American Association of State Compensation insurance Fund
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CopperPoint Mutual Insurance Company
Phone: (602) 631-2000
Address: 3030 North Third Street
Phoenix, AZ   85012
Website: www.copperpoint.com

State Compensation Insurance Fund
Phone: 888-STATEFUNDCA
Address: 333 Bush Street
Suite 800
San Francisco, CA   94104
Website: www.statefundca.com

Pinnacol Assurance
Phone: (303) 361-4000
Address: 7501 East Lowry Boulevard
Suite 800
Denver, CO   80230-7006
Website: www.pinnacol.com

Hawaii Employers' Mutual Insurance Co. Inc.
Phone: (808) 524-3642
Address: 1100 Alakea Street
Suite 1400
Honolulu, HI   96813
Website: www.hemic.com

Idaho State Insurance Fund
Phone: (208) 332-2100
Address: 1215 West State Street
P.O. Box 83720
Boise, ID   83720-0044
Website: www.idahosif.org

Kentucky Employers Mutual Insurance
Phone: (859) 425-7800
Address: 250 West Main Street Suite 900
P.O. Box 83720
Lexington, KY   40507-1724
Website: www.kemi.com

Louisiana Workers' Compensation Corporation
Phone: (225) 924-7788
Address: 2237 South Acadian Thruway
P.O. Box 83720
Baton Rouge, LA   70808
Website: www.lwcc.com

Maine Employers Mutual Insurance Company (MEMIC)
Phone: (207) 791-3300
Address: 261 Commercial Street
P.O. Box 11409
Portland, ME   04104
Website: www.memic.com

Chesapeake Employers’ Insurance Company
Phone: (410) 494-2000
Address: 8722 Loch Raven Boulevard
P.O. Box 11409
Towson, MD   21286-2235
Website: www.ceiwc.com

SFM Mutual Insurance Company
Phone: (952) 838-4200
Address: 3500 American Boulevard West Suite 700
P.O. Box 11409
Bloomington, MN   55431-4434
Website: www.sfmic.com

Missouri Employers Mutual Insurance
Phone: (800) 442-0590
Address: 101 N Keene St
P.O. Box 11409
Columbia, MO   65201
Website: www.mem-ins.com

Montana State Fund
Phone: (406) 495-5015
Address: 855 Front Street
P.O. Box 4759
Helena, MT   59604-4759
Website: www.montanastatefund.com

New Mexico Mutual Group
Phone: (505) 345-7260
Address: 3900 Singer Boulevard NE
P.O. Box 4759
Albuquerque, NM   87109
Website: www.newmexicomutual.com

New York State Insurance Fund
Phone: (212) 312-7001
Address: 199 Church Street
P.O. Box 4759
New York, NY   10007
Website: www.nysif.com

Workforce Safety and Insurance
Phone: (701) 328-3800
Address: 1600 East Century Avenue Suite 1
P.O. Box 4759
Bismarck, ND   58506-5585
Website: www.WorkforceSafety.com

Ohio Bureau of Workers Compensation
Phone: (800) 644-6292
Address: 30 West Spring Street
P.O. Box 4759
Columbus, OH   43215-2256
Website: www.ohiobwc.com

CompSource Mutual Insurance Company
Phone: (405) 232-7663
Address: 1901 North Walnut Ave.
P.O. Box 53505
Oklahoma City, OK   73152-3505
Website: www.compsourcemutual.com

State Accident Insurance Fund (SAIF)
Phone: (503) 373-8000
Address: 400 High Street SE
P.O. Box 53505
Salem, OR   97312-1000
Website: www.saif.com

Pennsylvania State Workers Insurance Fund
Phone: (570) 963-4635
Address: 100 Lackawanna Avenue
P.O. Box 5100
Scranton, PA   18505-5100
Website: www.dli.state.pa.us/swif

Beacon Mutual Insurance Company
Phone: (401) 825-2667
Address: One Beacon Centre
P.O. Box 5100
Warwick, RI   02886-1378
Website: www.beaconmutual.com

