ABAG PLAN Corp.17th Annual

Board of Directors Meeting May 28, 2003

South San Francisco, CA

AGENDA• Business Meeting• Year in Review • Actuary & Underwriting Report

– Actuarial Analysis– Renewal Options– Funding Recommendations

• Loss Prevention Programs– Risk Assessment – Police Training & Equipment– Sewer Backflow Prevention

AGENDA

• Financial Summary– Investment Performance Report– Audited Financials

• Planning Meeting Update• Claims Committee Report

– Staffing Plan Update– Loss Run & Analysis

• Administrative Budget

ABAG PLAN Mission Statement

The purpose of the PLAN is to benefit the citizens of each Member Entity by establishing a stable, cost-effective self-insurance, risk sharing and risk management program for each Member Entity.

Actuary Report

• John Alltop, Principal Actuary, Bickmore Risk Services, will present his firm’s report of the PLAN’s outstanding liabilities as of 6/30/03 and funding for FY 2003-04 expected losses.

Renewal Options

• Dennis Mulqueeney, Vice President, Driver Alliant Risk Services, will present his firm’s activities and results in marketing the PLAN’s excess liability and property coverages for FY 203/04

Funding Options & Recommendations

• Outstanding Liabilities– Comparison of 6/30/02 & /03 Expected

Liabilities and Fund Balances– Retention of funds > 90% CL in SIR Fund

• Funding for FY 2003-04– Funding Guidelines & Ratios – Cost of excess insurance at various levels– Choice of SIR

Funding PolicyObjectives

• Sufficient assets to pay expected losses• Stability of funding to avoid substantial

fluctuations in deposits or assets• Support risk management programs to

benefit all members

Funding PolicyDistribution of Funds*

• EXPECTED LIABILITIES (50% CL, disc.)• $11.2 million

• RISK MARGIN FUND (50% TO 90% CL)• $5.4 million

• SIR FUND (Above 90% CL)• $ 16.8 million

• Loss Prevention Programs • $350,000

* Projected 6/30/03

Breakdown of Liabilities & Fund Balance

$3,973,000Case Reserves, undiscounted

$7,239,000IBNR Reserves, undiscounted

$5,400,000Risk Margin Fund

(90th percentile of discounted losses)

$16,805,000SIR FUND

$350,000

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

Liability Breakdown at June 30, 2003

Total Assets at June 30, 2003 = $33,767,000

$33,417,000

$16,612,000

$11,212,000

$3,973,000

Fund Balance$22,205,000

Liabilities (Undiscounted Expected Basis)$11,212,000

Loss Prevention Fund

Funding Comparison FY02 to 03Actuary BRS TTP Difference

Estimates As Of 6/30/2003 6/30/2002

Interest % 4 4.5 -0.50%ULAE 572,000$ 0 572,000$

Est. Ult. Losses 86-01 31,785,000$ 37,158,900$ (5,373,900)$ Projected Balance Sheet

Assets 33,767,000$ 32,141,000$ 1,626,000$ Expected Liabilities (50% CL) 11,212,000$ 12,936,000$ (1,724,000)$

Risk Margin Fund 5,400,000$ 9,831,000$ (4,431,000)$ Self-Insured Retention (SIR) Fund 16,805,000$ 9,374,000$ 7,431,000$

Loss Prevention Fund 350,000$ 0 350,000$ Funding Factors

Expected Liabilities (90% CL) 16,612,000$ 22,767,000$ (6,155,000)$ Total Fund 22,205,000$ 19,205,000$ 3,000,000$

Funding PolicyBenchmarks

• Maintain Risk Margin Fund at 90% CL• Yearly Deposit at least 50% CL

– Goal = 70%.• Total Fund to SIR ratio at least 2:1

– Goal = 3:1• SIR Fund to SIR ratio at least 1:1

– Goal = $10 Million Revise to 2:1?

