HomeMy WebLinkAbout020168 RES - 01/19/1988A RESOLUTION
AUTHORIZING AN AGREEMENT WITH THE WYATT COMPANY TO PERFORM
AN ACTUARIAL STUDY OF THE SELF INSURANCE FUND'S LIABILITY
RESERVE ACCOUNT; AND APPROPRIATING $12,500.
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF CORPUS CHRISTI,
TEXAS:
SECTION 1. That the City Manager is hereby authorized to execute an
agreement with the Wyatt Company to perform an actuarial study of the
Self -Insurance Fund's Liability Reserve Account, all as more fully set forth in
the agreement, a substantial copy of which is attached hereto and made a part
hereof, marked Exhibit "A."
SECTION 2. That there is hereby appropriated $12,500 for that purpose
from the Professional Services Account of the Self -Insurance Fund.
ATTEST:
City Secretary MOR
APPROVED: j DAY OF
HAL GEORGE, CITY ATTORNEY
By
As ant City Attof ney
205JB055.res
19'M
THE CITY OF CORPUS CHRISTI, TEXAS
20166 MICROFILMED
EMPLOYEE. BENEFITS
COMPENSATION PROGRAMS
EMPLOYEE COMMUNICATIONS
ADMINISTRATIVE SYSTEMS
RISK MANAGEMENT
INTERNATIONAL SERVICES
THE 64ailf COMPANY
ACTUARIES AND CONSULTANTS
FIRST REPUBLICBANK CENTER
1900 TOWER 11
325 NORTH ST. PAUL STREET
DALLAS, TEXAS 75201
(214) 979-3800
November 25, 1987
Mr. Daniel R. Blosser
Risk Manager/Safety Officer
Department of Risk Management
City of Corpus Christi
110 N. Shoreline
Corpus Christi, Texas 78401
Dear Mr. Blosser:
OFFICES IN PRINCIPAL CITIES
AROUND THE WORLD
Thank you for considering The Wyatt Company as consultant to review the risk
management and actuarial needs of Corpus Christi.
In line with our discussion, we have outlined the following objectives,
methodology and costs connected with the proposed actuarial services, and have
tried to point out specific areas where you may have concerns or which may
require special attention.
Our proposal is as follows:
ACTUARIAL ANALYSIS
The objectives of this review will be to analyze future self insurance or
self-funded program(s), their costs, needed contributions and related areas.
We will
1.
2.
3.
4.
5.
6.
study and recommend the self-insurance contributions for:
General liability;
Automobile liability;
Automobile physical damage;
Public officials liability;
Law enforcement liability; and
Workers' compensation.
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We will recommend contribution levels, by line, for the self-insurance pro-
gram. Our analysis will involve the following factors:
1. Present value factors;
2. Payout factors for the above lines;
3. Limits of self insurance; and
4. Availability of excess or reinsurance coverage.
In addition, we will:
1. Analyze losses, premiums, and exposure data to determine a reasonable
distribution of losses for the above risks under consideration.
2. Compare at least two possible funding methods:
a. pay-as-you-go (current expensing of loss costs); and
b. annual contributions (pre -funding loss costs).
3. Develop financial projections, including estimates of the level of
funding necessary for the next five fiscal years for the funding
methods being considered.
4.. Recommend the best approach to structure long-term funding for the
self-insurance program.
Our methodology will involve estimating future losses via loss development
factors (from paid and incurred amounts), as well as the Poisson method which
we have used extensively for estimating future losses for public entities.
WHY WYATT RECOMMENDED CONTRIBUTIONS ARE ACCURATE
The Poisson Distribution
We have developed a very useful and acceptable actuarial approach to loss
analysis. This is beneficial when losses are considered independent events.
Our approach uses the Poisson distribution. With frequency and severity
factors, it is possible for each year to sum the total dollars of losses by
multiplying the probability of one loss, two losses, etc. by the severity.
Wyatt's approach is to simulate several hundred "runs" and therefore convert
the process into a continuous run for which confidence levels can be estab-
lished.
Even with a computer program this method is extremely arduous. Without
Wyatt's program it would be almost impossible. As a result, we have combined
the advantages of a very acceptable probability measure with an important
statistical tool.
Finally Wyatt, through its own software development, has combined the above
with self-insurance fund flow analysis so that Corpus Christi would be able to
receive all important factors relative to loss payments, costs and interest
and verification that, all other things being equal, the initial funds will be
adequate for all payouts.
THE 676Zr L COMPANY
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Included in the analysis, of course, are payout factors based on ultimate
losses for each year, interest assumptions, and other relevant city and public
entity information.
EXPERIENCE
The Wyatt Company has structured the following self-insurance programs:
1. City of Arlington, Texas
Actuarial work in conjunction with self-insuring via a taxable bond
issue for $9,000,000. This involves a ten-year actuarial analysis
based on losses and exposure. Self-insured lines: automobile,
general, public officials, and law enforcement liability.