South Carolina State Accident Fund
Phone: (803) 896-5800
Address: P.O. Box 102100

Columbia, SC   29221-5000
Website: www.saf.sc.gov

Texas Mutual Insurance Company
Phone: (800) 859-5995
Address: 6210 East Highway 290

Austin, TX   78723-1098
Website: www.texasmutual.com

Workers Compensation Fund
Phone: (800) 446-2667
Address: 100 West Towne Ridge Parkway
P.O. Box 2227
Sandy, UT   84070
Website: www.wcfgroup.com

Washington Department of Labor and Industries
Phone: (360) 902-5800
Address: P.O. Box 44001
P.O. Box 2227
Olympia, WA   98504-4001
Website: www.lni.wa.gov

Wyoming Division of Workers Safety & Compensation
Phone: (307) 777-7159
Address: Cheyenne Business Center
1510 East Pershing Boulevard
Cheyenne, WY   82002
Website: wydoe.state.wy.us

Workers Compensation Board - Alberta
Phone: (780) 498-3999
Address: 9925-107 Street
P.O. Box 2415
Edmonton, AB   T5J 2S5
Website: www.wcb.ab.ca

Workers Compensation Board of British Columbia (WORKSAFEBC)
Phone: (604) 273-2266
Address: P.O. Box 5350 Station Terminal
P.O. Box 2415
Vancouver, BC   V6B 5L5
Website: www.worksafebc.com

Manitoba Workers Compensation Board
Phone: (204) 954-4321
Address: 333 Broadway
P.O. Box 2415
Winnipeg, MB   R3C 4W3
Website: www.wcb.mb.ca

WorkSafeNB
Phone: (506) 632-2200
Address: 1 Portland Street
P.O. Box 160
Saint John, NB   E2L 3X9
Website: www.worksafenb.ca

Workers Compensation Board of Nova Scotia
Phone: (902) 491-8999
Address: 5668 South Street
P.O. Box 1150
Halifax, NS   B3J 2Y2
Website: www.wcb.ns.ca

Prince Edward Island Workers Compensation Board
Phone: (902) 368-5680
Address: 14 Weymouth Street
P.O. Box 1150
Charlottetown, PE   C1A 7L7
Website: www.wcb.pe.ca

Saskatchewan Workers Compensation Board
Phone: (306) 787-4370
Address: 200 - 1881 Scarth Street
P.O. Box 1150
Regina, SK   S4P 4L1
Website: www.wcbsask.com

Puerto Rico State Insurance Fund Corporation
Phone: (787) 793-5959
Address: G.P.O. Box 365028
P.O. Box 1150
San Juan, PR   00936-5028
Website: www.cfse.gov.pr
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Latest Newsletter

A Review of Investment Returns in 2016 and the 2017 Outlook

By Dave Bomberger, Chief Investment Officer, Pinnacol Assurance, and
Mitch He, Chief Investment Officer, Chesapeake Employers’ Insurance Company

Investments play an important role in the financial performance and strength of insurance companies. Insurers invest the funds they collect from premiums and then rely on income and principal from these investments to pay future claims. Investments, like most other aspects of the insurance industry, are highly regulated and subject to capital charges based on perceived riskiness. AASCIF members, in line with their counterparts in other property and casualty insurance lines, generally have a large portion of their assets invested in high-quality, investment-grade bonds. Based on a survey conducted by the AASCIF Finance and Investment Committee in 2016, AASCIF members had 73% of invested assets in fixed income securities. Within these fixed income security holdings, 95% were investment grade (75% were rated NAIC Class 1, equivalent to AAA, AA, and A ratings; and 20% were rated NAIC Class 2, equivalent to BBB rating). These high-quality investments generate a significant flow of interest income but generally offer limited opportunities for capital appreciation. This flow of interest income has declined dramatically over the past several years as interest rates have fallen to all-time lows, while central banks around the world have sought to stimulate their economies. At one point during 2016, nearly one-third of all governments bonds around the world were trading at negative yields.

