HomeMy WebLinkAboutBig Independent Cities Excess Pool (BICEP) Financial Stateme CITY OF HUNTINGTON BEALrl
MEETING DATE: November 3, 2003 DEPARTMENT ID NUMBER: CK2003-9
Council/Agency Meeting Held: f J 3
Deferred/Continued to:
Approved ❑ Conditionally Approved ❑ Denied City CI 's S tune
Council Meeting Date: November 3, 2003 Department ID Number: CK2003-9
CITY OF HUNTINGTON BEACH zz
REQUEST FOR CITY COUNCIL ACTIONCD
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SUBMITTED TO: HONORABLE MAYOR AND COUNCI MEMBERSz'-
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SUBMITTED BY: CONNIE BROCKWAY, City Clerk C
PREPARED BY: CONNIE BROCKWAY, City Clerk
SUBJECT: RECEIVE & FILE BIG INDEPENDENT CITIES EXCESS POOL
(BICEP) FINANCIAL STATEMENTS & INDEPENDENT AUDITOR'S
REPORT -JUNE 30, 2000, 2001 AND 2002
Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachments)
Statement of Issue: The BICEP Joint Powers Agreement between the BICEP member
cities requires the Big Independent Cities Excess Pool (BICEP) Financial Statements and
Supplementary Information With Independent Auditors Report to be filed as a Public Record
with each of the BICEP member cities. The report includes Independent Auditors Report,
Balance Sheet, Statements of Operations, Changes in Retained Earnings, Statements of
Cash Flows, Notes to Financial Statements, and Claims Development Information from
inception to June 30, 2002.
Funding Source: Not Applicable.
Recommended Action: Motion: Receive and File the Big Independent Cities Excess Pool
(BICEP) Financial Statements and Supplementary Information With Independent Auditor's
Report for the years ended June 30, 2000; June 30, 2001 and June 30, 2002.
Alternative Action: If Council has questions regarding this report, Council may defer
Receiving and Filing to a future meeting.
G:\RCA'S\2003RCA\CK2003-9 BICEP.doc �7- 10/10/2003 4:37 PM
I
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
Years ended June 30, 2002 and 2001
2002 2001
Revenues:
Deposit premiums earned $ 2,975,593 $ 2,258,706
Estimated future premium
adjustments (767,831) (1,812,024)
2,207,762 446,682
Expenses:
Net increase (decrease) in actuarially
determined unpaid losses and
loss adjustment expenses(note 3) 1,514,302 (206,441)
Purchased liability insurance
and reinsurance 1,239,413 911,775
General and administrative
expenses 178,171 178,428
2,931,886 883,762
Excess of (deficit of)
revenue over expenses,
before net investment
income (724,124) (437,080)
Net investment income:
Investment income 1,351,892 1,113,932
Interest expense 627,768 676,852
724,124 437,080
Excess of revenues
over expenses -- --
Retained earnings, at beginning
of year -- --
Retained earnings, at end of year $ --The accompanying notes are an integral part of these financial statements.
3
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF CASH FLOWS
Years ended June 30, 2002 and 2001
2002 2001
Cash flows from operating activities:
Excess of revenues (deficit of)
over expenses before net
investment income $ (724,124) $ (437,080)
Adjustment to reconcile excess
(deficiency) of revenues over
expenses before net investment
income to net cash provided by
operations:
Write up (write down) of
investments to market 284,509 (612,782)
Increase (decrease) in
accounts payable (44,052) 23,412
Increase (decrease) in unpaid
losses and loss
adjustment expenses 1,494,512 (215,227)
(Decrease) increase
in estimated future
premium adjustments payable 767,830 2,170,354
Other asset changes-net 15,262 (14,324)
Net cash provided (used)
by operating
activities 1,793,937 914,353
Cash flows from investing activities:
Interest received 894,648 875,991
Net change in investment portfolios
Net purchases of long-term
investments both 2002 and 2001 (847,573) (441,299)
Net cash provided by (used for
investing activities) 47,075 434,692
Continued on page 5
4
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENT OF CASH FLOWS
June 30, 2002 and 2001
(continued)
Cash flows from noncapital financing 2002 2001
activities:
Interest paid 549,850 549,850
Principal payments 1996 bonds 900,000 850,000
Net cash (used) in noncapital
financing activities (1,449,8501 (1,399,850)
Net increase (decrease) in cash and
cash equivalents 391,162 (50,805)
Cash and cash equivalents at
beginning of year 150,898 201,703
Cash and cash equivalents at
end of year $ 542LO60 $ 150,898
The accompanying notes are an integral part of these financial statements.
5
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
June 30, 2002 and 2001
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Oroanization and Operations
Big Independent Cities Excess Pool (BICEP) was created effective September
23, 1988, by a joint powers agreement among five cities organized and
operating under the laws of the State of California. BICEP is organized
pursuant to the provisions of the California Government Code for the
purpose of providing joint insurance coverage and related risk-management
services for member cities. The extension of joint insurance coverage to
member cities began October 1, 1988.
BICEP's liability program has offered a combination of pooled and
commercially purchased public auto and general liability coverages, plus
errors and omissions coverage, for losses in excess of the member cities'
specified self-insurance retention levels of one million dollars.
