HomeMy WebLinkAbout04.d. Review financial status and budget of Self-Insurance Fund and approve allocation for FY 2015-16 budgetCentral Contra Costa Sanitary District
' BOARD OF DIRECTORS •
POSITION PAPER
Board Meeting Date: June 4, 2015
Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF -
INSURANCE FUND, AND THE ALLOCATION OF $1.5 MILLION TO
THE FUND FROM THE FISCAL YEAR 2015 -16 OPERATIONS &
MAINTENANCE BUDGET
Submitted By. Initiating Dept. /Div.:
Shari Deutsch, ARM -P— Risk Administrative /Risk Management
Management Administrator
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
David Heath - Director of Administration I �� :� w
Thea Vassallo — Finance Manager Roger S. Ba ey
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 $1.5 million from FY 2015 -16 O &M Budget to the
SIF.
ALTERNATIVES /CONSIDERATIONS: Insurance fund reserves have been spent down
for several years as the transfer from the FY 2015 -16 O &M Budget has been set at a
level which has funded insurance premiums and miscellaneous costs but not claims
payments. Given a much higher than normal claims experience in FY 2014 -15, and
given expected losses in FY 2015 -16, staff is recommending an allocation equivalent to
insurance fund anticipated expenditures for FY 2015 -16. Staff will be making a Fiscal
Reserve Policy recommendation in early FY 2015 -16 which will address allocating
additional funds to meet catastrophic / emergency reserve requirements previously
discussed with the Board of Directors.
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
is seeking quotes from the insurance industry to reduce the self- insured retention (SIR)
for general and auto liability risks from the current level of $1 million per occurrence to
$500,000 per occurrence in FY 2015 -16. 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
Page 1 of 4
POSITION PAPER
Board Meeting Date: June 4, 2015
Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF -
INSURANCE FUND, AND THE ALLOCATION OF $1.5 MILLION TO
THE FUND FROM THE FISCAL YEAR 2015 -16 OPERATIONS &
MAINTENANCE BUDGET
for the scope and limits of coverage provided. As a result, the District self- insures these
risks as well.
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.
In FY 2015 -16 the District will finalize changes to the reserve policy which is projected
to increase the minimum reserve for Sub -Fund A from $1.0 million to $1.5 million. This
fund is used to pay liability claims and loss costs throughout the year and to fund at
least three fully retained losses. If the District is unable to secure insurance quotes for a
$500,000 per occurrence SIR, in which case the SIR remains at $1 million, the reserve
level of $1.5 million would cover one and a half fully retained losses.
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, 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, in FY 2015 -16 Sub -Fund B will require an additional transfer of
$2.4 million to adjust the reserve balance to $5 million.
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.
Exhibits and Charts
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 $1.5 million 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.
Page 3 of 4
POSITION PAPER
Board Meeting Date: June 4, 2015
Subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF -
INSURANCE FUND, AND THE ALLOCATION OF $1.5 MILLION TO
THE FUND FROM THE FISCAL YEAR 2015 -16 OPERATIONS&
MAINTENANCE BUDGET
Attached Supporting Documents:
Exhibit I
SIF July 1, 2009 — June 30, 2016
Exhibit 11
SIF Sub -Fund A
Exhibit 111
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
Insurance Consulting
Loss Payments
Legal Services
Technical Services
Insurance Premiums
Total Expenses
Revenue Over Expense
Reserves
Beginning of Year
Reserve Policy Transfer
Revenue over Expense
End of Year Reserves
0
Actual
Actual
Actual
Actual
Actual
Projected
Budget
0
2009 -2010
2010 -2011
2011 -2012
2012 -2013
2013 -2014
2014 -2015
2015 -2016