Funding Ratio ComparisonEstimates As Of 6/30/2003 6/30/2002 Difference

Expected Liabilities (90% CL) 16,612,000$ 22,767,000$ (6,155,000)$ Self-Insured Retention (SIR) Fund 16,805,000$ 9,374,000$ 7,431,000$

Total Fund 22,205,000$ 19,205,000$ 3,000,000$ Ratios

Total Fund/$5mil SIR 4.4 3.8 Min = 2Total Fund/$7mil SIR 3.2

Total Fund/$10mil SIR 2.2 Goal = 3

SIR Fund/$5mil SIR 3.4 1.9 Min = 1SIR Fund/$7mil SIR 2.4 Goal = 2?

SIR Fund/$10mil SIR 1.7 Goal = $10 mil?

FY 2003-04 Liability Program Funding

• Ratios allow for up to $7 mil retention• $3 mil xs $7 mil SIR = $300,000

– Total Funding -2.3% from 02/03• $5 mil xs $5 mil SIR = $416,500

– Total Funding + 0.5% from 02/03• Increase in $5 mil premium = 8.5%• Recommendation was cap at $400,000

FY 03-04 Funding Recommendations

• $5 xs $5mil Option– Price per “riskier” million is $83,300 vs.

$100,000 for $3 mil xs $7 mil option – Compare to $93,514 per mil for “riskier” $7 xs $3 mil

layer• Increase of 8.5% less than expected

– 30% average, 19-20% expected– Enough to consider raising retention

• Increased funding ratios/stability

Liability Program FundingBoard Motions

• Fund FY 2003-04 expected losses with a $5 mil or $7 mil SIR

• Maintain funds > 90% CL in the SIR Fund.

Property Program Funding

• See Funding & Comparison FY 2003 v. 04• Insurance Premium Decrease from $0.0611

to $0.05 per $100 TIV• Change in Total Funding = -4%• Continue to fund appraisals with service

credits and up to $50,000 of pool funds. • Board Motion to Approve Funding

BREAK

7. Loss Prevention Programs

• Risk Assessment• Sewer Program Update • Police Training & Equipment • Defensive Driving• Risk Management Training

Risk Assessment BRS Proposal

• Safety Perception Assessment• Loss Analysis & Savings Projections• Risk Assessment Site Surveys • Risk Assessment Report• Safety Video Library & Reference Material• Follow Up Consultation & Training

Risk Assessment

• BRS Proposal Option B (p. 14)• $106,000/yr. for 2 years to complete• $20,000 for follow up as needed• Total Funding Request = $232,000• Recommended as presented with addition

of cancellation provision.

7. Loss Prevention Programs

• Sewer Program - Update– Training Sessions Completed

• Maintenance, Prevention & Response• Verbal Judo

– Model Ordinances being implemented– Public Education Brochures Completed– Pop-Up Matching Grant Program > 2,000 – Total Spent $50,000 of $125,000 budget

7. Loss Prevention Programs

• Sewer Program - FY 2003/04– Training - first response and code issues– Maintenance Audit - Larry Rugaard– Public Service Announcements– Continue grant program for pop-ups– Complete inserts for remaining members– Claim specialist working with members – No new funds requested

7. Loss Prevention Programs

• Police Risk Management– POST Funding Cut– South Bay has started mobile training– Escalation of Force training well attended – In-car Camera Matching Grants– Total Funding Recommendation = $103,962

7. Loss Prevention Programs• Defensive Driving - $5,000

– State of CA Program well received– Policy part of Risk Assessment

• Risk Management Education - $10,000– Up to $500 per member– PARMA, IEA, ARM courses, etc.

