Putting Recent News about BWC Investments into Perspective Print E-mail
Friday, June 24, 2005

Background
In 2004, BWC suffered a loss of $215 million on an investment with Pittsburgh-based MDL Management. The loss, while significant, represented just 1.3 percent of BWC’s $15.5 billion total investment portfolio.

The MDL Active Duration Fund performance and management is currently being investigated by the Ohio Attorney General’s office and they are working to recover any funds lost by MDL as a result of the firm acting outside the scope of their contract. BWC is no longer investing with MDL and is cooperating fully with several ongoing investigations by state and federal government agencies into this matter.

Despite the MDL loss recorded last year, BWC still earned an 8.5 percent return on its investment portfolio last year and paid $407 million in dividends to Ohio’s employers in 2004. BWC investment earnings have averaged 16.5 percent over the last ten years, exceeding market forecasts. And, BWC has returned dividends and rebates totaling $10 billion to employers in the last decade.

The State Insurance Fund is solid and fully funded and has the resources to pay each injured worker claim that is filed. Employer rates will not be raised and injured worker benefits will not be affected as a result of investment losses; and, any recommendations from the on-going investigations regarding procedures will be given our full attention.

Recent Developments
Appointment of Management Review Team
Governor Taft has appointed a Management Review Team to assist BWC Administrator Kielmeyer in a thorough review of the BWC’s investment department. The team is led by Lottery Commission Director Tom Hayes and includes Laurie Fiori Hacking, executive director of the Public Employees Retirement System, and James Nichols, treasurer of The Ohio State University.

Administrator Kielmeyer, with the support of the Management Review Team, will enlist the services of Ennis Knupp, a firm that has no affiliations with any brokerage, investment management or investment banking firms. In operation since 1981, it serves more than 140 clients with aggregate assets of $480 billion.

Ennis Knupp’s task will be to offer immediate investment management services on-site in preparation for the Management Review Team to conduct its analysis. The company’s specific focus will be in the areas of:

--Operational review and assistance of domestic/international equity and fixed income outside contracted investment manager’s compliance;
--Documentation and analysis of private equity relationships;
--Review and assistance with monthly performance reporting;
--Documentation for equity and fixed income in-house trading operations;
--Human resource assessment/requirements for performance of investments fiduciary responsibilities.

Once their review of the BWC investment portfolio is completed, the Management Review Team will prepare an initial report for the Governor. Their charge is to:

--Complete a systematic review of the BWC investment portfolio, including a review of internal audit and control systems;
--Cooperate fully with all ongoing investigations and audits.

BWC is committed to mitigating investment losses and welcomes the review of processes and controls to improve the financial performance of the agency.

These investment losses will not increase employer premiums.

--Employer premiums will not be increased as a result of recent losses on investments. The State Insurance Fund is stable and 100 percent fully funded, meaning the agency has the resources it needs to pay the cost of every worker claim filed.
--BWC rates are determined by claims losses, based on paid medical cost and wage replacement cost. On average, rates were increased by 4.4 percent for the July 1, 2005, to June 30, 2006, rating year. This increase was largely a result of increased medical costs.

Capital Coin and MDL losses are not related.

MDL and Capital Coin have separate fund managers and represented only two of approximately 149 funds in which BWC invests. Capital Coin’s losses are still being evaluated.

Ohio employers will not be issued a dividend this summer.

--Premiums for the current policy year are, on average, 29 percent lower that those for the July 1, 1994 policy year. At its June 16, 2005, meeting, the Workers’ Compensation Oversight Commission declined to issue employer dividends. The commission will again consider employer dividends at its November 2005 meeting.
--The MDL loss was accounted for in 2004 and coincided with the July 1 to December 31, 2004, billing period. Employers were paid a 20 percent dividend based on that billing period.

Contact Jeremy Jackson, BWC Media Relations, (614) 752-7558.