HomeMy WebLinkAboutFCS-13-172 - Waterloo Region Municipalities Insurance Pool - Annual Report Staff Report
I r finance and Corporate Services Department wvwuukitchenerra
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: November 18, 2013
SUBMITTED BY: D. Chapman, Deputy CAO — Finance and Corporate
Services (519-741-2200 x 7347)
PREPARED BY: D. Chapman, Deputy CAO — Finance and Corporate
Services (519-741-2200 x 7347)
WARD(S) INVOLVED: All
DATE OF REPORT: October 28, 2013
REPORT NO.: FCS-13-172
SUBJECT: Waterloo Region Municipalities Insurance Pool —Annual
Report
RECOMMENDATION:
For information only.
BACKGROUND:
May 31, 2013 marked the end of the fifteenth year of operations for the Waterloo Region
Municipalities Insurance Pool (WRMIP). The annual report for the 2012/2013 year is attached
as information.
REPORT:
On June 1, 1998 all eight municipalities within Waterloo Region formed the Waterloo Region
Municipalities Insurance Pool (WRMIP). This collaborative and innovative risk financing venture
has been highly effective and continues to fulfill all expectations with regard to the benefits
projected at inception — both financially and operationally.
The attached annual report provides information on the financial position and operations of the
WRMIP for the year ended May 31, 2013.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
Participation in the Waterloo Region Municipalities Insurance Pool supports the City's strategic
direction for financial management under our Foundation of Efficient and Effective Government.
It seeks to maximize value through cost-effective service delivery and ensure the effective and
responsible use of public funds within a supportive policy framework.
FINANCIAL IMPLICATIONS:
None at this time.
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COMMUNITY ENGAGEMENT:
Inform —This report has been posted publicly as part of the agenda to inform the public.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO— Finance and Corporate Services
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4 Waterloo Region Municipalities Insurance Pool
200 King St.West,P.O.Box 1118,Kitchener,ON N2G 4G7
Wit,
Phone: (519)741-2961 Fax: (519)741-2960
2013 STATUS REPORT
INTRODUCTION:
May 31, 2013 marked the end of the fifteenth (15'h)year of operation for the Waterloo Region
Municipalities Insurance Pool (WRMIP). Staff are pleased to report that the WRMIP continues
to fulfill all expectations with regard to the benefits projected at inception—both financially and
operationally.
FINANCIAL STRENGTH OF THE WRMIP:
Attached are the WRMIP's Audited Financial Statements for the year ending May 31, 2013. The
Pool currently has an unappropriated surplus of approximately $3 million.
The two main strategic issues for maintaining a strong surplus are:
1. Stability and Financial Strength of the WRMIP—allows the Pool to consider the best risk
financing options available in the future and reduces the possibility of a retro-assessment
levy against Pool members.
2. Stability of Budget—allows the municipalities to strategically manage potential future
insurance market price fluctuations.
WRMIP'S 2013/14 OPERATING BUDGET:
On May 24, 2013, the Advisory Board passed the WRMIP's Operating Budget of$5,203,872 for
the year June 1, 2013 to May 31, 2014. As it is anticipated that the Pool will earn approximately
$340,000 in investment income, the net expenditure will be $4,863,872. This represents a 4%
increase in the budget for the year 2013/14. It is anticipated that in the year 2013/14 the Pool will
have a balanced budget and should not have to draw from surplus unless incurred claims exceed
the pre-funded level of$2,000,000. The following is a summary of operations:
Item Amount
Pre-funded Losses........................... $2,000,000
Administrative Expenses $703,872
Insurance Premium $2,500,000
Total Operating Budgetm $5,203,872m...
Investment Income - $340,000
Net Operating Budget $4,863,872
2013/14 Lev $4,863,872
WRMIP'S LEVY DISTRIBUTION:
Oliver Wyman, the Actuaries for the WRMIP, have allocated costs across the municipalities on
an actuarially determined basis, utilizing considerations for current exposures (physical assets,
vehicles, services and employees), claim frequency and claim severity. These changes are
reflected in the levies assessed. The Advisory Board annually reviews and approves this levy
allocation methodology.