The following is a brief review of financial markets in 2016 and a peek into possible trends to follow in 2017. 

Despite a tumultuous year with a number of major market surprises, 2016 turned out to be a banner year for many markets. U.S. stocks, as measured by the Dow Jones Industrial Average, produced a 16.5% total return, while the S&P 500 posted a 12% total return. Total return is the combination of change in market value and income received. Most of the positive return from U.S. equities occurred following the 2016 general election as investors reacted favorably to Trump’s election and hopes of benefits from tax cuts, reduced regulation, and fiscal stimulus. For now, the markets have ignored the potential adverse consequences for the stronger dollar, rising deficits, protectionism trade policies, higher interest rates, and increasing inflation.

Developed Non-U.S. equities produced moderately positive returns in 2016, while emerging market stocks returned over 11%. The European Central Bank and the Bank of Japan have employed unprecedented monetary stimulus, bond purchases, and negative interest rates to try to revive their economies. Despite the benefits achieved, these measures have resulted in weak corporate profits and underperformance of European and Japanese banks and equities in general.

Oil rose 45%, and many commodities finished the year with gains. As 2016 ended, OPEC appears to be reducing production, which may provide a floor for oil prices.

The dollar ended the year near a 14-year high. The strong dollar is a result of stronger economic conditions in the U.S. compared to the rest of the world and yields, while very low, that are higher than other markets. A strong U.S. dollar makes products made in the U.S. less competitive than products made outside the U.S.

Interest rates ended the year higher. The U.S. 10-year Treasury ended the year at 2.44%, up from 2.27% at the end of 2015. The total return of the Barclays U.S. Aggregate Bond Index, a broad index of investment grade bonds, was 2.6%. High yield bonds returned 17% in 2016. There were wide swings in interest rates during the year. The 10-year yield was as low as 1.36% in July in response to the surprising Brexit results and soared to over 2.6% following the U.S. election. Despite increase in yield, interest rates are still at historically low levels. The current yield of the 10-year is half of what is was in 2007 and far below the all-time record of 15.819% experienced in 1981.

What does all of this mean for AASCIF members? Interest income from existing holdings continued to decline during 2016, and unrealized gains on investment grade bonds were reduced. Members who have moved away from “traditional” fixed income asset classes into structured securities, such as collateralized loan obligations (CLOs), high yield bonds, equities, and alternatives, benefitted in 2016. These members have not only benefitted from higher returns on these investments, but also improved the diversification of sources of investment risk and return.

Looking forward, the U.S. economy is expected to get a boost from reduced regulation, lower taxes, and increased fiscal spending, but these may take a while to work through the legislative process and be implemented. Consumer and business confidence may increase and lead to more consumer spending and more investment by business in plant and equipment. The potential adverse consequences of Trump’s policies, higher interest rates, trade sanctions, and rising inflation may take even longer to be felt. Improvement is expected in corporate revenue and earnings from accelerated growth. This should benefit corporate credit quality and equity prices. Nevertheless, these divergent forces imply another volatile year in the markets.

Outside the U.S., many developed countries are transitioning from “monetary stimulus only” to a more expansionary fiscal policy, or at least less austerity. This should lead to improved economic growth.

Growth in China should be stable as the central government has sufficient tools to manage excesses as they may develop. Other emerging markets should stabilize and begin to grow.

While 2016 was a year full of surprises causing significant market volatility, we expect more of the same in 2017, hence more investment opportunities. Subject to various risk considerations and restrictions imposed by stakeholders such as state regulators and rating agencies, We believe that AASCIF members, as investors with long-term horizon, will continue to benefit from a more diversified asset allocation, with lower allocations to “traditional” investment grade bonds and a larger portion of portfolios in non-traditional fixed income securities, common stocks, below investment-grade credit, and other long term (alternative) invested assets.

 

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