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HomeMy WebLinkAboutTR-46-99 -.:~ t ~. ON: TR- 46-99 ... THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT Meeting: General Purpose and Administration Committee File # Fir- Ti:- Res. # &1'/1- '5t~ --91 Report #: July 5, 1999 TR-46-99 FILE#: By-law # Date: Subject: 1999/2000 INSURANCE PROGRAM Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report TR-46-99 be received; 2. THAT Frank Cowan Company Limited continue to be retained as the Municipality of Clarington's insurance carriers for the period from July 1, 1999 to June 30, 2000, at an approximate cost of $201 ,542 plus applicable taxes; 3. THA'T'staff CGl1tinue to monitor the status of Durham Municipal Insurance Pool and should the Pool proceed, that the Municipality of Clarington participate and the Treasurer be authorized to negotiate satisfactory terms and conditions with a potential start date of March 1, 2000; 4. THAT should the Durham Municipal Insurance Pool not proceed, that staff be directed to participate in the preparation of a public tender for 2000/2001 in conjunction with the Region of Durham; 5. THAT the Municipality of Clarington purchase contingent liability insurance in respect of third party liability claims for bodily injury and property damage relating to Y2K from the Frank Cowan Company. BACKGROUND 1.0 Since the 1994/1995 premium year, the area municipalities, in conjunction with the Region of Durham have been investigating the potential associated with insurance pooling. 1.1 Staff provided an update to Council in Report TR-7-99 (Attachment #1) which authorized staff to proceed with the establishment of the Durham Municipal Insurance Pool. 819 " , ~ REPORT NO.: TR-46.99 PAGE 2 1.2 Subsequent to Report TR-7-99, several of the Area Municipalities have indicated that they no longer wish to participate. The value of the premium dollars has therefore been reduced to the extent that the pool is no longer viable. 1.3 The Region of Durham has directed Regional Staff to give those area municipalities that withdrew from the pool discussions until September 30, 1999 to reconsider. The Region's report is attached to Attachment #2. 1.4 Should the Town of Pickering, the Town of Whitby or the City of Oshawa choose to reconsider, the Durham Municipal Insurance Pool may proceed with an anticipated start date of March 1, 2000. Should this occur, a subscribers agreement must be prepared to establish the operational structure and terms of participation for the group. It is recommended that the Treasurer be authorized to negotiate satisfactory terms and conditions in the event the pool proceeds with the appropriate By-law to be forwarded to Council for approval. 1.5 Should none of the applicable area municipalities reconsider, it is recommended that the Municipality of Clarington participate with the Region of Durham in the preparation of a public tender of the Municipality's insurance requirements for the 2000/2001 premium year. 1.6 In the meantime, it is proposed that the Municipality proceed to renew with the Frank Cowan Company for the July 1, 1999 to June 30, 2000 premium year at a approximate cost of $201,542, exclusive Y2K premium and taxes (1997- $260,749 + taxes). Y2K COVERAGE 2.0 The Frank Cowan Company has recently announced that it is offering contingent liability insurance coverage for third party claims of bodily injury and property damage relating to Y2K. The cost would be approximately $15,000. It is recommended that the Municipality submit an application for coverage and to obtain coverage should it not be cost prohibitive. ~LO '. , REPORT NO.: TR-46.99 PAGE 3 SELF-INSURED LOSSES RESERVE 3.0 Annually, any surplus resulting from the comparison of budget to actual insurance costs is transferred into the self-insured losses reserve. For 1998, $21,174 was transferred into the reserve. 3.1 The self-insured losses reserve is intended to cover costs associated with insurance claims below the Municipality's deductible amount, as well as fund the payment of the deductible. Consistent with the levels established over the past few years, it is recommended that the current levels be maintained as follows: property deductible of $10,000, boiler and machinery deductible of $5,000. As of December 31,1998, the balance in the reserve was $143,301 (1997-$135,916). The total draw on the reserve in 1998 was $38,789 due to the significant problems experienced with vandalism in 1998. There was also a budgeted contribution of $25, 000 to the self-insured losse$ reserve in 1998. CONCLUSION 4.0 The recommendations outlined above are respectfully recommended for approval for the 1999/2000 premium year to be effective July 1, 1999. Respectfully submitted, Reviewed by, aV~-I:0k. Treasurer Franklin Wu, Chief Administrative Officer. MM*NT*ls Attachments 821 ATTACHMENT III THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT Meeting: General Purpose and Administration Committee Date: February 1, 1999 File #: flo-;;;". Res.#:GDR -1.tJ1c-C;1. Report #: TR-7-99 File #: By-Law #: Subject: INSURANCE POOLING STATUS UPDATE Recommendations: It is respectfully recommended the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report TR-7-99 be received; 2. THAT Council endorse the Municipality of Clarington proceeding with an insurance pooling arrangement with the Region of Durham and other area municipalities, the Durham Municipal Group, beginning with the premium year 1999/2000, subject to terms and conditions of the agreement being satisfactory to the Treasurer and Chief Administrative Officer; 3. THAT the Mayor and Clerk be authorized to enter into the Agreement prior to July 1, 1999; and 4. THAT the appropriate By-Law be forwarded to Council for approval. Background: 1.0 Since the 1994/1995 premium year, the area municipalities, in conjunction with the Region of Durham have been investigating the potential associated with insurance pooling. 1.1 In Report TR-46-98 (Attachment #1), Council authorized the Treasurer, as a member of the Durham Municipal Group to continue to pursue this opportunity. 1.2 Dion, Durrell and Associates were contracted by the Region to conduct an independent actuarial study to determine the feasibility of pooled insurance for the Durham Municipal Group. 1.3 As a part of this independent study, the current program was analyzed as shown in Attachment #2. Clearly shown in the second chart are the premium increases from '. . J OLL TR-7-99 Paqe 2 the current insurance provider over a five (5) year time period compared to the loss ratio. There is a substantial gap between these two values representing the significant surplus of premiums over losses paid. 1.4 As a result of the report by Dion, Durreil and Associates, it is recommended that the Durham Municipal Group proceed with a pooled insurance arrangement. This Is not a reciprocal such as OMEX. It is simply combining resources as a municipal group to purchase insurance co-operatively based on agreed upon criteria. It eliminates the profit, administration and overhead costs of a "mid die man". 1.5 The Region of Waterloo has successfuily launched its own insurance pool and has made their experience and expertise available to the Durham Municipal Group. 1.6 The operation of a pool wiil virtuaily be no different than that of the current insurance provider. Pool participants pay their annual premium instailments each year and are only responsible for their individual deductibles when a claim occurs. Any claim in excess of the pool limit is covered by a purchased group policy, therefore, covering liability associated with any significant claim. Ail legal and adjusting fees would be included in the total claim costs and are therefore not a separate individual responsibility. The pool funding would be structured such that there would not be any significant risk of additional assessments against the pool participants. 