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Home My WebLink About03.d. Self-Insurance Fund-approve allocation for FY 2014-15Central Contra Costa Sanitary District 3.d* BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: April 3, 2014 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $650,000 TO THE FUND FROM THE FISCAL YEAR 2014 -15 OPERATIONS & MAINTENANCE BUDGET Submitted By: Initiating Dept. /Div.: Shari Deutsch, ARM -P— Safety & Risk Administrative /Safety & Risk Management Administrator Management REVIEWED AND RECOMMENDED FOR BOARD ACTION: Thea Vassallo, CPA, CMA 1 Finance Manager R. Bailey 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) 2014 -15 SIF Budget and authorize the allocation of $650,000 from the FY 2014 -15 Operations & Maintenance (O &M) Budget to the SIF. FINANCIAL IMPACTS: A transfer of $650,000 from FY 2014 -15 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 $650,000. 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 and purchases 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 self - insures these risks as well. The SIF has effectively funded the District's retained losses since its inception. 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 2014- 15 was $650,000. Page 1 of 4 POSITION PAPER Board Meeting Date: April 3, 2014 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $650,000 TO THE FUND FROM THE FISCAL YEAR 2014 -15 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 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 next actuarial report will be performed in August 2014 using loss data through June 30, 2014. The District maintains a $1,000,000 target reserve for Sub -Fund A. This is used to pay claims and loss costs throughout the year and to provide funding toward a loss that would exceed the District's self- insured retention. The average annual expense for Sub -Fund A over the last three fiscal years has been approximately $124,930, offset by average revenue of approximately $11,415, for an average draw down of reserves of $113,515 per year. The budgeted revenue for FY 2014 -15 is $2,780 with expenses of $115,000 for an estimated reduction in Sub -Fund A reserves of $112,220. A transfer of $112,220 from Sub -Fund C is necessary in order to maintain the target 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. The District established Sub -Fund B with a target reserve of $2,400,000 to fund employment liability and pollution liability risks. This fund pays for Employment Practices Liability losses and costs within the District's self- insured retention. It also pays for pollution losses not otherwise covered by insurance. Page 2 of 4 POSITION PAPER Board Meeting Date: April 3, 2014 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $650,000 TO THE FUND FROM THE FISCAL YEAR 2014 -15 OPERATIONS & MAINTENANCE BUDGET The average annual expense for Sub -Fund B over the last three years has been $174,752, offset by revenue of $8,466 for an average annual reserve draw down of $166,286. The budgeted revenue for FY 2014 -15 is $6,680 with expenses of $55,000 for an estimated reduction in Sub -Fund B reserves of $48,320. A transfer of $48,320 from Sub -Fund C is necessary in order to maintain the target 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, and 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. As noted earlier, the District does not currently purchase insurance coverage for damages from flood or earthquakes. These insurance policies are extremely expensive and offer very limited coverage. The District maintains Sub -Fund C at a target reserve of at least $1,000,000 to cover self- insured property losses arising from floods, earthquakes or other self- insured hazards. The annual average expense for Sub -Fund C over the past three years has been $1,118,424 offset by average revenue of $1,246,760 for an average increase of $128,336 