Individual and aggregate claims in excess of specified levels are covered
by excess insurance policies purchased from commercial insurance carriers
which, combined with the program's self-funded layers, offer a total of
$25 million in coverage limits. Additionally, through its broker, Driver
Aliant, it enables its members to purchase property and worker's
compensation insurance as a group.
BICEP is a nonprofit California public agency; thus, it is tax-exempt. It
is also considered a "Special District" by the Office of the State
Controller, Division of Local Government Fiscal Affairs, for the purpose
of filing an Annual Report of Financial Transactions of Special Districts.
Basis of Accounting
The accounting records of BICEP are maintained on the accrual basis of
accounting.
Bond Issuance Costs
Bond issuance costs are amortized over the life of the bond issue using
the straight line method. In 1996 due, in part, to more advantageous
interest rates, the 1988 bond issue was retired and new bonds were issued
carrying substantially lower interest rates. Cost of issuance expense and
the premium paid on retirement are being amortized over the remaining life
of the original issue. See note 4 for further explanation.
Cash and Cash Equivalents
BICEP considers money market funds and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash represents funds held in trust for payment of bond
principal and interest, future debt service, and claims payment.
6
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
Rebatable Arbitrage Earnings
Rebatable arbitrage earnings represents the excess of the amount earned on
all cash equivalents and investments over the amount which would have been
earned if such cash equivalents and investments were invested at a rate
equal to the bond yield for activity through January 1, 1995. This excess
is subject to change due to bond and investment activity occurring after
January 1, 1995. As of the report date there have not been any rebates nor
is it anticipated there will be.
Deposit Premium Revenue
Premiums are recognized as earned over . the periods covered by the
policies.
Under the terms of the Liability Risk Coverage Agreement, between BICEP
and its member cities, premium adjustments resulting in additional premium
assessments or refunds were to commence in February 1992, covering the
experience of BICEP from inception. Estimates of such adjustments are
recorded in the financial statements annually as estimated future premium
adjustments. Premium adjustments are subject to change as the ultimate
cost of claims becomes known, investment income and expenses are realized,
and BICEP's costs are allocated to each Policy Year.
Unpaid Losses and Loss.Adiustment Expenses
Estimated unpaid losses and loss adjustment expenses include an amount for
losses incurred but not reported. These estimates have been discounted to
their present value.
Liabilities are based on the estimated ultimate cost of settling the
claims, including the effects of inflation and other societal and economic
factors. The previously noted claims and ultimate recoveries will be
deducted from the gross amount of unpaid losses.
Claims which have been incurred but not reported to the claims
administrator at June 30, 2002 have been estimated through an independent
actuarial analysis based on loss development experience of BICEP and the
member cities and available industry loss development data.
BICEP's recognition of losses incurred but not reported is in conformity
with Government Accounting Standards Board (GASB 10), Accounting and
Financial Reporting for Risk Financing and Related Insurance Issues and
the Risk Finance Omnibus (GASB 30) and the American Institute of Certified
Public Accountants (AICPA) Statement of position 94-5.
At irregular intervals losses have occurred that fell either outside the
usual insured layer by the authority or outside the assumed coverages of
the excess carrier. In isolated instances BICEP has accepted claims
liability along with the insurance carrier and the city of the occurrence.
In previous years there was a claim against a city involving due process
in a condemnation action, more recently a situation occurred in which one
police officer shot and killed another during a drug raid, a third such
situation occurred during 2001.
7
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
Use of Estimates
Certain assets and liabilities are not subject to precise determination.
Specifically, unpaid loss and loss adjustment expense must be estimated.
Those losses that have occurred and not been reported can only be
estimated by actuarial methods. From year ended June 30, 1995 to year
ended June 30, 2000 the $1,000,000 to $2,000,000 loss layer originally
carried by BICEP was insured by outside carriers, reducing both the
premiums and the risks to the participating cities. Those losses in the
$1,000,000 to $2,000,000 layer prior to July 1, 1994 generally have been
reported but there is always the possibility of ultimate cost exceeding
original estimates. Additionally, as noted previously, there can be the
risk of denial of coverage in borderline circumstances. In the years ended
June 30, 2002 and 2001 BICEP shared the $1,000,000 to $2,000,000 layer due
to increased costs of outside carriers.
Valuation of Investments
Investments prior to year ended June 30, 1998 were recorded at cost. Those
investment securities are now valued at market as required by Governmental
Accounting Standards Board (GASB 31), resulting in restatement of carrying
values of investments and changes in previously reported investment income
prior to year ended June 30, 1998. The cumulative effects of these
adjustments are reflected in the Estimated Future Premium Adjustments to
pool participants. See note 5 for further explanation.
Note 2. CASH AND INVESTMENTS
Under provisions of the California Government Code (Code) , BICEP is
authorized to invest in:
• A variety of federal and state treasury obligations (including
local California agencies)
• Obligations or other instruments of or issued by a federal
agency or government sponsored enterprise '
Bankers' acceptances which are eligible for purchase by the
federal reserve system (subject to certain limitations)
Prime quality commercial paper (subject to certain
limitations)
• Negotiable certificates of deposit issued by nationally or
state chartered banks, savings and loan associates and credit
unions
• Repurchase agreements or reverse repurchase agreements of any
securities authorized by the Code
8
♦ Withdrawal from BICEP in favor of a more aggressive self-insurance
program (higher self insurance levels). This is not recommended because
a single major loss can seriously affect cash flow requirements for many
years and a single catastrophic loss could virtually bankrupt the City.
