Call to Order and Roll Call
The2nd meeting of the Budget Review Subcommittee on Postsecondary Education of the Interim Joint Committee on Appropriations and Revenue was held on<Day> Thursday, July 25, 2013, at 10:00 AM, in Room 169 of the Capitol Annex. Senator Stan Humphries, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Stan Humphries, Co-Chair; Representative Arnold Simpson, Co-Chair; Senators David P. Givens, Johnny Ray Turner, and Mike Wilson; Representatives Derrick Graham, Reginald Meeks, Kevin Sinnette, Rita Smart.
Guests: David Baird, Acting Executive Director, Kentucky School Boards Association (KSBA); Douglas Goforth, Chief Insurance Services Offices, Kentucky League of Cities (KLC); Janet Craig, Attorney, Stites and Harbison; Sharon Clark, Commissioner, Department of Insurance (DOI).
Kentucky School Boards Insurance Trust (KSBIT)
Members from the Kentucky School Board Association (KSBA), Department of Insurance (DOI), and the Kentucky League of Cities (KLC) testified about the Kentucky School Boards Insurance Trust (KSBIT). The presentation included a look at when and how the trust was formed, the present state of KSBIT, steps for the future, and the impact it will have on school districts.
In response to a question by Senator Wilson, Mr. Baird said that KSBA will provide information regarding the dollar amount of claims paid by KSBIT to the committee.
In response to a question by Senator Wilson, Mr. Baird said that a reinsurer will step in for all losses that exceed what KSBIT will cover. He explained that during the Novation deal the reinsurer will step in for KSBIT and be responsible for all claims from the first dollar on.
In response to a question by Representative Graham, Mr. Baird said that the majority of schools would choose the bonding option instead of the lump sum payment option.
In response to a question by Senator Givens, Mr. Baird said that the first figures in the presentation are financial deficits, and the later figures are assessment numbers that include additional costs, therefore explaining the difference. Ms. Craig added that, when the actuaries estimate claims, they apply different assumptions.
In response to a question by Senator Givens, Ms. Craig said that actuaries are held to certain principals and standards when advising clients. Ms. Craig said that KSBIT is looking into the appropriateness of the advice received from actuaries to determine if action is warranted.
In response to a question by Senator Givens, Mr. Goforth said that the fiscal soundness of Novation has been evaluated by outside consultants and was found to be very strong.
In response to a question by Senator Wilson, Mr. Goforth said that, under the Novation bulk reinsurance transfer, there is no gain potential for school districts but there is also no risk.
In response to a question by Representative Smart, Ms. Craig said that, during the evidentiary hearing, districts will have the opportunity to formally intervene and raise objections. She added that KSBA is still working out the timeline for how many days districts will have to file an objection after receiving assessments.
In response to a question by Representative Miller, Ms. Craig said that the advantage to making an early payment depends on the individual member or school district.
In response to a question by Chairman Humphries, Mr. Baird said KSBIT started in 1979 and was managed by KSBA until 2010. In January, 2010, KSBA formed a partnership with KLC in which KLC would manage the insurance programs on behalf of KSBA. As of July 1, 2013, KSBIT continues to pay claims but has no active policies.
Mr. Baird said it is unlikely that districts that have gone to the open market will be able to come back to KSBIT.
In response to a question by Chairman Humphries, Mr. Baird said that there was a time when KSBIT was doing well and a royalty was paid to KSBA.
In response to a question by Senator Givens, Ms. Clark said that all insurance plans similar to KSBIT file quarterly and annual statements with DOI. Senator Givens asked that the assessments be sent to school districts before any recovery plan is adopted.
In response to a question by Senator Wilson, Ms. Clark said that, if the Novation option were to fail, the liabilities fall back on the school districts.
There being no further business before the committee, the meeting was adjourned at 11:36 a.m.