Financial Statements - Modified Cash Basis and Other Financial Information. Florida Workers' Compensation Insurance Guaranty Association, Inc.

Transcription

1 Financial Statements - Modified Cash Basis and Other Financial Information Florida Workers' Compensation Insurance Guaranty Association, Inc. Years ended December 31, 2014 and 2013 with Report of Independent Auditors

2 Florida Workers' Compensation Insurance Guaranty Association, Inc. Financial Statements - Modified Cash Basis and Other Financial Information Years ended December 31, 2014 and 2013 Contents Report of Independent Auditors...1 Financial Statements Statements of Financial Position - Modified Cash Basis...3 Statements of Activities and Changes in Net Assets - Modified Cash Basis...4 Notes to Financial Statements - Modified Cash Basis...5 Other Financial Information Schedule of General and Administrative Expenses...14

3 Report of Independent Auditors The Board of Directors Florida Workers' Compensation Insurance Guaranty Association, Inc. Report on the Financial Statements We have audited the accompanying financial statements of the Florida Workers' Compensation Insurance Guaranty Association, Inc. (the Association), which comprise the statements of net assets - modified cash basis as of December 31, 2014 and 2013, and the related statements of activities and changes in net assets - modified cash basis for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the modified cash basis of cash receipts and disbursements described in Note 1; this includes determining that the modified cash basis of cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Association s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Page Two Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the assets and liabilities arising from cash transactions of the Florida Workers' Compensation Insurance Guaranty Association, Inc. as of December 31, 2014 and 2013, and its revenue collected and expenses paid during the years then ended in accordance with the modified basis of cash receipts and disbursements described in Note 1. Other Matter Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of general and administrative expenses is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Basis of Accounting We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the modified basis of cash receipts and disbursements, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Tallahassee, Florida March 16,

5 Florida Workers' Compensation Insurance Guaranty Association, Inc. Statements of Financial Position - Modified Cash Basis December 31, Assets Cash and short-term investments: Cash and cash equivalents $ 8,946,560 $ 10,135,452 Short-term investments 1,807,582 11,484,656 Total cash and short-term investments 10,754,142 21,620,108 Accrued interest income 238, ,254 Investments 80,140,348 85,960,787 Property and equipment, net 1,061,656 1,087,639 Total assets $ 92,194,787 $ 109,002,788 Liabilities and net assets Temporarily restricted net assets $ 92,194,787 $ 109,002,788 Total liabilities and net assets $ 92,194,787 $ 109,002,788 See accompanying notes. 3

6 Florida Workers' Compensation Insurance Guaranty Association, Inc. Statements of Activities and Changes in Net Assets - Modified Cash Basis Years ended December 31, Revenues: Investment income (loss), net of related expenses $ 895,309 $ (12,161) Estate distributions and claim recoveries 17,476,802 17,363,785 Other income ,485 Total revenues 18,372,539 17,410,109 Expenses: Claims and claims adjustment expenses paid 33,778,299 37,649,333 Direct estate expenses 115,411 10,667 General and administrative expenses 1,286,830 1,305,409 Total expenses 35,180,540 38,965,409 Change in net assets (16,808,001) (21,555,300) Temporarily restricted net assets at beginning of year 109,002, ,558,088 Temporarily restricted net assets at end of year $ 92,194,787 $ 109,002,788 See accompanying notes. 4