Current Liability Insurance Renewal
Aon Risk Services, on behalf of the BICEP Board of Directors, actively
marketed our liability insurance program for the 98/9.9 renewal.
Proposals were received from five carriers. The BICEP Board elected
to purchase commercial insurance from Associated Public Entity
Program (APEP). The coverage purchased is $104,000 lower in overall
premium to the City as compared to last year and has provided the
following significant coverage improvements:
♦ Back wages are included within the Employment Practices Liability
coverage grant
♦ In-house or city counsel defense costs are included as a covered
expense up to $150 per hour
♦ SIR Replacement endorsement (Purchased coverage or contractual
risk transfer where the city is named as an additional insured) will
apply toward overall SIR satisfaction
♦ Inverse condemnation (no exclusion)
♦ Eminent Domain (no exclusion)
♦ Revised Notice of Occurrence Endorsement (Risk Manager or
Designee)
Additionally, the BICEP Board elected to purchase commercial insurance for the
$5 million excess of $20 million instead of risk sharing this layer. The addition of
this coverage was still lower than last year's overall premium.
The following charts illustrate the City's cost for BICEP versus the potential losses
determined actuarially. (The losses were calculated as a blended composite rate
of all of the BICEP cities)
3
TOTAL PREMIUMS VERSUS EXPECTED
LOSSES
$400,000
$350,000
$300,000
—EBB
$250,000
$200,000 $ ., E0 BICEP Premiums
■ Expected Losses
$150,000
$100,000
na
S50,000 _
$0
90/91 91/92 92/93 93/94
$600,000
$500,000
$400,000
$300,000 SWO --
_ ® BICEP PRFMIUMS
r3 .'
ml a ® Expected Losses
$200,000
100 0$ 00
$0 � _ -
94/95 95/96 96/97 97/98
4
Conclusions/Summary of BICEP Program
The advantages of the City's ten (10) year participation in the BICEP program
include the following:
✓ Risk sharing minimizes the fluctuation in the cost of insurance or self
insurance previously experienced by all municipalities which enhances the
City's ability to budget by providing cost stability
✓ Risk sharing allows the members to set the terms and conditions of their
insurance coverage to provide broader coverage terms, conditions and limits
✓ The City has enjoyed a 75% reduction in the composite rate since the
inception of the excess workers compensation program in 1989 (Attachment
#6)
✓ Ability to obtain attractive rates for other insurance coverages such as special
event insurance, property insurance, helicopter insurance and workers
compensation excess insurance
✓ Costs savings on underwriting and overhead costs, no profit loading and a
share in the investment income
✓ Group purchasing power discounts
5
ROBERT F. DRIVER COMPANY, INC. •COMPLETE INSURANCEIBOND SERVICE
4101 BIRCH STREET,SUITE 230,NEWPORT BEACH,CALiFORNL4 92660•(714)756.0271•FAX 714-756.2713
March 14 , 1988
Mr. Edward H. Thompson
Risk Manager
City- of Huntington Beach
2000 Main Street
Huntington Beach, CA 92648
RE: Excess Municipal Liability
Dear Ed: '
In the past several months we have approached numerous
companies as respects the above captioned coverage. To
date, we have been unsuccessful in obtaining any terms for
the City.
A listing of those markets approached follows:
American Reinsurance
Lexington Insurance Company
Associated International Insurance
General Reinsurance
We continue to search the marketplace and will advise of
any progress.
Sincerely,
ROBERT F. DRIVER COMPANY, INC.
Sharon Nash
Vice President
•- ' �_rt.'.� ,�Cam' �""`�—'
Gordon B. DesCombes
Account Executive
HOME OFFICE
1620 FIFTH AVENUE, SAN DIEGO, CALIFORNIA 92101 •{619J 238-1828
I
-insurance firm cancels
plan for 12 cities in OC
Underwriters blame..state's 'deep pocket' doctrine
By Kathryn Bfirton Patricia Fleischman Inc.of New
f, The Register. York, an underwriting manager
i. for Mead Reinsurance, sent a can-
A dozen Orange County cities celiation notice to the.joint powers
{ have become victims of a state- agency Oct. 12, according to Ross
wtde exodus by insurance compa- Oliver,it contract risk manager for
i nies that provide liability the 12 cities. The agency has until
protection. They could face higher Dec. 12 to obtain another insurance
' premiums for less coverage as a carrier, Oliver said.
result. Cypress, Irvine. Laguna peach,
1111 Gast Coast underwriting firm La Palma, Los Alamitos, Orangc,
last munch cMnccled liability and San Clemente, Stanton, Tustin,
worker's cunipcnsation coverage Villa Park, Westminster and
for the Orange County Risk MAn- Yorba Linda belong to bCRMA.