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 decrease to Sub - Fund C reserves is approximately $151,465. The budget for FY 2014 -15 revenue is $685,510 with expenses of $491,500 for an estimated addition to Sub -Fund C reserves of $194,010. However, $160,540 would be transferred to Sub -Funds A and B for a net increase in Sub -Fund C reserves of $33,470. This leaves a reserve balance of $1,202,510. Exhibits and Charts Exhibit I presents a recent financial history and projection of the SIF and shows the FY 2014 -15 SIF budget estimated total revenues of $694,970 and total expenses of $661,500, increasing the projected FY 2014 -15 total SIF reserves by $33,470 to $4,602,510 on June 30, 2015. The budgeted revenues include the recommended allocation of $650,000 from the FY 2014 -15 O &M budget to the SIF. Page 3 of 4 POSITION PAPER Board Meeting Date: April 3, 2014 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $650,000 TO THE FUND FROM THE FISCAL YEAR 2014 -15 OPERATIONS & MAINTENANCE BUDGET Exhibits II, III & IV present the projected Sub -Fund A, Sub -Fund B and Sub -Fund C FY 2014 -15 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 fund reserves by Sub -Fund. Chart 4 shows the individual Sub -Funds and combined SIF history of reserves. COMMITTEE RECOMENDATION On March 24, 2014, the Finance Committee reviewed and recommended approval of the SIF and annual transfer in FY 2014 -15 of $650,000. RECOMMENDED BOARD ACTION: Receive the proposed FY 2014 -15 SIF Budget and approve the allocation of $650,000 to the SIF from the FY 2014 -15 O &M Budget. Attached Sunnortina Documents: Exhibit I SIF July 1, 2008 — June 30, 2015 Exhibit 11 SIF Sub -Fund A Exhibit Ill SIF Sub -Fund B Exhibit IV SIF Sub -Fund C Chart I SIF History of Revenue, Expense and Reserve Balance Chart 2 SIF History of Loss Payment & Insurance Premiums Chart 3 SIF Reserves by Sub -Fund Chart 4 SIF History of Reserves Page 4 of 4 CENTRAL CONTRA COSTA SANITARY DISTRICT SELF INSURANCE FUND (SIF) July 1, 2008 - June 30, 2015 Expenses Claims Adjusting Actual Actual Actual Actual Actual Projected Budget Insurance Consulting 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 2014 -2015 Revenues 166,040 45,347 240,844 72,605 440,991 160,000 55,000 SIF Allocation from O &M Fund 850,000 1,383,000 850,000 850,000 850,000 600,000 650,000 Insurance Allocation from HHW 0 52,471 26,563 24,878 21,183 32,300 33,100 Subrogation Recovery 18,031 0 7,500 1,660 1,349,322 22,500 0 Interest Income 87,106 29,815 23,873 19,436 15,269 13,350 11,870 Total Revenue 955,137 1,465,286 907,936 895,974 2,235,774 668,150 694,970 Expenses Claims Adjusting 0 0 0 0 1,218,301 0 0 Insurance Consulting 0 0 0 0 5,000 0 6,500 Loss Payments 166,040 45,347 240,844 72,605 440,991 160,000 55,000 Legal Services 200,710 31,163 210,677 304,672 266,900 141,750 95,000 Technical Services 83,962 15,482 137,445 14,803 24,856 30,000 30,000 Insurance Premiums 388,013 404,620 414,149 418,769 424,419 450,000 475,000 Total Expenses 838,725 496,612 1,003,115 810,849 2,380,467 781,750 661,500 Revenue Over Expense 116,412 968,674 (95,179) 85,125 (144,693) (113,600) 33,470 Reserves Beginning of Year 3,752,303 3,868,715 4,837,389 4,742,210 4,827,335 4,682,642 4,569,040 Revenue over Expense 116,412 968,674 (95,179) 85,125 (144,693) (113,600) 33,470 End of Year Reserves 3,868,715 4,837,389 4,742,210 4,827,335 4,682,642 4,569,042 4,602,510 Uncommitted Reserves Actuarial Reserves - GASB 10 (Fund A) 750,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Non- Actuarial Reserves - GASB 10 (Fund B) 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 Non -GAS13 10 Reserves (Fund C) 718,715 1,437,389 1,342,210 1,427,335 1,282,640 1,169,040 1,202,510 Total Reserves 3,868,715 4,837,389 4,742,210 4,827,335 4,682,640 4,569,040 4,602,510 Change in Reserves 116,412 968,674 (95,179) 85,125 (144,695) (113,600) 33,470 Exhibit I SELF INSURANCE FUND - SUB FUND A Actual 