louisiana housing council authorities group insurance risk...

Louisiana Housing Council Authorities Group Self Insurance

Risk Management Agency March 31,2013

Table of Contents

Independent Auditor's Report Page 3

Management's Discussion and Analysis Page 5

Basic Financial Statements Balance Sheets Page 8 Statements of Revenues,

Expenses, and Changes in Net Position Page 9 Statements of Cash Flows Page 10

Notes to Financial Statements Page 12

Required Supplementary hiformation Schedule 1-10 Year Claims Development Information

Workers' Compensation Fund 3 Health Fund Page 24 General Liability Fund Page 25 Fire and Extended Coverage Fund Page 26

Supplementary Information Combining Balance Sheets Page 28 Combining Statements of Revenues,

Expenses, and Changes in Net Position Page 30 Financial Indicator Table Page 32

Independent Auditor's Report on Intemal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page 34

Schedule of Audit Findings and Questioned Costs Page 36

Schedule of Prior Year Audit Findings and Questioned Costs Page 37

HAWTHORN, WAYMOUTH & CARROLL, L.L.P

Louisc. MCKNIGHT, HI. C.P.A, CHARLES R. PEVEY, JR.. C.P.A. DAVID J, BROUSSARD, CPA. NEAL D. KING. CPA. KAHIN S, LEJEUNE. C.P.A. ALVCE S. SGHMin, C.P.A,

UtH 8555 UNITED PLAZA BLVD., SUITE 200

BATON ROUGE, LOUISIANA 70809

025) 923-3000 • FAX [225] 923-3D08

August 9, 2013

Independent Auditor's Report

Insurance Committee Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency Church Point, Louisiana

Report on the Financial Statements

We have audited tlie accompanying fmancial statements of Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency, which comprise the balance sheets as of March 31, 2013 and 2012, and the related statements of revenues, expenses, and changes m net position and cash flows for the years then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in tiie United States of America; this includes the design, implementation, and maintenance of intemal control relevant lo the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express ^ opinion on these fmancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govemment Auditing Standards, issued by the Comptroller General of Uie United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risks of material misstatement of the fmancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers intemal control relevant to the entity's preparation and fair presentation ofthe financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entit>''s intemal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation ofthe fmancial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency as of March 31, 2013 and 2012, and the changes in its net position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting pruiciples generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 7 and the schedule 1-10 year clauns development information on pages 23 tiirough 26, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Govemmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparmg the information and comparing the information for consistency with management's responses to our inquiries, the fmancial statements, and other knowledge we obtained during our audit ofthe basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The combining balance sheete on pages 28 through 29, combining statements of revenues, expenses, and changes in net position on pages 30 through 31, and financial indicator tables on pages 32 through 33 are presented for purposes of additional analysis and are not a required part ofthe fmancial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the fmancial statements. The information has been subjected to the auditing procedures applied in the audit ofthe financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordmice with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In ccorAancQ y iXh Government Auditing Standards, we have also issued our report dated August 9, 2013, on our consideration of Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency's internal control over fmancial reportuig and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of intemal control over fmancial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reportuig or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency's intemal control over financial reporting and compliance.

Yours tmly,

Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency Management's Discussion and Analysis

March 31,2013

The following is management's discussion and analysis ofthe financial performance of Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency (the Agency) for the fiscal year ended March 31,2013. It is presented as a narrative overview and analysis for the purpose of assisting the reader in interpreting the key elements ofthe financial statements, notes to the fmancial statements, and supportmg schedules for the current year.

Louisiana Housuig Council Authorities Group Self Insurance Risk Management Agency is an association of City and Parish Public Housing Authorities in the State of Louisiana that pools its funds to purchase certain types of insurance coverage. The Agency was originally formed in 1994 and currently offers coverage for Workers' Compensation, Fire and Extended Coverage (Property), and General Liability. Each line of coverage is a separate fund within the Agency and has different membership, with the General Liability Fund having the broadest membership of 117 Authorities. Additional coverages offered by LHC include Public Officials Liability, Health, Long Term Disability, Life, and Pension.

A committee of 7 members, along with an Insurance Coordinator (who is contracted by the LHC Executive Committee), serves as the insurance committee. This committee makes the decisions regarding the insurance operations, and results are shown herein. The Agency and its insurance program are currently administered by Arthur J. Gallagher Risk Management Services, Inc. at the direction ofthe committee.

Financial Highlights (in Millions)

Cash and Investments Reserves for Unpaid Claims Net Position

At March 31.2013

12.51 1.72 9.14

At March 31. 2012

11.73 1.19 9.61

At March 31,2011

10.95 1.21 9.94

Percentage Increase

(Decrease")

6.65 % 44.54 % (4.89)%

Percentage Fiscal Fiscal Fiscal Increase

Year 2013 Year 2012 Year 2011 (Decrease)

12.25 11.15 12.26 9.87 %

8.01 6.43 6.82 24.57 %

Premium Income Premiums Ceded and Insurance

Policies Purchased Investment Income and

Change in Unsold Investments Net Claims Expense Administrative, Legal and Overhead Fees Net Income Prior to Dividends Policyholder dividends Net Income (Loss)

As shown above, cash and uivestments have increased by 6.65% which was the result of a net income before policyholder dividends of approximately $220,000 in 2013, compared to $1.5 million in 2012. Property premiums eamed increased by 1.2 million (21%) while premiums ceded also increased by 1.59 million (35%). These increases were primarily driven by an increase in values on several properties in a contuiued trend from the prior year. Overall, properly values were increased by 14%. The agency also added a large member to the Fire and Extended Coverage Fund in the current year which increased both the premiums eamed and premiums ceded. The base rate for premiums ceded for the Fire and Extended Coverage Fund increased by 3%.