agentent Agency, a group of 12 cit- Oliver said the agency will be
ies organized to increase their able to find another insurance car-
insurance buying puwer. Please see.IN$URANCE/A2
n ,
= j
\
A2 The ;ter Friday, Nov. 9, 1984
,
INSURANCE %vnrker's compensation specialist. � \
in the city's risk management of-
FROM Al five,said the city's insurance pre-
' ricr. hill the choice will be slim mium more than doubled when the t
been USe fewer firsts were willing policy was renewed recently.
to-underwrite it municipal policy. ••ln order to bring premiums
And he said he expects premium down to where it was affordable,
i ales to he higher. the had to essentially compromise
'fhe cancellation of the policy is and increase our self-insurance re-
p:trl of an exodus from California femtion" fron S1o().000 to S200,000,
ill firms that insure municipalities, hose said.
he said. The state's legal doctrine 'fhe self-insurance retention is
of joint allot several liabilly—con- the amount Of claimed damages
monly referred to as the "deep fur which it city is held responsible.
pocket" doctrine — has driven It generally has the same effect as
army companies out of the state, a deductible.
he said. Santa Ana is insured for between
The deep-pocket doctrine for 5200,t)00 and S50 million by various
personal injury lawsuits holds that insurance carriers, Ruse said.
cities or other heavily'insured par- Emily Harrison. nssislant fi-
ties with as little as 1 percent of the men ge director in Orange,said that
fault I'ur;lit incident can be forced ci( also has suffered "deep
to pay 100 percent of the total cost pocket" losses. "The courts have
of it judgment. not exactly been generous as far as
The doctrine is welkillui tr icd cities go," she said.
by it 1977 case against Laguna •'-I'he insurance market has defi-
Beach, a property Owner and it nitcly havdcned"in the last few
driver by the family of it 7-year-Old months,"she said. Orange used to
girl permanently brain-injured in a be able to"call our Own rates"and
Ill-cycie-car accident. obtain"multiyear policies at good
The driver, insured for SIS,Ut10, prices."
and property owner, insured for 'file city currently is self-insured
S100,000, settled Out Of Churl. in for SI00J)00 and is covered for li-
1982, the city settled for S3.8 mil- ahility and workers'compensaim., I
lion. claims between S100,000 and Sl0
Cases like that, Oliver sold, million through OCIZMA,Harrison
make cities a pour insurance risk. said.The city's yearly premium is
..Now insurance companies are S26,000 for holh liability and work.
saying'things are lough,we've got er's compensation cuverage.
to Cictut up our hooks and make a Most of the cities involved in
profit,' " he said. OCHMA are self-insured up to
Other legal standards in addition S100.000. Oliver said. Mcad Re-
to file deep-pocket doctrine have insurance provides secondary cov-
helped make cities it pour risk,La- crage for liability and workers'
guna Burch City Manager Ken compensation claims between
Frank said. S100,000 and S10 million per inci-
in September, two Laguna dent per city.
Beach property owners whose Individual yearly premiums for
homes were damaged in it 1980 the cities currently range front
l:radslUle received a Int'ucrblC jurY Stt,oOlt lit S•IR,unO, he said.
verdict and a S700,000 settlement Oliver said the agency's loss ra-
from the city. tiowast12percem,meaning that an
The jury verdict was hosed on amount of money equal to tit per-
the thCmry ill' inverse u,ndCnmn:t- cent of the paid premiums was
tiun,which hold,(hill II';I city acts paid in claims. A loss ratio of ou
nr fails to act u)protect a property percent is general))' tote point at
mcner's rights it c;nm he held fur which insurance companies cease
dann:rgCS. I,m make it pnd'it, he said.
''Why should an insurance Coln- Patricia hlcischuum,.owner of
pally wont to deal;with fhal kind of l'att'iri`t Plcischnuut tile.,said the
stuff',"Frank said."ThOse atvai ds firm derided nil behalf Of Mead He-
;lie Coming in very high and the insurance to drop coverage of
cull has n) gu up. I really Can't OCRMA."Our espericnCC hats nut
Flame the insurance Cuntpanics." been favnrabic."said t.Ieischntan.
Last month n S6 million verdict "In addition,the court Ciinuue has
was awarded h all Orange County not helpt•d."
Superior Court furs Thal found the She said "over-zealous" juries
City of Newport (leach liable for have in some cases awarded damn.
njurics suffun+d lour years nl;o by nges "so null-ageous" that incur-
n Cinrenunrl runs Icft Ir,irnlyard by once Companies in I"Cecrol c:m't
a diving acCidcnt near Balboa take fh(: risk of under%wriiing puli-
Pier. ties lot. California nuuti_ipalities.
Coming in the wake of that ver- Insurance companies have experi-
diet was it S2.5 million claim against enced similar problems in Arizona,
Laguni) Beach brought by an An. Colurado and Michigan, she said.
zuna man who said he %vas parr Oliver said the OCRMA expects
lyzed in :t July .it beach accident. just four or five commpanies to sub-
The city already is facing an S8 nit proposals rather than 10 or 12
million lawsuit filed by it man who . [!tilt might have if the insurance
Clinched up a rock uutcroppinji al market were nut so tight.
the heath,dived into shallow water Laguna Bench's City manager
and hnrkc his neck, Frank said. said tile city';inS(uanCe premiuln
Smim Ants, not a member of rates could triple with it new incur-
OCRMA.has also felt file effects of ante company. And. Frank said,
a light insurance market. the city's"deductible"could reach
Dun Ruse, it s:dcty analyst and S200,000 ur S250,000.
