STATE FUND DOWNGRADED

A.M. Best lowered the financial strength rating of the State Compensation Insurance Fund of California (SCIF), San Francisco, Calif., from “B++” to “B+” on March 30. The rating outlook is negative. Cited as key factor in the rating action were A.M. Best’s concern with SCIF’s substantial growth in the volatile California market and the resulting impact on the company’s overall financial strength; and Best’s belief that significant loss reserve deficiencies may have built up in recent years and could increase in the future. While current capitalization is viewed as secure, the negative rating outlook stems from what A.M. Best views as a potential for further strain on SCIF’s capital strength. Since year-end 1997, SCIF’s policyholder surplus has declined more than 17 percent, and investment and other income only partially offset underwriting losses, which have increased every year since open rating began. In 2000, premium production increased nearly 45 percent, which A.M. Best said adds an element of uncertainty to both SCIF’s loss reserve position and its future profitability. Such negative factors were partially offset by SCIF’s dominant market presence. A.M. Best said it would continue to monitor SCIF and reevaluate its financial strength based on year-end 2001.

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