0.07 3.86 0.63 0.22 0.70

(0.48)

0.14 3.32 0.83 1.48 1.80

(0.32)

0.02 3.00 0.66 2.04 -2.04

(50.00)% 16.27 %

(24.10)% (85.14)% (61.11)% (50.00)%


March 31,2013

Financial Highlights (in Millions) (Continued)

Property claims expenses increased from 2012 to 2013 due to three large claims during the policy period (two hail and one windstorm). In addition, General Liability claims also increased by approximately $324,000. This increase is primarily a result of an increase in reserves for open claims which were increased from $619,537 to $1,007,510 based on trending of prior clauns. LHC's insurance programs have a combined $9.1 million in total fund equity as of March 31, 2013.

Total claims incurred increased by approximately $540,000, which was primarily a result of an increase ui property and general liability claims expense from 2012 to 2013. The table below shows claims expense by each self-insured fund over the past three years.

Workers' Compensation Health Fire & Extended Coverage General Liability

Total claims expense, net

Fiscal Year 2013

$ (5,470) 2,525,073

837,056 505.196

S 3.861.855

Fiscal Year 2012

$ (5,846) 2,545,470

598,909 180.817

K 3.319.350

Fiscal Year 2011

$ (37,111) 2,215,830

586,711 232.195

$ 2.997.625

Investment income for fiscal year 2013 was approximately $67,000 or about 0.6% eamed on average cash and investments compared to approximately $140,000 and 1.2% from fiscal year 2012. The frend in investment earnings is consistent with the overall investment environment for the current fiscal year.

The overall net income prior to dividends for 2013 decreased to approximately $220,000 versus $ 1.5 million for the 2012 fiscal year. This decrease in net income was driven mostly by the decrease in net premiums eamed and the increase in claims expenses discussed above.

Basic Financial Statements

The basic financial statements include mformation for Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency. The statements are presented in accordance with Governmental Accounting Standards Board (GASB) accounting principles and include the Balance Sheets; Statements of Revenues, Expenses, and Changes in Net Position; and Statements of Cash Flows.

The Balance Sheets present the assets and liabilities of the Agency and insurance programs. The difference between total assets and liabilities is represented as net position and is a useful indicator ofthe surplus generated for all years of operation. The change in net position is a useful measure of whether the fmancial position is improving or deteriorating.

The Statements of Revenues, Expenses, and Changes in Net Position present the results ofthe insurance operations for the past two fiscal years. This statement shows the revenues generated by the funds along with the associated expenses. The revenues m excess of expenses are represented as net income and contribute to the change in net position from one year lo another.

The Statements of Cash Flows presents information showing how cash changed throughout the fiscal years as a result of operations.

March 31, 2013

$112,051 197,392

$309,443

March 31, 2012

$104,794 93,558 15,516

$213,868

March 31, 2011

$ 93,704 80,091

$173,795


March 31, 2013

Other Receivables

The balance sheets contain an asset referred to as "Other Receivables." The balance in this account is comprised of the items detailed in the following table.

Pension Forfeimre Credits Receivable Policyholder Dividends Receivable Miscellaneous Receivables

Total other receivables

As detailed above, the most significant changes from year to year were in policyholder dividends due to the Agency from its workers compensation coverage provider, Louisiana Workers' Compensation Corporation (LWCC). The dividend was declared by LWCC for the 2012 calendar year but was not received by the Agency until after March 31,2013.

Unearned Premiums

When premiums are pre-collected for a renewal or insurance carrier premium installment, a liability must be established to reflect that as of that point in time, those collections were made for activity that was to happen subsequent to the date ofthe financial statements.

Other Payables

The Balance Sheets as of March 31, 2013 and 2012 contain "Other Payables" of approximately $1.8 million. This amount represents dividends that were approved by the msurance committee prior to fiscal year end but not paid as ofMarch31,2013, as well as grant funds held by the Agency to be distributed to its members.

Contacting the Agency's Insurance Coordinator

This financial report is mtended to provide a general overview of Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency for interested parties. Questions concerning infonnation provided herein, or requests for additional fmancial information, should be addressed to the Louisiana Housing Council's Insurance Coordinator:

Ms. Gertrude Broach 405 South David

Church Point, LA 70525

Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency

Balance Sheets March 31, 2013 and 2012

2013 2012 Assets

Cash and cash equivalents Investments, at fair value

Short-term securities Government securities

Premiums receivable Reinsurance receivables, net Prepaid expenses Other receivables Escrow funds Accrued interest

Total assets

Liabilities Accounts payable Unpaid claims liability Deposits Unearned premiums Pension funds payable Pension forfeitures payable Other payables

Total liabilities

$ 4,224,449

94,274 8,187,260

10,457 9,717

160,965 309,443 36,897 36,183

$13,069,645

$ 22,156 1,721,929 104,677 85,855 65,981 112,051

1,818,975

$ 2,380,287

97,934 9,249,658

58,586 641,649 313,453 213,868 33,907 35,446

$13,024,788

$ 49,201 1,189,335 104,677 93,408 65,568 104,794

1,804,236

3,931,624 3,411,219

Net Position Unrestricted

Total liabilities and net position

9,138,021 9,613,569

$13,069,645 $13,024,788

The accompanying notes are an integral part of these financial statements.