7 Florida Workers' Compensation Insurance Guaranty Association, Inc. Notes to Financial Statements - Modified Cash Basis Years ended December 31, 2014 and Organization and Significant Accounting Policies The Florida Workers Compensation Insurance Guaranty Association, Inc. (the Association), a not-for-profit corporation, was established pursuant to Chapter 631 of the Florida Statutes. The Association was created to provide a mechanism for the payment of covered workers compensation claims of insolvent insurers and to assist in the detection and prevention of insurer insolvencies. The Association operates under the supervision and approval of a board of directors, which is comprised of eleven persons, one is the consumer advocate appointed pursuant to Chapter , Florida Statutes, one appointed by the Chief Financial Officer of the state of Florida, and nine selected by insurance company and self-insurance fund members, and subsequently appointed by the Florida Department of Financial Services. The Association is managed by the American Guaranty Fund Group (AGFG) through a management and administrative services agreement (see Note 6). AGFG also has an agreement with the Florida Insurance Guaranty Association (FIGA), a related party through common management, for these services. The members of the Association are all insurers that provide workers compensation coverages in the state of Florida. The funding of the Association's activities is provided by distributions from the estates of insolvent insurers and assessments of members. The assessments are levied on insurers writing workers' compensation coverages in the state of Florida and are levied based on a percentage of net direct written premiums for workers compensation coverages provided in the immediately preceding calendar year. The maximum assessment rate is 2% and 1.5% for insurance companies and self-insurance funds, respectively. If assessments are insufficient to satisfy claims and administration costs, then an additional assessment of 1.5% may be levied. There were no assessments levied for 2014 and The accounting policies and methods of their application that significantly affect the assets and liabilities arising from cash transactions and changes in the modified cash basis net assets of the Association are as follows: 5

8 Florida Workers' Compensation Insurance Guaranty Association, Inc. Notes to Financial Statements - Modified Cash Basis 1. Organization and Significant Accounting Policies (continued) Basis of Accounting The financial statements of the Association are prepared on a modified basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (GAAP). This basis of presentation differs from GAAP in that certain revenues are recognized when received rather than earned and certain expenses are recognized when paid rather than when the obligation is incurred. Specifically, the variances from GAAP include omission of assessments receivable and accruals for loss and loss adjustment expense reserves of insolvent insurance companies and self-insurance funds assumed by the Association. Such variances are presumed to be material. However, similar to financial statements prepared in accordance with GAAP, these financial statements reflect the capitalized cost of property and equipment and related depreciation, accrued interest income and amounts held by the Association for others in a fiduciary capacity. The accompanying financial statements are not intended to present the financial position and results of operations in conformity with accounting principles generally accepted in the United States of America. Cash and Cash Equivalents Cash and cash equivalents consist of deposits with financial institutions and deposits in highly liquid money market funds with original maturities of three months or less. Deposits with financial institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Bank deposits at times may exceed federally insured limits. The Association has not experienced any losses in such accounts. Investments Investments are reported at amortized cost. Short-term investments include securities with original maturity dates of one year or less. Concentration of Credit Risk The Association's financial instruments exposed to concentrations of credit risk consist primarily of its cash, cash equivalents, short-term investments, investments, and assessment revenue. All investment transactions have credit exposure to the extent that a counterparty may default on an obligation to the Association. Credit risk is a consequence of carrying investment positions. To manage credit risk, the Association focuses primarily on higher quality, fixed income securities, reviews the credit strength of all entities in which it invests, limits its exposure in any one investment, and monitors portfolio quality, taking into account credit ratings assigned by recognized credit rating organizations. 6

9 Florida Workers' Compensation Insurance Guaranty Association, Inc. Notes to Financial Statements - Modified Cash Basis 1. Organization and Significant Accounting Policies (continued) Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets that range from three to 39 years. The Association's policy is to capitalize asset acquisitions greater than $1,000. Net Assets The Association s modified cash basis net assets are temporarily restricted and represent funds held from assessments, distributions from the estates of insolvent insurers and other sources to pay covered workers' compensation claims of insolvent insurers and administrative costs as they come due. Income Taxes The Association is exempt from federal income taxes under Section 501 of the Internal Revenue Code as a 501(c)(6) organization. With few exceptions, the Association is no longer subject to examinations by major tax jurisdictions for years ended December 31, 2010 and prior. Assessments Assessments are recorded at the time they are received by the Association. Estate Distributions and Claim Recoveries Amounts received by the Association for estate distributions and claim recoveries are recognized in the period received. Estate distributions and claim recoveries include reinsurance recoveries by the receivers, direct claim recoveries, and any other distribution of estate assets. Claims and Claims Adjustment Expenses Paid Claims and claims adjustment expenses paid consist of amounts paid on claims of insolvent insurers. Direct Estate Expenses Direct estate expenses are expenses incurred by the Association related directly to the protection of the Association s interest in the administration of specific insolvent insurers estates. 7