2. City Public Service, San Antonio, Texas
Self=insurance study and risk management audit. The actuarial calcu-
lations required for this utility involved directors and officers
liability, general liability, and automobile liability.
3. City of Alexandria, Louisiana
A risk management review, including negotiation for the city with
agents and underwriters. Analysis of general and automobile liabil-
ity. Self-insurance actuarial funding recommendations.
4. University System of Nebraska
Self-insurance study of automobile, general and directors' and
officers' liability. Pooling program designed for the University,
State Colleges, and Technical Community Colleges.
5. Mississippi Municipal Association
Self-insurance feasibility study for municipal liability pool. Rating
and participation requirements included. Feasibility for Property and
Workers' Compensation.
6. East Texas Regional Health Facilities
Self-insurance feasibility and implementation for general liability
and professional liability. Analysis of trustee document and attorney
involvement included.
In conducting this assignment, our activities will include one visit to the
City to make a preliminary presentation to you regarding our anticipated fund-
ing recommendations.
� f`
THE �(lLl COMPANY
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INFORMATION NEEDED
1. Complete loss data as available from Arthur J. Gallagher. Summary and
specific loss data is needed.
2. Loss data on losses since October 1987.
3. Estimate for the next three years on the increase or decrease in City
employees. For example, you may estimate that the City will create
10% more positions in each of the next three years.
4. Short summary of anticipated City expansion, or annexation in the next
three years.
5. Complete copies of your most recent insurance policies for all lines
under the self-insurance program.
6. Experience modification history for three to five years.
7. Brief narrative description of all losses over $75,000.
QUALIFICATIONS
The Wyatt Company is exceptionally well suited to carry out the review under
consideration. Our risk management. staff consist of over thirty-five (35)
professional consultants with an excellent mix of experience of works very
much to the client's advantage as we have the ability to assign to this pro-
ject consultants with desired backgrounds in underwriting, rate making,
actuarial analysis, self-insurance, claims administration and other complimen-
tary attributes.
The Wyatt Company is an independent consulting firm established in the early
1940's. We are owned by our active employees and we have no ownership or
affiliation with insurance carriers, agents or brokers. We do not sell or
place any insurance. We do not believe that a consulting firm can ensure
objectively unless it maintains this independence and separation from poten-
tial conflicts.
PROJECT TEAM
The Wyatt Company is known for the quality of its work, a reputation developed
by assignment to each client's needs of capable and experienced persons in the
respective disciplines required. For a study of the type under consideration,
The Wyatt Company's practice is to make use of a project team. We find this a
preferable approach, particularly considering the comprehensiveness of the
desired scope of work.
The team we propose is made up entirely of consultants with solid backgrounds
in various disciplines. All of the consultants shown for this proposed
assignment .have considerable experience in insurance and risk management for
public entities:
THE 6//2/Q'CC COMPANY
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Project Manager
Actuary
Consultant
Consultant
Actuarial Assistant
Arthur E. Parry, C.P.C.U.
Howard S. Cohen, A.C.A.S., M.A.A.A.
Gerald M. McGarry, A.R.M.
Richard G. Alford, A.R.M.
Helen E. Wolford
Resumes on the above consultants are enclosed.
REFERENCES
Public entities constitute our largest classes of business. A partial listing
of these clients is shown on the attached representative client exhibit. We
have been endorsed by the ICMA (International City Management Association) to
conduct risk management reviews for their member cities.
FEE BASIS
In the conduct of this assignment, we will act solely in a consulting and
advisory capacity. We do not act as insurance brokers, and will not receive
any commissions in connection with your insurance, or remuneration from any
source other than the fee charged to you for our professional services. As
with most other professional firms, we charge for our services on the basis of
hours worked and the hourly billing rate of our staff plus out-of-pocket tra-
vel expenses.
Task Approximate Cost
Actuarial Analysis
Liability Coverages and Workers' Compensation $11,500 - $12,500
This figure represents the approximate cost we would charge for our services
if this assignment is accepted. If additional work or additional visits (out-
side the scope of this proposal) are requested, we will bill you on a time and
expense basis.
We are very pleased to have been called upon to submit this proposal, and look
forward to the opportunity to be of service to the City of Corpus Christi. If
this proposal is found to be acceptable, please sign the enclosed copy and
return it to us as authorization for this study.
Sincerely,
THE WYATT COMPANY
(10x
1
Richard G. Alford, FC.R.M.
Consultant
Risk Management Services
ab p
Attachments
ACCEPTED BY:
DATE:
THE �(i6L COMPANY
Corpus Christi, Texas
/4? day of
The above resolution was passed by the following vote:
Betty N. Turner
David Berlanga, Sr.
Leo Guerrero
Clif Moss
Bill Pruet
Mary Rhodes
Frank Schwing, Jr.
Mary Pat Slavik
Linda Strong
99.066.01
20168
, 1988