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Page 2
The 2013/14 annual levy for your municipality is presented in the following chart. For
comparison purposes the previous 2012/13 levy has also been noted below along with the
percentage change. These figures now include the annual Environmental Liability Insurance
premium.
2012/13 Lew: 2013/14 Lew: %Change
City of Kitchener $1,116,105 $1,224,959 9.75%
INSURANCE MARKET CONDITIONS:
Unfortunately municipal liability insurance coverage is an exposure area that not all insurance
companies are interested in underwriting. In 2011, the Pool's Insurance Consultant, Marsh
Canada Limited,performed an exhaustive marketing exercise which resulted in only three
submissions being received from thirteen insurance companies that were contacted. In 2013,
Marsh contacted the main competitive companies that were interested in the Pool's insurance
program in 2011. The results from this year's limited marketing exercise were analyzed and the
incumbent, The Frank Cowan Company Limited, was again determined to provide the most
comprehensive and cost effective program.
As such, in 2013/14 the Pool received a slight increase of 1.8%in premium over the expiring
terms with the enhancement of an additional $71M in Property and Boiler& Machinery Insurance
coverage. Cowan also provided a three year flat rate guarantee on the Property and Automobile
coverage areas subject to specific parameters. Staff will continue to monitor the insurance
marketplace to ensure that the Pool obtains competitive pricing on the insurance that it purchases.
CONCLUSION:
On June 1, 1998 all eight municipalities in Waterloo Region joined the Waterloo Region
Municipalities Insurance Pool. This innovative risk-financing venture continues to be a highly
effective method by which the municipalities have enjoyed:
• Pro-active risk management services and strategic control of claims.
• Stability in insurance pricing. (History: the combined premiums paid by the municipalities in
1997/98 (Pre-Pool)was $4,128,448. Now 16 years later the premium levy assessed by the
WRMIP in 2013/14 is $4,863,872 which is only a 17.8% increase over that original amount.
This levy also includes the premium for the new Environmental Liability Insurance policy.)
• The ability to earn investment income on the pre-funded claim reserve(2012/13 - $360,752).
• The pre-funded claim reserve that is not required to pay claims remains in the municipalities'
surplus. (WRMIP's Unappropriated Surplus as of May 31, 2013 is $2,964,934 with your
municipality's share being $1,131,779. Further, a$1,000,000 dividend was issued to the
member municipalities back in 2001.)
Respectfully submitted,
R. Craig Smith, C.I.P., R.F.
Risk Manager
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Financial Statements of
WATERLOO REGION
MUNICIPALITIES
INSURANCE POOL
Year ended May 31, 2013
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Table of Contents
01,
Independent Auditors' Report............................................................. 1
Statement of Financial Position .......................................................... 3
Statement of Income and Unappropriated Surplus............................. 4
Statement of Changes in Net Financial Assets................................... 5
Statement of Cash Flows ................................................................... 6
Notes to Financial Statements............................................................ 7
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INDEPENDENT AUDITORS' REPORT
To the Subscribers and Board of Advisors of the Waterloo Region Municipalities Insurance Pool
We have audited the accompanying financial statements of Waterloo Region Municipalities Insurance Poo|,
which comprise the statement of financial position as at May 31` 2013. the statements of income and
unappropriated surp|um, changes in net financial aemets, and cash flows for the year then ended, and notes.
comprising a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with Canadian public sector accounting standarda, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material nnisstatement, whether
due to fraud urerror.
Audit7cs'Reupona/bilib/
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform on audit to obtain reasonable assurance about whether
the financial statements are free from material nnisnbahmnnmnt.
