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Home My WebLink About04. Position Paper reviewing self-insurance fund budgetCentral Contra Costa Sanitary District BOARD OF DIRECTORS nn o nA F�V Board Meeting Date: June 4 2015 POSITION PAPER Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND, APPROVE THE BUDGET AND THE ALLOCATION OF $1.5 MILLION TO THE FUND FROM THE FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET Submitted By: Shari Deutsch, ARM -P— Risk Management Administrator Initiating Dept. /Div.: Administrative /Risk Management REVIEWED AND RECOMMENDED FOR BOARD ACTION: David Heath - Director of Administration Roger S. 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) 2015 -16 SIF Budget and authorize the allocation of $1.5 million from the FY 2015 -16 Operations & Maintenance (O &M) Budget to the SIF. FINANCIAL IMPACTS: A transfer of $1,500,000 from FY 2015 -16 O &M Budget to the SIF. ALTERNATIVES /CONSIDERATIONS: The alternatives to this action are to provide fewer funds than recommended, to not fund the SIF, or to increase the funds by transferring more than $1.5 million. 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. Beginning next fiscal year, the District will self- insure general and auto liability risks up to $500,000 per occurrence. The District will continue to purchase 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. Page 1 of 4 POSITION PAPER Board Meeting Date: June 4, 2015 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND, APPROVE THE BUDGET AND THE ALLOCATION OF $1.5 MILLION TO THE FUND FROM THE FISCAL YEAR 2015 -16 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 expenses. SUB -FUND A: Actuarially -Based Risks. Sub -Fund A is used to pay claims and expenses within the District's self- insured liability retention. Claims in excess of this retention are covered by an excess insurance policy that renews annually on July 1. These claims 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 2014. The next actuarial report will be performed in August 2016 using loss data through June 30, 2016. As of July 1, 2015 the District will increase the minimum reserve for Sub -Fund A from $1.0 million to $1.5 million. This is used to pay claims and loss costs throughout the year and to fund at least three fully retained losses. The budgeted revenue for FY 2015 -16 is $2,920 with expenses of $1,150,000, for an estimated reduction of $1,147,080. A transfer of $1,147,080 from Sub -Fund C is necessary in order to maintain the minimum reserve at $1.5 million. SUB -FUND B: Non - Actuarially -Based Risks. Sub -Fund B has been used to pay claims and expenses for liability losses that cannot be actuarially evaluated and /or are not covered by the excess liability insurance policy. This includes employment practices claims and pollution claims. Employment practices and pollution claims are usually high dollar claims and take longer to resolve. Even in low -value claims, these cases can generate very high investigative and defense costs. Since these two factors make accurate loss forecasting difficult, GASB does not require an actuarial study for these risks. Page 2 of 4 POSITION PAPER Board Meeting Date: June 4, 2015 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND, APPROVE THE BUDGET AND THE ALLOCATION OF $1.5 MILLION TO THE FUND FROM THE FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET Additionally, as of 1986, all general liability insurance policies exclude coverage for pollution losses. Given the low frequency, high severity and absence of insurance coverage for the highest exposure claims, the District has maintained this fund with a $2.4 million reserve At the November 17, 2014 Board Workshop, the Board chose to simplify reserving for all risks that do not require GASB 10 compliance by consolidating other liability claim reserves and property loss reserves into a single fund. The Board also wanted to make sure that funds were reserved for catastrophic losses or emergency response. In order to meet the District's joint goals of consolidating reserves and establishing a catastrophic