Employers Insurance posts six-month profit of $5.5 million

Friday, Sept. 8, 2000 | 11:44 a.m.

CARSON CITY -- It's been eight months since Employers Insurance Co. of Nevada shed 87 years of state protection and ventured into competition with private firms in writing workers compensation policies.

And it's doing just fine.

The company has filed its first financial statement with state Insurance Commissioner Alice Molasky-Arman, showing it produced $9.4 million in net income in its first six months. For the first time, it had to pay federal taxes that amounted to $3.9 million. And it ended up with a profit of $5.5 million.

Its net assets as of last Dec. 31 were $1.529 billion. Assets decreased to $1.453 billion in the first six months of operation as a private company.

"I'm pleased with the performance," says company President Douglas Dirks. "The financial results are close to what was planned." The $85 million decline in net assets, he said was due to a change in accounting and did not represent a loss.

EICON is one of about 250 companies licensed in Nevada to write policies to provide medical care and rehabilitation for workers injured on the job.

Employers Insurance, which had several prior names, was formed in 1913 as a state system with a monopoly for covering injured workers. In the early 1990s, it was near insolvent with more than $2 billion in the red. Then-Gov. Bob Miller took over the company and worked with the Legislature to reform the system that put it back on an even keel. Private companies were allowed to complete.

Gov. Kenny Guinn then proposed the company become private and a deal was negotiated to sell off the $2 billion debt.

On Jan. 1 this year, it left its state umbrella and ventured into private industry. As a state agency, it collected premiums from 48,000 employers. Now it has 18,000 policyholders.

Employers Insurance declined to renew 18,000 policies, mostly from small businesses that paid a minimum premium. The remaining 10,000 companies have gone to other insurance companies or they did not renew their coverage because it was not required. Dirks said these firms probably had minimum premiums and kept the insurance. But when the rates were raised, they decided they would not keep the policy up to date. And there are some companies that just discontinued policies, even though they are required to be insured.

The number of workers at EICON peaked about 1,100 but is now down to 700.

So far it has not declared a dividend for its policyholders. But Dirks said that will be up to the board of directors and dividends are not expected in the first year of operation.

At present insurance commissioner Arman-Molasky sets the base rate that companies can charge. The discount firms can give is limited. But starting in July next year, the rate setting system is abolished if Molasky-Arman determines the market is competitive.

This means insurance companies would be able to offer whatever price breaks they want.

In California, Dirks said there has been no premium-setting mechanism. As a result companies in that state have been selling policies below cost "for quite some time," he said. And there has been a failure of some companies.

"We're starting now to see some significant increases (in premiums) in California -- 20, 30 and 40 percent," said Dirks.

Since going private, EICON has formed a managed care subsidiary called Care Network Inc., which includes doctors, nurses and support staff. The company provides a network of doctors and medical care providers for injured workers.

In this subsidiary, Dirks said medical people are making the decisions.

"One of the criticisms of managed care is that non-medical people make medical decisions," he said.