10 Florida Workers' Compensation Insurance Guaranty Association, Inc. Notes to Financial Statements - Modified Cash Basis 1. Organization and Significant Accounting Policies (continued) General and Administrative Expenses The Association records general and administrative expenses when paid. Subsequent Events The Association has evaluated subsequent events through March 16, 2015, the date the financial statements were available to be issued. During the period from December 31, 2014 to March 16, 2015, the Association did not have any material recognizable subsequent events. Use of Estimates The preparation of financial statements in conformity with the modified basis of cash receipts and disbursements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reclassification Certain 2013 financial statement amounts have been reclassified to conform to the 2014 financial statement presentation. 2. Change in Accounting Principle During 2013, the Association changed its method of accounting for investments from the cost method to the constant effective yield method. Under the constant effective yield method investments are carried at amortized cost. The Association has elected to apply the change in accounting principle on a prospective basis. The impact to the statement of net assets as of December 31, 2013 was to decrease investments held by $1,018,736 with a corresponding $1,018,736 decrease in investment income. 8

11 Florida Workers' Compensation Insurance Guaranty Association, Inc. 3. Investments Notes to Financial Statements - Modified Cash Basis The Association invests in corporate bonds, commercial paper, and the State of Florida Special Purpose Investment Account. The fair values of investments are estimated based on their quoted market values for the specific investments. The amortized cost and fair value of these investments are as follows: December 31, 2014 Amortized Cost Fair Value U.S. Treasury notes $ 33,013,556 $ 32,979,401 U.S. Government agency obligations 16,137,735 16,133,337 Asset-backed securities 2,339,934 2,338,291 Corporate bonds 30,218,830 30,236,356 State of Florida Special Purpose Investment Account 237, ,875 81,947,930 81,925,260 Less short-term investments 1,807,582 1,810,697 Investments $ 80,140,348 $ 80,114,563 December 31, 2013 Amortized Cost Fair Value U.S. Treasury notes $ 36,386,485 $ 36,437,715 U.S. Government agency obligations 16,391,323 16,411,473 Commercial paper 2,498,167 2,498,228 Corporate bonds 41,934,395 42,036,751 State of Florida Special Purpose Investment Account 235, ,073 97,445,443 97,619,240 Less short-term investments 11,484,656 11,516,122 Investments $ 85,960,787 $ 86,103,118 A summary of the cost and fair market value of the Association's bonds and other investments at December 31, 2014, by maturity is as follows: Amortized Cost Fair Market Value Due in one year or less $ 1,807,582 $ 1,810,697 Due after one year through five years 80,140,348 80,114,563 Total $ 81,947,930 $ 81,925,260 9

12 Florida Workers' Compensation Insurance Guaranty Association, Inc. 3. Investments (continued) Notes to Financial Statements - Modified Cash Basis The foregoing data is based on the expected maturities for bonds. These expected maturities might differ from the contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Investment income consists of interest income and net realized gains (losses) and is reported net of investment management expenses of $72,768 and $85,602 for the years ended December 31, 2014 and 2013, respectively Net realized gains (losses) for the years ended December 31, 2014 and 2013 were $303,800 and $(748,207), respectively. 4. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1: Level 2: Level 3: Quoted market prices in active markets for identical assets or liabilities. Observable market-based inputs or unobservable inputs that are corroborated by market data. Unobservable inputs that are not corroborated by market data. The Association utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The tables below present the balances of assets and liabilities measured at fair value on a recurring basis. December 31, 2014 Total Level 1 Level 2 Level 3 U.S. Government and government agency bonds $ 49,112,738 $ - $ 49,112,738 $ - Asset-backed securities 2,338,291-2,338,291 - Corporate bonds 30,236,356-30,236,356 - State of Florida Special Purpose Investment Account 237, ,875 - $ 81,925,260 $ - $ 81,925,260 $ - 10

