SB19 Study Committee

1. SB19 Study Committee

2. Montana State Fund is committed to the health and economic prosperity of Montana through superior service, leadership and caring individuals, working in an environment of teamwork, creativity and trust.

3. Priorities of Legislation • The integrity of our surplus must be preserved. • MSF needs a structure that will allow us to function effectively as an insurance carrier. • Montana needs a competitive state fund to serve as the guaranteed market, create stability in the marketplace, and provide Montana businesses with a choice for purchasing workers’ compensation insurance.

4. Priorities of Legislation • Our employees interests and status are secured. • The needs and interests of Montana businesses are recognized by a state fund that is properly positioned to meet the challenges of the 21st century.

5. Montana State Fund Legislative History • 1989- Legislature creates State Compensation Mutual Insurance Company effective January 1, 1990 • 1990 Special Session-Separated the liabilities incurred before July 1, 1990 (Old Fund), and provided a separate funding source rather than premium dollars (Old Fund Liability Tax). The Legislature directed the new Montana State Fund to be responsible for claims that occurred on and after July 1, 1990. Montana State Fund modified through legislation to function more like state agency

6. Montana State Fund Legislative History • 1993- Legislation granting budget authority to Board of Directors, fraud programs, safety culture act • 1997-MSF Board increased to 7, given authority to market through independent agents. $20 million paid to General Fund and $63.8 million paid to Old Fund. Legislature established “adequate funding” test for the end of the payroll tax. (Payroll tax terminated 12/31/98). Authorization to provide “other states” coverage. • 1999-Surplus requirements strengthened, exclusion from state procurement act for insurance related services, Board given authority to establish appropriate surplus before declaring dividends, ability to diversify into equities.

7. Montana State Fund Legislative History • 2001-Allowed MSF to set multiple tiers for pricing, change in annual leave, establishment of charitable contributions and scholarship program, exemption from state printing requirements for marketing and educational purposes, expanded employer insurance coverages. • 2002-Provided for a transfer of $4 million of Old Fund excess to the General Fund in FY03. • 2003-Transferred $22 million from Old Fund to General Fund, added language to assure that assets of New Fund are only used for intended purpose.

8. Committee Questions • Surplus • What is it and why is it needed? • How much surplus is enough? • Whose money is it? • How do reserves differ from surplus? • What is the impact on MSF and policyholders if surplus is taken legislatively for other purposes?

9. Committee Questions • Privatization • What is it and is it part of MSF’s proposal? • What options are available to the legislature in this regard? • How would the needs of the guaranteed market in Montana be addressed if there was no state fund?

10. Committee Questions • Segmentation of Market • Inefficiencies associated with current state agency status • Other options for the Old Fund

11. Clarification of Goals • Our proposal is not a call for privatization of MSF. • The integrity of our surplus must be preserved. • Montana needs a competitive state fund to serve the guarantee market, create stability in the marketplace, and provide Montana businesses with a choice for purchasing workers’ compensation insurance.

12. Clarification of Goals • We need a structure that will allow us to function effectively as an insurance carrier. • We have no interest in representing other lines of insurance. • We wish to be regulated in a manner comparable to other insurance companies, with certain necessary exceptions to fulfill our obligation as the guaranteed market.

13. Key elements of MSF Legislative Initiative • Will be regulated by the Insurance Commissioner’s office (with exceptions) • Premium rates will be established by the MSF Board. The Insurance Commissioner role will be for actuarial review and issuance of a report on reserve and rate adequacy • MSF will not be required to solely use NCCI rates and classifications • MSF may not be dissolved by the Insurance Commissioner • Title 33, Chapter 3, mutual statutes exception • Report on a fiscal year rather than a calendar year for annual report, premium tax and risk based capital requirements • Exception from investment of assets by Board

14. Key elements of MSF Legislative Initiative • Will continue as guaranteed market for Workers’ Compensation insurance in Montana • Will pay premium tax (2.75%) and be a member of the Casualty and Property Insurance Guaranty Association • Will follow insurers investments, the insurance contract, and unfair trade practices chapters • Will utilize Title 33 Insurance Fraud Protection Act • Federal tax exempt status will be maintained, as provided under Federal IRS law

15. Key elements of MSF Legislative Initiative • Authority will be for workers’ compensation insurance and related coverage's • The Governor will continue to appoint the Board of Directors (7 under current law) • Has proposed law amendment to potentially allow for purchase of office building by Montana State Fund from state. • Will continue as sole carrier for state agencies

16. Key elements of MSF Legislative Initiative • Under the Montana constitution, MSF will be subject to open meetings, public documents, and investment of assets by the Board of Investments • Modification to Old Fund statute so that any excess is returned to the General Fund • Strengthening of language in regards to policyholders surplus

17. Priorities of Legislation Priority # 1- Assure Organizational Strength and Stability Created by the legislature as an independent public corporation, Montana State Fund will not be subject to state agency operational requirements.* Strengthen language regarding surplus *with exceptions

18. Priorities of Legislation • Priority # 2- Regulation/Oversight by Insurance Commissioner (with exceptions) • Refusal or non renewal of Certificate of Authority • Timing for reporting • Dissolution and liquidation • Chapter 3 of Title 33

19. Priorities of Legislation • Priority # 3- Montana State Fund employees’ status as public employees’ • Employees’ of a public corporation • Health coverage • PERS

20. Priorities of Legislation • Priority # 4- Continue as sole insurer for state agencies • Priority # 5- Purchase of office building at 5 South Last Chance Gulch • Priority # 6- Collection of Premium Tax • Priority # 7- Participation in the Guaranty Fund