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Home My WebLink About03.b. Accept Self-Insurance Fund status and budget and approve allocationCentral Contra Costa Sanitary District �i• ) ' BOARD OF DIRECTORS J (� • POSITION PAPER Board Meeting Date: April 18, 2013 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $600,000 TO THE FUND FROM THE 2013 -14 OPERATIONS & MAINTENANCE BUDGET Submitted By., Initiating Dept. /Div.: S. Deutsch — Safety & Risk Management Admin Administrative /Safety & Risk Management REVIEWED AND RECOMMENDED FOR BOARD ACTION: Thea Vassallo, CPA, CMA(" Finance Manager C. Swanson Provisional General Manager ISSUE: The Self- Insurance Fund (SIF) is reviewed each year by the Board of Directors with staff presenting funding recommendations for the upcoming fiscal year. RECOMMENDATION: Receive the Fiscal Year (FY) 2013 -14 SIF Budget and authorize the allocation of $600,000 from the FY 2013 -14 Operations & Maintenance (O &M) Budget to the SIF. The FY 2013 -14 transfer includes a $250,000 reduction from the 10 year Plan due to excess funds accumulating in Fund C since FY 2007 -08. See Exhibit 1. FINANCIAL IMPACTS: A transfer of $600,000 from FY 2013 -14 O &M Budget to the SIF. ALTERNATIVES /CONSIDERATIONS: The alternatives to this action are to provide less funds than recommended, to not fund the SIF, or to increase the funds by transferring more than $600,000. BACKGROUND: The District has self- insured a portion of its liability and property risks since July 1, 1986, when the Board approved the establishment of the SIF. The District currently self- insures general and auto liability risks up to a $1,000,000 self- insured retention (SIR) under a $15 million excess liability insurance policy. At this time, the District does not purchase insurance coverage for earthquake or flood losses because insurance programs currently available in California are too expensive for the scope and limits of coverage provided. As a result, the District essentially self- insures these risks as well. The SIF has effectively funded the District's retained losses for the last twenty -seven years. Each year funds are transferred from the O &M Budget to the SIF. According to the ten year plan presented earlier this year, the recommended O &M contribution for FY 2013- 14 was $850,000. N:\ADMINSUP\ADMIN \FINANCE MANAGER \Position Papers\2013 \SIF Position Paper March 2013 revised 600k.doc Page 1 of 4 POSITION PAPER Board Meeting Date: April 18, 2013 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $600,000 TO THE FUND FROM THE 2013 -14 OPERATIONS & MAINTENANCE BUDGET Fund Allocation In 1994, the Government Accounting Standards Board issued Statement No. 10 (GASB -10) which established requirements on how public agencies must fund their self- insured risks. To assure compliance with GASB -10, the District restructured the SIF into three sub - funds. Each of the three (3) sub -funds was established to pay for specific losses and costs. SUB -FUND A: Actuarially -Based Risks. These include general liability and automobile liability risks. Under the requirements of GASB -10, risks that can be actuarially studied must be funded based on an actuarial study performed at least every two years. General liability and automobile liability risks are readily studied throughout the insurance and self- insurance industry to project funding levels for future losses. The District obtained an actuarial review of its self- insured general liability and automobile liability risks in October 2012. The actuary, Aon Risk Consulting recommended the Sub -Fund A reserve for FY 2013 -14 claims be $618,000 based on the District's actual claims experience, insurance industry statistics, and maintaining a self- insured retention (SIR) of $1,000,000. Given the increasing cost of litigation and settlements for claims paid from this fund, several years ago the Board increased this Sub - Fund's target reserve to $1,000,000. The average annual expense for Sub -Fund A over the last three fiscal years has been approximately $328,000, offset by average revenue of approximately $7,000 for an average draw down of reserves of $321,000 per year. The budgeted revenue for fiscal year 2013 -14 is $3,000 with expenses of $305,000 for an estimated reduction in Sub - Fund A reserves of $302,000. A transfer of $302,000 from Sub -Fund C is necessary in order to maintain the reserve at $1,000,000. SUB -FUND B: Non - Actuarially -Based Risks. These include employment liability and pollution liability risks. Because employment liability and pollution liability losses occur infrequently and the costs of claims vary widely, the frequency and severity of these losses are less predictable than those addressed by Sub -Fund A. For this reason, GASB -10 does not require a biennial actuarial review of these risks. However, GASB -10 requires that these risks be adequately funded even though they are not actuarially reviewed. With guidance from risk management and insurance specialists, the District established Sub -Fund B at $2,400,000, to fund employment liability and pollution liability risks. This fund pays for losses and costs within the District's SIR underlying its excess insurance coverage for Employment Practices Liability and Pollution Legal Liability, initial defense costs for such claims and potential loss costs for related claims not covered by these excess policies. POSITION PAPER Board Meeting Date: April 18, 2013 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $600,000 TO THE FUND FROM THE 2013 -14 OPERATIONS & MAINTENANCE BUDGET The average annual expense for Sub -Fund B over the last three years has been $141,000, offset by revenue of $10,000 for an average annual reserve draw down of $131,000. The budgeted revenue for fiscal year 2013 -14 is $8,000 with expenses of $135,000 for an estimated reduction in Sub -Fund B reserves of $127,000. A transfer of $127,000 from Sub -Fund C is necessary in order to maintain the reserve at $2,400,000. SUB -FUND C: Non -GASB 10 risks. This Sub -Fund covers all risk management program insurance premiums, self- insured property losses, potential losses from uninsurable risks, and the costs of initiating claims and lawsuits against others who have damaged the District. Specific costs include: insurance premiums for a $15,000,000 excess general liability policy; $5,000,000 excess general liability and $10,000,000 pollution liability policy for the Household Hazardous Waste facility, $1,000,000 employment practices liability with $25,000 retention, a crime policy which includes coverage for computer fraud and insurance premiums for insuring District properties for fire, explosion, water damage, etc. for losses above $250,000. The annual average expense for Sub -Fund C over the past three years has been $656,000 offset by average revenue of $1,009,000 for an average increase of $353,000 to reserves. When reduced by the average annual transfer from Sub -Fund C to other Sub -Funds over the past three years the annual average increase to Sub -Fund C reserves is approximately $66,000. The budget for FY 2013 -14 revenue is $635,000 with expenses of $483,000 for an estimated addition to Sub -Fund C reserves of $152,000. However, $429,000 would be transferred to Sub - Funds A and B for a net decrease in Sub -Fund C reserves of $276,000. This leaves a reserve balance of $868,000. Exhibits and Charts Exhibit I presents a recent financial history and projection of the SIF and shows the FY 2013 -14 SIF budget estimated total