S


Statements of Revenues, Expenses, and Changes in Net Position Years Ended March 31,2013 and 2012

Revenues Premiums earned Premiums ceded

Net premiums eamed Pension funds received Investment income Net appreciation (depreciation)

in fair value of investments LHC tee Other revenue

Total revenues

Expenses Claims expenses Less reinsurance proceeds

Net incurred claims expenses Adminisfrative fees Insurance coordinator fees Claims administrator fees Pension funds transferred Fees paid to LHC Loss prevention costs Bank service charges/other Legal fees Actuarial fees Policyholder dividends

Total expenses

2013

12,245,496 (8,007,044)

2012

11,145,912 (6,428,858)

4.238,452 745,946 151,757

(84,439) 112,504 329,277

5,493,497

4,055,721 (193,866) 3,861,855 122,361 20,004

218,765 745,234 112,504 3,150

166,382 14,732 4,500

699,558

5,969,045

4,717,054 777,913 126,912

11,616 107,336 663,864

6,404,695

3,382,542 (63,192)

3,319,350 121,546 21,502 177,914 777,131 107,336 319,556 51,757 21,512 4,500

1,804,236

6,726,340

Net Income (Loss) (475,548) (321,645)

Net Position Beginning of year 9,613,569 9,935,214

End of year $ 9,138,021 $ 9,613,569

The accompanying notes are an integral part of these financial statements.


Statements of Cash Flows Years Ended March 31,2013 and 2012

2013 2012 Cash Flows From Operating Activities

Premiums received Premiums paid Reinsurance proceeds Pension funds received Investment activity Claims paid Pension funds paid Payments for fees and bank charges Policyholder dividends paid Grant funds received Grant funds distributed to members Other receipts

Net cash provided by operating activities

Cash Flows From Investing Activities Proceeds from sale and maturity of

investment securities Purchase of investment securities

Net cash provided by (used in) mvesting activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents, beginning of year

Cash and Cash Equivalents, end of year

$12,286,072 (7,854,556)

825,798 738,689 148,007

(3,523,127) (737,564) (686,294)

(1,804,236) 1,579,798 (382,893) 269,866

859,560

1,130,657 (146,055)

984,602

1,844,162

2,380,287

$ 4,224,449

$10,982,135 (6,450,506)

115,813 789,003 111,053

(3,401,765) (775,382) (785,502) — — -177,398

762,247

28,982 (1,385,241)

(1,356,259)

(594,012)

2,974,299

$ 2,380,287

The accompmiying notes are an integral part of these financial statements.

10


Statements of Cash Flows Years Ended March 31,2013 and 2012

2013 2012 Reconciliation of Net Income (Loss) to Net Cash

Provided by Operating Activities Net income (loss) $(475,548) $ (321,645) Adjustments to reconcile net income (loss) to

net cash provided by operating activities Net (appreciation) depreciation in

fair value of investments Realized (gain) loss on rnvestments (Increase) Decrease in assets:

Receivables Accrued interest Prepaid expenses Escrow funds

Increase (Decrease) in liabilities: Unpaid claims liability Unearned premiums Accounts payable Pension funds payable Pension forfeitures payable Other payables

Net cash provided by operating activities

84,439 (2,983)

584,486 (737)

152,488 (2,990)

532,594 (7,553) (27,045)

413 7,257 14,739

$ 859,560

(11,616) (2,165)

(591,939) (13,694) (18,197) (3,451)

(19,223) (113,019) 40,121 1,749

11,090 1,804,236

$ 762,247

The accompanying notes are an integral pat of tiiese financial statements.

11


Notes to Financial Statements March 31,2013

Note 1-Public Entity Risk Pools

In April, 1984, the Governmental Accounting Standards Board (GASB) was established as an arm ofthe Financial Accounting Foundation to promulgate standards of financial accounting and reporting with respect to activities and fransactions of state and local entities.

In November, 1989, the GASB issued Statement No, 10 "Accounting and Financial Reporting for Risk Financing and Related Insurance Issues" (GASB 10) to establish accounting and financial reporting standards for risk financing and insurance-related activities of state and local govemmental entities, including public entity risk pools.

In February, 1996, the GASB issued Statement No. 30 "Risk Financing Omnibus, An Amendment of GASB StatementNo. 10."

A "public entity risk pool" is defined in GASB 10 as a "cooperative group of govemmental entities joining together to finance an exposure, liability, or risk." There are four basic types of public entity risk pools which can serve one or several ofthe following functions;

Risk-Sharing Pool

An arrangement by which govemments pool risks and fiinds and share in the control of losses.

Insurance-Purchasing Pool

An arrangement by which governments pool funds or resources to purchase commercial insurance products.