13 Florida Workers' Compensation Insurance Guaranty Association, Inc. Notes to Financial Statements - Modified Cash Basis 4. Fair Value Measurements (continued) December 31, 2013 Total Level 1 Level 2 Level 3 U.S. Government and government agency bonds $ 52,849,188 $ - $ 52,849,188 $ - Commercial paper 2,498,228-2,498,228 - Corporate bonds 42,036,751-42,036,751 - State of Florida Special Purpose Investment Account 235, ,073 - $ 97,619,240 $ - $ 97,619,240 $ - Fair values of the Association s debt securities (bonds) reported in Level 2 are based on average bid prices of identical or similar issues with the same life and expected yields. There have been no changes in the methodologies used at December 31, 2014 and Property and Equipment Property and equipment consists of the following: December 31, Land $ 310,000 $ 310,000 Building 883, ,463 Office furniture and equipment 25,749 45,099 Computer equipment and software 217, ,463 Leasehold improvements 80,702 78,792 1,517,395 1,523,817 Less accumulated depreciation 455, ,178 $ 1,061,656 $ 1,087,639 Depreciation and amortization expense totaled $47,467 and $46,219 for the years ended December 31, 2014 and 2013, respectively. The Association and FIGA are the owners of real property together with certain tangible property. The Association owns an undivided 50% interest in the property which is reported above as land and building. 11

14 Florida Workers' Compensation Insurance Guaranty Association, Inc. Notes to Financial Statements - Modified Cash Basis 6. Management Services Agreements Effective January 1, 2008, and as amended December 31, 2009, the Association and FIGA entered into agreements with AGFG to provide management and administrative services. Under the terms of the agreement, AGFG provides management and administrative services, including but not limited to general management responsibility, finance and accounting, overseeing and managing the Association's claims division, managing and supervising the day to day activities of the Association, and other management or administrative services. The Association and FIGA reimburse AGFG for all amounts paid by AGFG. Costs incurred by AGFG that are directly attributable to a specific entity are charged to the applicable entity. All other costs incurred by AGFG are distributed equitably to the Association and FIGA based on various allocation methods. The Association's contract may be terminated with 30 days written notice by either party, with or without cause. The Association and FIGA each pay AGFG in advance of each calendar year an amount equal to the two month average budget for that entity projected for the upcoming calendar year. The operating advance paid to AGFG was $146,876 and $144,766 at December 31, 2014 and 2013, respectively. Amounts paid to AGFG under this agreement totaled $2,145,807 and $1,848,242 for the years ended December 31, 2014 and 2013, respectively, and are reported in general and administrative expenses, claims and claims adjustment expenses, and direct estate expenses. 7. Commitments and Contingencies As more fully described in Note 1, the Association has assumed the outstanding claims and claims adjustment expense liabilities of insolvent workers compensation insurers in the state of Florida. The case-basis claims and claims adjustment expense reserves for known insolvent insurers at December 31, 2014 and 2013, are approximately $191,000,000 and $224,000,000, respectively. An actuarial determination of the ultimate value of the outstanding claim liabilities has not been made. The Association and its predecessors have received early access distributions from the receivers of insolvent insurers. Some of these distributions were received pursuant to agreements that provide that in the event the distributions exceed the Association s final pro rata distribution from the insolvencies, the Association will return any excess to the receiver. During the ordinary course of business, the Association is involved in various litigation. The ultimate outcome of such litigation is uncertain. However, management and legal counsel are of the opinion that any resulting unfavorable outcomes would have minimal adverse economic impact on the Association. 12

15 Florida Workers' Compensation Insurance Guaranty Association, Inc. 8. Retirement Plan Notes to Financial Statements - Modified Cash Basis The Association employees have the option of participating in the AGFG 401(k) Profit Sharing Plan (the Plan). The Plan is available to employees meeting certain entry requirements. The Association makes discretionary employer contributions to the Plan on a matching basis. Employer contributions paid for the years ended December 31, 2014 and 2013, were $63,973 and $61,344, respectively. 9. Temporarily Restricted Net Assets The Association classifies all net assets as temporarily restricted. Net assets are considered restricted by Florida Statutes until expended for Association operations and payment of claims. 13

