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BOCA RATON, Fla.-The National Council on Compensation Insurance is upping the stakes in its battle with The Home Insurance Co., demanding $271.6 million to meet the insurer's past and future obligations to a residual market workers compensation pool.

The demand is in marked contrast to the $40 million The Home had most recently offered to settle its obligation to the NCCI-administered pool (BI, April 28).

In addition, the NCCI had previously offered to settle with The Home for considerably less.

Full payment by The Home of what is its largest-known obligation would cut into the already limited financial means of the insurer in runoff. Any settlement would have to be approved by New Hampshire insurance regulators, who are supervising the runoff.

The demand for the full payment of The Home's obligation to the National Workers Compensation Reinsurance Pool, which reinsures residual market pools in about 25 states, follows the insurer's refusal to make four payments totaling $35.3 million to settle its workers comp residual market obligations due over the past nine months.

Under the NCCI rules, the pool is permitted to bill an insurer for its total estimated future obligations if the insurer fails to pay past invoices.

"Therefore, in addition to unpaid invoices. . .Home is also immediately liable for the foregoing reserve liabilities of $236,237,269," said Keith T. Shoemaker, vp-residual market operations for the NCCI, in a letter to Risk Enterprise Management Ltd., which is running off The Home.

However, The Home does have the option of settling for a lower amount, Mr. Shoemaker said in the letter, which Business Insurance obtained.

"Although the Board of Governors (of the Pool) has requested that I advise you of the foregoing action, it looks forward to your early response to its previous settlement proposal," the letter concludes.

The NCCI would not reveal details of its latest settlement proposal with The Home.

The latest proposal follows a series of offers and counteroffers made by The Home and the NCCI pool since last summer (BI, April 28, 1997).

Originally, The Home offered to pay about $72.9 million to settle its obligation to the pool. The offer took into account the potential future investment income on payments made now that would normally be paid over several years.

The NCCI rejected the offer but said it would consider a payment of about $130 million.

The matter remained unresolved; little further action was taken until The Home published its 1996 annual statement in March (BI, March 10).

Then it was revealed that worse-than-expected losses at The Home resulted in it falling nearly $552 million short of its authorized risk-based capital requirements. The Home was placed under formal supervision of the New Hampshire Insurance Department, which has jurisdiction over The Home, after publication of the annual statement.

After its deteriorating financial condition was made public, The Home reduced its settlement offer to the NCCI pool to $40 million.

The Home, the NCCI and most of the insurers on the pool's board-including Thomas E. Smith, vp in the alternative markets division of Travelers Corp., who is chairman of the pool's board-refused to comment on the negotiations.

Despite the demand for the full $271 million, the NCCI likely does not expect to receive the full amount from The Home, said a source at a board member insurer who did not want to be named.

"The NCCI is well aware that they are unlikely to collect dollar for dollar from The Home, so this is a negotiating posture," the source said.

Faced with the deteriorating financial condition of The Home, the NCCI will have little choice but to settle for an amount lower than The Home's full obligation, the source said.

The demand for payment in full also reflects solvent insurers' wariness of the original deal that put The Home into runoff.

"It calls into question the dangers of liability restructuring arrangements," said Peter Lefkin, vp government and industry affairs at Fireman's Fund Insurance Co. in Washington, which has a seat on the pool board.

Under the deal that sent The Home into runoff, an undisclosed amount of the insurer's good business was taken over by Zurich Insurance Group in return for a $1.3 billion stop-loss reinsurance program that would pay The Home's liabilities once its assets had been exhausted.

If the reinsurance program is insufficient, policyholders would likely have to settle for partial claims payments or seek payment from other funds, such as state guarantee funds.

The possible complete depletion of The Home's assets would have to be taken into consideration by New Hampshire regulators before they approve any payment to the NCCI pool, as the pool is deemed to be a general creditor of The Home and normally would be compensated after the insurer's policyholders.

But state guaranty funds, which would be called upon to make up incomplete policyholder payments by The Home, would likely not be too concerned if the New Hampshire regulators approve a settlement with the NCCI, said Kevin Harris, vp and legal counsel at the National Conference of Insurance Guaranty Funds in Indianapolis.

Most large insurers would likely write workers comp and general property/casualty lines, so they would have to make up any shortfalls by The Home through guarantee funds.

But, some smaller insurers that write little workers comp business might be concerned by any settlement with the NCCI pool, Mr. Harris added.