• Board Motion to Approve Programs– Total Funding Request = $350,962

8.A. Investment Performance

• Presented by Joseph Chan, Finance Director

Investment PolicyObjectives

• Safety of invested funds• Liquidity to meet cash flow needs• Yield is maximum possible consistent with

above principles

ABAG PLAN CorporationInvestment Portfolio Summary ($'000)

As of April 30, 2003

$20,000

$7,581$11,000

LAIFBullet SecuritiesCallable Securities

51.8%

28.5% 19.6%

Total Portfolio $38,581

(Average Yield 4.46%)

(Average Yield 5.60%) (Current Yield 1.86%)

Overall Average Yield 4.3%

Investment Report

Maturing Securities ($'000) As of 4/30/03

$0$2,000$4,000$6,000$8,000

$10,000$12,000$14,000

LAIF 03-04 04-05 05-06 06-07 07-08 08-09 09-10

Total Admin Fund Liability Fund Property Fund

ASSETS

CASH IN BANK 346,322$ -$ 340,865$ 5,457$ LOCAL AGENCY INVEST. FUND 13,047,472$ 444,785$ 10,523,455$ 2,079,232$

INVESTMENTS IN SECURITIES 23,000,000$ -$ 23,000,000$ -$ DISCOUNT ON SECURITIES (28,293)$ -$ (28,293)$ -$ PREMIUM ON SECURITIES 321,843$ -$ 321,843$ -$ NET INVESTMENTS IN SECURITIES 23,293,550$ -$ 23,293,550$ -$

ACCT. REC. CLAIMS REIMB. 244,800$ -$ 244,800$ -$ ACCR. INT. REC. LAIF 100,798$ -$ 100,798$ -$ ACCR. INT. REC. SECURITIES 315,316$ -$ 315,316$ -$ CAPITIALIZED SOFTWARE 278,253$ -$ 278,253$ -$ FURNITURE & EQUIPMENT 25,777$ -$ 25,777$ -$ ACCUM. DEPREC. FURN. & EQUIP. (25,777)$ -$ (25,777)$ -$ TOTAL ASSETS 37,626,512$ 444,785$ 35,097,038$ 2,084,689$

LIABILITIES

ACCOUNTS PAYABLE 151,970$ 138,841$ 11,666$ 1,463$

CLAIMS RESERVE 15,122,425$ -$ 15,065,597$ 56,827$ ABOVE-DEDUCTIBLE CLAIMS PAID (856,917)$ -$ (785,166)$ (71,752)$ ADJUSTMENT TO CLAIM RESERVE 1,597,024$ -$ 1,424,600$ 172,425$ CLAIMS RESERVE AT MONTH-END 15,862,532$ -$ 15,705,032$ 157,500$ TOTAL LIABILITIES 16,014,502$ 138,841$ 15,716,698$ 158,963$

FUND EQUITYGENERAL EQUITY

RETAINED EARNINGS 17,616,628$ 277,342$ 15,445,571$ 1,893,715$ CURRENT YEAR SURPLUS/(DEFICIT) 3,995,382$ 28,602$ 3,934,770$ 32,010$ TOTAL GENERAL FUND 21,612,010$ 305,944$ 19,380,341$ 1,925,726$ TOTAL FUND BALANCE 21,612,010$ 305,944$ 19,380,341$ 1,925,726$ TOTAL LIABILITIES AND FUND BALANCE 37,626,512$ 444,785$ 35,097,038$ 2,084,689$

Balance Sheet June 30, 2002

Financial Report

• Board Motion to accept the Investment Report and Audited Financials as of 6/30/02

9. Planning Meeting Progress• Previous Goals Identified

– Funding Policy - Implemented– Staffing Plan - update in claims report – Evaluate Loss Control Approach - complete – Update Strategic Plan Annually - scheduled– Document Review - begun– Define Committee Roles - begun– Become Accredited? TBD

9. Planning Meeting Progress

• Eight Goals from October 2002 & progress• Implement loss control approach

– begin w/ risk assessment• Recommended practices/audit

– begin w/ risk assessment– List of consultants and lists of model policies

• Rent a risk manager – examiners & RM available, consultant?

