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HomeMy WebLinkAboutFIN-08-147 - Waterloo Region Municipal Insurance Pool Statements as of May 31 2008Report To: Councillor Berry Verbanovic, Chair and Members of the Finance and Corporate Services Committee Date of Meeting: November 17, 2008 Submitted By: Dan Chapman, General Manager of Financial Services & Treasurer Prepared By: Saleh Saleh, Senior Financial Analyst, Financial Planning and Reporting Ward(s) Involved: All Date of Report: November 6, 2008 Report No.: FIN-08-147 Subject: Waterloo Region Municipal Insurance Pool Statements as at May 31, 2008 � --n U11 4q 1210 0 On June 1, 1998, Waterloo Region Municipal Insurance Pool (WRMIP) was formed with the partnership of The Region of Waterloo, City of Kitchener, City of Waterloo, City of Cambridge, Township of Wilmot, Township of Woolwich, Township of Wellesley and the Township of North Dumfries. The main purpose for the creation of the WRMIP was to collectively capitalize on three main advantages: • Stability of insurance premiums • Ability to develop and provide high quality services designed for municipalities • Potential to provide insurance coverage for appropriate exposures of members �0140 0 0 Attached in Appendix A are the WRMIP financial statements as at May 31, 2008. The unappropriated surplus at the end of the WRMIP year is $3,568,367. The City of Kitchener's share of this surplus is $1,288,854. The City of Kitchener and our partners in the WRMIP have benefitted from the creation of the insurance pool. The combined premiums paid by the municipalities in 1997/98, prior to the WRMIP being established was $4,128,448. The current combined 2008/09 premiums assessed by the WRIMP is $4,315,390 which represents an increase of approximately 4.5% over the 10 years. Overall the Waterloo Region Insurance Pool is in a healthy financial position. FINANCIAL IMPLICATIONS: 0 Dan Chapman, MPA, CA General Manager of Financial Services and Treasurer Saleh Saleh, HBBA, CPA, CGA Senior Financial Analyst Financial Planning and Reporting A a & .6, Appendix "A" Auditors' Report .................................................................................. 1 BalanceSheet ..................................................................................... 2 urplus ............................. 3 Statement of Cash Flows .................................................................... 4 k .- . 4atements ............................................................ 5 U I - /1(PMj-jkGr-w-m KPMG LLP Chartered Accountants 115 King Street South 2nd Floor Waterloo ON NJ 5 AUDITORS'REPORT TO THE SUBSCRIBERS Telephone (519) 747 -8800 Fax (519) 747 -8830 Internet ww .kprng. a We have audited the balance sheet of the Waterloo Region Municipalities Insurance Pool as at May 31 r 2098, and the statements of income and unappropriated surplus and cash flows for the year then ended. These financial statements are the responsibility of the Waterloo Region Municipalities Insurance Peel management. 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 plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Waterloo Region Municipalities Insurance Pool as at May y 31, 2098, and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. & aAV4:;� Z4P Chartered Accountants, Licensed Public Accountants Waterloo, Canada September 1, 2008 KPMG LLP, is a Canadian limited liability partnership and a mernber firm of the KPM network of independent member Iirms affiliated with K M C Intemational, a Swis s cooperative. KPMG Canada provides services to KPMG LLP Waterloo RPool Appendix Balance As SURPLUS Unappropriated (note 6) 31568,367 277327637 See accompanying notes u $16,051,777 $ 1373157409 2008 2007 ASSETS Funds held by City of Kitchener (note 2) $5,462,870 $ 0 Due from member municipalities 16,119 57106 Accounts receivable and accrued interest 799,060 7197048 Insurance recoverable (note 4) 11333,726 272447559 Investments (note 3) 81440,002 1073467696 $16,051,777 $ 1373157409 LIABILITIES Unearned premiums 41315,393 0 Funds owed to City of Kitchener (note 2) 0 2217945 Accounts payable and accrued expenses 121,070 1707784 Provision for unpaid claims and adjustment expenses (note 4) 81046,947 1071907043 12,483,410 10, 582, 772 SURPLUS Unappropriated (note 6) 31568,367 277327637 See accompanying notes u $16,051,777 $ 1373157409 Waterloo RPool Appendix Statement of Income and Unappropriated Surplus Year Ended May 31 2008 2008 2007 Actual Budget Actual INCOME Subscriber levies $4,110,750 $4,110,750 $4,050,000 Reimbursement of adjuster expenses 59,670 64,800 607387 41170,420 4,175, 550 4,110, 387 EXPENSES 359,838 (510,915) (262,370) Claims and adjustment expenses incurred 11094,078 21000,000 177067743 (including provision for unpaid claims and adjustment expenses — note 4) 835,730 0 3407676 Insurance premium 21097,323 21070,000 270967813 Operating expenses 31568,367 21732,722 277327637 Salaries, wages and benefits 391,582 406,936 3867352 Professional fees 172,526 142,410 1327231 Other administrative expenses 55,073 67,119 507618 31810,582 41686,465 473727757 Operating income (loss) 359,838 (510,915) (262,370) Investment income 475,892 511,085 6037046 EXCESS OF INCOME OVER EXPENSES/ (EXPENSES OVER INCOME) 835,730 0 3407676 UNAPPROPRIATED SURPLUS, beginning of year 21732,637 21732,637 273917961 31568,367 21732,722 277327637 Dividend (Note 6) 0 0 0 UNAPPROPRIATED SURPLUS, end of year $3,568,367 $2,732,722 $277327637 See accompanying notes +Is Waterloo RPool Appendix Statement of Cash Flows Year Ended May 31 Investing Purchase of investments, net of redemptions 11906,694 (1,020,488) Decrease (increase) in funds held by the City of Kitchener (5,684,815) 173857778 Cash applied to investing (3,778,121) (365,290) Net change in cash during the year Cash, beginning of year Cash, end of year 1#1 2008 2007 Operations Excess of income over expenses /(expenses over income) $ 835,730 $ 3407676 Changes in non -cash working capital components: Accounts receivable (91,025) 587375 Accounts payable and accrued expenses (49,714) 167646 Insurance recoverable 910,833 475497637 Provision for unpaid claims and adjustment expenses (2,143,096) (5,330,624) Deferred Premiums 41315,393 - Cash provided by (applied to) operations 31778,121 (365,290) Investing Purchase of investments, net of redemptions 11906,694 (1,020,488) Decrease (increase) in funds held by the City of Kitchener (5,684,815) 173857778 Cash applied to investing (3,778,121) (365,290) Net change in cash during the year Cash, beginning of year Cash, end of year 1#1 Waterloo Region Municipal ities Insurance Pool Appendix A Notes to Financial Statements May 31, 2008 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 principles. 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. 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. c. 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. d. 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. 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. Waterloo RPool Appendix Notes to Financial Statements May 31, 2008 Investment income is allocated to the Pool based on the average yield earned monthly (ranging from 2.5% to 4.0 %) on all short -term investments and the average amount owing to the Pool. 3. Investments The investments consist o£ Investments are stated at cost less any writedown in value, which is other than temporary. The average yield on fixed income investments held at year -end is 4.33% (2007 - 4.9 %). 