12 Cities Face a
300% Hike in
nee Cost Continued from Page 1 n r.
in Laguna Beach, San Cle terminate
ete their coverage, Oliver nte and Stanton, for example. a:
4nsura
said, new bids were solicited from scheduled to meet today to brair
about a dozen insurers, and three storm for ideas.
By DAN NAKASO,7times StnH Writer companies actually submitted bids. In Laguna Beach, City Manage
Among the provisions of the low Ken Frank said the bid submitte
Wormed recently that they would be dropped by bid announced Monday, Philadel- by Planet Insurance would caul
their insurance company this month, 12 Orange phia-based Planet Insurance Co. his city's annual premium to jum
County cities have gone shopping for new liability also required three of the cities from$36,262 to S161,029.
coverage, only to find that the beat deal boasts their —Stanton, San Clemente and La- Things are so bleak, Frank laic
pranamsaan average a("96. guna Beach—to carry $250,000 to that he is even considering drop
-q'here's wtriet of choice," said Ross Oliver, who tbelf-ftitu'ed retention,' which is ping the city's insurance to becom
works with the Orange County Cities Risk Manage- similar to an insurance deductible "self-insured." Under the plan. th•
went Authority,the agency that buys and.admindsters for individuals. city would keep enough money or
insurance on behalf of the 12 municipalities. "You've 74e cities in the group currently hand to cover potential lawsui
got to have insurance," he said Monday. "The only earry i100,000 in self-insured re- defeats.
clear decision is that we accept the her premium." rAention. Neither Oliver nor city p officials had an explanation of why Laguna Beach currently face.
The current insurer, Mead Reinsurance Corp. of lawsuits totaling about $50 milhor.
Dayton, Ohio,notified the OCCRMA in October that it those three cities faced the higher Frank said. If the city chooses tc
deductible. Planet Insurance offi- insure itself, he said, it could lace
could no longer afford to insure California municipali- cials were unavailable for com- the $160,000 r p
1 ties and said the cities should find another company, per year it woul-
ment.
'Oliver said. Looking for Alternatives otherwise spend on premiums intc
an insurance fund. If the city lose:
'Deep Pockets'Doctrine The 12 cities in the group are a large judgment, it would the:
The sharply higher premiums, Oliver.said, can be scheduled to lose their coverage on have to make an additional appro-
blamed primarily on California's costly."deep pockets" Dec. 12, They are: Cypress, Irvine, priation,he said,but he pointed ou-.
1 legal doctrine.Under this principle,a municipality may Laguna Beach, La Palma, Los that under California law a city car.
be obliged to pay a disproportionate share of damages Alamitos, Orange, San Clemente, take 10 years to pay off a lawsuit.
in a liability case,even if it is found to be only partly ht Stanton, Tustin, Villa Park, West- "I have been thinking about it,"
fault. an extreme oase, a city may be found 1% at minster and Yorba Linda. Frank said of the self-insurance
fault but forced t.o-pay 100% of the damages, tbver With the deadline approaching, plan. "But I'm not sure I want to be
officials in some of the cities are the only city manager in California
Another reason for the higher premiums,Oliver said, scrambling to find alternatives to recornmending that we don't cam
is the growing willingness of juries in civil cases to paying the higher rates. City offi- insurance."
assess huge damage awards against municipalities. A
.recent example, he said, was a $6-million verdict
.againat .Newport Beach. 3n that case, an Orange
County Superior Court jury held the city liable for the
injury of an 18-year-old Claremont than who became a
quadriplegic after diving into the ocean near the
Balboa Pier in 1980.The jury agreed with plaintiff John
Taylor's claim that the city should have posted signs
warning swimmers that diving was dangerous in the
area.
"From an insurance company standpoint, it's a little
difficult to be interested in continuing insurance
coverage"for California cities,Oliver said.
After Mead notified the 12 cities of its intention to
Please see INSURANCE,Page 4
•
Agencies
to pa T more
for kistirance
By Tom Philp
Mercury News Staff Writer
As cities, school districts and other public agencies
in Santa Clara County seek renewals of their insur-
ance policies, they've found themselves stuck in a
nationwide industry collapse that already has caused
some premiums to more than triple.
Since many policies expire at the end of the year,
the public agencies only now are facing a painful
choice — either accepting huge premium increases or
becoming more self-insured by assuming more risk.
"It's been a collapse of the entire insurance market
in terms of stability," said Donald Hebard, an insur-
ance broker for Santa Clara County since 1963. "The
market's in an uproar."
The city of Milpitas, for example, will pay $82.262
for its liability insurance in 1985, more than three
times its 1984 rate of $24,800. "I think our council's
going to be quite surprised," said Deborah Swart-
fager, Milpitas deputy city manager.
San Jose already has negotiated its 1985 rate of
$373,000, more than double the 1984 premium of
$157,650. Saratoga's $48,000 policy was canceled in
November. The lowest new premium that city insur-
ance brokers could find was $118,215.
Mark Wells, publisher of Insurance Journal in Las
Angeles, said that "1984 will probably be the worst
year for lasses for the insurance industry as a whole."