16 Other Financial Information

17 Florida Workers' Compensation Insurance Guaranty Association, Inc. Schedule of General and Administrative Expenses Years ended December 31, Accounting and auditing $ 62,575 $ 64,229 Bank fees 22,470 24,872 Consulting 7,885 2,645 Depreciation 47,467 46,219 Dues and publications 46,245 44,479 Furniture and equipment 32,899 40,766 Insurance 43,175 49,359 Legal fees 39,173 46,612 Office supplies and printing 6,899 6,063 Change in operating advance 2,109 (11,476) Premises 21,784 25,866 Salaries and benefits 893, ,423 Taxes and licenses 20,043 27,577 Telephone 12,579 11,130 Travel and meals 27,725 41,645 $ 1,286,830 $ 1,305,409 See report of independent auditors. 14

18 FLORIDA WORKERS' COMPENSATION INSURANCE GUARANTY ASSOCIATION, INC. SUMMARY STATEMENT OF OPERATION FOR THE 12 MONTH(S) ENDED 12/31/2014 AUDIT ADJUSTMENTS UNAUDITED AUDITED AUDIT ADJUSTMENTS REVENUE ASSESSMENT RECEIPTS EARLY ACCESS 17,129,328 17,476,802 (1) 1 Rounding REIMBURSEMENTS 347,473 - INTEREST INCOME 891, ,309 (2) 4,288 OTHER RECEIPTS TOTAL REVENUE 18,368,250 18,372,539 4,289 EXPENSES CLAIMS FUNDING 33,484,838 33,778,299 (3) (5) Rounding CLAIMS UNEARNED PREMIUM 84,966 - CLAIMS HANDLING 208,500 - DIRECT ESTATE EXPENSES 115, ,411 (2) Rounding TOTAL CLAIMS FUNDING 33,893,717 33,893,710 (7) GENERAL AND ADMINISTRATIVE EXPENSES 1,286,987 1,286,830 (4) (157) TOTAL EXPENSES 35,180,705 35,180,540 (165) INCREASE (DECREASE) IN NET ASSETS (16,812,455) (16,808,001) 4,454 NET ASSETS - BEGINNING OF PERIOD 104,649, ,002,788 4,352,790 NET ASSETS - END OF PERIOD 87,837,543 92,194,787 4,357,244 (1) Early Access and Reimbursement combined in audited F/S (2) Auditor adjustment to accrued interest $4,287, rounding $1 (3) Claims, UEP and Claims Handling combined in audited F/S (4) Operating advance and rounding Prepaid Expense - Operating Advance PY (147,212) Prepaid Expense - Operating Advance CY 147,044 Rounding 11 (157) 4/10/2015 2:38 PM

19 FLORIDA WORKERS' COMPENSATION INSURANCE GUARANTY ASSOCIATION, INC. STATEMENT OF ASSETS AND LIABILITIES FOR THE 12 MONTH(S) ENDED 12/31/2014 (UNAUDITED) vs. AUDITED STATEMENTS UNAUDITED AUDITED AUDIT ADJUSTMENTS ASSETS CASH AND SHORT TERM INVESTMENTS 8,946,560 8,946,560 - SHORT TERM INVESTMENTS 1,807,582 1,807,582 - TOTAL CASH AND S/T INVESTED ASSETS 10,754,142 10,754,142 - LONG TERM INVESTMENTS 80,140,348 80,140,348 - ACCRUED INTEREST INCOME 234, ,641 (1) 3,836 FIXED ASSETS (Net of Depreciation) 41,865 BUILDING (Net of Depreciation) 709,791 1,061,656 (2) - LAND 310,000 OTHER ASSETS 146,593 (3) (146,593) TOTAL ASSETS 92,337,543 92,194,787 (142,756) LIABILITIES AND ACCOUNT BALANCE EARLY ACCESS CONTINGENT LIABILITY 4,500,000 (4,500,000) FUND/ACCOUNT BALANCE 87,837,543 92,194,787 4,357,244 TOTAL LIABILITIES AND ACCOUNT BALANCE 92,337,543 92,194,787 (142,756) (1) Auditor adjustment to accrued interest ($4,287) and combined NARS abandon property $451 - Other Assets (2) Total fixed assets combined in audited F/S (3) Unaudited statements Operating advance ($144,599); utility security deposit ($2,444); NARS abandon property $451 4/10/2015 2:38 PM

