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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. -2 - 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 -3 - 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 -4 - 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 -5 - 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