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School Board Journal
March / April

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WCSIT members find elusive pearl:
Guaranteed dividends until the year 2000

Recently the Board of Trustees of the IASB-endorsed Workers' Compensation Self-Insurance Trust (WCSIT) was combing through such an oyster bed. Believe it or not, the Board found that perfect pearl.

With all the negative news lately about money being lost by public entities on derivatives and investments, the WCSIT has experienced a fairy tale with a happy ending.

In 1992, the WCSIT Board of Trustees was faced with a tough investment decision. The Board had acquired more than 714,000 shares of preferred stock in Safety Mutual Insurance Co. the insurance company from which it had been buying the Trust's reinsurance. This stock was provided because the Safety Mutual Insurance Co. wanted to demutualize and become Safety National Insurance Co. In order to accomplish this, policyholders had to become shareholders at no cost to the policyholder. Consequently, the WCSIT accepted the gift of stock that year.

By May, 1994, Safety Mutual redeemed the stock for $1.00 a share, so that WCSIT earned $714,000 a tidy surplus for the Trust. However, a little-observed section was added to the arrangement, which was carefully picked up by the Board of Trustees: For each share of preferred stock the Trust had been given, they had the right to purchase two shares of common stock at a price of $1.00 per share. On redemption of the preferred stock, WCSIT's Board of Trustees was given approximately three weeks in which to decide whether the Trust should exercise its rights to the common stock.

If it did so, the Board would pay $1.428 million for the 1,428,000 share of common stock it had rights to, while receiving a check for $714,000 for the preferred stock it owned. In doing so, the net cash outlay would be the difference between the purchase price of the common stock and the redemption price of the preferred stock an outlay of $714,000. If, however, the Board of Trustees didn't exercise its rights, would it be serving the best interests of the WCSIT member school districts and the kids they try so hard to educate?

The path to take was clear to the WCSIT Board of Trustees. The Board purchased the stock. In October, 1995, a scant 16 months later, Safety National Insurance Co. was sold to another insurance company. The value of the 1,428,000 shares rose to $7.1 million. The WCSIT Board of Trustees had found that one oyster with the perfect pearl. For a net investment of $714,000, the WCSIT members will realize a surplus of $6.4 million on the investment.

During the February 23, 1996, meeting, the WCSIT Board of Trustees approved a plan to distribute the pearl over the next four years.

WCSIT members participating in the 1995-96 program year who remain members as of the September 15, 1996, eligibility date will receive a guaranteed dividend of at least 20 percent of their final audited paid workers' compensation contribution (premium) for the 1995-96 coverage year.

During the next three consecutive years, districts who are members of record by the eligibility date of September 15 the following year will receive dividends of 20 percent each year on their final audited paid workers' compensation contribution (premium) (see sample computation at left).

Who says nice Boards don't finish first?