Banking Pool

An arrangement by which monies are made available for pool members in the event of loss on a loan basis.

Claims-Servicing or Account Pool

An arrangement by which a pool manages separate accounts for each pool member from which the losses of that member are paid.

Risk-Sharing Pools

Workers' Compensation Fund Health Fund

Fire & Extended Coverage Fund General Liability Fund

Insurance-Purchasing Pools

Long-Term Disability Fund Life Insurance Fund

Public Officials Liability Fund

In 1981, theLouisiana Legislature enacted Louisiana Revised Statutes (LRS) 33:1351 through 33:1360, the "Local Housing Authority Self Insurance Act of 1981." LRS 33:1354 authorizes the Louisiana Housing Council, Inc. (LHC) to administer an inter-local risk management agency, with the insurance committee ofthe LHC constituting the board of frustees for such agency. LHC is an association for the housing authorities of Louisiana and is incorporated as a nonprofit corporation under the laws ofthe State of Louisiana.

12



Note 1-PubIic Entity Risk Pools (Continued)

Participation in Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency (the Agency) is open to all housing authorities which are members of the Louisiana Housing Council, Inc. These housing authorities join together to acquire commercial insurance coverage at lower costs. Participation is voluntary and participants may withdraw by giving proper notice. The Agency's general objectives are to formulate, develop and administer, on behalf of the member housuig authorities, a program of inter-local risk management to obtain lower costs for that coverage.

Risk-Sharing Pools

Participating housing authorities transfer risk of loss to the funds in the risk-sharing pool. If the assets of the Agency are exhausted, participants will be responsible for their respective outstanding claims.

The Workers' Compensation Fund had seventy-three and seventy-one housing authorities participating as of March 31, 2013 and 2012, respectively. The Fund uses the Louisiana Workers' Compensation Corporation (LWCC) for claims processing and has established a "Loss Deposit" account with them.

The Health Fund had fifty-four and fifty-one housing authorities participating as of March 31, 2013 and 2012, respectively. Benefit Management Systems performs the claims processing for the Health Fund.

The General Liability Fund had one hundred twenty-eight and one hundred twenty-sk housing authorities participatmg as of March 31, 2013 and 2012, respectively. F. A. Richard & Associates performs clauns processing for the General Liability Fund and maintains a "Loss Fund" account for payment of claims.

The Fire and Extended Coverage Fund had one hundred twenty-four and one hundred twenty-three housing authorities participating as of March 31,2013 and 2012, respectively. F. A. Richard & Associates performs claims processing for the Fire and Extended Coverage Fund and maintains a "Loss Fund" account for payment of claims.

Fund underwriting and rate-setting policies have been established by the LHC Insurance Committee, which is the goveming body ofthe Agency.

Insurance-Purchasing Pools

The insuraice-purchasing pools include the Long-Term Disability Fimd, Life Insurance Fund and the Public Officials Liability Fund, which are comprised of members of the Louisiana Housing Council, Inc. The Funds receive premiums from the housing authorities and pool the ftjnds to purchase commercial insurance products.

Note 2-Summary of Significant Accounting Policies

A. Basis of Accoimting

The Agency is considered an enterprise fund and, accordingly, uses the accmal method of accounting. Revenues are recorded in the period in which they are earned and expenses are recorded in the period in which they are incurred.

13


Notes to Financial Statements March 31, 2013

Note 2-Summary of Significant Accounting Policies (Continued)

B. Cash and Cash Equivalents

For purposes ofthe statements of cash flows, the Agency considers all cash on hand, financial institution deposits, and highly liquid debt instruments purchased with a maturity of three montiis or less tliat are not included in an investment portfolio to be cash equivalents.

C. Investments

hivestments are reported at fair value. Fair value is based on the market value on the last business day ofthe fiscal year. Purchases and sales of securities are reflected on the trade date. Interest income is recorded as eamed on the accmal basis.

The Agency follows FASB ASC 820, Fair Value Measwements, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e, the "exit price") in an orderly transaction between market participants at the measurement date. FASB ASC 820 estabhshes a hierarchical framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, includingthetypeof investment and the characteristics specific to the uivestment.

The Agency utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Agency determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one ofthe following levels:

Level 1: Quoted prices (unadjusted) in active markete which are accessible at the measurement date.

Level U: Prices based on observable inputs corroborated by market data but no quoted active markets.

Level III: Prices based on unobservable inputs, including situations where there is little, if any, market activity for the assets or liabilities. The inputs used in the determination of fair value require significant management judgment or estimation.

In certain cases, the mputs used to measure fair value may fall into different levels ofthe fau value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment ofthe significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investments.

D. Premium hicome and Receivables

Premiums are recognized as income over the term ofthe policies as they become eamed on a pro-rata basis. Any adjustments to armual premiums are considered to be a change in estimate and are recognized in the year they become known. The costs associated with nev/ and renewal contracts as acquisition costs are immaterial to the financial statements and are expensed when incurred.

14



Note 2-Suniimary of Significant Accounting Policies (Continued)

D. Premium Income and Receivables (Continued)

Accounts receivable are stated at the amount management expects to collect from balances outstanding at year-end. Management evaluates accounts receivable on a periodic basis and determines the necessity of an allowance for doubtful accounts based on history of past write-offs, collections, and current conditions. Receivables are written off when it is determined that all collection efforts have been exhausted. At March 31, 2013 and 2012, the allowance for doubtful accounts was $56,236 and $89,703, respectively.

