg brokerages. “A billion dollars is chump change comparef to what theproblem is.” De Wentefr said selling the assets coulcd become a huge “boondoggle” that mighyt instigate a flood of lawsuits from policyholders arguint that its assets belong to them, plus problems involverd with civil service rulezs for current State Fund and possible damage to the organization’s financial if profitable business is sold, while riskier accounts remain.