An audit involves performing procedures to obtain audit evidence about the mnnVunte and disclosures in the
financial statements. The procedures selected depend on our jud0nnent, including the assessment ofthe risks of
material misstatement of the financial statementa, whether due to fraud or error. In making those risk
assmsornenb, we consider internal control relevant to the entity's preparation and hair presentation of the
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
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Opinion
In our opinion, the financial statements present foidy, in all material respects, the financial position of Waterloo
Region Municipalities Insurance Pool as at May 31. 2013. and its n*au|tu of operations and mash flows for the
year then ended in accordance with Canadian public sector accounting standards.
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Chartered Accountants, Licensed Public Accountants
October 26. 2O13
Waterloo, Canada
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Waterloo Region Municipalities Insurance Pool
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Statement of Financial Position
As at May 31
2013 2012
ASSETS
Funds held by City of Kitchener(note 2) $ 5,889,460 $ 3,324,826
Restricted cash 25,803 -
Due from member municipalities 22,669 23,206
Accounts receivable and accrued interest 94,273 105,875
Insurance recoverable (note 4) 543,858 1,059,350
Investments (note 3) 6,587,777 8,439,548
13,163,840 12,952,805
LIABILITIES
Accounts payable and accrued expenses 180,959 109,286
Deferred subscriber levies - 76,403
Provision for unpaid claims and adjustment expenses (note 4) 10,017,947 8,988,147
10,198,906 9,173,836
Net Financial Assets 2,964,934 3,778,969
NON-FINANCIAL ASSETS
Prepaid insurance premium - 76,403
SURPLUS
Unappropriated (note 6) $ 2,964,934 $ 3,855,372
See accompanying notes
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Waterloo Region Municipalities Insurance Pool
Statement of Income and Unappropriated Surplus
Year Ended May 31
2013 2013 2012
Budget Actual Actual
(unaudited)
INCOME
Subscriber levies $ 4,678,651 $ 4,678,651 $ 4,678,651
Reimbursement of adjuster expenses 96,000 88,220 90,278
4,774,651 4,766,871 4,768,929
EXPENSES
Claims and adjustment expenses incurred (including
provision for unpaid claims and adjustment
expenses—note 4) 2,000,000 2,877,302 974,139
Insurance premium 2,341,104 2,383,294 2,420,324
Operating expenses
Salaries, wages and benefits 515,712 529,379 512,783
Professional fees 199,214 174,148 184,804
Other administrative expenses 73,505 53,938 52,520
5,129,535 6,018,061 4,144,570
Operating (loss) / income (354,884) (1,251,190) 624,359
Investment income 354,884 360,752 424,222
ANNUAL SURPLUS (DEFICIT) - (890,438) 1,048,581
UNAPPROPRIATED SURPLUS, beginning of year 3,855,372 3,855,372 2,806,791
UNAPPROPRIATED SURPLUS, end of year $ 3,855,372 $ 2,964,934 $ 3,855,372
See accompanying notes
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Waterloo Region Municipalities Insurance Pool
Statement of Changes in Net Financial Assets
Year Ended May 31
2013 2013 2012
Budget Actual Actual
(unaudited)
Annual (deficit) surplus $ - $ (890,438) $ 1,048,581
Use of prepaid expenses - 76,403 76,403
Change in net financial assets - (814,035) 1,124,984
Net financial assets, beginning of the year 3,778,969 3,778,969 2,653,985
Net financial assets, end of the year $ 3,778,969 $ 2,964,934 $ 3,778,969
See accompanying notes
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Waterloo Region Municipalities Insurance Pool
Statement of Cash Flows
Year Ended May 31
2013 2012
Operations
Annual (deficit) surplus $ (890,438) $ 1,048,581
Changes in non-cash working capital components:
Accounts receivable 12,139 (12,879)
Prepaid expenses 76,403 76,403
Accounts payable and accrued expenses 71,673 (67,807)
Deferred subscriber levies (76,403) (76,403)
Insurance recoverable 515,492 246,447
Provision for unpaid claims and adjustment expenses 1,029,800 (799,190)
Cash provided by operations 738,666 415,152
Investing
Purchase of investments, net of redemptions 1,851,771 (1,194,994)
(Increase)/decrease in funds held by the City of Kitchener (2,564,634) 779,842
Cash applied to investing activities (712,863) (415,152)
Net change in restricted cash during the year 25,803 -
Restricted cash, beginning of year - -
Restricted cash, end of year $ 25,803 $ -
See accompanying notes
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Waterloo Region Municipalities Insurance Pool
Notes to Financial Statements
May 31, 2013
The Waterloo Region Municipalities Insurance Pool ("Pool") was formed June 1, 1998, by agreement of
the eight member municipalities ("subscribers") to purchase property damage and public liability insurance
on a group basis and share a retained level of risk. The subscribers pay an actuarially determined annual
levy to fund insurance, pre-fund expected losses and contribute to a surplus.
