city council march 5, 2013 risk management actuary 2012

© 2013 Towers Watson. All rights reserved.

Actuarial Report as of September 30, 2012

A Presentation to the City of San Angeloby Jason Martin, FCAS, MAAAMarch 2013

towerswatson.com© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Limitations on Analysis

These results are intended for the internal use of the City of San Angelo.

Judgments about the findings contained in this presentation should be made only after reviewing our report titled “Actuarial Analysis of Self-Insured Programs as of September 30, 2012” in its entirety.

It should be noted that due to the inherent uncertainty in the projection of future events, actual losses could vary, perhaps materially, from the estimates contained herein.


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Table of Contents

Self-insured Program Background

Actuarial Report Objectives/Scope

Actuarial Report Findings

Variability of Estimates


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City of San Angelo Self-Insurance Program Background

Self-insurance program inception:

January 1, 1988 for Workers Compensation (WC)

October 1, 1987 for Automobile and Liability

Current self-insured retentions/deductibles:

Coverage Self-Insured Retentions/Deductibles

Workers Compensation $500,000

General Liability & Auto Liability Unlimited - No Excess Insurance*

Law Enforcement & Public Officials $500,000

Property $25,000 Vehicles/Equipment$10,000 Other Property

* Subject to Texas Tort Claims Act limits of $250,000/$500,000 Bodily Injury and $100,000 Property Damage


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City of San Angelo Actuarial Report

Objective/Scope of Actuarial Report

Unpaid loss and allocated loss adjustment expense (ALAE) as of 9/30/2012

Forecasted loss and ALAE for 10/1/2012 to 9/30/2013

Surplus analysis of self-insured funds

Analysis performed for each self-insured coverage

Estimates reflect self-insured retentions/deductibles


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Actuarial Terminology

Loss and ALAE Components of a Claim

Paid Amounts

— Actual amounts paid to date

Case Reserves

— Current estimates of future payments on known claims

Incurred But Not Reported (IBNR)

— Unpaid amounts for claims incurred but not yet reported

— Additional development on case reserves for known claims

— Actuarially determined amount

Ultimate Loss & ALAE = Paid Amount + Case Reserves + IBNR


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Unpaid Loss & ALAE

Unpaid Loss & ALAE as of September 30, 2012

Unpaid Estimates ($000s)Self-Insured Coverage Undiscounted Discounted

Workers Compensation $1,501 $1,454

Liability & PropertyAutomobile $312 $310General Liability 515 511Property 4 4Total $832 $825

Total $2,332 $2,279

Note: Discounted estimates based on 0.6% annual rate of return as requested by the City


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Reconciliation of Unpaid Estimates

Current Estimates Reconciled to Prior Estimates(Amounts in $000s)

Reconciliation Workers Compensation

Property & Liability Total

Prior Unpaid Estimate as of 9/30/2011 $1,302 $474 $1,775

+ New Losses from 10/1/2011 to 9/30/2012 615 503 1,118

+ Ultimate Loss Estimate Change 171 (10) 161

- Payments from 10/1/2011 to 9/30/2012 587 136 722

= New Unpaid Estimate as of 9/30/2012 $1,501 $832 $2,332

Change in Unpaid Estimate $199 $358 $557


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Forecasted Loss & ALAE

Forecast for October 1, 2012 to September 30, 2013

Forecasts ($000s)Self-Insured Coverage Undiscounted Discounted

Workers Compensation $629 $615

Liability & PropertyAutomobile $135 $134General Liability 327 322Property 67 67Total $529 $523

Total $1,158 $1,138

Note: Discounted estimates based on 0.6% annual rate of return as requested by the City


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Estimates at Higher Confidence Levels

Discounted Estimates with Risk Margins as of September 30, 2012(Amounts in $000s)

Discounted EstimatesSelf-Insured Coverage at 75% CL at 90% CL

Workers CompensationUnpaid Loss & ALAE as of September 30, 2012 $1,657 $1,879Forecast Loss & ALAE for 10/1/2012-2013 701 796Total Loss & ALAE $2,358 $2,675

Total Risk Margin $289 $606

Liability & PropertyUnpaid Loss & ALAE as of September 30, 2012 $940 $1,208Forecast Loss & ALAE for 10/1/2012-2013 596 766Total Loss & ALAE $1,537 $1,973

Total Risk Margin $189 $626


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Surplus Analysis

Workers Compensation & Property/Liability Funds as of September 30, 2012

(Amounts in $000s)

Workers Property/Compensation Liability Benchmark

Fund Fund Ratios

Surplus EstimateFund Assets at 9/30/2012 $1,603 $2,024Unpaid Estimates - Discounted $1,454 $825Estimated Surplus $150 $1,199

Surplus RatiosUnpaid Estimate / Surplus 9.71 0.69 < 3.0Loss Forecast / Surplus 4.20 0.44 < 3.0Surplus / Maximum $500K Retention 0.30 2.40 5.0 to 20.0


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Workers Compensation - Loss Cost (Per $100 of Payroll)

Increasing trend since 2003

Significant variability in loss costs by year 2007 & 2010 due to impact of large losses


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General Liability - Loss Cost (Per $1000 of Expenditures)

Loss cost variability primarily due to impact of large losses Large losses in 2002, 2003, 2006, 2007, 2012

2013 based on long-term average of loss costs trended to current levels


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Auto Liability - Loss Cost (Per Vehicle)

Loss cost variability primarily due to impact of large losses $279,000 loss in 2012; 45% of losses from 3 claims in 2007 and 2010

2013 based on long-term average of loss costs trended to current levels


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Variability of Estimates

Variability of estimates is expected due to: Low number of claims

Impact of large losses

“Long-tailed” lines of business

Difficult to predict with certainty the course and outcome of future events Influenced by external factors

— Jury verdicts, legislative changes, public attitude, inflation, changes in medical conditions

Influenced by internal factors— Case reserving accuracy, claim settlement speed, retention level, risk/quality control

Potential variability of the City’s Unpaid Estimate at 9/30/2012

One additional $500,000 claim could increase:— Workers Compensation unpaid loss estimate of $1.5 million by 33%

— Liability & Property unpaid loss estimate of $0.83 million by 60%

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