1.7 The ultimate administrative structure wiil be developed co-operatively between the Municipalities with the assistance of Dion, Durreil and Associates. Conclusion: 2.0 Insurance pooling represents an opportunity for substantial cost savings over the long term for the Durham Municipal Group by eliminating excessive premium costs and providing control to the municipalities over their insurance program. 2.1 It is therefore recommended that the Municipality of Clarington proceed in conjunction with the Durham Municipal Group, to establish an insurance pooling arrangement. Reviewed by: Ie . Marano, H.BSc.,AMCT, Treasurer. J r ~fLQ _ --<0 LA- Franklin Wu, M.C.I.P.,R.P.P., Chief Administrative Officer. MM/NT/hjl Attachments OL) e e e . Attachment 112 June 23, 1999 TO: The Finance and Administration Committee FROM: R.I. Clapp, Commissioner of Finance RE: REPORT #1999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTIVE JULY 1,1999 RECOMMENDATIONS: THAT the Finance and Administration Committee recommend to Council that: (I) The formation of the Durham Municipal Insurance Pool not proceed as recommended by the Treasurers from the Region and five of the eight area municipalities. (2) The Region of Durham renew its general insurance coverage as outlined in Attachment # 1 with the Frank Cowan Company for the period July 1, 1999 to July 1,2000 at a cost of $497,942 (excluding provincial sales taxes). (3) The Region of Durham purchase contingent liability insurance in respect of third party liability claims for bodily injury and property damage relating to Y2K from the Frank Cowan Company of a cost of $21 ,928 and that this expenditure be funded from the 1999 Y2K Budget. (4) Approval be given to retain the services ofDion Durrell and Associates Inc. to assist staff in the preparation of a public tender ofthe Region's insurance risk management requirements for 2000/200 I (including a review of coverages, deductibles, policy wordings) at a cost not to exceed $50,000 and to be funded from the Insurance Reserve Fund and that this tender process be available to any area municipality who may wish to participate. oi4 e e e , REPORT #1999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTIVE JULY I, 1999 PAGE 2. RECOMMENDA TIONS:/cont'd (5) The difference between the total 1999 insurance premiums plus taxes paid and the amounts included in the 1999 Insurance Budget be allocated to the Insurance Reserve Fund to provide for future program costs related to General Insurance and Risk Management. REPORT 1.0 INTRODUCTION . The Region's annual general insurance policies, as presently purchased through the Frank Cowan Company, will expire on July I, 1999. The purpose of this report is to present recommendations regarding the renewal of the Region's insurance policies for the period July 1,1999 to July 1,2000. . This report will address the general insurance issues pertaining to liability and asset management of the Region. (It does not include those responsibilities managed by the Human Resources Department, such as employee health and life insurance benefits). 2.0 PARTICIPATION IN THE DURHAM MUNICIPAL INSURANCE POOL . On June 17, 1998, Regional Council adopted the following resolution: "The Commissioner of Finance in co-operation with the Area Municipal Treasurers (Durham Municipal Insurance Group) investigate the formation of an insurance pooling arrangement with the area municipalities of Durham Region." . During the past year, the Treasurers of the Area Municipalities have undertaken a comprehensive review of the formation of a Durham Municipal Insurance Pool with the assistance of Dion Durrell and Associates Inc. A detailed report is attached which contains the results of the review. oc:J e e . REPORT #1999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTIVE JULY I, 1999 PAGE 3. REPORT/cont'd 2.0 PARTICIPATION IN THE DURHAM MUNICIPAL INSURANCE POOL/cont'd . The main conclusion of the report is that the formation of a Durham Municipal Insurance Pool would result in significant financial savings, as well as favourably position the municipalities to cope with cyclical swings in the insurance market. Other benefits could be realized in common claims administration, risk management and policy consolidations. . It is estimated that savings could range from $0.5 million to $4.0 million over a three year period depending upon the number of participating municipalities. Savings are achieved by retaining in the Pool the commissions, profits and interest earned by conventional insurance companies. . However, the Treasurers of two offue Area Municipalities (Whitby on June 3, 1999 and Pickering on June 21, 1999) have indicated that they do not wish to participate in the Durham Municipal Insurance Pool at this time. (The City of Oshawa staff advised the Region in January 1999 that they would not participate in the final stages of the Insurance Pool review). Since the two Area Municipalities represent a significant portion of the premium dollars that are required to ensure the Pool is financially viable, it is not possible for the remaining five Area Municipalities and the Region to proceed. . To date, a considerable amount of staff effort and financial resources have been devoted to the investigation and review of a Durham Municipal Insurance Pool. In light of the reluctance of several municipalities to participate and the costs expended to date, no further Regional resources will be devoted to the Pooling concept. . Instead, it is recommended that the Region proceed forthwith to prepare the requisite documentation to tender the Region's general insurance requirements for the 2000/2001 policy renewal effective July I, 2000. This will include reviewing the Region's insurance coverages, policy limits, deductible levels, policy wordings, etc. It is recommended that Dion Durrell be retained to assist in this matter. 3.0 SUMMARY OF FINDINGS OF DETAILED REPORT . A detailed report has been prepared by the Treasurers of Ajax, Clarington, Brock, Scugog, Uxbridge and the Region and is attached (Attachment #2). Since this report was prepared prior to Pickering's indication not to participate, the financial analysis includes Pickering. oi6 . . . REPORT #1999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTIVE JULY I, 1999 PAGE 4. REPORT/coni'd 3.0 SUMMARY OF FINDINGS OF DETAILED REPORT/coni'd . The following is an excerpt from the attached detail report which summarizes the findings of the report. . Under a Durham Municipal Insurance Pool, the participating municipalities will combine their established funding for insurance premiums into a single pool and will: . Retain their existing local deductible levels. . Share or pool the costs of claims between the local deductible and the pool deductible of $350,000 and purchase stop loss insurance to limit total annual losses to $1.0 million. . Purchase a common insurance policy from the reinsurance market to cover the cost of claims exceeding $350,000. Pooled Risk TllUISf'erm! Excess ofS350,OOO per daim Risk $1.0Ml$3.0M aggregate LocaJ Deductibles. as per existing progJ'3lJti bil e e e REPORT #I999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTlVEJULY 1, 1999 PAGE S. 3.0 HIGHLIGHTS OF DETAILED POOLING REPORT/cont'd . The formation of the Durham Municipal Insurance Pool will result in significant benefits to the participating Area Municipalities and