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1 <br /> ORANGE COUNTY <br /> BOARD OF COMMISSIONERS <br /> ACTION AGENDA ITEM ABSTRACT <br /> Meeting Date: June 3, 2025 <br /> Action Agenda <br /> Item No. 8-q <br /> SUBJECT: Approval to Increase in the Letter of Credit Required from Travelers Indemnity <br /> Company for Secure Payment of Workers Compensation Deductibles <br /> DEPARTMENT: Human Resources (Risk <br /> Management) <br /> ATTACHMENT(S): INFORMATION CONTACT: <br /> Attachment 1: Request to Amend to John Roberts, County Attorney, 919-245- <br /> Standby Letter of Credit 2318 <br /> Attachment 2: August 1, 2022 BOCC Gary Donaldson, Chief Financial Officer, <br /> Special Meeting Agenda 919-245-2453 <br /> Abstract Package Melissa Tegeder, Risk Management <br /> Director, (919) 245-2155 <br /> PURPOSE: To approve an increase in the Letter of Credit (LOC) required from Travelers <br /> Indemnity Company (Travelers), the County's insurance carrier, from $500,000 to $1,000,000. <br /> BACKGROUND: The Board of County Commissioners (BOCC) approved the County Manager's <br /> execution of an agreement with Travelers Indemnity Company for Casualty and Workers' <br /> Compensation insurance coverage and approved a Letter of Credit for Travelers Indemnity <br /> Company at a Special Meeting on August 1, 2022 (Attachment 2). This was a transition of <br /> services from the North Carolina Association of County Commissioners' Risk Pool. <br /> A Letter of Credit of $300,000 was requested by Travelers at that time to secure funding if the <br /> County failed to pay a part or all the worker compensation deductibles. Truist Bank provided a <br /> letter of credit not to exceed $500,000. <br /> This practice is consistent with industry standards for loss programs. The National Association of <br /> Insurance Commissioners (NAIC) requires insurance carriers to secure credit risk under loss <br /> responsive programs (called "receivables") with acceptable forms of collateral. Failure to secure <br /> receivables results in a percentage of those receivables being classified as a non-admitted asset, <br /> which reduces the carrier's regulatory capital and surplus. For larger carriers, this capital and <br /> surplus "hit" is substantial and can impact their ability to write insurance across lines of coverage. <br /> The intent of the NAIC regulations is to ensure that insurance carriers remain strong, solvent <br /> financial institutions capable of meeting financial responsibilities to all their customers. <br /> Workers Compensation claims can span over several years; subsequently impacting financial <br /> liabilities year over year. As such, the collateral amount or Letter of Credit requested by Travelers <br /> is evaluated each year based on the County's loss experience and financial stability. It typically <br /> takes three to five years for the collateral amount to be fully determined and funded by the <br /> insurance carrier. As part of Traveler's continued re-evaluation of coverage, the company required <br />