revenues of $646,000 and total expenses of $922,500, decreasing the projected FY 2013 -14 total SIF reserves by $276,500 to $4,268,000 on June 30, 2014. The budgeted revenues include the recommended allocation of $600,000 from the FY 2013 -14 O &M budget to the SIF. Exhibits II, III & IV present the projected Sub -Fund A, Sub -Fund B and Sub -Fund C FY 2013 -14 budget summary. Chart 1 shows the history of revenue, expense and reserve balance for the entire SIF. Chart 2 shows the history of loss payments and insurance premiums. Chart 3 shows POSITION PAPER Board Meeting Date: April 18, 2013 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $600,000 TO THE FUND FROM THE 2013 -14 OPERATIONS & MAINTENANCE BUDGET fund reserves by Sub -Fund. Chart 4 shows the individual Sub -Funds and combined SIF history of reserves. COMMITTEE RECOMENDATION On April 1, 2013, The Budget and Finance Committee reviewed and recommended approval of the SIF and the change in the annual transfer in FY 2013 -14 from $850,000 to $600,000. RECOMMENDED BOARD ACTION: Receive the proposed FY 2013 -14 SIF Budget and approve the allocation of $600,000 to the SIF from the FY 2013 -14 O &M Budget. Attachments: 1 — Exhibit I SIF July 1, 2007 — June 30, 2014 2 — Exhibit II SIF Sub -Fund A 3 — Exhibit III SIF Sub -Fund B 4 — Exhibit IV SIF Sub -Fund C 5 — Chart I SIF History of Revenue, Expense and Reserve Balance 6 — Chart 2 SIF History of Loss Payment & Insurance Premiums 7 — Chart 3 SIF Reserves by Sub -Fund 8 — Chart 4 SIF History of Reserves CENTRAL CONTRA COSTA SANITARY DISTRICT SELF INSURANCE FUND (SIF) July 1, 2007 - June 30, 2014 Revenues SIF Allocation from O &M Fund Insurance Allocation from HHW Subrogation Recovery Interest Income Total Revenue Expenses Claims Adjusting Insurance Consulting Loss Payments Legal Services Technical Services Insurance Premiums Total Expenses Revenue Over Expense Reserves Beginning of Year Revenue over Expense End of Year Reserves Uncommitted Reserves Actuarial Reserves - GASB 10 (Fund A) Non- Actuarial Reserves - GASB 10 (Fund B) Non -GASB 10 Reserves (Fund C) Total Reserves Change in Reserves Actual Actual Actual Actual Actual Projected Budget 2007 -2008 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 1,117,000 850,000 1,383,000 850,000 850,000 850,000 600,000 29,334 0 52,471 26,563 24,878 31,500 31,500 14,644 18,031 0 7,500 1,660 381,100 0 159,501 87,106 29,815 23,873 19,436 14,500 14,850 1,320,479 955,137 1,465,286 907,936 895,974 1,277,100 646,350 0 0 0 0 0 251,500 1,500 0 0 0 0 0 5,000 0 399,956 166,040 45,347 240,844 72,605 616,100 260,000 69,371 200,710 31,163 210,677 304,672 190,000 130,000 75,355 83,962 15,482 137,445 14,803 22,500 80,000 401,292 388,013 404,620 414,149 418,769 475,500 451,000 945,974 838,725 496,612 1,003,115 810,849 1,560,600 922,500 374,505 116,412 968,674 (95,179) 85,125 (283500) (276150) 3,377,798 3,752,303 3,868,715 4,837,389 4,742,210 4,827,335 4,543,835 374,505 116,412 968,674 (95,179) 85,125 (283,500) (276,150) 3,752,303 3,868,715 4,837,389 4,742,210 4,827,335 4,543,835 4,267,685 629,820 750,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 722,483 718,715 1,437,389 1,342,210 1,427,335 1,143,835 867,685 3,752,303 3,868,715 4,837,389 4,742,210 4,827,335 4,543,835 4,267,685 374,505 116,412 968,674 (95,179) 85,125 (283,500) (276,150) Exhibit I SELF INSURANCE FUND - SUB FUND A Actual 2011 -2012, Projected 2012 -13 and Budget 2013 -2014 SUB -FUND A: GASB -10 ACTUARIALLY BASED RISKS GENERAL LIABILITY AND AUTOMOBILE LIABILITY Actual Projected Budget 2011 -2012 2012 -2013 2013 -2014 Actuarial Reserves - GASB 10 - Beginning of Year $ 1,000,000 $ 1,000,000 $ 1,000,000 Revenues: O &M Subrogation Recovery Interest Total Revenues Expenses: Losses Legal Technical Insurance