E. Unpaid Clauns Liability

(I) Workers' Compensation Fund, Health Fund, Fire & Extended Coverage Fund, and General Liability Fund

These funds establish claims liabilities based on estimates of the ultimate cost of claims (including fixture claim adjustment expenses) that have been reported but not settied and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Estimated amounts of reinsurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Because actual claims costs depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claims liability does not necessarily result in an exact amount. Claims liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claims frequency, and other economic and social factors. A provision for inflation in the calculation of estimated future costs is implicit in the calculation. The carrying amount of liabilities for claims losses and claims expense is presented at actual amounts expected to be spent and are not discounted to present value. Investment earnings are not taken into account in detennining claims liability.

(II) All Other Insurance Funds

These funds buy insurance from various commercial insurance companies to cover all claims; therefore, no reserve for unpaid claims liability has been established.

F. Excess and Reinsurance Policies

The funds in the risk-sharing pools purchase excess and reinsurance policies to reduce exposure to large losses on insured events. Under excess policies, once clauns reach the provided specific or aggregated stop loss limit, the liability transfers to the excess insurer. Reinsurance policies permit recovery of a portion of losses, althougli they do not discharge the primary liability of the individual funds as direct insurer of the risks. Funds do not report reinsured risks as liabilities unless it is probable that those costs will not be covered by reinsurers. The Agency evaluates the financial condition of its reinsurers and monhors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics ofthe reinsurers to minimize their exposure to significant losses from reinsurer insolvencies.

G. Income Taxes

The Agency is exempt from federal income taxes under Sections 7701 and 115 (I) ofthe Intemal Revenue Code.

15



Note 2-Summary of Significant Accounting Policies (Continued)

H. Use of Estimates

The preparation of fmancial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estunates made by man^ement which mi^t affect these financial statements include, but are not limited to, the unpaid claims liability for all risk-sharing pools.

Note 3-Agency Pool

The Louisimia Housuig Council Authorities Group Self Insurance Risk Management Agency sponsors an Agency Pool, which mcludes only the Pension Fund. This fimd receives the contributions from the housmg authorities and remits them to the custodian.

Note 4-Cash, Cash Equivalents and Investments

A. Agency

Cash and cash equivalents are stated at cost, which approximates market value. Under state law, the Agency may deposit funds within a fiscal agent bank selected and designated by the Bo^d. Further, the Agency may purchase time certificates of deposit of any bank domiciled or having a branch office in the State of Louisiana, invest in savings accounts or shares of savings and loan associations and savings banks and in share accounts and share certificate accounts of federally or state chartered credit unions.

Under Louisiana Revised Statutes, the Agency may invest in obligations ofthe U.S. Treasury, obligations of U.S. Agencies which are guaranteed by the U.S. govemment or U.S. govemment agencies, repurchase agreements, certificates of deposit as mentioned above, investment grade commercial paper, investment grade corporate notes mid bonds, said other investments as required by the terms of bond tmst indentures.

B. Cash and Cash Equivalents

At March 31, 2013 mid 2012, the cmrying amount ofthe Agency's cash and cash equivalents was $4,224,449 and $2,380,287, respectively. At March 31, 2013 and 2012, the Agency had $3,967,586 and $2,432,894 in deposits (collected bank balances), respectively. As of March 31, 2013, $500,000 was covered by the Federal Deposit Insurance Corporation (FDIC). As of March 31, 2012, the entire amount was covered by the FDIC.

C. Investments

(I) Interest Rate Risk

The Agency does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The following table summarizes the Agency's segmented time disttibution investment maturities in y&ais by investment type as of March 31, 2013 and 2012.

16



Note 4-Cash, Cash Equivalents and Investments (Continued)

C. Investments (Continued)

(1) Interest Rate Risk (Continued)

Investment Type March 31, 2013

U.S. Treasury Notes U.S. Govemment Agency Bonds U.S. Government Agency Notes

Fair Value

$ 737,342 1,782,397 5.667,521

Investment Maturity in Years Less than 1

$ 686,629 281,117

1.982.759

1-5

$ 50,713 1,501,280 3,684.762

March 31, 2012 U.S. Treasury Notes U.S. Govemment Agency Bonds U.S. Government Agency Notes

$8J_8?>260

S 833,700 1,201,291 7.214.667

$2.950.505

$ -

1,004.468

ail.004.468

$ 833,700 1,201,291 6.210.199

£8.245.190

(II) Credit Risk

State law limits investments to those indicated under the agency caption within this footnote. As of March 31, 2013 and 2012, all ofthe Agency's investments were rated AA+ by Standard & Poors.

(III) Custodial Credit Risk

For an investment, custodial credit risk is the risk that, in the event ofthe failure ofthe counterparty, the Agency will not be able to recover the value of its investments or collateral securities that are in the possession of an outside parly. The Agency's investments are held by the custodial bank as an agent for the Agency, in the Agency's name and are thereby not exposed to custodial credit risk.

