The California State Compensation Insurance Fund (SCIF) could be heading toward insolvency, according to a new report from Standard & Poor’s Ratings Services.
Recent legislative initiatives in the state threaten not only to hasten SCIF’s demise, the report contends, but could harm other workers’ compensation insurers doing business there. In a bid to reduce premium rates, the office of California Governor Arnold Schwarzenegger is reportedly conducting negotiations with state legislators to relax capitalization standards at SCIF, prompting Standard & Poor’s to raise the alarm.
“Reducing capitalization requirements would make sense only if the state was willing to ensure the fund’s solvency, which to date it has been unwilling to do,” said Standard & Poor’s credit analyst Steven Ader.
Permitting the state fund to run down already inadequate reserves may have the desired short-term effect of facilitating lower premium rates, but it may also strip away the last vestige of stability in an already precarious market.
“Other insurers must be concerned that, at best, there could be a
downward drag on pricing just when premium rates are nearing healthy levels, and that at worst, the state fund could collapse,” the analysis concludes.
The report, titled “California Workers’ Compensation Market Increasingly Precarious,” is available on RatingsDirect, Standard & Poor’s Web-based credit research and analysis system. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling 212-438-9823 or sending an e-mail to
research_request@standardandpoors.com.
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