2012 -2013, Projected 2013 -14 and Budget 2014 -2015 SUB -FUND A: GASB -10 ACTUARIALLY BASED RISKS GENERAL LIABILITY AND AUTOMOBILE LIABILITY Actual Projected Budget 2012 -2013 2013 -2014 2014 -2015 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 Total Expenses Revenue over Expense Reserves: Transfer (to) /from Sub -Fund C Transfer (to) /from Sub -Fund C - 22,000 - 3,314 3,130 2,780 3,314 25,130 2,780 59,970 100,000 50,000 34,178 40,000 40,000 24,856 25,000 25,000 119,004 165,000 115,000 (115,690) (139,870) (112,220) 115,690 139,870 112,220 Total Reserves Projected End of Year $ 1,000,000 $ 1,000,000 $ 1,000,000 Exhibit 11 SELF INSURANCE FUND - SUB FUND B Actual 2012 -2013, Projected 2013 -14 and Budget 2014 -2015 SUB -FUND B: GASB -10 NON - ACTUARIALLY BASED RISKS EMPLOYMENT RELATED AND POLLUTION RISKS Actual Projected Budget 2012 -2013 2013 -2014 2014 -2015 Beginning Reserves $ 2,400,000 $ 2,400,000 $ 2,400,000 Revenues: O &M - - - Recovery - - - Interest 7,953 7,510 6,680 Total Revenues 7,953 7,510 6,680 Expenses: Losses - 55,000 - Legal 223,242 100,000 50,000 Technical - 5,000 5,000 Total Expenses 223,242 160,000 55,000 Revenue over Expense (215,289) (152,490) (48,320) Reserves: Transfer (to) /from Sub -Fund A - - - Transfer (to) /from Sub -Fund C 215,289 152,490 48,320 Total Reserves Projected End of Year $ 2,400,000 $ 2,400,000 $ 2,400,000 Exhibit III SELF INSURANCE FUND - SUB FUND C Actual 2012 -2013, Projected 2013 -14 and Budget 2014 -2015 SUB -FUND C: NON GASB -10 RISKS RISK MANAGEMENT PROGRAM INSURANCE PREMIUMS AND COSTS OF INITIATING CLAIMS /LAWSUITS AGAINST OTHERS Beginning Reserves Revenues: Actual Projected Budget 2012 -2013 2013 -2014 2014 -2015 $ 1,427,333 $ 1,282,640 $ 1,169,040 O &M 850,000 600,000 650,000 Subrogation Recovery * 1,349,322 500 - Insurance Recovery from HHW Partners 21,183 32,300 33,100 Interest 4,002 2,710 2,410 Total Revenues 2,224,507 635,510 685,510 Expenses: Insurance Consulting Services 5,000 - 6,500 Claims Adjustment * 1,218,301 - - Losses * 381,021 5,000 5,000 Legal 9,480 1,750 5,000 Technical - - - Insurance Premiums 424,419 450,000 475,000 Total Expenses 2,038,221 456,750 491,500 Revenue over Expense 186,286 178,760 194,010 Reserves: Transfer (to) /from Sub -Funds A (115,690) (139,870) (112,220) Transfer (to) /from Sub -Funds B (215,289) (152,490) (48,320) Total Reserves Projected End of Year $ 1,282,640 $ 1,169,040 $ 1,202,510 * 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 N L `-° $3,000,000 O 0 $2,000,000 $1,000,000 $0 2008 -2009 Actual Chart 1 Self Insurance Fund History of Revenue, Expense and Reserve Balance 2009 -2010 Actual 2010 -2011 Actual 2011 -2012 Actual Fiscal Year 2012 -2013 Actual 2013 -2014 Projected 0 Total Revenue 0 Total Expenses ■ End of Year Reserves 2014 -2015 Budget $500,000 $450,000 $400,000 $350,000 $300,000 y L $250,000 0 0 $200,000 $150,000 $100,000 $50,000 $0 2008 -2009 Actual Chart 2 Self Insurance Fund History of Loss Payment & Insurance Premiums 2009 -2010 Actual 2010 -2011 Actual 2011 -2012 Actual Fiscal Year 2012 -2013 Actual ® Loss Payments ■ Insurance Premiums 2013 -2014 Projected 2014 -2015 Budget $3,000,000 - $2,500,000 $2,000,000 - U) L $1,500,000 0 c $1,000,000 - $500,000 $0 - Chart 3 Self Insurance Fund Reserves by Sub -Fund 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 2014 -2015 Actual Actual Actual Actual Actual Projected Budget Fiscal Year OActuarial Reserves - GASB 10 (Fund A) 0 Non- Actuarial Reserves - GASB 10 (Fund B) ■ Non -GASB 10 Reserves (Fund C) $6,000,000 $5,000,000 $4,000,000 - h $3,000,000 - - 0 0 $2,000,000 $1,000,000 $0 ' ' 2008 -2009 Actual Chart 4 Self Insurance Fund History of Reserves 2009 -2010 Actual 2010 -2011 Actual 2011 -2012 Actual Fiscal Year 2012 -2013 2013 -2014 Actual Projected 2014 -2015 Budget OActuarial Reserves - GASB 10 (Fund A) O Non- Actuarial Reserves - GASB 10 (Fund B) ■ Non -GASB 10 Reserves (Fund C)