Revenues
440,991
115,501
485,000
1,075,000
31,163
210,677
304,672
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
Insurance Consulting
Loss Payments
Legal Services
Technical Services
Insurance Premiums
Total Expenses
Revenue Over Expense
Reserves
Beginning of Year
Reserve Policy Transfer
Revenue over Expense
End of Year Reserves
0
0
0
1,218,301
766
0
2,000
0
0
0
5,000
0
5,000
0
45,347
240,844
72,605
440,991
115,501
485,000
1,075,000
31,163
210,677
304,672
266,900
200,591
125,000
200,000
15,482
137,445
14,803
24,856
42,167
175,000
65,000
404,620
414,149
418,769
424,419
499,713
475,000
575,000
496,612
1,003,115
810,849
2,380,467
858,738
1,265,000
1,917,000
968,674 (95,179) 85,125 (144,693) (204,110) (535,335) (331,625)
3,868,715
4,837,389
4,742,210
4,827,335
4,682,642
4,478,532
3,943,197
0
0
0
0
0
0
2,900,000
968,674
(95,179)
85,125
(144,693)
(204,110)
(535,335)
(331,625)
4,837,389
4,742,210
4,827,335
4,682,642
4,478,532
3,943,197
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
1,000,000
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
2,400,000
5,000,000
Non -GASB 10 Reserves (Fund C)
1,437,389
1,342,210
1,427,335
1,282,642
1,078,532
543,197
11,572
Total Reserves
4,837,389
4,742,210
4,827,335
4,682,642
4,478,532
3,943,197
6,511,572
Change in Reserves
968,674
(95,179)
85,125
(144,693)
(204,110)
(535,335)
2,568,375
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
Actual Projected Budget
2013 -2014 2014 -2015 2015 -2016
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
- - 500,000
23,212 - -
2,385 2,210 2,920
25,597 2,210 502,920
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) (427,790) (647,080)
118,447 427,790 1,147,080
Total Reserves Projected End of Year $ 1,000,000 $ 1,000,000 $ 1,500,000
* Projected FY 15 -16 transfer upon adoption of revised reserve policy
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
Actual Projected Budget
2013 -2014 2014 -2015 2015 -2016
Beginning Reserves $ 2,400,000 $ 2,400,000 $ 2,400,000
Revenues:
O &M " - - 2,400,000
Recovery - - -
Interest 5,725 5,300 6,950
Total Revenues 5,725 5,300 2,406,950
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) (94,700) 2,241,950
Reserves:
Transfer (to) /from Sub -Fund A - - -
Transfer (to) /from Sub -Fund C 206,486 94,700 358,050
Total Reserves Projected End of Year $ 2,400,000 $ 2,400,000 $ 5,000,000
" Projected FY 15 -16 transfer upon adoption of revised reserve policy
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 $ 543,197
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) (94,700) (358,050)
Total Reserves Projected End of Year $ 1,078,532 $ 543,197 $ 11,572
Exhibit IV
$7,000,000
$6,000,000
$5,000,000
$4,000,000
U)
ca
0
c $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 0 Total Expenses ■ End of Year Reserves
Chart 2
Self Insurance Fund
History of Loss Payment & Insurance Premiums
$1,200,000
$1,000,000 - —
$800,000 - - - -
L
$600,000 — --
O
O
$400,000
$200,000
$0 - -
2009 -2010 2010 -2011 2011 -2012 2012 -2013 2013 -2014 2014 -2015
Actual Actual Actual Actual Actual Projected
Fiscal Year
0 Loss Payments ■Insurance Premiums
-ib
?015 -2016
Budget
$6,000,000
$5,000,000
$4,000,000
$3,000,000
0
0
Chart 3
Self Insurance Fund
Reserves by Sub-Fund
$2,000,000
$1,000,000
$0
2009-2010 2010-2011 2011-2012
Actual Actual Actual
Fiscal Year
0 A tuarial Reserves - GASB 10 (Fund A) 0 Non- Actuarial Reserves - GASB 10 (Fund B) MNon-GASB 10 Reserves (Fund
$7,000,000 l
$5,000,000
$4,000,000
w
L
0
o $3,000,000
$2,000,000
$1,000,000
$0
Chart 4
Self Insurance Fund
History of Reserves
Fiscal Year
OActuarial Reserves - GASB 10 (Fund A) 0Non- Actuarial Reserves - GASB 10 (Fund B) ■Non -GASB 10 Reserves (Fund C)
2009 -2010
Actual
2010 -2011
Actual
2011 -2012
Actual
2012 -2013
Actual
2013 -2014
Actual
2014 -2015
Projected
2015 -2016
Budget
Fiscal Year
OActuarial Reserves - GASB 10 (Fund A) 0Non- Actuarial Reserves - GASB 10 (Fund B) ■Non -GASB 10 Reserves (Fund C)