(IV) Concenttation of Credit Risk

The Agency places no limit on the amount that may be invested in any one issuer. The Agency has no investments in any single organization (other than those issued or guaranteed by the U.S. Government) that represent five percent or more ofthe Agency's total assets.

Note 5-Unpaid Claims Liability

The funds shown below have established liabilities for both reported and mireported insured events, which include estimates of future payments of losses and related claim adjustment expenses, both allocated and unallocated.

17



Note 5-Unpaid Claims Liability (Continued)

Changes in these liabilities are as follows:

March 31.2013 Unpaid claims and claims adjustment

expenses at March 31,2012

Incurred claims and claims adjustment expenses ofthe current period

Increases (decreases) in provision for insured events of prior years

Workers' Compensation

Fund Health Fund

Fire& Extended Coverage

Fund

General Liability

Fund Total

Incurred claims and claims adjustment expenses ofthe current period

Increases (decreases) in provision for insured events of prior years

$ 5,470 $ 291,180 $ 273,148 $ 619,537 $1,189,335

2,537,917 1,030,840 300,000 3,868,757

(5,470) 181,022 (193,784) 205,196 186,964 Total incurred claims and claims adjustment expense

Payments for clauns and claims adjustment expenses attributable to:

Insured events of current year Insured events of prior years

Total payments and claims adjustment expenses

Total unpaid claims and claims adjustment expense at year end

March 31.2012 Unpaid claims and claims adjustment

expenses at M^ch 31, 2011

(5,470)

$ -

$ 71,269

2,718,939

2,236,705 408,826

2,645,531

$ 364,588

$ 215,105

837,056

689,104 71,269

760,373

$ 349,831

$ 287,130

505,196

22,925 94,298

117,223

$1,007,510

$ 635,054

4,055,721

2,948,734 574,393

3,523,127

$1,721,929

$1,208,558

2,534,424 562,043 119,349 3,215,816

(5,846) 74,238 36,866 61,468 166,726 Total incurred claims and claims adjustment expense

Payments for claims and claims adjustment expenses attributable to:

Insured events of current year Insured events of prior years

Total payments and claims adjustment expenses

Total unpaid claims and claims adjustment expense at year end

(5,846)

-59,953

59,953

$ 5,470

2,608,662

2,306,620 225,967

2,532,587

$ 291,180

598,909

325,856 287,035

612,891

$ 273,148

180,817

15,891 180,443

196,334

$ 619,537

3,382,542

2,648,367 753,398

3,401,765

$1,189,335



Note 6-Assets Measured at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis at March 31,2013 and 2012 are comprised ofthe following:

2013 2012 Investments, at fair value

Short-term securities Govemment securities

$ 94,274 $ 97,934 8,187,260 9,249,658

$8,281,534 $9,347,592

March 31, 2013 Investments

Money market mumal funds U.S. Treasury Notes U.S. Govemment Agency Bonds U.S. Government Agency Notes

Quoted Prices in Active Markets (Level 1)

$ 94,274 737,342

1,782,397 5,667,521

Other Observable

Inputs (Level 2>

$ ----

Unobservable

Inputs (Level 3)

s ----

Total

$ 94,274 737,342

1,782,397 5,667,521

i,281,534 $ March 31,2012

hivestments Money market mutual funds U.S. Treasury Notes U.S. Government Agency Bonds U.S. Government Agency Notes

S 97,934 833,700

1,201,291 7,214,667

$9,347,592 $

J,281,534

$ 97,934 833,700

1,201,291 7,214,667

$9,347,592

Generally, for all investments and assets held in trust, fair value is determined by reference to quoted market prices and other relevant infonnation generated by market transactions.

Note 7-Reinsurance Policy Coverage

A. Workers' Compensation Fund

The Agency carries its workers' compensation coverage on a "first-doUar" basis. As a result, at March 31, 2013, the Fund has no specific event liability and no stop loss aggregate. Premiums ceded to excess insurers during the years ended March 31, 2013 and 2012 were $534,557 and $564,501, respectively. At March 31, 2013 and 2012, there were no anticipated recoverable amounts.

19


Notes to Financial Statements March 31, 2013

Note 7-Reinsurance Policy Coverage (Continued)

B. Health Fund

At March 31, 2013 and 2012, the Fund had reinsurance with each participant having a lifetime maximum coverage of $2,000,000. The self-insured retention is $60,000 for each individual. Premiums ceded to reinsurers during the years ended March 31, 2013 and 2012 were $441,531 and $470,231, respectively, and the amount deducted from claims was $193,866 and $63,192, respectively. All ofthe reinsurance activity was with a smgle reinsurer. The anticipated recoverable amount as of March 31, 2013 was $601 and at March 31, 2012 was $716.

C. Fke & Extended Coverage Fund

At March 31, 2013 and 2012, the Fund had excess insurance with a self-insured retention of $175,000 for each specific event and aggregate stop losses of $1,750,000 for the policy periods with the exception of named windstorms m tiers 1 & 2, which had a SIR of 5% ofthe building values at the time of loss subject to a $250,000 minimum deductible. Premiums ceded to excess insurers during the years ended March 31, 2013 and 2012, were $6,120,122 and $4,530,550, respectively. The policy period runs from April 1 ' to March 31 * of each year. Reinsurance activity was with multiple reinsurers. The anticipated recoverable amount as of March 31, 2013 was $9,116 and at March 31, 2012 was $640,933.

