Overview
This pool consisted of 34 member companies from 19 different groups for the years 1912-1996. After many years of operations, the pool was having trouble attracting new members and ultimately decided to close the operation. The pool solicited proposals from numerous providers to handle the entire operation of the pool, now in run-off.
Paragon effectively identified the problems that existed with the pool and presented a detailed solution for managing the business in run-off. On the day following our presentation, we were notified that we had been awarded the handling of this large pool.
Paragon quickly took over operational control and management of the pool in 1996. This involved developing and executing a detailed project plan to transition the business to Paragon, including:
- Arranging to ship files to Paragon’s offices and reviewing them, establishing thresholds and reviewing all files for reasonableness and completeness.
- Subletting existing office space occupied by the current pool staff.
- Negotiating employee contracts with key people and retaining them through the transition period.
- Preparing and completing commutations with both the member companies and reinsurers.
Goals
There were several problems that Paragon had identified within the pool upon further review of the files and a detailed look into the systems used at the time.
First, we identified that reserves were well overstated. Reserves had been entered on a case basis for contracts as well as being projected on an annual basis. Paragon identified approximately $70 million in reserve redundancies for the member companies.
Second, we established a process for completing member commutations that had begun but were not completed, quickly getting these commutations back on schedule. Engaging our actuarial staff and other appropriate resources, Paragon facilitated the commutation of more than 50 years of business for the member companies and is currently finalizing negotiations for another eight years. Paragon also performed commutations for the pool’s reinsurers, covering over ten years.
Third, we identified several system deficiencies, including serious risks associated with the year 2000. Paragon developed and implemented a new system internally, which was not only Y2K compliant but also made it easier to enter and track claims, thus allowing for more streamlined and effective claims handling.
Execution
Handling the day to day management and operation of this pool encompasses many different aspects. Some of the key responsibilities and activities include:
- Fiduciary responsibility for entire member claim reserve of approximately $630,000,000.
- Actuarial review of reserves and assessment for commutation purposes.
- Coordination of board, claim committee, and member meetings.
Paragon has executed this program effectively and efficiently. We significantly reduced the amount of resources needed to handle the business, reduced reserves, and facilitated a large commutation program. We are currently in the tenth year of administration after our 2005 three-year contract renewal.