Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 2nd Meeting

of the 2005 Interim


<MeetMDY1> July 26, 2005


The<MeetNo2> 2nd meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> July 26, 2005, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Senator Tom Buford, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Tom Buford, Co-Chair; Representative James E Bruce, Co-Chair; Senators Ernie Harris, Robert J (Bob) Leeper, Daniel Mongiardo, Gerald A Neal, J Dorsey Ridley, Richard "Dick" Roeding, Dan Seum; Representatives Sheldon E Baugh, James Carr, James R Comer Jr, Ron Crimm, Mike Denham, Ted "Teddy" Edmonds,  Danny R Ford, Jim Gooch Jr, Mike Harmon, Jimmy Higdon, Dennis Horlander, Dennis Keene, Charles E Meade, Rick W Rand, Steve Riggs, Brandon D Smith, Tommy Thompson, Ken Upchurch, Susan Westrom and Addia Wuchner.


Guests:  Roger Fries, CEO, Kentucky Employer's Mutual Insurance (KEMI), Glenn Jennings, Executive Director, Office of Insurance, Julie McPeak, General Counsel, Office of Insurance, Greg Mitchell, Frost, Brown & Todd, Eunice Montfort, Art's Electric.


LRC Staff:  Greg Freedman, Rhonda Franklin, and Jamie Griffin.


Chairman Tom Buford asked Roger Fries, CEO, Kentucky Employer's Mutual Insurance (KEMI) to give a brief update on KEMI.  Mr. Fries stated that A. M. Best Company has again affirmed its Best's Rating of A (excellent) to Kentucky Employer's Mutual Insurance.  He stated that KEMI has maintained this rating since March 2001.  He stated that KEMI is the largest provider of worker's compensation insurance in Kentucky, with more than 22,000 policyholders, has written premiums over $150 million and has more than $300 million in invested assets.  He stated that KEMI covers businesses in all 120 counties of the Commonwealth.  He stated that KEMI is financially strong and growing.


Glenn Jennings, Executive Director, Office of Insurance, addressed the committee regarding the status of AIK Comp.  He stated that due to ongoing litigation regarding AIK Comp his comments would be limited.  He stated that there are no active policies and all business was cancelled as of February 28, 2005, and they are operating in "run off" mode.  He stated that claims are currently being paid on a timely basis by Brentwood (third party administrator).  He stated that 1.5 million dollars in claims are being paid monthly, but that number is gradually declining.  There are 4 full time and 2 temporary employees at AIK Comp at present.  He stated that regarding the assessment, the 2005 plan was filed with the court in June, the estimated assessment is $97,304,349.00, members between 1999-February 28, 2005 will be assessed.  The assessment will be prorated.  He stated that the court hearing for approval is scheduled for September 14, 2005.  Mr. Jennings stated that payroll audits should be completed by September 30, 2005, at that time any refunds and collections of additional premiums will be made.  Mr. Jennings stated that he expects a prompt decision by the courts in September regarding the assessment plan.  He stated that there have been several lawsuits filed, including a suit against former CPA Ernst and Young, the Actuary Steve Lantanzio, and the officers and trustees of AIK Comp.  He stated that 1200 lawsuits have been filed against nonpayers of the initial assessment, and they are having positive results to date.  He stated that with the implementation of 2005 Senate Bill 86 the financial reporting and solvency oversight have improved.


Representative Jim Gooch stated that tort reform is needed.


Representative Brandon Smith expressed his concern and stressed the need for fairness and access to information during the settlement of AIK Comp.


Addia Wuchner stated that it seems as though aggressive marketing was a contributing factor in the downfall of AIK Comp.


Senator Daniel Mongiardo asked if case management was used by AIK Comp.


Mr. Jennings stated that some attempt was made, but there was never a third party administrator hired to pursue the case management.


Greg Mitchell, Attorney, Frost, Brown and Todd, stated that he represents over 100 employers who had coverage with AIK Comp.  Eunice Montfort, Art's Electric, addressed the committee regarding the impact of the insolvency of AIK Comp and it's effect on her family business.  She stated that Art's Electric had done business with AIK Comp for 20 years and had no warning of any problems.  She stated that year after year the financial reports they received showed no signs of problems.  Further, Ms. Montfort stated that the CPA firm, the actuaries and the AIK officers, should be held responsible for the shortfall.


Senator Tom Buford stated that it sounds as if the answers to many of the questions and the issue of sharing information is going to have to come from the court.  Hopefully, once the judge rules these problems can be taken care of.


Julie McPeak, General Counsel, Office of Insurance, stated that due to the ongoing litigation, providing information to some questions is very limited at this time.


The meeting adjourned at 12:45 PM.