D- General Liability Fund

At March 31, 2013 and 2012, the General Liability Fund had excess insurance with a self-insured retention of $50,000 for each specific event and an aggregate stop loss of $558,250 and $505,000, respectively, for the policy periods. Premiums ceded to excess insurers during the years ended March 31, 2013 and 2012 were $576,200 and $524,584, respectively. The policy period runs from April 1^ to March 31**' of each year. Reinsurance activity was with a single reinsurer. At March 31, 2013 and 2012, there were no anticipated recoverable amounts.

Note 8-Related Party Transactions

The Louisiana Housing Council, Inc. (LHC) provides benefits and services to the housing authorities, as well as access to lower cost insurance, through administration ofthe Agency. The Fhe and Extended Coverage, General Liability, and Public Officials Liability Funds pay a fee to LHC based on housing authorities' participation in the pool of fire & extended coverages, general liability, and public officials liability policies. These fees are recognized when the policies are billed. Total fees for the years ended March 31,2013 and 2012 were $112,504 and $107,336, respectively.

The Agency pays consulting fees to a member of its board of directors for assistance with insurance related issues. These fees were $20,004 and $21,502 for the years ended March 31, 2013 and 2012, respectively.

The Agency purchases public official's liability uisurance and a fiduciary bond to cover its board of directors from Arthur J. Gallagher Risk Management Services, Inc., the Plan Administrator. Total amounts paid for these policies were $22,729 and $22,668 for the years ended March 31, 2013 and 2012, respectively.

20



Note 9-Administrative Services

Arthur J. Gallagher Risk Management Services, Inc. is a third-party service agent that performs the risk management and administrative functions ofthe Agency. Fees for then- services are based on different criteria for each type of insurance coverage. Total fees expensed for the years ended March 31,2013 and 2012 were $122,361 and $121,546, respectively.

Note 10-Pension Forfeitures Payable

The Agency's Pension Fund has a forfeiture account with ING, which provides the pension plan to the housing authority participants, with balances of $112,051 and $104,794 at March 31, 2013 and 2012, respectively. These amounts will be allocated to the participants.

Note 11-Contingenies

During the normal course of business, the Agency becomes involved in various insurance related claims and legal actions. Management ofthe Agency establishes estimated liabilities for reported and unreported contingencies. Management believes that the outcome of claims and any related legal proceedings will be provided for by the estimated insurance liabilities and will not have a material adverse effect on the Agency's financial position or results of operations.

Note 12-Cooperative Endeavor Agreement

On September 11, 2012, the Agency entered into a cooperative endeavor agreement with the State of Louisiana to administer the Community Development Block Grant Disaster Recovery Program to its members. Funds are provided by the Louisiana Office of Community Development through a grant from the United States Department of Housing and Urban Development. The program dlows members to be reimbursed for a portion of their deductibles related to Hurricanes Gustav and Ike, which both occurred in September 2008. The Agency received funds totaling $1,579,798. For the year ended March 31, 2013, $382,893 had been disfributed to members. An additional $77,488 was used for fees to a third-party consultant to administer the program and was included in other revenue on the statement of revenues, expenses, and changes hi net position. As of March 31, 2013, $ 1,119,417 remained for distribution to members and was included ui other payables on the balance sheet.

Note 13-Subsequent Events

The Agency evaluated all subsequent events through August 9, 2013, the date the fmancial statements were available to be issued. As a result, the Agency noted no subsequent events that require adjustment to, or disclosure m, these financial statements.

21

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31

Louisiana Housing Counci l Authori t ies G r o u p Self Insu rance Risk M a n a g e m e n t Agency

Financia l Ind ica tor Table Yea r E n d e d M a r c h 3 1 , 2013

Loss Ratio = Incurred Losses and Loss Adjustment Expense $3.861,855 Net Premiums Eamed 4,238,452

Loss Ratio - 9L11%

Expense Ratio = Expenses ("excluding expenses related to losses) 2,107.190 Net Premiums Eamed 4,238,452

Expense Ratio = 49.72%

Combined Ratio = Loss Ratio + Expense Ratio 1.41 Combined Ratio = 1.41

Net Investment Income Ratio = Net Investment Income

Net Premiums Eamed 67.318

4,238,452

Net Investment Income Ratio = 0.02

Yield on Invested Assets = Net Investment Income

Investments

Operating Ratio = Combined Ratio - Net Investment Income Ratio 1.39

67.318 8,281,534

Operating Ratio = 1.39

Yield on Invested Assets 0.81%

Change in Net Position = Increase (Decrease) in Net Position Previous Year's Net Position

(475.548) Change in Net Position = (4.95)% 9,613,569

Return on Net Position = Net Income (Loss) Previous Year's Net Position

Net Premium Written to Net Position = Net Premiums Written

Net Position

(475.548) Return on Net Assets = (4.95)% 9,613,569

9,138,021

Net Premium Written to Net Assets = 46.38

Current Liability = Cash and Cash Equivalents + Investments 12.505.983 Uneamed Premium + Unpaid Claims Liability 1,807,784

