Actuarial Report as of September 30, 2012   A Presentation to the City of San Angelo   by Jason Martin, FCAS, MAAA   March...
Limitations on Analysis   These results are intended for the internal use of the City of San Angelo.   Judgments about t...
Table of Contents   Self-insured Program Background   Actuarial Report Objectives/Scope   Actuarial Report Findings   ...
City of San Angelo Self-Insurance Program Background    Self-insurance program inception:        January 1, 1988 for Wor...
City of San Angelo Actuarial Report    Objective/Scope of Actuarial Report        Unpaid loss and allocated loss adjustm...
Actuarial Terminology   Loss and ALAE Components of a Claim       Paid Amounts        — Actual amounts paid to date    ...
Unpaid Loss & ALAE   Unpaid Loss & ALAE as of September 30, 2012                                                         ...
Reconciliation of Unpaid Estimates   Current Estimates Reconciled to Prior Estimates    (Amounts in $000s)               ...
Forecasted Loss & ALAE   Forecast for October 1, 2012 to September 30, 2013                                              ...
Estimates at Higher Confidence Levels   Discounted Estimates with Risk Margins as of September 30, 2012    (Amounts in $0...
Surplus Analysis   Workers Compensation & Property/Liability Funds as of September 30, 2012     (Amounts in $000s)       ...
Workers Compensation - Loss Cost (Per $100 of Payroll)   Increasing trend since 2003   Significant variability in loss c...
General Liability - Loss Cost (Per $1000 of Expenditures)   Loss cost variability primarily due to impact of large losses...
Auto Liability - Loss Cost (Per Vehicle)   Loss cost variability primarily due to impact of large losses       $279,000 ...
Variability of Estimates   Variability of estimates is expected due to:       Low number of claims       Impact of larg...
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City Council March 5, 2013 Risk Management Actuary 2012

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City Council March 5, 2013 Risk Management Actuary 2012

  1. 1. Actuarial Report as of September 30, 2012 A Presentation to the City of San Angelo by Jason Martin, FCAS, MAAA March 2013© 2013 Towers Watson. All rights reserved.
  2. 2. 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.towerswatson.com © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  3. 3. Table of Contents Self-insured Program Background Actuarial Report Objectives/Scope Actuarial Report Findings Variability of Estimatestowerswatson.com 2 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  4. 4. 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 $25,000 Vehicles/Equipment Property $10,000 Other Property * Subject to Texas Tort Claims Act limits of $250,000/$500,000 Bodily Injury and $100,000 Property Damagetowerswatson.com 3 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  5. 5. 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/deductiblestowerswatson.com 4 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  6. 6. 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 + IBNRtowerswatson.com 5 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  7. 7. 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 & Property Automobile $312 $310 General Liability 515 511 Property 4 4 Total $832 $825 Total $2,332 $2,279 Note: Discounted estimates based on 0.6% annual rate of return as requested by the Citytowerswatson.com 6 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  8. 8. Reconciliation of Unpaid Estimates Current Estimates Reconciled to Prior Estimates (Amounts in $000s) Workers Property & Reconciliation Total Compensation Liability 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 $557towerswatson.com 7 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  9. 9. Forecasted Loss & ALAE Forecast for October 1, 2012 to September 30, 2013 Forecasts ($000s) Self-Insured Coverage Undiscounted Discounted Workers Compensation $629 $615 Liability & Property Automobile $135 $134 General Liability 327 322 Property 67 67 Total $529 $523 Total $1,158 $1,138 Note: Discounted estimates based on 0.6% annual rate of return as requested by the Citytowerswatson.com 8 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  10. 10. Estimates at Higher Confidence Levels Discounted Estimates with Risk Margins as of September 30, 2012 (Amounts in $000s) Discounted Estimates Self-Insured Coverage at 75% CL at 90% CL Workers Compensation Unpaid Loss & ALAE as of September 30, 2012 $1,657 $1,879 Forecast Loss & ALAE for 10/1/2012-2013 701 796 Total Loss & ALAE $2,358 $2,675 Total Risk Margin $289 $606 Liability & Property Unpaid Loss & ALAE as of September 30, 2012 $940 $1,208 Forecast Loss & ALAE for 10/1/2012-2013 596 766 Total Loss & ALAE $1,537 $1,973 Total Risk Margin $189 $626towerswatson.com 9 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  11. 11. Surplus Analysis Workers Compensation & Property/Liability Funds as of September 30, 2012 (Amounts in $000s) Workers Property/ Compensation Liability Benchmark Fund Fund Ratios Surplus Estimate Fund Assets at 9/30/2012 $1,603 $2,024 Unpaid Estimates - Discounted $1,454 $825 Estimated Surplus $150 $1,199 Surplus Ratios Unpaid Estimate / Surplus 9.71 0.69 < 3.0 Loss Forecast / Surplus 4.20 0.44 < 3.0 Surplus / Maximum $500K Retention 0.30 2.40 5.0 to 20.0towerswatson.com 10 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  12. 12. 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 lossestowerswatson.com 11 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  13. 13. 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 levelstowerswatson.com 12 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  14. 14. 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 levelstowerswatson.com 13 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  15. 15. 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%towerswatson.com 14 © 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

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