1. Accounting Policies
a. Basis of Presentation:
These financial statements have been prepared in accordance with Canadian generally
accepted accounting policies for local governments, as recommended by the Public Sector
Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants. Since precise
determination of many assets and liabilities is dependent upon future events, the preparation
of periodic financial statements necessarily involves the use of estimates and approximations.
These have been made using careful judgments. Actual results could differ from these
estimates.
b. Restricted cash:
Cash is held in trust by a company that does adjusting work on behalf of the Pool. The funds
held in trust are drawn on to pay claims expenses(primarily for accident benefit claims) in
order to reduce the frequency of small-dollar cheques needing to be issued by the Pool.
C. Investments:
Bonds and short-term investments are carried at cost, net of accumulated amortization on
premiums and discounts. Premiums and discounts are amortized on an effective-yield basis
over the term to maturity. Interest income is recorded as it accrues. When the value of any
bond is identified as impaired, the carrying amounts are adjusted to estimated realizable
amounts and any adjustments are included in investment income in the period the impairment
is recognized.
d. Provision for unpaid claims and adjustment expenses:
Provision has been made for the estimated liability for all reported and outstanding claims
using a case-basis evaluation plus an amount for adverse development and for claims incurred
to May 31, which have not yet been reported to the Pool. Expected insurance recoveries on
claims liabilities are recognized as assets on the same basis. The computation of these
provisions takes into account the time value of money using discount rates based on projected
investment income from the assets supporting these provisions.
e. Insurance Recoveries:
The Pool records insurance recoveries balances on the balance sheet on a gross basis to
indicate the extent of credit related to insurance, and records its obligations to claimants on a
net basis in the statement of income to indicate the results of its retention premiums written.
Amounts recoverable from insurers are estimated in a manner consistent with related claims
liabilities.
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Waterloo Region Municipalities Insurance Pool
Notes to Financial Statements
May 31, 2013
2. Funds Held by the City of Kitchener
The Pool's short-term funds are held by the City of Kitchener and are invested in combination with
other short-term funds of the City. The types of investments permitted are governed by the Municipal
Act and its regulations. All investments are short-term and include, in varying proportions, cash, bank
or trust company deposit notes and acceptances, federal and provincial notes and savings bonds, and
pooled investment money market funds meeting the legislated investment limitations.
Investment income is allocated to the Pool based on the average yield earned monthly (ranging from
1.59%to 1.77%) on all short-term investments and the average amount owing to the Pool.