loss fund, effective July 1, 2015 Sub -Fund B will maintain a reserve balance of $5 million. The budgeted revenue for FY 2015 -16 is $6,950 with expenses of $165,000, for an estimated reduction of $158,050. A transfer of $158,050 from Sub -Fund C is necessary in order to maintain the minimum reserve of $5,000,000. SUB -FUND C: Non -GASB 10 Risks. This sub -fund has historically covered Risk Management program expenses, 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. As noted above, the Board has chosen to reallocate all non -GASB required claims reserves from Sub -Fund C. As a result, this fund is now used for Risk Management program expenses and as a transfer account to receive the annual O &M Budget contribution and to re -fund the dedicated reserves drawn down over the preceding fiscal year. The budgeted revenue for FY 2015 -16 is $1,575,505 with expenses of $602,000, for an estimated increase of $973,505. This allocation will allow Sub -Fund C to transfer $1,147,080 to Sub -Fund A and $158,050 to Sub -Fund B and to pay Risk Management program expenses. Exhibits and Charts Exhibit I presents a recent financial history and projection of the SIF and shows the FY 2015 -16 SIF budget estimated total revenues of $1,585,375 and total expenses of $1,917,000, decreasing the projected FY 2015 -16 total SIF reserves by $331,625. The budgeted revenues include the recommended allocation of $1.5 million from the FY 2015 -16 O &M Budget to the SIF. Page 3 of 4 POSITION PAPER Board Meeting Date: June 4, 2015 Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF- INSURANCE FUND, APPROVE THE BUDGET AND THE ALLOCATION OF $1.5 MILLION TO THE FUND FROM THE FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET Exhibits II, III & IV present the projected Sub -Fund A, Sub -Fund B and Sub -Fund C FY 2015 -16 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 May 26, 2015, the Finance Committee reviewed and recommended approval of the SIF and annual transfer of $1,500,000 in FY 2015 -16. RECOMMENDED BOARD ACTION: Approve the proposed FY 2015 -16 SIF Budget and the allocation of $1.5 million to the SIF from the FY 2015 -16 O &M Budget. Attached Suiwortina Documents. Exhibit I SIF July 1, 2009 — June 30, 2016 Exhibit 11 SIF Sub -Fund A Exhibit NI SIF Sub -Fund B Exhibit IV SIF Sub -Fund C Chart 1 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, 2009 - June 30, 2016 Expenses Claims Adjusting Actual Actual Actual Actual Actual Projected Budget Insurance Consulting 2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 2014 -2015 2015 -2016 Revenues 45,347 240,844 72,605 440,991 115,501 485,000 1,075,000 SIF Allocation from O &M Fund 1,383,000 850,000 850,000 850,000 600,000 650,000 1,500,000 Insurance Allocation from HHW 52,471 26,563 24,878 21,183 21,236 69,500 72,975 Subrogation Recovery 0 7,500 1,660 1,349,322 23,212 0 0 Interest Income 29,815 23,873 19,436 15,269 10,180 10,165 12,400 Total Revenue 1,465,286 907,936 895,974 2,235,774 654,628 729,665 1,585,375 Expenses Claims Adjusting 0 0 0 1,218,301 766 0 2,000 Insurance Consulting 0 0 0 5,000 0 5,000 0 Loss Payments 45,347 240,844 72,605 440,991 115,501 485,000 1,075,000 Legal Services 31,163 210,677 304,672 266,900 200,591 125,000 200,000 Technical Services 15,482 137,445 14,803 24,856 42,167 175,000 65,000 Insurance Premiums 404,620 414,149 418,769 424,419 499,713 475,000 575,000 Total Expenses 496,612 1,003,115 810,849 2,380,467 858,738 1,265,000 1,917,000 Revenue Over Expense 968,674 (95,179) 85,125 (144,693) (204,110) (535,335) (331,625) Reserves Beginning of Year 3,868,715 4,837,389 4,742,210 4,827,335 4,682,642 4,478,532 6,843,197 Reserve Policy Transfer 0 0 0 0 0 2,900,000 0 Revenue over Expense 968,674 (95,179) 85,125 (144,693) (204,110) (535,335) (331,625) End of Year Reserves 4,837,389 4,742,210 4,827,335 4,682,642 4,478,532 6,843,197 6,511,572 Uncommitted Reserves Actuarial Reserves - GASB 10 (Fund A) 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,500,000 1,500,000 Non- Actuarial Reserves - GASB 10 (Fund B) 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 5,000,000 