In the first three quarters of 1984, property and
liability insurers nationwide reported losses of $1.17
for every $1 in premiums, according to the Insurances
Services Office in New York. But because of invest-
ments, carriers managed a net after-tax income of
$1.09 billion, down 76 percent from 1983.
Continued on Page 3B
San Josc Mcrcury News ■ Sunday. December .10. 1984 3B
Public agencies caught in ins prance market collapse
g g _
Continued from Pune 1B is/Reliance Insurance had set charged by carriers in the mid- Since 1979.state legislatorslrave
aside$885.000 in reserves to cover 1970s, before escalating interest failed at least three.tines to pa»
Liability insurance covers potential losses from 28 unsettled Municipal Liability Rates rates sparked greater competition bills that would have reduced th':
damagof bodily injury or property claims against Saratoga before and lower rates,Levinson said. potential deep-pocket liability of
damage against a city: the cases canceling the city's policy. City '84 premium/ 185 premium/ Los Gatos, for example, paid public agencies. One of the most
Fan range from invasion of privacy
or false arrest to auto accidents "The market's gone crazy,"said San Jose $157.650 $373.000 $189.033 in 1978 for its various vocal and powerful critics of such
B Saratoga
blamed on improperly designed
Sunnyvale risk manager Julius Sarat a ' $48.000 $118,215 insurance policies. In 1985 the reform has been the Califprnia
ri1'eet or flood damage caused by Scoggins. Despite exceeding the Santa Clara $194.250 to be renewed town will pay $195.442 in insur- Trial Lawyers Association. r
W,4dequate drainage. $100,000 deductible level only once Sunnyvale $89,000 $161,000 ance .premiums, including its "It's a hard area to get reform
Industry experts give three rea- In 4W years,Sunnyvale's 1985 pre 1117,000 general liability policy. in," said Kate Sproul, an altvfncy
Los Gatos ' $53,356 $117,000
mium increased more than 80 per- However,California cities can't with the League of California ('It
Solo why California's public agen- cent Cupertino $40,000 $85,000 ies. "It's something we will ork
cies will be hardest hit by the_ Campbell $77,000 to be renewed expect higher interest rates to save Ib W
nationwide industry shake-up: I os Gatos Town Manager llavid polo Aflo $11A,000 to be renewed them again. Because of the stale on in the future."
Mid h feels"lucky"that the Supreme Court's ruling in 1978. Industry expert%such F -in
Mora said he uc
✓Declining interest rates have y Los Altos Hills " $23,000 $28,940 public agencies are more vulnera- son predict the real crisis eL
caused insurers, who in re(enl town's premiums for its various P g P Y
Milpitas ' $24,800 $82,262 ble to huge lawsuit ud en than to arrive.About 40 percent u1 Cali-
years were content to undercharge Policies increased li percent, Mountain View ' $30.000 $39,200 ever before. , fornia's public agencies renew
clients and make money solely along with a doubling of the Monte Sereno $5.209 to be renewed their insurancepolicies when their
from investments, to either dra- deductible to$5.000. The court adopted the doctrine
matically increase rates or drop Six area cities have increased Gilroy $48,655 to be renewed of "joint and several liability," fiscal Year ends June 30,he said.
public-agency coverage. their deductibles in an effort to Now°°'ki•* Jn IUO.d high°' ded-libl.. meaning that even if a lawsuit With so many agencies scraut-
✓Insurers are only now begin- minimize the rise in premiums. defendant — such as a city — is bling for insurance in a dwindling
ning to feel the impact of a 1978 The highest percentage deductible only partially at fault, it may be market,premiums are expected to
increase so far is Cupertino,which forced to pay an entire judgment if go nowhere but up.
state Supreme Court decision that itive. Some of the carriers have. that about 75 percent of public- the other defendants have no
made public agencies liable for raised its deductible from$1,500 Lo gone out of business,and some of agency insurers have dropped out money-
enure lawsuit judgments even if $25.000. the others have had tremendous of the market. Cities now find themselves p
they're found only partially at Insurance broker Michael losses. so they are adjusting their "We knew this was coming; it named in lawsuits, such az those Call (�OU) 920-5111
/$ult. McAuliffe, whose clients include prices radically." was just a matter of when,"Irvin- filed for automobile accidents, by Call
Juries are becoming more the city of Santa Clara, predicts A year ago. McAuliffe esti- son said. "The insurance industry plaintiffs seeking a generous judg- to Place our ad in'
generous in their awards to plain- that every government agency will mated, 15 California companies is typically in three- or four-year ment.
tiffs, who because of the 1978 face higher rates because of the insured public agencies. "Now it's highs and lows. This cycle was Classifie
Supreme Court decision,are going "herd instinct" of the industry. closer to half that amount." much deoper, about six or seven "Juries seem to feel the public
after the so-called "des pocket" ears" entities are the deepest pocket The Mercury News P Poc The inelustr y has been very Insurance broker Mort 1_evic- Y around," said McAuliffe. "They
of governments. competitive for about five years,' son, who handles insurance for For many cities,the 1985 premi- seem very liberal in awarding jus-
For example, United Pacif- McAuliffe said."It got too compel- four cities in the county, believes urns actually will be close to rates tice against them."
i
mow 4
Riau-,®' League of California Cities
W RL 1400 K S T REET SACRAMENT CA 9581= •.(916)444-5"90 OCT 2 8 1986 4
CITY OF HUNTLNGNN BEACH
ADMINISTRATIVE OFFICE
September 26, 1986
To: City Managers, and Clerks in Non-Manager Cities fNS, &
(Please route to risk and insurance managers) BENEFITS
Subject: League Report on JPA's for Liability Insurance
,1
As an important part of the League 's effort to assist cities with current
problems that exist with liability insurance, studies are being undertaken to
identify sources of coverage, either through the purchase of commercial
insurance or through self-insuring with other ;entities in joint powers
authorities.