the Region including: Savinlls o Savings over expiring premiums would range from $0.5 million to $2.5 million over a three year period mainly by retaining commissions, profits and interest typically earned by insurance companies. Savings will be returned to the participating municipalities in the form of lower annual insurance premiums or dividends from the insurance pool after the initial three year period. It is estimated that with the participation of the Town of Whitby, savings over the expiring premiums would range from approximately $1.4 million to $3.4 million over the 3 years period. Furthermore, ifOshawa chose to participate, savings would range from approximately $2.4 million to over $4 million over the 3 year period. No deficits will be incurred as all losses are prefunded by virtue of the stop loss insurance coverage. o o o Insurance Costs o Costs of a Group Insurance Policy will remain constant over the next three years thereby substantially reducing exposure to insurance market cycles and favour ably positioning the participating Municipalities to mitigate premium increases as the insurance market "hardens". o Participating municipalities will be able to collectively tender their insurance requirements in the re-insurance markets and fix the cost of insurance for a three year period. o Any potential increases in the cost of a Group Insurance Policy beyond Year 3 will be substantially reduced as increases will be applied to a much lower insurance premium cost base resulting from the purchase of a policy with a deductible of $350,000. biB . . . REPORT #I999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTIVE JULY 1, 1999 PAGE 6. . Policies/Claims o Approximately 100 existing insurance policies will be combined into one integrated insurance policy. o Participating municipalities will have a direct inOuence on the settlemeut of claims which are less than $350,000 and will benefit from the continued good loss experience that municipalities in Durham have experienced over the years. o Total losses of the pooled claims are limited in anyone year to $1.0 million through the purchase of stop loss insurance from the reinsurance market thereby eliminating any retro assessments to the pool. o Risk management programs can be coordinated to target issues common to the participating municipalities. The recommendation to form the Durham Municipal Insurance Pool is the result of a comprehensive review of available insurance options jointly undertaken during the past three years by the Treasurers of all the Area Municipalities and the Region and have been agreed upon by the Treasurers of Ajax, Clarington, Brock, Scugog, Uxbridge and the Region and the attached report has been prepared jointly by the Treasurers indicated above. A target startup date of early 2000 will provide sufficient time to ensure that legal and administrative protocols are properly established. During the intervening period, it is recommended that each municipality renew its 1999/2000 insurance policies on July I, 1999 with the Frank Cowan Company. . . The Region of Waterloo, which formed a similar municipal insurance pool in 1998, have reported that savings have been achieved in their first year of operations beyond the original forecasts and the pool, which includes all the area municipalities is working extremely well. 4.0 1999/2000 RENEWAL OF INSURANCE COVERAGES . Although the total proposed insurance premiums for the period July I, 1999 to July I, 2000 will decrease from $744.344 to $497,942, the decrease is partially due to a competitive response from the current insurers to a possibility of the establishment of the Durham Municipal Insurance Pool. . Staff are also recommending the purchase of contingent liability insurance in respect to third party liability claims for bodily injury and property damage from the Frank Cowan Company at a cost of $21,928 which is to be funded from the 1999 Y2K Budget as approved by Council. oi9 e e e REPORT #1999-F-38 RENEWAL OF THE REGION'S GENERAL INSURANCE PROGRAM EFFECTIVE JULY 1, 1999 PAGE 7. 4.0 1999/2000 RENEWAL OF INSURANCE COVERAGES/cont'd . The Y2K protection offered is against accidental and unexpected claims. The limit of liability for this policy for all damages arising out of anyone occurrence is limited to $3,000,000 with an annual aggregate of$6,000,000. The current insurers have been able to offer this specific coverage as the Region has established and implemented formal Y2K action plans, including formalized contingency plans. 5.0 NEXT STEPS . Staff of the Finance Department will continue to provide insurance risk management guidance for Regional Departments during the upcoming year, including additional risk management initiatives to protect the financial stability of the Region and will continue to recommend to Council the self-insuring of routine and predictable losses, and the purchase of insurance to protect the Region from catastrophic losses. ~~- P R.J. lapp, cA Commissioner of Finance Recommended for Presentation to Committee G.H. Cubitt, M.s.W. Chief Administrative Officer Attach. MG\REPORTS\insrenw2 0.)0 e ..l ~ fool Z ~ :;: :;:= ~~ ;;>...~ Qfool- ....u:;: OZfool ;..<'" - "'... -:;J~ ~"'o- <Z~ e:~oo Uo~ -=- Zt:!Q ~~~ ~~> ..lQO <fool'" Z",'" 00'" -...< "OQ fool",Z "'...< fool... =0 '"Z o '" iil < ... :;: o u . fool gCIJ ~ Q<=:o-. ~~~;;a~ 0'1\,.)>0-. O\~oO\ -Q - ..l:;:! ~~1::: ~CJO~ ~~~ c.:::~o:: 0- 0- - Q ~ ..J~ ~ <:;:",'" ;J;JO~~ ~-~O\ ~ ~ :::1 fool co '" 0- ... ~ fool ..l =..l -fool '"u;;. 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U e.. ~ E '" ..0: ~ " Cl :g o >- '" ~ => ~ fool '" ... ..l ..l < , ..l ..: '" o '" ~ 0.2 u "" '" ~ u > ~ 0 u u " ~ '" u '"" u => :Ow '" " u -- :.=: i:: "- => "- 0 < E " '" -g >> ut: " " '" g. ~o: ~ a) 0", f-f- ~I e . . Attachment #2 THE FORMATION OFA DURHAM MUNICIPAL INSURANCE POOL TOWN OF AJAX TOWNSHIP OF BROCK TOWNSHIP OF SCUGOG MUNICIPALITY OF CLARINGTON TOWNSHIP OF UXBRIDGE REGIONAL MUNICIPALITY OF DURHAM In Conjunction with Dion Durrell & Associates June 1999' (jj2 e . e THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL RECOMMENDATIONS: I) A Durham Municipal Insurance Pool be established to cooperatively self insure or pool the cost of insurance claims and to purchase insurance coverages under one common policy from the insurance market. The initial participating Area Municipalities include the Towns of Pickering and Ajax, the Municipality of Clarington, the Townships of Scugog, Uxbridge and Brock and the Region of Durham. 2) A target date of March 1,2000 be set for the startup of the Durham Municipal Insurance Pool and that each participating Area Municipality commit to an initial three year period at which time a review be undertaken to determine the feasibility of extending the pooling arrangement and/or the disposition of the accumulated savings. 3) The participating Area Municipalities and the Region renew the 1999/2000 general insurance coverages with the Frank Cowan Company, (effective July I, 1999) until the start up of the Durham Municipal Insurance Pool (target March I, 2000). 