Administaff Inc., a national Professional Employer Organization, has renewed its workers’ compensation program and related policies with selected member insurance companies of American International Group Inc. The AIG member companies will continue to provide statutory workers’ comp coverage for Administaff’s corporate and worksite employees.
The one-year arrangement, effective Oct. 1, 2005, provides for the same coverage as last year, and stipulates the return by Sept. 30, 2005 of $6 million of Administaff’s $13 million buffer collateral currently held by AIG. Additionally, as a result of a reduction in administrative charges and favorable claim trends, AIG has set monthly funding rates approximately 21% lower than the prior year funding rates.
Under the arrangement with AIG, Administaff makes monthly payments to AIG comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The claim funds are retained and held by AIG until claims are submitted and processed for payment to the insured. Administaff bears the economic burden for the first $1 million layer of claims per occurrence while AIG bears the economic burden for all claims in excess of such first $1 million layer.
Workers’ comp insurance includes ongoing medical and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
Administaff employs a third party actuary to estimate Administaff’s development rate, which is primarily based upon the nature of worksite employee job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ comp claims and an estimate of future cost trends. Workers’ compensation claims costs are estimated and recorded each reporting period by applying the development rate to worksite employee payroll levels.
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