• Humiliate non-participants – see claim reports

9. Planning Meeting Progress• Eight Goals from October 2002 & progress• Good standing v. bad standing members

– will grade based on risk assessment and losses • Current listing of board members and alternates

– on site• Continue to evaluate the funding variables to

update/revise funding policy – discussion & decisions today

• MOC Revision to include one insuring agreement and one set of exclusions – at next retreat and by 7/1/2004

9. Planning Meeting 2003

• Governing Doc Revisions – MOC – Bylaws– Claim Policy

• Review of Funding Policy• Full Day for Board 1/2 Day for Exec Cmte• Approval of meeting schedule & topics

10. Claims Committee Report

• Staffing Plan Update• Claim Reports

Staffing Plan

• Needs of Members– Improved claimant communication– Follow up to ensure hazards remedied– Balance workload & staffing – Keep improving services– Minimize claim costs – Maintain & improve RM programs

Staffing Plan

• Needs of Staff– Improve examiner support– Improve risk management support– IT contact for RiskMaster– Web site support– Improve legal support– Improve member involvement

Staffing Plan Update• Mixed results outsourcing sewer claims

– Communication with claimants and members – Costs continue to escalate – Recovery workload and expansion of duties– Dedicated property expertise

• Need to develop expertise in-house– New Hire = Bruce Carey. Property and

Recovery Specialist

Staffing Plan Update

• More resources devoted to sewer claims– New Hire– More Training– Test case for code defense– Public education and back flow devices

• Continue addressing needs - improving service and minimizing claim costs

$-$1,000,000$2,000,000$3,000,000$4,000,000$5,000,000$6,000,000$7,000,000

1986

1988

1990

1992

1994

1996

1998

2000

2002

Year

Incurred By Year

Claim Reports

Claim Reports

0100200

300400

500600

700800

1986

1988

1990

1992

1994

1996

1998

2000

2002

Claims By Year

Claim ReportsMajor Causes of Loss 1991 to 2002

$-$1,000,000$2,000,000$3,000,000$4,000,000$5,000,000$6,000,000$7,000,000$8,000,000$9,000,000

All Auto

Water Dam

age

Sidewalk

Sewerl

ine

Road Des

ign

Other Bodily

...

Landsli

de

All Polic

e

Claim Reports Sewer Claims Incurred

$-$200,000$400,000$600,000$800,000

$1,000,000$1,200,000$1,400,000$1,600,000$1,800,000$2,000,000

Claim ReportsAverage Cost Per Sewer Claim

$-$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

Year

Claim Reports Property Program Claims By Policy YearAs Of 5/1/03

Year Claims Reserve Paid Collection Incurred1992 29$ -$ 139,535$ 22,871$ 116,664$ 1993 58$ -$ 80,545$ 42,035$ 38,509$ 1994 72$ -$ 94,570$ 33,064$ 61,506$ 1995 80$ -$ 189,225$ 43,160$ 146,065$ 1996 69$ -$ 117,382$ 42,213$ 75,169$ 1997 82$ 4,983$ 142,452$ 94,711$ 52,724$ 1998 105$ 3,406$ 231,050$ 142,022$ 92,434$ 1999 116$ 900$ 148,788$ 94,383$ 55,304$ 2000 159$ 22,149$ 250,072$ 208,494$ 63,727$ 2001 187$ 8,548$ 488,982$ 269,158$ 228,371$ 2002 139$ 187,808$ 265,438$ 65,446$ 387,800$

Total 1,096$ 227,793$ 2,148,038$ 1,057,557$ 1,318,274$

11. Admin Budget 2003-04• Total Expenses = $1,873,578

– 11% Increase from FY02-03 – 14% Increase in Personnel, driven by increased

overhead, including benefits and new hire • Total Funding = $1,800,000

– Difference of $73,578 from reserve– Used $160,000 of reserve in FY 02-03

• Board Motion to Approve Admin Funding

Other Business?

• Questions?• Comments? • Announcements?• Motion to adjourn

THANK YOU!

• From the ABAG staff - thanks for your support and assistance.

• We look forward to working with you in FY 03-04.