4) The consulting services of Dion-Durrell and Associates Inc. be extended to provide advice and assistance in the implementation of the Durham Municipal Insurance Pool. 5) The participating Area Municipalities and the Region be authorized to execute the necessary agreements required to establish and maintain the Durham Municipal Insurance Pool. 1.0 INTRODUCTION . The purpose of this report is to provide an overview of a proposal to collectively pool the insurance requirements of the Area Municipalities and the Region into one group insurance policy. The pooling proposal represents a feasible alternative to the renewal of conventional insurance coverages and results in significant savings for all taxpayers. . This report contains the findings from a review of available insurance pooling options which was undertaken jointly by the Treasurers of Ajax, Pickering, Whitby, Clarington, Brock, Scugog, Uxbridge and the Region with the assistance of the consulting firm of Dion Durrell & Associates Inc. . The Treasurers have prepared this common report for presentation to the respective Councils of the Area Municipalities and the Region with the exception of the Town of Whitby who advised the Region on June 3,1999 that the Town would not participate at this time. Staff of the City of Oshawa chose not to participate in this proposal in January 1999 and advised the Treasurers accordingly. tU 3 . . . THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 2. 2.0 HIGHLIGHTS/SUMMARY . Under a Durham Municipal Insurance Pool, the participating municipalities will combine their established funding for insurance premiums into a single pool and will: . Retain their existing local deductible levels. . Share or pool the costs of claims between the local deductible and the pool deductible of $350,000 and purchase stop loss insurance to limit total annual losses to $1.0 million. . Purchase a common insurance policy from the reinsurance market to cover the cost of claims exceeding $350,000. PooI<d Risk Tramfemd Excess of 5350,000 per d.oIm Risk $\.oMlS3.0M aggnpIe Local Deductibles - as per existing programs . The formation of the Durham Municipal Insurance Pool will result in significant benefits to the participating Area Municipalities and the Region including: Savin!!s o Savings over expiring premiums would range from $0.5 million to $2.5 million over a three year period mainly by retaining commissions, profits and interest typically earned by insurance companies. o Savings will be returned to the participating municipalities in the form of lower annual insurance premiums or dividends from the insurance pool after the initial three year period. o It is estimated that with the participation ofthe Town of Whitby, savings over the expiring premiums would range from approximately $1.4 million to $3.4 million over the 3 years period. Furthermore, if Oshawa chose to participate, savings would range from approximately $2.4 million to over $4 million over the 3 year period. o No deficits will be incurred as all losses are prefunded by virtue of the stop loss insurance coverage. b54 . . . THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 3. 2.0 HIGHLIGHTS/SUMMARY /cont'd Insurance Costs a Costs of a Group Insurance Policy will remain constant over the next three years thereby substantially reducing exposure to insurance market cycles and favourably positioning the participating Municipalities to mitigate premium increases as the insurance market "hardens". a Participating municipalities will be able to collectively tender their insurance requirements in the re-insurance markets and fix the cost of insurance for a three year period. a Any potential increases in the cost of a Group Insurance Policy beyond Year 3 will be substantially reduced as increases will be applied to a much lower insurance premium cost base resulting from the purchase of a policy with a deductible of $350,000. . Policies/Claims a Approximately 100 existing insurance policies will be combined into one integrated insurance policy. a Participating municipalities will have a direct influence on the settlement . of claims which are less than $350,000 and will benefit from the continued good loss experience that municipalities in Durham have experienced over the years. o Total losses ofthe pooled claims are limited in anyone year to $1.0 million through the purchase of stop loss insurance from the reinsurance market thereby eliminating any retro assessments to the pool. a Risk management programs can be coordinated to target issues common to the participating municipalities. The recommendation to form the Durham Municipal Insurance Pool is the result of a comprehensive review of available insurance options jointly undertaken during the past three years by the Treasurers of all the Area Municipalities and the Region and have been agreed upon by the Treasurers of Ajax, Clarington, Brock, Scugog, Uxbridge and the Region and the attached report has been prepared jointly by the Treasurers indicated above. . A target startup date of early 2000 will provide sufficient time to ensure that legal and administrative protocols are properly established. During the intervening period, it is recommended that each municipality renew its 1999/2000 insurance policies on July 1, 1999 with the Frank Cowan Company. . The Region of Waterloo, which formed a similar municipal insurance pool in 1998, have reported that savings have been achieved in their first year of openitions beyond the original forecasts and the pool, which includes all the area municipalities is working extremely well. djj . . e THE FORJVIATION OF A DURHAM MUNICIPAL INSURANCE POOL 4. 3.0 BACKGROUND . In 1994, the Region of Durham participated with the Area Municipalities in the establishment of a Group Insurance Purchase Program. The Durham Municipal Insurance Group, as it became known, developed a proposal outlining the various insurance coverages for each member of the Group. The result of the Group process was the achievement of broader insurance coverages with common expiry dates at reduced costs. . In 1996, the Watson Wyatt Company was retained to report on the feasibility of establishing an insurance pool for the Area Municipalities and the Region. The consultant's report concluded that a pooling arrangement could potentially result in lower insurance costs for the participants. . In 1997, the Durham Municipal Insurance Group worked in conjunction with the Frank Cowan Company (who provides insurance coverage to all Area Municipalities and the Region) to devise an insurance pooling arrangement to combine the advantages of a conventional insurer with the sharing of costs of a larger self retention or deductible level by the Group. . In 1998, the Durham Municipal Insurance Group concluded that it would not participate in the pooling arrangement as proposed by the Frank Cowan Company for 1998/1999 as the proposal was not financially attractive. . In June 1998, Regional Council adopted the following resolution which approved funding to retain consultants to investigate the formation of an insurance pool: "The Commissioner of Finance in co-operation with the Area Municipal Treasurers (Durham Municipal Insurance Group) investigate the formation of an insurance pooling arrangement with the area municipalities of Durham Region. The necessary funds to carry out this in-depth review be provided to a maximum of$200,000 from the Region's Insurance Reserve Fund with a full reporting to the Finance and Administration Committee and Council prior to the 1999/2000 insurance renewal." . In September of 1998, the firm of Dion Durrell, Actuaries and Consultants was retained to undertake an independent actuarial analysis to confirm that an independent pooling arrangement was feasible for the municipalities in Durham Region. Their findings confirmed that a Durham Municipal Insurance Pool was actuarially sound and presented significant benefits for the Municipalities compared to the traditional insurance approach in terms of cost efficiency, cost stability, coverage and control. . In May of 1999, the Frank Cowan Co. Ltd. provided an analysis of two risk financing alternatives available including the conventional renewal of insurance coverages and a new Cowan pooling arrangement. (j) 6 e e e THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 5. 