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WorkSafeBC reports operating surplus and continued low injury rate in 2004
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Changes to accounting rules introduced by the Canadian Accounting Standards Board added a further $390 million of “other comprehensive income” arising from the valuation of portfolio investments using fair market value at year end 2004, representing net unrealized gains on investments that in past years were deferred and amortized (smoothed) into income over five years.
WorkSafeBC’s unfunded liability of $252 million at the end of 2003 was eliminated by the operating surplus of $280 million in 2004 while the accounting change further increased the accident fund’s reported opening balance by $344 million for a total accident fund balance of $372 million at year end 2004. In addition, a new category of fund balance referred to as Accumulated Other Comprehensive Income representing transitional adjustments for unrecognized gains from prior years, and unrealized market-to-market gains at the end of 2004 was $605 million.
These accounting changes were introduced by the Canadian Accounting Standards Board in 2004 in order to harmonize Canadian accounting principles with international standards, and workers’ compensation boards across Canada are early adopters of the new standard. The standard becomes mandatory in 2006 for all reporting companies in Canada.
While WorkSafeBC agrees with the new fair value accounting guidelines, it is important for stakeholders to bear in mind that fair value accounting provides a snapshot-in-time reading of financial assets and thus financial market fluctuations can result in volatile financial results in the future. If premium rates were based solely on fair value results, employers would experience much more significant rate volatility. For this reason, WorkSafeBC will continue to set premium rates using the smoothing approach. WorkSafeBC’s portfolio of investments is managed for the purpose of meeting long term commitments for injury compensation and pension payments to injured workers.
"2004 was a year of strong financial performance and this is good news for B.C. employers as it helps to ensure rate stability despite an increase in the number and duration of short-term disability claims,” said WorkSafeBC’s Chief Financial Officer Sid Fattedad. “Realizing sustained rate stability will depend on continued strong market returns, improved timeliness of return to work, and a reduced number of injuries and occupational disease in B.C. workplaces.”
The provincial injury rate, which is the primary cost driver of the workers’ compensation system, remained relatively flat in 2004 at 3.06 short-term disability claims paid per 100 person-years of employment. (Preliminary results, as reported in WorkSafeBC’s Annual Report, estimated the 2004 injury rate at 3.08.) Over the past ten years, the injury rate has improved significantly — down 40 percent since 1994.
“Preventing work-related injuries, diseases, and fatalities ultimately leads to reduced human suffering and reduced financial costs,” said David Anderson, WorkSafeBC president and CEO. “The remarkable improvements we’ve seen over the last decade are the result of efforts by workers, employers, unions, industry associations, and other stakeholders, assisted by WorkSafeBC, and all taking increased ownership of health and safety in the workplace. However, further improvements will require increased public recognition that workplace injuries, diseases and deaths are not only preventable, but completely unacceptable.”
Financial highlights
WorkSafeBC achieved a funded status of 114 percent1 at the end of 2004, with total assets exceeding total liabilities. This marks the second consecutive year of positive operating results following two years of operating deficits in 2001 and 2002. Under the long-term funding approach, on a smoothed basis over five years, the organization’s funded status was 104 percent for 2004.
WorkSafeBC’s operating costs increased slightly in 2004, from $296 million to $301 million as a result of a $5 million increase in funding for industry association injury reduction initiatives. Administration expenses of $260 million remained unchanged from 2003, which compares well with other workers’ compensation jurisdictions across Canada.
The total number of claims first reported to the organization increased from 152,106 in 2003 to 156,864 in 2004. However, overall claims costs were down by $73 million due to lower estimated liabilities from prior-year claims — particularly in areas of long-term disability, short-term disability, and vocational rehabilitation.
B.C.’s employer premium rates remained among the lowest in Canada in 2004, with a slight 1 percent increase in the aggregate rate to $1.962 per $100 of assessable payroll.
"The low injury rate in recent years, combined with reduced claim costs and our strong investment performance have translated to lower premium rates for the majority of B.C. employers in 2005,” said Fattedad.
He added, “Premium rates are primarily a reflection of safety performance so, in order to reduce rates further, we are relying on our workplace partners to help strengthen occupational health and safety and improve return to work outcomes, which are the key cost drivers of the system.” In 2005, the expected aggregate premium rate is $1.87 per $100 of assessable payroll.
WorkSafeBC’s 2004 annual report is available online at WorkSafeBC.com. For copies of the executive summary, please contact Adrienne.Maxwell@worksafebc.com.
The Auditor General of BC, Wayne Strelioff, has made the following comment regarding the annual report: "I am very pleased to commend the Workers’ Compensation Board of British Columbia for attaining a standard of excellence in their reporting that sets them apart in the British Columbia Public Sector. The WCB 2004 Annual report on performance, in all significant respects, is in accordance with the BC Reporting Principles. I congratulate the Board of Directors and Management of the WCB in their continuing efforts to report their performance meaningfully to their stakeholders."
WorkSafeBC is an independent provincial statutory agency governed by a Board of Directors that serves nearly two million workers and about 179,000 employers. WorkSafeBC was born out of a compromise between B.C.'s workers and employers in 1917 where workers gave up the right to sue their employers and fellow workers for injuries on the job in return for a no-fault insurance program fully paid for by employers. The organization is committed to safe and healthy workplaces and to providing return-to-work rehabilitation and legislated compensation benefits to workers injured as a result of their employment.
1 Fair Value Accounting Method
2 After transition and pre 2000 rate group surplus refunds