Consulting Services Total Expenses Revenue over Expense Reserves: Transfer (to) /from Sub -Fund C Transfer (to) /from Sub -Fund C 1,660 - - 4,140 3,200 3,250 5,800 3,200 3,250 72,605 85,000 250,000 247,337 5,000 15,000 13,090 15,000 40,000 0 0 0 333,032 105,000 305,000 (327,232) (101,800) (301,750) 327,232 101,800 301,750 Total Reserves Projected End of Year $ 1,000,000 $ 1,000,000 $ 1,000,000 Exhibit 11 SELF INSURANCE FUND - SUB FUND B Actual 2011 -2012, Projected 2012 -13 and Budget 2013 -2014 SUB -FUND B: GASB -10 NON - ACTUARIALLY BASED RISKS EMPLOYMENT RELATED AND POLLUTION RISKS Expenses: Losses Actual Projected Budget Legal 2011 -2012 2012 -2013 2013 -2014 Beginning Reserves $ 2,400,000 $ 2,400,000 $ 2,400,000 Revenues: 52,710 327,500 135,000 O &M _ - _ Recovery - _ - Interest 9,934 7,600 7,800 Total Revenues 9,934 7,600 7,800 Expenses: Losses - 150,000 - Legal 50,997 175,000 100,000 Technical 1,713 2,500 35,000 Total Expenses 52,710 327,500 135,000 Revenue over Expense (42,776) (319,900) (127,200) Reserves: Transfer (to) /from Sub -Fund A - - - Transfer (to) /from Sub -Fund C 42,776 319,900 127,200 Total Reserves Projected End of Year $ 2,400,000 $ 2,400,000 $ 2,400,000 Exhibit III SELF INSURANCE FUND - SUB FUND C Actual 2011 -2012, Projected 2012 -13 and Budget 2013 -2014 SUB -FUND C: NON GASB -10 RISKS RISK MANAGEMENT PROGRAM INSURANCE PREMIUMS AND COSTS OF INITIATING CLAIMS /LAWSUITS AGAINST OTHERS Beginninq Reserves Revenues: O &M Subrogation Recovery Insurance Recovery from HHW Partners Interest Total Revenues Expenses: Insurance Consulting Services Claims Adjustment Losses* Legal Technical Insurance Premiums Total Expenses Revenue over Expense Reserves: Transfer (to) /from Sub -Funds A Transfer (to) /from Sub -Funds B Total Reserves Projected End of Year Actual Projected Budget 2011 -2012 2012 -2013 2013 -2014 $ 1,342,210 $ 1,427,335 $ 1,143,835 850,000 850,000 600,000 - 381,100 - 24,878 31,500 31,500 5,362 3,700 3,800 880,240 1,266,300 635,300 - 5,000 - - 251,500 1,500 - 381,100 10,000 6,338 10,000 15,000 - 5,000 5,000 418,769 475,500 45 1, 000 425,107 1,128,100 482,500 455,133 138,200 152,800 (327,232) (101,800) (301,750) (42,776) (319,900) (127,200) $ 1,427,335 $ 1,143,835 $ 867,685 * Includes Cogen recovery of $381,100 and expenses of $631,100 transferred from O &M in 12/13 Exhibit IV $6,000,000 $5,000,000 $4,000,000 L o $3,000,000 0 $2,000,000 $1,000,000 -- $0 7 -- I 2007 -2008 Actual Chart 1 Self Insurance Fund History of Revenue, Expense and Reserve Balance 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 Actual Actual Actual Actual Projected Budget Fiscal Year LE� Total Revenue ❑ Total Expenses ■ End of Year Reserves Chart 2 Self Insurance Fund History of Loss Payment & Insurance Premiums $700,000 $600,000 - -- - $500,000 N $400,000 ---- 0 $300,000 - $200,000 $100,000 $0 2007 -2008 2008 -2009 2009 -2010 Actual Actual Actual Fiscal Year ❑ Loss Payments ® Insurance Premiums 2012 -2013 Projected 2013 -2014 Budget $3,000,000 $2,500,000 $2,000,000 U) L c $1,500,000 C $1,000,000 - $500,000 - $0 Chart 3 Self Insurance Fund Reserves by Sub -Fund i 2007 -2008 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 i Actual Actual Actual Actual Actual Projected Budget Fiscal Year ❑ Actuarial Reserves - GASB 10 (Fund A) ❑ Non- Actuarial Reserves - GASB 10 (Fund B) ■ Non -GASB 10 Reserves (Fund C) Chart 4 Self Insurance Fund History of Reserves $6,000,000 - $5,000,000 - - - $4,000,000 N L c $3,000,000 0 IMI 7 $2,000,000 $1,000,000 - - i I - - { f — - +--i 2007 -2008 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 Actual Actual Actual Actual Actual Projected Budget Fiscal Year Actuarial Reserves GASB 10 (Fund A) ❑ Non- Actuarial Reserves - GASB 10 (Fund B) ■ Non -GASB 10 Reserves (Fund C)