3.0 BACKGROUND/cont'd . In May and June of 1999, the Treasurers met on several occasions to review Dion Durrell's independent analysis of the three options available to the Durham Municipal Insurance Group: I) Renewing annual policies with the Frank Cowan Company, 2) Forming a Frank Cowan Pool, 3) Forming a Durham Municipal Insurance Pool . The Treasurers, with the exception of the Town of Whitby, concluded that the Dion Durrell pool was the optimal risk financing alternative to the renewal of conventional insurance policies. 4.0 STRUCTURE OF THE PROPOSED INSURANCE POOL . The proposed Durham Municipal Insurance Group pooling arrangement is neither a formal Reciprocal Insurance Exchange nor a Municipal Insurance Corporation. In effect, the participating municipalities are joining together to purchase a single insurance policy with a deductible of$350,000 and are agreeing to share the costs of claims above each municipality's individual deductible and below the group deductible of$350,000. The purchase of stop loss insurance will limit the total losses between the individual municipal deductibles and the $350,000 group deductible in any given year to no more than $1.0 million as indicated in the chart below: Pooled Risk r- --------- / I I i Tramferred I Risk i I Excess of$35O,lm per cJaim $1.0M'$3.0Maggn~tte Local Deductibles - as per existing PrograIm 'oj! . . e THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 6. 4.0 STRUCTURE OF THE PROPOSED INSURANCE POOL/cont'd . The pooling arrangement allows the participating municipalities to retain more risk without additional cost. At the same time, commissions, interest and profits earned by traditional insurance companies are retained by the pool for redistribution to the municipalities in the form of lower premiums and/or dividend payments. . The structure of the proposed Durham Municipal Insurance Group includes the following features: o Each municipality commits to the pool for an initial three year period o Each municipality maintains its current local deductible level o Each municipality retains its current adjusters o The pool will issue a tender in the re-insurance market for a group insurance policy with a $350,000 deductible for a fixed three year period o Policy coverages will remain the same or exceed current wordings o Stop loss insurance will be purchased in the re-insurance market to limit losses within the pooled retention level to no more than $1.0 million per year or an aggregate of$3.0 million over three years o Claims ofless than $350,000 will be managed by a central claims administration comprised of municipal staff and/or external purchased claims services o An Advisory Board, comprised of representation from each participating municipality, will develop policy and give direction regarding operational issues and final adjudication of claims o Excess funds will be held in trust and invested in accordance with Board policy o Legal agreements outlining the municipalities' rights and obligations will be executed by the participating municipalities prior to the launch of the pool o A formulae to share excess pool surpluses amongst the municipalities will be established at the outset based on a combination of contributions into the pool and/or relative claims experience. No deficits will be incurred as all losses are prefunded by virtue of the stop loss insurance coverage. i:Ud . e e , . THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 7. 4.0 STRUCTURE OF THE PROPOSED INSURANCE POOL/cont'd . Under this structure, individual municipalities will be responsible for losses from up to their individual or local deductible amounts. Between these individual deductibles and the group deductible of $350,000, the participating municipalities would share the cost of claims. The portion of any claim exceeding $350,000 would be the responsibility of the insurance company. If aggregate claims between the individual deductibles and the $350,000 group deductible exceed $1.0 million in anyone year, the amounts in excess of$1 million would be the responsibility of the insurance company by virtue of the stop loss protection: Amount ofInsurance Loss Responsibility - Local Municipality - Pool: maximum of $1.0 million in total annual losses Il)surance Company: annual losses totalling more than $ 1.0 million . $0 to local deductible . Local deductible to $350,000 . Over $350,000 - Insurance Company 5.0 CLAIMS EXPERIENCE . The financial results of any risk financing alternative is directly a function of the actual retained claims experience and other costs (e.g., commissions, administrative costs, insurance premiums, etc). In the case of the Durham Municipal Insurance Pool, the retained claims experience is the losses between the local deductible and the $350,000 group policy deductible. . The historical claims experience under the conventional insurance program through the Frank Cowan Company and the estimated (by Dion, Durrell and Associates, Inc.) losses within the group deductible under the proposed Durham Municipal Insurance Pool arrangements are summarized as follows: History of Claims Losses'lJ Year Losses Within Group Deductible Lavd" $ 418,000 437,000 377,000 707,000 334,000 Total Losses $ 1994 977 ,000 1995 1,355,000 1996 1,129,000 1997 1,389,000 1998 894,000 Note: (I) Excludes Whitby and Oshawa (2) Losses between local deductible and $350,000 group deductible 'dj9 . . e THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 8. 5.0 CLAIMS EXPERIENCE/cont'd . Assuming no unreported claims will emerge and that the reported claims will setIle at the values currently assigned by the current insurers, for the current pool participants, the average claim losses in the pooled layer have averaged $454,600 per year over the past five years. The most recent two years losses yield an average of approximately $520,000. 6.0 FINANCIAL ANALYSIS . The firm ofDion Durrell was retained by the Durham municipalities to review the available insurance options and to conduct a financial analysis of same. The following options were considered: A) Renew conventional insurance program with the Frank Cowan Company B) Establish a Durham Municipal Insurance Pool with the reinsurance market. C) Establish an insurance pool with the Frank Cowan Company . The non-participation in the Durham Municipal Insurance Pool by Town of Whitby was communicated after financial terms had been negotiated with the reinsurance markets. The reinsurers advised that the total cost of the reinsurance protection would be $500,000 and the stop loss insurance atIachment point would be $1,000,000. As a result of Whitby's withdrawal, it has been assumed that the total cost of reinsurance will reduce to $450,000 and that the stop loss insurance atIachment point will remain at $1,000,000. . The tinancial success of an insurance program is dependent upon the claims loss experience of the group of participants. The following table summarizes the accumulated net savings or surpluses expected to emerge under the three options, estimated by Dion Durrell, at alternative annual claims loss experience of $350,000, $450,000, $600,000, $700,000 and $1,000,000 during the each of the years in the three year period (refer to AtIachments A-I, A-2, A-3, A-4 and A-5 for detailed pro-forma analysis for each alternative loss level): SAVINGS OVER EXPIRING 1998/1999 PREMIUM A. B. C. Cowan Conventional Cowan Durham Municipal Insurance Municipal Pool Pool A) $350,000 A,"INUAL CLAIMS LOSSES (he,t year in la,t 5 year,) End of Year One $ 444,254 $281,415 $ 813,955 End of Year Two 910,721 578,213 1,669,920 End of Year Three 1,400,511 890,288 2,569,121 B) $450,000 AI'INUAL CLAIMS LOSSES (average of last 5 years) End of Year One $ 444,254 $ 179,415 $ 711,955 End o(Year Two 910,721 369,488 1,461,195 End of Year Three 1,400,511 569,627 2,248,460 C) $600,000 ANNUAL CLAIMS LOSSES End of Year One $ 444,254 $ 26,415 $ 558,955 End of Year Two 910,721 56,401 1,148,108 End of Year Three 1,400,511 88,636 1,767,469 D) $700,000 ANNUAL CLAIMS LOSSES (worst year in last 5 years) End of Year One $ 444,254 $ ( 75,585) $ 456,955 End of Year Two 910,721 ( 152,324) 939,383 End of Year Three 1,400,511 (232,025) 1,446,807 E) $1,000,000 ANNUAL CLAIMS LOSSES (wor,t ca'e scenario) End of Year One $444,254 ($381,585) $ 150,955 End of Year Two 910,721 ($778,499) 313,208 End of Year Three 1,400.511 ($ 1,194,009) 484,824 Information Supplied by DiaD Durell. (j { l J . . e , ' THE FORMA nON OF A DURHAM MUNICIPAL INSURANCE POOL 9. 