Current Liability = 6.92

32

Louisiana Housing Counci l Author i t ies G r o u p

Self Insu rance Risk M a n a g e m e n t Agency Financial Ind ica tor Table

Yea r Ended M a r c h 31 ,2012

Loss Ratio = Incurred Losses ^id Loss Adjustment Expense $3.319.350 Net Premiums Earned 4,717,054

Loss Ratio = 70.36%

Expense Ratio = Expenses (excluding expenses related to losses) 3.406,990 Net Premiums Earned 4,717,054

Expense Ratio = 72.22%

Combined Ratio = Loss Ratio + Expense Ratio 1.43 Combined Ratio = 1.43

Net Investment Income Ratio = Net Investment Income

Net Premiums Eamed 138.528

4,717.054

Net Investment Income Ratio = 0.03

Operating Ratio = Combined Ratio - Net Investment Income Ratio 1.40 Operating Ratio = 1.40

Yield on Invested Assets = Net Investment Income

Investments 138.528

9,347,592

Yield on Invested Assets = 1.48%

Change in Net Position = Increase (Decrease) in Net Position Previous Year's Net Position

(321.645) Change in Net Assets = (3.23)% 9,935,214

Return on Net Position = Net Income (Loss) Previous Year's Net Position

(321,645) Return on Net Assets = (3.23)% 9,935,214

Net Premium Written to Net Position = Net Premiums Written

Net Position

Net Premium 4.717.054 Written to Net Assets - 49.06 9,613,569

Current Liability = Cash and Cash Equivalents + Investments 11,727.879 Uneamed Premium + Unpaid Claims Liability 1,282,743

Current Liability = 9.14

33

HAWTHORN, WAYMOUTH & CAKROLL, L.L.P.

LOUISC. MCKNIGHT, III, C.P.A, CHARLES R. PEVEY, JR., C.RA, DAVID J BRQUSSARD. C.P.A. NEALD. KING, CPA. KARIN S, LEJEUNE, C.P.A, ALYCE S. gCHMITT, C.P.A.

CER

B555 UN^ED PLAZA BLVD., SUITE 200

BATON ROUGE, LOUISIANA 70809

1225) 923^3000 • FAX [225) 923-3008

August 9, 2013

Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an

Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Insurance Committee Louisiana Housmg Council Authorities Group Self Insurance Risk Management Agency Church Point, Louisiana

We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govemment Audit Standards issued by the Comptroller General of the United States, the financial statements of Louisiana Housing Council Authorities Group Self hisurance Risk Management Agency, which comprise the balance sheets as of March 31, 2013 and 2012, and the related statements of revenues, expenses, and changes in net position, and cash flows for the years then ended, and the related notes to the fin^icial statements, and have issued our report thereon dated August 9, 2013.

Internal Control Over Financial Reporting

In planning and performing our audit ofthe financial statements, we considered Louisiana Housmg Council Authorities Group Self Insurance Risk Management Agency's intemal control over financial reporting (intemal conlTol) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency's intemal control. Accordingly, we do not express an opinion on the effectiveness ofthe Agency's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weahtess is a deficiency, or combination of deficiencies, in intemal control, such that there is a reasonable possibility tliat a material misstatement of tlie entity's fmancial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in intemal control that is less severe than.a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of intemal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in intemal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in uilemal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

34

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Louisiana Housing Council Authorities Group Self Insurance Risk Management Agency's fmancial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompHance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed one instance of noncompliance or other matters that is required to be reported under Govemment Auditing Standards and which.is described in the accompanying schedule of audit findings and questioned costs as item 2013-01.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of intemal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness ofthe entity's intemal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordmgly, this communication is not suhable for any other purpose.

Youi^ tmly,

35


Schedule of Audit Findings and Questioned Costs March 31,2013

Findings - Financial Statement Audit

2013-0 J Pledged Securities for Public Funds on Deposit

Condition During the period from January 1, 2013 to March 31, 2013, the Agency had public funds on deposit with a fmancial institution in excess of amounts insured by the Federal Deposit hisurance Corporation (FDIC) which were not adequately secured by pledged securities as required by Louisiana R.S. 49:321.

Cause Effective January 1, 2013, the amount of deposits in non-interest bearing accounts insured by the FDIC decreased from an unlimited amount to $250,000 per depositor. After this chaige, the Agency's accounts, which collectively exceeded this coverage, were not properly secured by pledged securities through the end ofthe fiscal year.

Effect Due to the lack of pledged securities, the Agency's deposits may be at risk in the case of insecurity ofthe financial institution.

Recommendation The Agency should ensure that the financial institution begin to pledge securities to its deposits in excess of FDIC insurance.

Management's Response As noted in iJie cause, this condition was triggered by the FDIC change in coverage for non-interest bearing accounts. The IRMA set up these non-interest bearmg accounts in 2010 at the request of Merrill Lynch with the approval of the board in order to facilitate processing of routuie cash ttansactions which Merrill Lynch could no longer support on their platform due to its merger with Bank of America. Merrill Lynch has issued a full letter addressed to the IRMA Board addressing this situation. As described in the letter, this situation has been resolved and the cash balances are being closely monitored to insure that they are fully covered by the FDIC allowance.

36


Schedule of Prior Year Audit Findings and Questioned Costs March 31» 2013

Findings - Financial Statement Audit

None.

37

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