Because commercial insurance has been largely unavailable or unaffordable,
many cities have turned to JPA's as the best method of covering liability
losses. A League study conducted at the beginning of t-eis year revealed that
approximately 160 cities participated in 12 JPA's for liability insurance.
Now, just nine months later, it is estimated that 327 cities participate in
one of the 21 liability insurance JPA's that currently exist to serve
California cities.
This report discusses the increased importance of JPA's and includes a profile
of each, with an indication of which ones will consider new memb-ers, the
levels and types of coverage available and the criteria for membership.
Presently, the League is attempting_ to identify sources for commercial
insurance and will distribute this information as soon as it is available. If
you have questions concerning this report, please contact Dan Harrison at the
League 's Sacramento office who worked with Clary:-Ryll Comm--..ilications in its
preparation.
K o� League of California Cities
i ®�
CBIIi 1'f1;G ;.TUBS .
A RgPORT:
"THB JOINT POWKRS AUTBORITY %XPLOSION --
A SOLUTION TO TEEK MUNICIPALITY
LIABILITY INSURANCE CRISIS"
September, 1986
Report by :
Clark-Ryll Communications
Carmichael , CA
NFERENCE REGISTRATION OFFICE HEADQUARTERS SOUTHERN CALIFORNIA OFFIC=
9-549 0�=%.a s- bTN S'RcE' Su'E1aC0 K STREET. SACRAMENTO. C 9581<?E
- -
LOS ANGLES CA 9M
(916) 44-4-5790 4�?os?E
League of California Cities
A REPORT:
THE JOINT POWERS AUTHORITIES EXPLOSION --
A SOLUTION TO THE MUNICIPALITY
LIABILITY INSURANCE CRISIS
C O N T E N T S
Pane
Preface . . . . . . . . . . . . . . . . . . . . . . . . i
The JPA Evolution . . . . . . . . . . . . . . . . . 1
The JPA of Today . . . . . . . . . . . . . . . . . . . 3
What Is Available Now for California' s Cities? . . . . 5
The Membership Areas of California' s JPA' s . . . . . . . 5
JPA' s with Statewide Membership Areas 6
JPA' s with Local/Regional Membership Areas : . . . . . . 7
Northern California Area . . . . . . . . . . . 7
San Francisco Bay Area . . . . . . . . . . . . 8
Central Valley Area . . . . . . . . . . . . . . 8
Southern California Area . . . . . . . . . . . 8
The Coastal Areas . . . . . . . . . . . . . . . 10
The Coverage-Exclusion Spreadsheet 11
EPHIBITS:
Exhibit 1 : "A Listing of Joint Power Authorities
for California' s Cities "
Exhibit 2 : "California' s Joint Powers Authorities for
Municipalities -- by Region"
Exhibit 3 . "Memoranda of Coverage/Insurance Policies , Notable
Exclusions "
JPA Profiles and Maps
FEXFACS
The following report is presented by the League of California
Cities for the purpose of providing its members a current and
in-depth examination of liability insurance coverage offerings ,
available to California' s cities, by "non-traditional" insurance
alternatives known as Joint Powers ( insurance) Authorities (JPAs ) .
This report is limited to discussion regarding liability coverage,
recently the most difficult to obtain, and has not attempted to
explore or consider any other coverage lines which an organization
may offer.
Every effort has been made by the 1,eague of California Cities
and Clark-Ryll Communications to ensure the accuracy and validity of
the information which is published herein . All published data were
compiled based upon interviews conducted with JPA representatives ,
and JPA program managers/coordinators reviewed profile data for
revisions when necessary.
The statistics noted herein are subject to frequent change .
Thus , no data should be presumed to be current, and the accuracy of
the contents of this report cannot be guaranteed. It is strongly
recommended that specific program details be provided by each JPA
representative .
The profiles contained in this study were adapted from exhibits
originally published in the March, 1986 insurance study conducted for
the League of California Cities by the risk management consulting
firm, Warren, McVeigh h Griffin, Newport Beach.
Appreciation is expressed to the JPA program managers ,
coordinators and elected officials who provided program information,
and also to the Crump Companies for policy-form exlcusion review.
-i-
r
Funding for this report was provided by the League of
California Cities in conjunction with the statewide JPA, California
Municipal Insurance Authority ( -CHIA" ) .
This report, related exhibits , graphics and Profiles were
produced by Clark-Byll Conzwnications, with peer-review being
conducted by the Sacramento Office of the risk management consulting
f i rm, ARMT ech.
