Fitch Upgr CT Second Injury Fund Bond Rating To `AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 29, 2000

Fitch has raised the rating on Connecticut's special assessment second injury fund revenue bonds to `AA' from `AA-`.

This rating action, taken in connection with a planned offering of $125 million 2000 series A bonds, also applies to the $86.08 million outstanding 1996 series A bonds. The rating improvement reflects the program's more successful experience than initially expected, including greater claims certainty and assessment stability due to the aggressive closure of the high value cases through stipulations.

Additionally, average case settlements have been lower than expected aiding in the substantial reduction in the amount of bonding expected to be required. Recently implemented program initiatives, to further tighten management controls and the settlement process, should continue to ensure program success. Assessment rates, adjustable by the treasurer on 60 days' notice, are expected to remain stable although settlements are extending.

The new bonds, expected to be offered the week of Oct. 9 through negotiation with Goldman, Sachs & Co., will be due July 1, 2002-2016; optional call details are yet to be determined. Bond proceeds are used to pay second injury fund stipulations, with this issue retiring $110 million commercial paper, which are lump sum settlements that permanently remove existing cases from the fund.

The 2000 series A bonds will be secured, on parity with the outstanding 1996 bonds, by special assessments levied on all employers in the state, as a surcharge on the premiums paid in the prior year for mandatory workers' compensation insurance coverage. For self-insured employers, the assessment is based on their share of the previous year's costs, and is charged as a percentage of the prior year's paid losses.

Connecticut's second injury fund was created in 1945 to encourage employers to hire workers with prior injuries. Under the program, an employer's private insurer provides medical and lost wage benefits for the first 104 weeks claimed, thereafter transferring to the state's second injury fund from which payments are derived from the special assessments.

The bonding program allows $750 million bonds to be outstanding; to date $400 million have been authorized including $300 million for commercial paper bond anticipation notes, of which $45 million will remain outstanding. Total bond issuance is now projected at $350 million including stipulations for the remaining open cases, a substantial reduction from initial expectations.

The state treasurer is required to set the assessment rate at a level sufficient to cover debt service 1.2 times (x) and the fund's expected operating costs 1.0x. A debt service reserve fund is also maintained, as is an operating reserve at 5%. The second injury fund surcharge peaked at 20% of premiums in 1995, reducing substantially to 10% in 1999 as a result of substantive reforms, including efforts to get claimants back to work and enhanced fraud detection, but especially due to closing the fund to injuries occurring after July 1, 1995.

With the transfer of all claims to the fund by July 1, 1999,along with notice of the estimated value of the cases, the future liability for stipulations is largely known, expected at $126 million through 2004, declining to $10-$15 million each year thereafter.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.