6.0 FINANCIAL ANAL YSIS/cont'd . Based on the proforma analysis, the Durham Municipal Insurance Pool option will result in estimated savings to the participants ranging from $484,824 (in the worst case scenario) to $2,569,121 (at $350,000 annual claims losses). These exceed the estimated savings from the Frank Cowan Pool which ranges from aloss of $1,194,009 to a savings of $890,288. . Based on the proforma analysis, the Durham Municipal Insurance Pool option will result in the savings to the participants which exceeds the conventional insurance option for all loss scenarios up to $770,000 annually. Losses in excess ofthis level will result in savings which are less than those associated with the conventional insurance option, however, once the losses continue to exceed $855,000 annually, the rate guarantee under the conventional insurance option may possibly be nullified, and any short term additional savings could be erased by the anticipated future rate increases which would likely result. . In the worst case scenario in which the total losses within the group deducible in a year amount to $1.0 million or more per year (i.e., the stop loss protection is triggered), the Durham Municipal Insurance Pool would save $484,824 but is less than the savings resulting from the conventional insurance option. It is noted however that under this scenario, any financial advantage of the conventional insurance program may be eroded by future premium rate increases as the rate guarantee under the conventional insurance program may have been breached. . If Whitby and Oshawa were to elect to participate in the Durham Municipal Insurance Pool, the expected savings to all participants, even in the worst case scenario in which the total losses within the group deductible in a year amount to $1.0 million per year, would range from $2.4 million to over $4 million. This conclusion assumes a sizeable reduction in Oshawa' s 1999/2000 renewal premium and assumes what are deemed to be very conservative reinsurance costs. 7.0 BENEFITS OF A DURHAM MUNICIPAL INSURANCE POOL . The formation of the Durham Municipal Insurance Pool provides the Area Municipalities with a viable alternative to obtaining insurance coverages from conventional insurance coverages. The Pool will favourably position the municipalities to mitigate increases in insurance premiums in the future when the insurance market cycle hardens, . Savings will be achieved by diverting to commissions and profits to the Pool which are earned by conventional insurance companies and insurance brokers. . The Pool is able to retain interest earned on funds set aside as reserves for potential future claims. . Insurance costs will be fixed over the next three years virtue of the purchase of stop loss insurance which limits the maximum exposure of the Pool to $1.0 million per year for shared claims within the $350,000 deductible and by virtue of athree year contract for insurance with the reinsurance market. - Ii 4 1 e e e THE FORMATION OF A DURHAM MUNICIPAL INSURANCE POOL 10. 7.0 BENEFITS OF A DURHAM MUNICIPAL INSURANCE POOL/cont'd . Any reduction in costs from favourable claims experience will be returned to the Pool in the form of savings to be distributed at a later date. . Not only would the pool generate savings for all taxpayers of the Region during the next three years, but also the establishment of the Durham Municipal Insurance Pool will position the municipalities to withstand premium increases as the insurance markets "harden". 8.0 NEXT STEPS . This report has been reviewed by the Treasurers of the participating municipalities and will be presented concurrently to the respective Councils for consideration. . Should all participating Councils approve their municipality's participation in the Pool, then the Treasurers would move forward to finalize the implementation details including the preparation of the requisite agreements and legal documentation with the assistance of Dion Durrell. A further information report would also be prepared prior to the launch of the pool in the new year which would provide details regarding implementation issues. In the interim, it is recommended that each municipality renew it 1999/2000 insurance coverage with the Frank Cowan Company. G. Kirkbride, Treasurer Town of Ajax M. Shier, Treasurer Township of Brock M. Marano, Treasurer Municipality ofClarington G.A. Paterson, Treasurer Town of Pickering K. McCann, Treasurer Township ofScugog R. Mitchell, Treasurer Township ofUxbridge R.J. Clapp, Treasurer Regional Municipality of Durham :mg Attmts b42 MG\REPORTS\INSLR2 . . . LIST OF ATTACHMENTS A-I Proforma Financial Comparison of Alternatives Without Whitby - $350,000 Annual Claims Loss A-2 Proforma Financial Comparison of Alternatives Without Whitby - $450,000 Annual Claims Loss A-3 Proforma Financial Comparison of Alternatives Without Whitby - $600,000 Annual Claims Loss A-4 Proforma Financial Comparison of Alternatives Without Whitby - $700,000 Annual Claims Loss A-5 Proforma Financial Comparison of Alternatives Without Whitby - $1,000,000 Annual Claims Loss B-1 Proforma Financial Comparison of Alternatives With Whitby - $400,000 Annual Claims Loss B-2 Proforma Financial Comparison of Alternatives With Whitby - $600,000 Annual Claims Loss B-3 Proforma Financial Comparison of Alternatives With Whitby - $800,000 Annual Claims Loss B-4 Proforma Financial Comparison of Alternatives With Whitby - $1,000,000 Annual Claims Loss C Comparison of 1998/1999 and 199912000 Insurance Premiums - Frank Cowan Company d43 Attachment A-l Without Whitby $350,000 Annual Claim Loss .. e THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF AL TERNA TIVES Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (OR) $0 5250,000 5350,000 Stop Loss Coverage 50 51,000,000 $1,000,000 Small losses within OR 5350,000 5350,000 $350,000 # Losses> OR 0 0 0 Average S Value losses> OR $1,000,000 $1,000,000 51,000,000 GROSS LOSSES Paid Losses 5280,000 5280.000 5280,000 Case Reserves $70,000 570,000 $70,000 Incurred Losses 5350,000 5350,000 $350,000 RETAINED LOSSES Paid losses 50 $280,000 5280,000 Case Reserves $0 $70,000 570,000 Incurred losses $0 $350,000 5350,000 INSURED LOSSES Paid Losses 5280,000 50 $0 e Case Reserves 570,000 50 50 Incurred Losses 5350,000 50 $0 REVENUE levy 51,524,953 52,344,800 51,840,000 Savings over 1998/99 Renewal 5423,099 \S_~9().i-+~1 5108.os2 Interest- 521,155 528,163 555,903 Total Revenue 51,969,207 51,976,215 $2,003,955 EXPENSES Admin $0 $200,000 $300.000 Insurance Premium 51,425,190 51,060,000 $500,000 Taxes 599,763 $84,800 540,000 Retained Losses $0 5350,000 $350,000 Total Expenses $1,524,953 51,694,800 $1,190,000 SURPLUS 1998/99 Expiring Premium $1,948,052 5 1,948,052 $1,948.052 less: levy 51,524,953 52,344,800 51,840,000 Plus: Pool Surplus $21,155 5678,163 5705,903 Total Savings/Surplus 5444,254 5281.415 5813,955 NET SA VlNGSISURPLUS End of Year One 5444,254 5281,415 5813,955 EndoCYearTwo 5910,721 5578,213 51,669,920 End of Year Three 51,400,511 5890,288 52,569,121 ONE YEAR InJured Incurred Loss Ratio 24.6-/. 