20 FLORIDA WORKERS' COMPENSATION INSURANCE GUARANTY ASSOCIATION, INC. ADMINISTRATIVE EXPENSES FOR THE 12 MONTH(S) ENDED 12/31/2014 (UNAUDITED) vs. AUDITED STATEMENTS UNAUDITED AUDITED AUDIT ADJUSTMENTS SALARIES & BENEFITS 893, ,802 - PREMISES 24,061 21,784 (1) (2,277) (1) Unaudited statements record as Prepaid Expense (Other Assets) ACCOUNTING & AUDITING 62,575 62,575 - BANK FEES 22,470 22,470 - BOARD MEETINGS TRAVEL & NOTICES 10,722 (2) (10,722) (2) Audited statements grouped Board Meeting Travel with Travel & Meals CONSULTING 7,885 7,885 - DEPRECIATION EXPENSE 47,467 47,467 - DUES 46,245 46,245 - SOFTWARE & EQUIPMENT 32,899 32,899 - INSURANCE 43,175 43,175 - LEGAL FEES 39,173 39,173 - OFFICE SUPPLIES 3,259 6,899 (3) 3,640 (3) Unaudited statements grouped Postage & Printing with Office Supplies POSTAGE & PRINTING 3,632 - (3) (3,632) (3) Unaudited statements grouped Postage & Printing with Office Supplies TRAVEL & MEALS 17,000 27,725 (2) 10,725 (2) Audited statements grouped Board Meeting Travel with Travel & Meals TAXES & LICENSES 20,043 20,043 - TELEPHONE 12,579 12,579 - TOTAL ADMINISTRATIVE EXPENSE 1,286,987 1,284,721 (2,266) OPERATING ADVANCE CHANGE - 2,109 (1) 2,109 (1) Unaudited statements record as Prepaid Expense (Other Assets) $2,277 and Change in Operating Advance ($167) TOTAL 1,286,987 1,286,830 (157) 4/10/2015 2:38 PM

21 To the Audit Committee Florida Workers Compensation Insurance Guaranty Association, Inc. We are pleased to present this report related to our audit of the financial statements Florida Workers Compensation Insurance Guaranty Association, Inc. (the Association) for the year ended December 31, This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the Association s financial reporting process. Generally accepted auditing standards (AU-C 260, The Auditor s Communication with Those Charged with Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process. Area Our Responsibilities With Regard to the Financial Statement Audit Overview of the Planned Scope and Timing of the Financial Statement Audit Comments Our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States, have been described to you in our arrangement letter dated May 17, We discussed with members of the Board of Directors, the Audit Committee, and the Association s management various matters about which generally accepted auditing standards require communication. These include matters concerning two-way communication, our independence, the audit planning process, the concept of materiality in planning and executing the audit, our approach to internal control relevant to the audit, and the timing of the audit.