5,000,000 Non -GASB 10 Reserves (Fund C) 1,437,389 1,342,210 1,427,335 1,282,642 1,078,532 343,197 11,572 Total Reserves 4,837,389 4,742,210 4,827,335 4,682,642 4,478,532 6,843,197 6,511,572 Change in Reserves 968,674 (95,179) 85,125 (144,693) (204,110) 2,364,665 (331,625) Exhibit I SELF INSURANCE FUND - SUB FUND A Actual 2013 -2014, Projected 2014 -15 and Budget 2015 -2016 SUB -FUND A: GASB -10 ACTUARIALLY BASED RISKS GENERAL LIABILITY AND AUTOMOBILE LIABILITY Expenses: Losses Legal Technical Total Expenses Revenue over Expense 60,501 Actual Projected Budget 45,000 2013 -2014 2014 -2015 2015 -2016 Actuarial Reserves - GASB 10 - Beginning of Year $ 1,000,000 $ 1,000,000 $ 1,500,000 Revenues: 430,000 1,150,000 O &M * - 500,000 - Subrogation Recovery 23,212 - - Interest 2,385 2,210 2,920 Total Revenues 25,597 502,210 2,920 Expenses: Losses Legal Technical Total Expenses Revenue over Expense 60,501 225,000 950,000 41,376 45,000 150,000 42,167 160,000 50,000 144,044 430,000 1,150,000 (118,447) 72,210 (1,147,080) Reserves: Transfer (to) /from Sub -Fund C 118,447 427,790 1,147,080 Transfer (to)lfrom Sub -Fund C - - - Total Reserves Projected End of Year $ 1,000,000 $ 1,500,000 $ 1,500,000 Exhibit 11 SELF INSURANCE FUND - SUB FUND B Actual 2013 -2014, Projected 2014 -15 and Budget 2015 -2016 SUB -FUND B: GASB -10 NON - ACTUARIALLY BASED RISKS CATASTROPHIC AND SELF - INSURED RISKS Expenses Losses Actual Projected Budget Legal 2013 -2014 2014 -2015 2015 -2016 Beginning Reserves $ 2,400,000 $ 2,400,000 $ 5,000,000 Revenues: 212,211 100,000 165,000 O &M " - 2,400,000 - Recovery - - - Interest 5,725 5,300 6,950 Total Revenues 5,725 2,405,300 6,950 Expenses Losses 55,000 10,000 100,000 Legal 157,211 75,000 50,000 Technical - 15,000 15,000 Total Expenses 212,211 100,000 165,000 Revenue over Expense (206,486) 2,305,300 (158,050) Reserves: Transfer (to) /from Sub -Fund A - - - Transfer (to) /from Sub -Fund C 206,486 294,700 158,050 Total Reserves Projected End of Year $ 2,400,000 $ 5,000,000 $ 5,000,000 Exhibit III SELF INSURANCE FUND - SUB FUND C Actual 2013 -2014, Projected 2014 -15 and Budget 2015 -2016 SUB -FUND C: NON GASB -10 RISKS RISK MANAGEMENT PROGRAM INSURANCE PREMIUMS AND SELF - INSURED PROPERTY LOSSES Beginning Reserves Revenues: Actual Projected Budget 2013 -2014 2014 -2015 2015 -2016 $ 1,282,642 $ 1,078,532 $ 343,197 O &M 600,000 650,000 1,500,000 Subrogation Recovery - - - Insurance Recovery from HHW Partners 21,236 69,500 72,975 Interest 2,070 2,655 2,530 Total Revenues 623,306 722,155 1,575,505 Expenses: Losses - 250,000 25,000 Legal 2,004 5,000 - Technical - - - Insurance Premiums 499,713 475,000 575,000 Insurance Consulting Services - 5,000 - Claims Adjustment 766 - 2,000 Total Expenses 502,483 735,000 602,000 Revenue over Expense 120,823 (12,845) 973,505 Reserves: Transfer (to) /from Sub -Funds A (118,447) (427,790) (1,147,080) Transfer (to) /from Sub -Funds B (206,486) (294,700) (158,050) Total Reserves Projected End of Year $ 1,078,532 $ 343,197 $ 11,572 Exhibit IV $8,000,000 $7,000,000 $6,000,000 $5,000,000 0 $4,000,000 0 0 $3,000,000 $2,000,000 $1,000,000 $0 Chart 1 Self Insurance Fund History of Revenue, Expense and Reserve Balance Fiscal Year 13 Total Revenue 13 Total Expenses ■ End of Year Reserves $1,200,000 $1,000,000 $800,000 1° $600,000 0 0 $400,000 $200,000 $0 Chart 2 Self Insurance Fund History of Loss Payment & Insurance Premiums Fiscal Year a Loss Payments ■ Insurance Premiums 2015 -2016 Budget $6,000,000 $5,000,000 $4,000,000 - T L $3,000,000 0 0 $2,000,000 $1,000,000 $0 - Chart 3 Self Insurance Fund Reserves by Sub -Fund Fiscal Year OActuarial Reserves - GASB 10 (Fund A) 13 Non- Actuarial Reserves - GASB 10 (Fund B) ■ Non -GASB 10 Reserves (Fund C) Chart 4 Self Insurance Fund History of Reserves $8,000,000 $7,000,000 -1- - --- - --- $6,000,000 $5,000,000 - - — $4,000,000 - — - 0 $3,000,000 — $2,000,000 $1,000,000 $0 - -- 2009 -2010 2010 -2011 2011 -2012 2012 -2013 Actual Actual Actual Actual Fiscal Year oActuarial Reserves - GASB 10 (Fund A) o Non- Actuarial Reserves - GASB 10 (Fund B) ■ Non -GASB 10 Reserves (Fund C)