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Fiduciary Underwriting Insight
March 20, 2007
Ulico Insurance Group serves the jointly managed trust fund and labor union markets, with a consistent eye to providing the comprehensive protection required by our insureds and brokers. Our years of experience servicing the trust fund market, and total commitment to enhancing our leading edge products and services set us apart. Ulico is always evolving to meet the changing needs of our specialized market.
One of our most important products is Fiduciary Liability insurance for jointly managed benefit trust funds, which is available on State National Insurance Company paper, rated “A” by A.M. Best. Connect talked with Ulico Lead Senior Underwriter Victoria A. Rivas, to unravel the complex process and subtle art of Fiduciary Liability underwriting.
Connect: What is the first step in underwriting a Fiduciary Liability plan?
VR: There is no exact science, as the underwriting process is subject to a good deal of professional judgment, but there are some basic rules. First and foremost, you need to look carefully at the type of plan. We look at different aspects or benchmarks for a Defined Benefit Pension Plan versus a Defined Contribution Pension Plan or a Welfare Plan.
Connect: Are there certain aspects you always take into account when pricing risk? If so, what are they?
VR: Across the board, the primary factors for pricing risk are “total plan assets” and the “total number of participants” in relation to the policy limit and deductible amount. Once we know these basics, we can then make modifications based on various risk characteristics of a particular fund. For example, the funding level on a Defined Benefit Pension Plan, investment diversification, administrative expenses, and the types and level of benefits.
The Underwriter also has other judgment rating factors that are reviewed on each individual risk, such as participating employer, litigation and underwriting expense factors.
Connect: How do you assess risk for Defined Benefit Pension Plans?
VR: For Defined Benefit Pension Plans, we look at a plan’s asset diversification, its funding level and also the ratio of active to total participants.
This type of plan needs long-term investment growth in order to provide future benefits, so diversification of assets is a key determinant. At Ulico, the general guidelines for asset breakdown are 40 to 60% in stock, 10 to 40% in other types of assets and preferably no more than 10% in real estate.
A plan’s funding level has always been a crucial benchmark, and with the new requirements enacted under the 2006 Pension Protection Act, it is more important than ever. Funding level is, essentially, “Net Assets Available for Payments” divided by “Total Actuarial Present Value of Accumulated Plan Benefits.” The figures from the last available audited Financial Statement should be used, even though they may be one to two years old due to the nature of reporting and computation.
As I mentioned, it’s also important to consider the ratio of active to total participants. When the active number of participants drops, it becomes more difficult to maintain the funding level without increased contributions and/or investment income.
Connect: How are Defined Contribution Pension Plans different?
VR: Since most Defined Contribution plans are participant-directed for investments, it is very important that there be a sufficient number and variety of investment options from which participants can choose. So while asset diversification is still important, the level at which we look for diversification is different.
If the plan is not participant-directed, investment and administrative expense ratios become more important factors. It should be noted, that the Department of Labor is particularly interested in expenses and monitoring for all types of plans.
Connect: How do you assess Health and Welfare Plans?
VR: A successful Health and Welfare Plan should have adequate liquidity to be able to make benefit payments in a timely manner. Ulico views asset type and diversification as critical to doing so.
We also prioritize the number of months in reserve as an indicator of plan health; we prefer at least three months in reserves, including the liabilities of operating and claims payables; "claims incurred but not yet reported" figures; and the accumulated eligibility credits of 25 to 100%.
The percentage of self-insured vs. secured insurance for benefits is another major factor, as it affects expenses, often resulting in higher costs for self-insured plans. The benchmarch we prefer is no more than 5% of total administrative expenses in relation to total assets or no more than approximately $550 per participant (measured by dividing the total administrative expenses by the number of total participants).
Brokers with fiduciary underwriting questions can contact Victoria Rivas in our San Francisco office at (415).658.0214 or Michael Saa in our New York office at (212).545.3907.
Meeting Victoria A. Rivas, CPCU, AU, CPIW
UIG's San Francisco-based Senior Underwriter
Victoria A. Rivas, CPCU, AU, CPIW, is a Trustee and Fiduciary Liability Senior Underwriter for Ulico Insurance Group. Victoria joined Ulico 5 years ago, after 13 years as a Senior Commercial Lines Underwriter with a large property and casualty insurance company. Her career in the insurance industry spans more than two decades in personal and commercial lines, workers' compensation and fiduciary liability.
Victoria has been an active and dedicated member of the National Association of Insurance Women, International (NAIW) since 1993. She first held NAIW office as President of her local Contra Costa Chapter (1997-98) and later moved up to serve as California State Director (2000-01) and Region VIII Vice President (2002-03). Throughout her tenure as a local, state and national officer with NAIW, Victoria has emphasized the importance of its educational programs; she is a Founder’s Circle member of the NAIW Insurance Scholarship Foundation of America and as Chairman of the Education Advisory Panel, was instrumental in developing the “Advanced Communication Skills” program. Victoria also sat on the Advisory Panel of Today’s Insurance Woman magazine for two years.
In recognition of her commitment to the NAIW, Victoria has received numerous honors, including most recently as Region VIII Insurance Professional of the Year in 2006.
Victoria also is a member and has served as Director of the Mt. Diablo Chapter of the Chartered Property Casualty Underwriter (CPCU) Society.
Although her work with Ulico and with various professional organizations keeps her quite busy, Victoria finds time to be involved in the community through her work with St. Andrew’s Presbyterian Church in Pleasant Hill, California. There, she works in the Stephen’s Ministry program, and has served as Deacons’ moderator and treasurer.
A mother of two who married her high school sweetheart with whom she reconnected at a recent high school reunion, Victoria’s deeply artistic side balances out her intense professional life. She was a fine arts major in college and studied classical piano for 15 years. She is an award-winning amateur painter and finds creative outlets in knitting, crocheting, quilting, photography, travel, gardening and gourmet cooking.
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