3. Investments
The investments consist of:
2013 2013 2012 2012
Cost Market Cost Market
Value Value
New Brunswick MFC, Jul 28/12 (4.90%) $ - $ - $ 166,196 $ 169,072
Province of Ontario, Dec 2/12 (5.375%) - - 512,700 510,412
Region of York, Jul 5/12 (5.25%) - - 498,850 501,681
Royal Bank of Canada, Nov 4/18 (5.45%) 510,400 508,022 510,400 524,419
Bank of Nova Scotia, Jan 31/18 (5.30%) - - 507,400 511,592
Bank of Nova Scotia, Jan 31/18 (5.30%) - - 494,262 497,267
City of North Bay, Dec 6/13 (4.95%) 294,235 286,207 294,235 291,415
Royal Bank of Canada, Aug 15/12 (5.20%) - - 283,176 278,074
Royal Bank of Canada, Jun 6/18 (5.00%) 338,183 335,062 338,183 345,308
New Brunswick, Mar 26/18 (4.45%) 337,620 368,137 337,620 372,978
Ontario Savings Bond Jun 21/15 (step-up) 1,213,920 1,313,400 1,213,920 1,256,400
Province of Ontario, Dec 2/19(zero
coupon) 173,553 192,044 169,379 185,240
Province of Ontario, Jun 2/20(zero
coupon) 552,769 602,778 536,833 581,023
Province of Ontario, Jun 2/22 (zero
coupon) 1,398,325 1,509,508 1,355,278 1,456,402
Toronto Dominion Bank, Jul 9/18 (zero 789,824 825,099 764,734 783,848
coupon)
Bank of Montreal, Jul 8/16 (zero coupon) 524,697 532,926 509,854 507,375
Bank of Montreal, Apr 21/16 (zero coupon) 468,181 465,214 - -
6,601,707 6,938,397 8,493,020 8,772,506
Less: Accumulated amortized premium
on purchase 13,930 - 53,472 -
$ 6,587,777 $ 6,938,397 $ 8,439,548 $ 8,772,506
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Waterloo Region Municipalities Insurance Pool
Notes to Financial Statements
May 31, 2013
Investments are stated at cost less any write-down in value, which is other than temporary. The
average yield on fixed income investments held at year-end is 3.46% (2012-4.04%)
4. Provision for Unpaid Claims and Adjustment Expenses
These financial statements contain an estimation of the reserve for unpaid claims of the Pool. This
reserve has been determined by an actuary engaged by the Pool. The reserve for unpaid claims
represents the amounts needed to provide for the estimated cost of investigating and settling claims
related to insured events (both reported and unreported) that have occurred on or before the balance
sheet date.
Determining the provision for unpaid claims, adjustment expenses and the related insurers' share
involves an assessment of the future development of claims. The process takes into account the
consistency of the Pool's claim handling procedures, the amount of information available, the
characteristics of the line of business from which the claim arises and the delays in reporting claims.
These provisions for unpaid claims and adjustment expenses are estimates and, as such, are subject to
variability which could be material in the near term. Changes to the estimates could result from future
events such as receiving additional claim information, changes in judicial interpretation of contracts or
significant changes in severity or frequency of claims from past trends. In general, the longer the term
required for the settlement of a group of claims,the more variable the estimates.
The table below details the provision of unpaid claims and adjustment expenses by risk categories.
Included are both short-settlement-term lines of business where claims are substantially paid within a
year of being reported and long-settlement-term claims liabilities where claims are expected to be paid
over longer periods.
2013 2012
Vehicle accident liability $ 2,497,577 $ 2,025,248
General liability 7,325,481 6,727,684
Property damage 194,889 235,215
$ 10,017,947 $ 8,988,147
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Waterloo Region Municipalities Insurance Pool
Notes to Financial Statements
May 31, 2013
4. Provision for Unpaid Claims and Adjustment Expenses (continued)
The activity in the reserve is summarized as follows:
2013 2012
Incurred losses
Balance at the beginning of the year $ 4,927,316 $ 5,132,855
Increase/(decrease) in reserve 729,445 (205,539)
Balance at the end of the year 5,656,761 4,927,316
Incurred but not reported losses
Balance at the beginning of the year 4,060,831 4,654,482
Increase/(decrease) in reserve 300,355 (593,651)
Balance at the end of the year 4,361,186 4,060,831
Reserve for unpaid claims 10,017,947 8,988,147
Insurance recoverable (see note 7) (543,858) (1,059,350)
Net claims liability $ 9,474,089 $ 7,928,797
Insurance arrangements do not relieve the Pool of its primary liability to the subscribers. No
information has come to the Pool's attention indicating that any of its current insurers will not be able
to honour their liabilities under these insurance contracts.