22 Page Two Area Accounting Policies and Practices Significant or Unusual Transactions Management s Judgments and Accounting Estimates Comments Adoption of, or Change in, Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the Association. The Association made no changes in accounting principle during the current period. We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Accounting estimates are an integral part of the preparation of financial statements and are based upon management s current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. Management has informed us that they used all the relevant facts available to them at the time to make the best judgments about accounting estimates, and we considered this information in the scope of our audit. Estimates significant to the financial statements include:

23 Page Three Area Management s Judgments and Accounting Estimates (continued) Audit Adjustments Uncorrected Misstatements Comments Useful lives used to calculate depreciation expense and record accumulated depreciation. Commitments and contingencies disclosed in Note 7 to the financial statements. The Board of Directors and Audit Committee may wish to monitor throughout the year the process used to determine and record these accounting estimates. Attached in Exhibit A are the audit adjustments proposed by us and recorded by the Association. The majority of the audit adjustments are for modified cash basis reporting purposes. There were no uncorrected misstatements that management determined to be immaterial. Disagreements With Management We encountered no disagreements with management over the application of significant accounting principles, the basis for management s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. Consultations With Other Accountants Significant Issues Discussed With Management Significant Difficulties Encountered in Performing the Audit We are not aware of any consultations management had with other accountants about accounting or auditing matters related to the audit of the December 31, 2014 financial statements. No significant issues arising from the audit were discussed with or the subject of correspondence with management. We did not encounter any significant difficulties in dealing with management during the audit. We received full cooperation and appreciate the assistance provided by the Association s financial and accounting personnel.

24 Page Four Area Significant Written Communications Between Management and Our Firm Comments Copies of significant written communications between our firm and management of the Association are attached as Exhibit B. This letter is intended solely for the information and use of the Board of Directors, Audit Committee, management, and others within the Florida Workers Compensation Insurance Guaranty Association, and is not intended to be and should not be used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have regarding this letter. We appreciate the opportunity to continue to be of service to Florida Workers Compensation Insurance Guaranty Association, Inc. Tallahassee, Florida March 16, 2015

25 Florida Workers' Compensation Insurance Guaranty Association, Inc Year End: December 31, 2014 Trial balance Date: 1/1/2014 To 12/31/2014 Number Date Name Account No Reference Debit Credit Net Income (Loss) Amount Chg Recurrence Misstatement Net Income (Loss) Before Adjustments (16,812,453 ) AJE #1 12/31/2014 Account Balance ,219 AJE #1 12/31/2014 Premises - Utilities ,445 AJE #1 12/31/2014 Meetings AJE #1 12/31/2014 Operating advance THF ,767 to adjust beginning net assets to prior year audited balance. entry reflects impact of prior year adjustments to remove prepaid balances since reporting on the modified cash basis. (See PY AJE 2) 147, ,219 (16,665,234 ) 147,219 AJE #2 12/31/2014 Prepaid Expenses ,044 AJE #2 12/31/2014 Premises - Utilities AJE #2 12/31/2014 Operating advance THF ,876 To adjust prepaid expenses balace to conform with modified cash basis. 147, ,044 (16,812,278 ) (147,044 ) AJE #3 12/31/2014 Interest Income - PFM Investments / 527,717 AJE #3 12/31/2014 Gain/Loss on Sale of PFM Invests / 527,717 entry to adjust G/L on Investments to actual per PFM G/L report 527, ,717 (16,812,278 ) 0 AJE #4 12/31/2014 Interest Receivable - REG Investmen / 4,287 AJE #4 12/31/2014 Interest Income - PFM Investments / 545,976 AJE #4 12/31/2014 Interest Income - Other / 541,689 to adjust PFM investment Interest Projected income to actual per the Wells Fargo Statement. 545, ,976 (16,807,991 ) 4,287 1,367,956 1,367,956 (16,807,991 ) 4,462 2/27/2015 2:04 PM Page 1

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30 To the Board of Directors Florida Workers Compensation Insurance Guaranty Association, Inc. In planning and performing our audit of the financial statements of Florida Workers Compensation Insurance Guaranty Association, Inc. (The Association) as of and for the year ended December 31, 2014, in accordance with auditing standards generally accepted in the United States of America, we considered the Association s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Association s internal control. Accordingly, we do not express an opinion on the effectiveness of the Association s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. This communication is intended solely for the information and use of management, the Audit Committee, the Board of Directors, and others within the organization and is not intended to be, and should not be, used by anyone other than these specified parties. Tallahassee, Florida March 16, 2015