HomeMy WebLinkAboutAgenda Report - October 19, 1994 (50)W
CIN OF LODI
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NCIL COMMUNICATION
AGENDA TITLE: Authorize Actuarial Services for Workers' Compensation
MEETING DATE: October 19, 1994
PREPARED BY: Assistant City Manager
RECOMMENDED ACTION: That the City Council authorize the City Manager to
enter into an agreement (Exhibit A) -with Advanced Risk
Management Technicrses, Inc. to conduct an actuarial
study of the City's Workers' Compensation Program.
BACKGROUND INFORMATION: The City of Lodi has been self-insured for workers'
compensation since the mid -seventies. The program has
been a very successful cost savings program. The City
has charged itself less than the book rate for workers' Compensation and has
made minor modifications to its rates to generate sufficient revenues to pay
bills. The fund is solvent, but the required reserves are greater than the
cash on hand. While the City is not in a cash deficit state, there are
indications that there should be a review of rates and the financial structure
of the City's Workers' Compensation Fund.
Advanced Risk Management Techniques, Inc. is used by the California Joint
Powers Risk Management .Authority to prepare its actuarial studies. The
Advanced Risk Management Techniques, Inc. has offered to conduct a study of the
City of Lodi's workers' compensation fund for a cost of $3,000. Their services
will include:
1) Estimate Outstanding Losses
2) Project Financial Position
3) Project Future Losses
4) Recommend Funding Level
5) Project Claims Disbursements
6) Discuss Observations
7) Affirm that the City is in compliance with GASB 10
FUNDING: Workers' Compensation Fund (31 Fund) -
Respectfully submitted,
J Is _ A
istan City Manage
JG:br
Attachment
CCCH-122/TXTA.07A
APPROVED: 1 -^�
THOMAS A. PETERSON PecraNa wvm
City Manager
CC.1
ADVANCED RISK MANAGEMENT TECHNIQUES, INC.
July 6, 19%
Mr. Jerry L. Glenn
Assistant City Manager
221 West Pine Street
Loci, CA 95240
ACTUARIAL SERVICES
Dear Mr. Glenn:
The individual members of the California Joint Powers Risk Management Authority
(CJPRMA) retain liability losses within retentions ranging upward from $500,000. As part
of our service arrangement with CJPRMA, ARM 'Tech has agreed to perform actuarial
studies to the individual membership at reduced rates.
The fee for the actuarial study of the liability program within the self insured retention is
$3,000.
Many CJPR141A members are also self-insured for workers' compensation. The fee for the
actuarial study of the workers' compensation program is also $3,000.
There is no fee to include the self-insured property and/or automobile physical damage
programs, assuming an actuariA study is performed for either the liability or workers'
compensation program.
The actuarial studies are completely optional. The above fees apply to individual city
members, not pools. We would be happy to propose a fee schedule for any pool that is
interested.
The actuarial study includes:
237018Mcher Drive. lake Forest. CA 92630.1783 (714) 472-8324 - FAK(714) 472-9228
Independent Consultants
1. Estimate Outstanding Losses: Estimate outstanding losses (including allocated loss
adjustment expenses (ALAE)) as of fiscal year-end. A long-range forecast will be
provided for the upcoming fiscal year-end.
The outstanding losses are the cost of unpaid claims. The outstanding losses include'
case reserves, the development of known claims and incurred but not reported
(IBNR) claims. ALAE are the direct settlement expenses for specific claims,
primarily legal expenses.
Outstanding losses will be shown on a full -value basis (not discounted for investment
earnings) and present -value basis (discounted for investment earnings). The
underlying interest rate will be based on the member's investment portfolio.
We will estimate the outstanding losses at 5095, 65% and 8096 confidence levels (or
other reasonable levels set by the member). Confidence levels reflect the degree of
statistical confidence the actuary holds that funds will be sufficient to meet losses.
For example, an 80% confidence level means that in eight out of ten years there will
be sufficient funds.
2. Eroject Financial Position: Project the financial position as of fiscal year-end.
The projected financial position is a comparison of estimated outstanding losses and
funds earmarked (unaudited) to meet them.
3. Project Future Losses: Project future losses (and ALAE) for the upcoming two fiscal
years.
The projected future losses are the accrual value of losses, regardless of report or
payment date.
Projected future losses will be shown on a full -value basis (not discounted for
investment earnings) and present -value basis (discounted for investment earnings).
Projected future loss.. cin be Acrvn at 40%. 65% ind 80% con4idence lTvrls (or
other reasonable levels set by the member).
4. Recommend Fundine: Recommend an overall funding level for the upcoming fiscal
year that reflects projected future losses, anticipated investment income, the financial
position of the member's risk management fund and a reasonable provision for
contingencies.
If the member's risk management fund enjoys equity, we will outline a prudent plan
to release the equity. The plan will be designed to release the equity in a financially
responsible manner.
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ADVANCED RISK MANJAGEMENT TECHNIQUES, INC.
If the member's risk management fund is in a deficit, we will develop a long-term
strategy (three to five years) to reduce the deficit.
S. Project Claims Disbursements: Project claims disbursements (losses paid) during the
next two fiscal years.
The projected future Iosses are the cash value of losses, regardless of report or
accident date. This is a cash flow analysis useful for investment and budget purposes.
6. Discuss Observations: Discuss our observations of the member's loss data, loss
experience and projected financial position. Differences from previous studies will
be identified and explained.
7. Affirm GASB Statement No_10SgMpLAAnce: Provide a statement affirming the
conclusions in the actuarial study are consistent with GASB Statement No. 10.
We appreciate this opportunity to serve the members of CJPRMA. Please call me at (714)
472-8324 if you have any questions or comments.
Respectfully submitted,
ADVANCED RISK MANAGEMENT TECHNIQUES, INC.
by -
eve . Glicksman, FCAS, MAAA
Director of Actuarial Services
SAG:mkh
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ADVANCED RISK MANACFMENI TECFJNIOLIFS, INC;
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