Actuarial Report Summary for City of San Angelo

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.

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.

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
$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 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 & 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 City

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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 $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

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 City

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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

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 $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 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 20.0

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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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Actuarial Report Summary for City of San Angelo

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