Employers Insurance closer to becoming private

Friday, July 2, 1999 | 11:28 a.m.

CARSON CITY -- Employers Insurance Company of Nevada has cleared two major hurdles towards becoming a private insurance company next January, ending more than 80 years as a state agency.

The company announced Thursday it has transferred its $1.6 billion debt to three reinsurance firms for $775 million and it has received a letter from the Internal Revenue Service that its switch to a private company will be a tax-free reorganization.

"The two most difficult requirements have been satisfied," said Douglas Dirks, chief executive officer of Employers Insurance.

Three companies -- Gerling Global International Reinsurance Co. of Germany, XL Mid Ocean Reinsurance Ltd. of Bermuda and ACE Bermuda Insurance Ltd. -- will provide $2 billion reinsurance to cover all the claims of injured workers made prior to July 1995.

Dirks said Employers Insurance, even after wiring $775 million to the three companies on Wednesday, should have $400 million in reserve by the end of the year when it turns private.

Dirks said these firms are "three of the top reinsurer in the world" and have a combined $10 billion in surplus. He said the two companies that operate out of Bermuda do so for accounting purposes.

The three companies will hire Employers Insurance to continue to manage the cases of the injured workers. Employers Insurance will receive a fee for its work.

The deal for the reinsurance was negotiated by Aon Re Inc., which is based in Chicago and will be paid a fee by the three companies that purchased the debt. That fee was not disclosed.

Aon Re in the past has provided Employers Insurance with help in actuarial, accounting, tax and claim services. Dirks said Aon Re has now been hired to devise a pension plan and a health and welfare benefits system for the new private company. Aon Re will also help in informing employees of changes in the system.

Dirks said it's been a long process of getting reinsurance to cover the liability of payments to workers injured before 1995. He said he examined the first proposal to sell the debt in 1993 but the state was not in a position financially to close the deal.

"This relieves the state of all future liability. It took care of all the debt," Dirks said.

There are two other conditions Employers Insurance must meet before it can become private. It must be incorporated and it must receive approval from state Insurance Commissioner Alice Molasky-Arman to write workers' compensation policies.

Employers Insurance, formerly called State Industrial Insurance System (SIIS), had 46,000 businesses insured for claims from workers injured on the job. But starting Thursday, private insurance companies could compete, writing these policies.

Dirks said Employers Insurance has started receiving notification from several large national companies based outside Nevada that they were placing their worker compensation coverage with national firms. "That's exactly what we expected," he said.

Employers Insurance has already announced it is canceling up to 18,000 of its small policy holders because the business is unprofitable. These small businesses can shop the market for other insurance. If they fail to get a policy, they will be covered through a insurance pool run by Hartford and Travelers.

When it submits its request to be licensed as a private company to sell workers' compensation policies, Employers Insurance will not initially ask for permission to sell other lines of insurance, such as car, homeowners or commercial. But Dirks did not rule that out in the future.

In the interim, Gov. Kenny Guinn must name a panel to draw up bylaws for the company when it becomes private. After Jan. 1, the policy holders will elect a board of directors who will then approve the bylaws.