The provision for claims liabilities is discounted using rates based on the projected investment income
from the assets supporting the provisions, and reflecting the estimated timing of payments. The
discount rate used in the valuation was 3.56%(2012—3.56%).
2013 2012
Discounted Undiscounted Discounted Undiscounted
Gross Provision $ 8,636,582 $ 9,058,030 $ 7,725,518 $ 8,205,534
Provision for Adverse Deviation 1,381,365 - 1,262,629 -
$ 10,017,947 $ 9,058,030 $ 8,988,147 $ 8,205,534
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Waterloo Region Municipalities Insurance Pool
Notes to Financial Statements
May 31, 2013
5. Recovery of adjustment expenses
For certain open claims involving more than one member as defendant, the Pool pays adjustment
expenses on behalf of the members until the allocation of liability has been determined. Upon the
allocation of liability, the Pool recovers the adjustment expenses within the individual deductibles of
the members. Therefore, until the allocation of liability has been determined, the allocation of
adjustment expenses and the amounts to be recovered from the members is undeterminable. For this
reason no amount has been recorded in the financial statements for amounts to be recovered on these
claims. The recoveries will be recorded once they are reliably determined. The total amount paid and
awaiting allocation by the Pool in relation to these claims as at May 31, 2013 is $nil (2012 - $nil).
6. Surplus
The surplus represents contributions made by subscribers and the excess of income over expenses less
any dividends. The surplus may be used to fund any increased future premiums or other costs, or may
be paid out to subscribers. The subscribers' individual shares of the cumulative surplus as at May 31,
2013 are as follows:
Cumulative Share of % Share Cumulative % Share of
Surplus as at 2013 of 2013 Surplus as at Cumulative
May 31, 2012 Deficit Deficit May 31, 2013 Surplus
City of Cambridge $ 560,051 $ (106,074) 11.91 $ 453,977 15.31
City of Kitchener 1,341,433 (209,654) 23.55 1,131,779 38.17
Township of North Dumfries 66,116 (12,614) 1.42 53,502 1.80
Region of Waterloo 1,093,113 (355,941) 39.97 737,172 24.86
City of Waterloo 457,846 (116,549) 13.09 341,297 11.51
Township of Wellesley 81,494 (17,117) 1.92 64,377 2.17
Township of Wilmot 138,651 (43,951) 4.94 94,700 3.20
Township of Woolwich 116,668 (28,538) 3.20 88,130 2.98
$ 3,855,372 $ (890,438) 100.00 $ 2,964,934 100.00
7. Limits of Liability and Insurance
The Pool funds losses for property and casualty claims between the deductible retained by each
subscriber and a $500,000 pooled retention limit per claim. The Pool has purchased insurance to fund
losses in excess of$500,000 on an individual claim. Prior to 2006, the Pool purchased aggregate stop
loss insurance to fund total paid losses in excess of$1,500,000 in any year.
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Waterloo Region Municipalities Insurance Pool
Notes to Financial Statements
May 31, 2013
8. Budget Figures
The budget figures shown in the financial statements were approved by the Advisory Board of the
Waterloo Regional Municipalities Insurance Pool at a meeting on May 25, 2012.
9. Fair Value Disclosure
The fair values of investments and claims liabilities are disclosed in notes 3 and 4, respectively. The
fair values of other financial instruments, including funds held by the City of Kitchener, due from
municipalities, accounts receivable and accrued interest, and accounts payable and accrued expenses
are considered to equal their carrying values due to the nature of these investments.
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