0.0"1. 0.0-/. Insured Paid Loss Ratio 19.60/. o.oe;. 0.00/. e THREE YEAR Insured Incurred Loss Ratio 24.60/. o.oe;. 0.00/. Insured Paid Loss Ratio 12.5% 0.00/. 0.0% 044 Source - Dion Durrell Attachment A-2 Without Whitby $450,000 Annual Claim Loss e THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF ALTERNATIVES Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (GR) $0 5250,000 5350,000 Stop Loss Coverage $0 $1.000.000 51.000.000 Small Losses within GR 5450,000 5450,000 5450.000 # losses> GR 0 0 0 Average S Value Losses> GR $1.000,000 $1.000,000 51.000.000 GROSS LOSSES Paid Losses 5360,000 $360,000 $360.000 Case Reserves $90,000 $90,000 $90.000 Incurred Losses $450,000 5450,000 $450.000 RETAINED LOSSES Paid Losses $0 $360.000 $360.000 Case Reserves $0 $90.000 590.000 Incurred Losses $0 5450.000 $450.000 INSURED LOSSES Paid Losses $360.000 50 $0 . Case Reserves 590.000 50 $0 Incurred Losses 5450,000 50 $0 REVENUE Lery $1.524.953 52,344.800 51.840,000 Savings over 1998/99 Renewal $423.099 lS_Nb,7-l8) $108.052 ["lerest- 521.155 526.163 $53.903 Total Revenue $1,%9.207 51.974.215 $2.001,955 EXPENSES Admin 50 5200.000 5300,000 Insurance Premium $1,425.190 $1.060.000 5500.000 Taxes $99.763 $84.800 $40,000 Retained Losses $0 $450,000 5450,000 T ota] Expenses 51,524,953 $1,794,800 $1,290,000 SURPLUS 1998/99 Expiring Premium 51,948.os2 $1.948,052 $1,948,052 les" Lery $1,524.953 $2,344,800 51.840,000 Plus: Pool Surplus 521.155 5576,163 $603.903 T ota] Savings.'SuIlllus $444,254 5179,415 $711.955 NET SA VlNGSlSURPLUS End of Year One $444,254 5179,415 5711,955 End of Year Two 5910,721 5369,488 $1,461.195 End of Year Three $1.400,511 $569,627 $2,248,460 ONE YEAR Insured Incurred Loss Ratio J1.6~. 0.0,... 0.0"/. I Rsured Paid Lou Ratio ZS.J"I. 0.0"/. O.O~. e THREE YEAR Insured Incurred Loss Ratio 31.60/. O.O~. 0.0% lrisured Paid Loss Ratio 28.9% 0.0% O.O~. 04J Source - Dion Durrell Attachment A-3 Without Whitby $600,000 Annual Claim Loss . THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF ALTERNATIVES Frank Cowan Company Rewmmended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (OR) 50 5250,000 $350,000 Stop loss Coverage 50 51.000,000 51,000.000 Small losses within OR 5600,000 5600,000 $600,000 # Losses> OR 0 0 0 Average S Value Losses> OR 51,000,000 $1,000,000 51,000,000 GROSS LOSSES Paid Losses 5480,000 5480,000 $480,000 Case Reserves 5120.000 5120,000 $120.000 Incurred Losses $600,000 5600,000 $600,000 RETAINED LOSSES Paid Losses 50 5480,000 $480,000 Case Reserves 50 5120,000 $120,000 Incurred Losses 50 5600,000 $600,000 INSURED LOSSES Paid Losses 5480,000 50 50 . Case Reserves 5120,000 50 50 Incurred Losses 5600,000 50 50 REVENUE Levy 51,524.953 52,344,800 $1.840,000 Savings over 1998/99 Renewal 5423,099 (S396.7-18) 5108.052 Interest* 521,155 523.163 550,903 Total Revenue 51.969,207 51,971.215 51.998,955 EXPENSES Admin $0 $200,000 5300.000 Insurance Premium $1,425,190 51,060,000 5500.000 Taxes $99,763 584.800 $40.000 Retained Losses 50 $600,000 5600,000 Total Expenses $1,524,953 51.944,800 51,440.000 SURPLUS 1998/99 Expiring Premium $1,948,052 $1.948,052 $1,948,052 Les" Levy $1,524,953 52.344.800 $1,840,000 Plus; Pool Surplus 521,155 5423,163 5450,903 Total Savings/Surplus 5444.254 526,415 $558,955 NET SAVINGS/SURPLUS End of Year One 5444.254 526,415 5558,955 End of Year Two $910.721 556,40 1 51.148,108 End of Year Three 51,400,511 $88,636 $1,767,469 ONE YEAR Insured Incurrtd loss Ratio 42.1-,1. 0.0"1. 0.0-/. I nsu red. hid Loss Ratio 33.7Y. 0,0-/. 0.00;. e THREE YEAR Insured Incurred Loss Ratto 42.1-1. 0.0.1. 0.00/. Insured Paid Loss RaUo 38.6-1. 0.0.1. 0.0.1. , / 040 Source - Oion Durrell Attachment A-4 Without Whitby $700,000 Annual Claim Loss e THE REGION OF DURHAM PROFORMA FINANCIAL COMP ARJSON OF AL TERNA TIVES Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (GR) 50 S250,OOO 5350,000 Stop Loss Coverage 50 S 1 ,000,000 51,000,000 Small losses within GR S700,000 S700,000 S700,000 # losses> GR 0 0 0 Average S Value Losses> GR S 1 ,000,000 51,000,000 SI,ooo,OOO GROSS LOSSES Paid Losses 5560,000 5560,000 S56O,000 Case Reserves 5140,000 S14O,000 S140,000 Incurred Losses 5700,000 5700,000 S700,000 RETAINED LOSSES Paid losses SO S 560,000 S56O,000 Case Reserves SO S14O,000 S140,000 Incurred Losses SO S700,000 S7OO,000 INSURED LOSSES Paid losses S56O,000 SO SO e Case Reserves 5140,000 SO 50 Incurred Losses S7OO,000 SO 50 REVE~UE Levy 51,524,953 52,344,800 S 1,840,000 Savings over 1998/99 Renewal S423,099 \S3%.7~8) S 1 08,052 Interest* 521,155 S21,163 S48,903 T ota] Revenue 51,969,207 51,969,215 51,996,955 EXPENSES Admin 50 S200,OOO S3OO,000 Insurance Premium SI,425,190 51,060,000 S5OO,000 lues S99,763 584,800 540,000 Retained Losses SO S700,000 S7OO,000 Total Expenses S 1 ,524,953 S2,044,8OO 51,540,000 SURPLUS 1998/99 Expiring Premium S 1,948,052 S 1 ,948,052 51,948,052 Les" Levy SI,524,953 S2,344,800 51,840,000 Plus; Pool Surplus $21,155 S321,163 S348,903 Total Savings/Surplus 5444,254 CS75.585) 5456,955 NET SA VINGSISURPLUS End of Year One 5444,254 (~75.5g5) 5456,955 End of Year Two 5910,721 (SI52.J2~) 5939,383 End of Year Three SI,4OO,51I ,5232,Q251 S1 ,446,807 ONE YEAR Insured Incurred Loss Ratio 49.1.". O.OY. 0.0./. Insured Paid Loss Ratio 39.3./. 0.0-;. 0.0./. . THREE YEAR Insurtd Incurred Loss Ratio 49.1'1. 0.0'1. 0.0./. Insured Paid Loss Ratio 45.0-;. 0.0'1. 0.00/. b4! Source - Dion Durrell Attachment 1.-5 Without Whitby $1,000,000 Annual Claim loss . THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF ALTERNATIVES . Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (OR) SO S250,000 S350,000 Stop Loss Coverage SO $1,000,000 $1,000,000 Small Losses within OR S 1 ,000,000 $1,000,000 SI,ooo,Ooo # Losses> OR 0 0 0 Average $ Value losses> GR $1,000,000 $1,000,000 S 1 ,000,000 GROSS LOSSES Paid Losses S8OO,000 $800,000 $800,000 Case Reserves $200,000 $200,000 $200,000 Incurred losses $1,000,000 $1,000,000 $1,000,000 RETAINED LOSSES Paid Losses $0 $800,000 S8OO,000 Case Reserves $0 $200,000 $200,000 (ncurred losses $0 SI,ooo,ooo SI,ooo,ooo INSURED LOSSES Paid Losses S8OO,000 $0 SO Case Reserves S2OO,000 SO SO Incurred Losses S 1,000,000 SO SO REVENUE Levy S 1,524,953 S2,344,8OO SI,84O,000 Savings over 1998/99 Renewal S423,099 I'SJ%.7..llfl S108,052 Inlerest- S21,155 SI5,163 S42,903 Tota) Revenue SI,969,207 SI,963,215 SI,99Q,955 EXPENSES Admin $0 $200,000 S3OO,000 Insurance Premium S 1 ,425, 190 Sl,06O,ooo S5OO,000 Taxes $99,763 S84,8OO S4O,000 Retained Losses SO SI,ooo,ooo SI,ooo,ooo Total Expenses S 1 ,524,953 S2,344,8OO SI,84O,000 SURPLUS 1998199 Expiring Premium SI,948,052 SI,948,052 S 1,948,052 Les" Levy SI,524,953 S2,344,8OO SI,84O,ooo Plus: Pool Surplus $21,155 S15,163 S42,903 Total Savings/Surplus S444,254 (~381.585) $150,955 NET SA VINGSlSURPLUS End of Year One $444,254 1$381.585) S150,955 End o(Year Two S91O,721 (S778,.49tJ) S313,208 End ofYcar Three SI,4oo,511 (SI,194.nO()) S484,824 ONE YEAR Insured Incurred Loss Ratio 70.2./. ,.. 0.0"1. 0.0"1. Insured Paid Loss Ratio 56.1-1. 0.0-1. 0.0-1. THREE YEAR In5ured Incurred Loss Ratio 70.Z./. . 0.0% 0.0-1. In5urtd Paid Loss Ratto 6403./. 0.0-1. 