1#1 2008 2008 2007 2007 Cost Market Cost Market Value Value City of North Bay, Nov 14/07 (4.85 %) 352,845 3521725 Municipality of Chatham -Kent, Nov 15/07 500,000 499,952 4.8 %) City of Regina, Nov 15/10 (5.3 %) 499,195 519,637 499,195 507,968 City of Kingston, Jul 17/08 (4.25 %) 498,550 500,755 498,500 495,784 New Brunswick MFC, Jul 28/12 (4.90 %) 166,196 175,250 166,196 167,051 Province of Ontario, Dec 2/12 (5.375 %) 512,700 531,081 5121700 516,547 Province of Manitoba, Apr 14/10 (6.06 %) 11129,259 11704,048 11129,259 11650,076 Province of New Brunswick, Dec 2/09 (4.50 %) 148,868 152,794 148,868 149,311 City London, June 30/11 (5.00 %) 745,425 781,995 745,425 752,532 Region of York, Jul 5/12 (5.25 %) 498,850 523,550 498,850 509,077 Royal Bank, July 22/10 (3.10 %) 500,000 498,324 500,000 485,859 Province of Manitoba, Sept 15/10 (3.25 %) 500,000 498,152 500,000 482,815 Province of Ontario, Nov 4/10 (3.70 %) 11500,000 11455,606 Farm Credit Canada, Apr 18/11 (4.25 %) 500,000 4911206 Alberta Capital, Sept 11/07 (4.03 %) 11000,000 975,842 Royal Bank Dec 26/07 (4.60 %) 820,000 8121101 Farm Credit Canada, Dec 5/07 (4.00 %) 200,000 199,632 200,000 1941295 Alberta Capital, June 23/08 (4.35 %) 289,554 326,509 289,554 300,183 Royal Bank, April 11/18 (5.45 %) 510,400 512,578 Bank of Nova Scotia, Jan 31/13 (5.30 %) 507,400 507,988 Bank of Nova Scotia, Jan 31/13 (5.30 %) 494,262 493,764 CIBC, June 1/09 (4.25 %) 999,000 999,004 North Bay, Dec 6/13 (4.95 %) 294,235 291,902 81493,894 91216,962 10,361,442 10,798,930 Less Accumulated amortized premium on purchase 53,892 141744 $8,440,002 91216,962 $10,346,696 $10,798,930 Investments are stated at cost less any writedown in value, which is other than temporary. The average yield on fixed income investments held at year -end is 4.33% (2007 - 4.9 %). 1#1 Waterloo Region Municipal ities Insurance Pool Appendix A Notes to Financial Statements (continued) May 31, 2008 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. 2008 2007 Vehicle accident liability $1,937,375 $ 11099,331 General liability 51755,127 71556,773 Property damage 354,445 11533,939 $8,046,947 $ 10,190,043 1#1 Waterloo RPool Appendix Notes to Financial Statements (continued) May 31, 2008 The activity in the reserve is summarized as follows: 11' 11 Incurred losses Balance at the beginning of the year $5,990,369 $5,127,244 Increase /(decrease) in reserve (11383,025) 863,125 Balance at the end of the year 41607,344 5,990,369 Incurred but not reported losses Balance at the beginning of the year 41199,674 10,393,423 Increase /(decrease) in reserve (760,071) (6,193,749) Balance at the end of the year 31439,603 4,199,674 Reserve for unpaid claims 81046,947 10,190,043 Insurance recoverable (see note 7) (11333,726) (2,244,559) Net claims liability $ 61713,221 $ 7,945,484 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 4.25% (2007 — 4.5 %). 11: Discounted Undiscounted 2007 Discounted Undiscounted Gross Provision $6,896,933 $7,489,809 $8,735,162 $9,335,784 Provision for Adverse de • 11150,014 :: $8,046,947 $74:' :1' $10,190,043 ' ►' u Waterloo Region Municipal ities Insurance Pool Appendix A Notes to Financial Statements (continued) May 31, 2008 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, 2008 is $604,436 (2007 - $5281347). 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, 2008 are as follows: 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. 1#1 Cumulative Surplus As at May 31, 2007 Share of 2008 Surplus % Share of 2008 Surplus Cumulative Surplus As at May 31, 2008 % Share of Cumulative Surplus City of Cambridge $430,141 $105,895 12.67 $536,036 15.02 City of Kitchener 11058,818 230,036 27.53 11288,854 36.12 Township of North Dumfries 48,669 13,316 1.59 61,985 1.74 Region of Waterloo 638,757 312,689 37.42 951,446 26.66 City of Waterloo 313,379 111,424 13.33 424,803 11.90 Township of Wellesley 61,683 12,449 1.49 74,132 2.08 Township of Wilmot 97,060 23,792 2.85 120,852 3.39 Township of Woolwich 84)130 26,129 3.13 110,259 3.09 $2,732,637 $835,730 100.00 $3,568,367 100.00 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. 1#1 Waterloo Region Municipal ities Insurance Pool Appendix A Notes to Financial Statements (continued) May 31, 2008 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 11, 2007. 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. to. Comparative Figures Certain of the prior year's comparative figures have been restated to conform to the current year's presentation.