0.0-1. . nt~ guarantte Iou ratio threshold has beta breached e b48 Source - Dion Durrell Attachment B-1 With Whitby $400,000 Annual Claim loss e THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF ALTERNATIVES Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (OR) 50 5250,000 5350,000 SlOp Loss Coverage 50 51,000,000 51,000,000 Small Losses within GR 5400,000 5400,000 5400,000 # losses> OR 0 0 0 Average S Value Losses> OR 51,000,000 51,000,000 51,000,000 GROSS LOSSES Paid losses 5320,000 5320,000 5320,000 Case Reserves 580,000 580,000 580,000 Incurred Losses 5400,000 5400,000 5400,000 RETAINED LOSSES Paid losses 50 5320,000 5320,000 Case Reserves 50 580,000 580,000 Incurred Losses 50 5400,000 5400,000 INSURED LOSSES Paid Losses 5320,000 50 $0 e Case Reserves 580,000 $0 50 Incurred Losses 5400,000 $0 50 REVENUE Levy 51,158,893 52,344,800 51,840,000 Savings over 1998/99 Renewal 5486,052 rS9().855) $404,945 Interest. 524,303 542,001 $69,141 Total Revenue $2,269,248 $2,286,952 52,314,692 EXPENSES Admin 50 5200,000 5300,000 Insurance Premium 51,643,825 51,060,000 5500,000 Taxes 5115,068 584,800 540,000 Retained Losses 50 5400,000 5400,000 Total Expenses 51,158,893 $1,144,800 51,240,000 SURPLUS 1998/99 Expiring Premium 52,244,945 $2,244,945 $2,244,945 Les" Levy 5 1,158,893 $2,344,800 51,840,000 Plus: Pool Surplus 524,303 5642,001 $669,141 Total Savings/Surplus 5510,355 5542,152 51,014,692 NET SAVINGS/SURPLUS End of Year One 5510,355 5542,152 51,014,692 End of Year Two 51,00;,228 51,112,912 52,204,619 End of Year Three 51,608,895 51,112,710 53,391,542 ONE YEAR Insured Incurred Loss Ratto 24.30/. 0.0./. 0.0% Insured Paid Lou Ratio 19.50/0 0.0-1. 0.0-1. e THREE YEAR Insured Incurred loss Ratio 24.3./. 0.0-;. 0.0% Insured Paid Loss Ratio 22.30/. 0.0-;. 0.00/. b41 Source - Dion Durrell . Attachment 11-2 With Whitby $600,000 Annual Claim Loss . THE REGION OF DURHAM PROFOR.\1A FINANCIAL COMPARISON OF ALTERNATIVES Frank Cowan Company Recommended Conventional ~unldpal Municipal Insurance Pool Pool Per Claim Group Retention (OR) 50 5250,000 5350,000 SlOp Loss Coverage 50 51.000,000 51,000,000 Small losses within OR 5600,000 5600,000 5600,000 # Losses> OR 0 0 0 Average S Value Losses> OR 51,000,000 51,000,000 51,000,000 GROSS LOSSES Paid losses 5480,000 5480,000 5480,000 Case Reserves 5120,000 5120,000 5120,000 Incurred Losses 5600,000 5600,000 5600,000 RETAINED LOSSES Paid Losses 50 5480,000 5480,000 Case Reserves 50 $120.000 5120,000 Incurred Losses 50 5600,000 5600,000 INSURED LOSSES Paid Losses 5480,000 50 50 . Case Reserves 5120.000 50 50 Incurred Losses 5600,000 50 50 REVENUE Levy 51.758,893 52,344.800 51,840.000 Savings over 1998/99 Renewal 5486,052 (S99.~551 5404.945 Interest- 524.303 538.007 565,747 Total Revenue 52.269.248 52,282.952 52.310.692 EXPENSES Admin 50 5200.000 5300.000 Insurance Premium $1,643.825 51.060,000 5500,000 Taxes 5115.068 $84.800 540.000 Retained Losses 50 5600,000 5600.000 Total Expenses 51.758.893 51.944.800 $1.440.000 SURPLUS 1998/99 Expiring Premium 52.244,945 $2.244.945 $2.244.945 les" Levy 51.758,893 52.344.800 $1.840.000 Plus; Pool Surplus 524.303 5438.007 $465.747 Total Savings/Surplus 5510.355 5338.152 5870.692 NET SAVINGS/SURPLUS End of Year One 5510.355 $338.152 5870.692 End of Year Two 51.046.228 $695.462 51.787.169 End of Year Three 51.608.895 51.071.388 52.750.220 ONE YEAR Insured Incurnd Loss Ratio 36.50/. 0.0% 0.0% Insured PaJd Loss Ratio 29.2'1. 0.00/. 0.00/. . THREE YEAR Insured lnaarred Loss Ratio 36.50/. 0.0% 0.0./. Insured Paid Loss Ratio 33.50/. 0.0./. 0.00/. OJU Source - Oion Ourrell . .' . ' Attachment B-3 With Whitby $800,000 Annual Claim Loss . THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF ALTERNATIVES Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (OR) 50 5250,000 5350,000 Stop Loss Coverage 50 $1.000,000 11,000,000 Small Losses within OR $800,000 $800,000 $800,000 # Losses> GR 0 0 0 Average S Value Losses> OR $1,000,000 51,000,000 $1,000,000 GROSS LOSSES Paid Losses $640,000 $640,000 5640,000 Case Reserves $160,000 5160,000 5160,000 Incurred Losses $800,000 5800,000 $800,000 RET AlNED LOSSES Paid Losses 50 5640,000 $640,000 Case Reserves $0 $160,000 $160,000 Incurred losses $0 $800,000 $800.000 INSURED LOSSES Paid Losses $640,000 $0 10 . Case Reserves 1160.000 10 10 Incurred Losses 1800.000 10 10 REVENUE Levy $1,758.893 $2,344.800 $1.840,000 Savings over 1998/99 Renewal $486,052 (S9f),855) 1404,945 Interest" $24,303 $34.007 $61.747 Total Revenue $2,269,248 12.278,952 12,306,692 EXPENSES Admin $0 $200,000 $300,000 Insurance Premium $1,643,825 11,060.000 $500.000 Taxes $115.068 $84.800 140,000 Retained Losses $0 $800.000 $800.000 Total Expenses $1,758.893 $2,144,800 $1,640,000 SURPLUS 1998199 Expiring Premium $2,244,945 12,244,945 12,244,945 Less: Levy $1,758.893 $2.344.800 11,840.000 Plus: Pool Surplus 124.303 1234.007 $261,747 Total Savings/Surplus 1510,355 1134,152 1666,692 NET SA VlNGSlSURPLUS End of Year One $510,355 1134,152 $666,692 End of Year Two $1,046,228 1278,012 11,369,719 End of Year Three $1.608,895 1430,065 $2.108,897 ONE YEAR Insured Incurred Loss Ratio 48.7-;,. 0.0-;. 0.0% Insured Paid Loss Rltlo 38.9-;. 0.0-;. 0.0-;. . THREE YEAR Insured Incurred Loss Ratio 48.7.1. 0.0-;. 0.0-;. In"sured Paid Loss Ratio 44.6-;. 0.0.1. 0.0./. dJl Source - Dioo Durrell . e . ....' ~' . ' . , . Attachment 8-4 With Whitby $1,000,000 Annual Claim Loss THE REGION OF DURHAM PROFORMA FINANCIAL COMPARISON OF ALTERNATIVES Frank Cowan Company Recommended Conventional Municipal Municipal Insurance Pool Pool Per Claim Group Retention (OR) 50 5250,000 5350,000 Stop loss Coverage 50 51,000,000 51,000,000 Small losses within OR 51,000,000 51,000,000 51,000,000 # losses> OR 0 0 0 Average S Value losses> OR 51,000,000 51,000,000 5 I ,000,000 GROSS LOSSES Paid Losses 5800,000 5800,000 5800,000 Case Reserves 5200,000 5200,000 5200,000 Incurred losses 51,000,000 5 I ,000,000 5 I ,000,000 RETAINED LOSSES Paid losses SO 5800,000 5800,000 Case Reserves 50 5200.000 5200,000 Incurred Losses 50 51.000,000 51,000,000 INSURED LOSSES Paid Losses 5800.000 50 50 Case Reserves 5200,000 50 50 Incurred Losses 51,000,000 50 50 REVENUE Levy 51,758,893 52,344,800 5 I ,840,000 Savings over 1998/99 Renewal 5486.052 ('S'J9J~55) 5404.945 Interest. 524,303 530,007 557.747 Total Revenue 52,269,248 52,274,952 52,302,692 EXPENSES Admin SO 5200,000 5300,000 Insurance Premium 51,643.825 5 I ,060,000 5500,000 Taxes 5115,Q68 584,800 540,000 Retained losses 50 51,000.000 51.000.000 Total Expenses 51,758,893 52,344,800 51,840,000 SURPLUS (998/99 Expiring Premium 52,244,945 52,244,945 52,244,945 Less, Levy 51,758,893 52,344,800 51,840,000 Plus: Pool Surplus 524,303 530,007 557,747 Total Savings/Surplus 5510,355 ($69,348) 5462.692 NET SA VINGS/SURPLUS End of Year One 5510,355 (%9,8-18) 5462.692 End of Year Two 51,046,228 (5] .~9A38) 5952,269 End of Year Three 51,608,895 IS2II;58) 51,467,575 ONE YEAR Insured locurred Loss Ratio 6O.8Y.1I- 0.00/. 0.0"-. Insured Paid Loss Ratio 48.7% 0.0"-_ 0.0% THREE YEAR Insured Incurred Loss Ratio 60.8% .. O.O~. O.O~. Insured Paid Loss Ratio 55.8,.-_ 0.0% 0.0% .. rate guarantee loss ratio threshold hu been breached 0)2 Source - Dion Durrell t ~ ATTACHMENT #C . COMPARISON OF 1998/1999 AND 1999/2000 INSURANCE PREMIUMS - FRANK COWAN COMPANY PREMIUMS INCREASE/(DECREASE) MUNICIPALITY 1998/1999 1999/2000 $ $ $ % Ajax 346,266 265,268 (80,998) (23.4) Brock 83,868 68,958 (14,910) (17.8) Clarington 261,021 20 I ,542 (59,479) (22.8) Durham 744,334 497,942 (246,392) (33.1) Pickering 319,863 245,485 (74,378) (23.3) Scugog 101,195 75,606 (25,589) (25.3) Uxbridge 91,505 70,389 (21,116) (23.1 ) Total 1,948,052 1,425,190 (522,862) (26.8) .OTE: Marg\Reports\Insatmts. . bJ3