-ii-
the Joint Powers Authority Explosion --
A Solution to the Himicivality
Liability Insurance Crisis
California' s Joint Powers ( Insurance) Authorities (JPAs ) have
grown in number and sophistication over the past several years , and
f or the most part, have survived one of the most severe insurance
cycles of recent history. The JPA of today is more flexible,
responsive to membership needs and market demands , and possibly out
of sheer necessity and absence of other options , has surfaced as a
successful indemnification alternative for the public sector -- in
most cases, totally void of the "traditional" excess insurance
policy, at least for third-party liability exposures .
Thus , in spite of the current insurance climate, the more
established and newer JPAs alike are emerging from the crisis "older
and wiser" , richer in reserves , extremely conscious of loss-control
and claims-handling, and deeply committed to sound risk-management
programs . Most of the "surviving" organisations are now either: ( 1 )
fully self-insured and dependent upon preserving precious reserves ;
( 2 ) insured with lower limits and higher retentions , on a claims-made
basis by insurance companies ( 3 ) awaiting the final go-ahead to sell
Certificates of Participation (COPs ) to fund future liabilities , or
( 4 ) any combination of the above ( or in 'transition thereto) , in
addition to anxiously awaiting the emergence of a statewide JPA
"super-pool" as provided by AB 3554 (Hauser) , recently adopted by the
Legislature and sent to the Governor for approval . This super-pool
will offer liability insurance limits to $25 million, excess of $1
million.
Th!�,, JPA Evolution
A little over a decade ago , public entities in California were
faced with a similar predicament to that which exists today .
Individual cities faced severe liability insurance coverage
availability and large premium increases . Because of this ,
California' s cities began to seek alternatives to ease the burden of
traditional insurance purchasing .
By the mid-1970s , the first California municipal JPAs were
formed specifically for insurance purposes : the Redwood Empire
Municipal Insurance Fund ( "REMIF" ) , the Contra Costa County Municipal
Risk Management Insurance Authority ( "CCCMRMIA" ) and the Southern
California Joint Powers Insurance Authority ( "SCJPIA" ) . As the city
JPAs were implemented, other public entities began to eye the
feasibility of JPA formation.
By 1978 , California legislation was passed which clarified a
variety of issues about the legalities of JPAs , in addition to
exempting them from regulation by the Department of Insurance.
Clark-Ryll Communications
Much activity developed: cities , counties , school districts ,
special service districts , and host associations began JPA
feasibility studies . Almost immediately, the insurance industry
became interested when eyeing the public entities contemplating
formation of large groups which would represent bulk premium
dollars . Soon, new organizations developed in addition to city-JPAs
which could offer solutions to unique insurance needs based upon
homogeneous exposures and loss histories : for counties , the County
Supervisors Association of California/Excess Insurance Authority
( "CSAC/EIA" ) ; for schools , one of the first school JPAs , the Schools
Insurance Authority ( "SIA" ) , and for water-purveying entities , the
Association of California Water Agencies/Joint Powers Insurance
Authority ( "ACWA/JPIA" ) .
Early on, typically through large group-purchases , higher
organizational retentions coupled with higher individual member
Self-Insured Retentions (SIRS ) or deductibles, an organization could
provide its membership favorable excess insurance coverage limits ,
broadened scopes of coverage and usually a decrease in excess
insurance costs when compared to earlier individual premiums or
renewal quoations . Also, some JPAs offered members the ability to
share a portion of the organization' s,- interest income -- very
attractive to applicant agencies since interest rates were riding
extremely high then.
JPAs assumed a variety of designs in terms cost-sharing and
loss-handling. Many oT the early JPAs chose risk-sharing situations .
These pools afforded their members the opportunity to benefit from
"the law of large numbers" and greater "spread or risk" spanning
large geographical areas -- sometimes the entire state of
California. In most cases , these pools delivered additional
cost-savings by pro rata distribution of losses and operating
expenses to members , in addition to a share of interest income.
These pools typically purchased excess insurance above the JPAs
retention level and because of the magnitude of the group, often
garnered broad policies with high limits . Interest income, combined
often times with good loss experience, also afforded premium refunds
or discounts for the next year. This pooling concept is still
prevalent among many of the existing JPAs .
A few of the early JPAs chose a more conservative approach to
that of pooling risks combined with purchasing excess insurance.
Some chose to group-purchase excess insurance, sharing that cost
Plus administrative expenses , without any sharing of risk below the
excess insurance attachment point . Often, however, higher member
SIRS were required in order to reach the excess-insurance attachment
point. Some JPAs offered an innovative option in addition to the
above -- the "banking plan" -- for members that could not afford a
large catastrophic loss or a series of below-deductible losses . With
this plan, an account or borrowing fund was available to member
entities electing not to immediately pay for one or more losses . The
borrowed funds were considered a loan to the member entity and
interest usually attached at prevailing rates . Payback due dates
could vary . This method of handling losses is also still practiced
by several existing JPAs .
-2-
For some public entities , the pooling plans , even those
combined with banking plans , did not come without some element of
risk to the participants -- and for this reason not all public
agencies rushed to join pools . The potential existed for one or more
members' catastrophic loss or series of losses to financially impact
the organization and the individual participants and result in: ( 1 )
the share of losses allocated to each member in a risk-sharing JPA
being subject to unknown proportions , ( 2) the loan-program fund or
loss-borrowing account possibly being exhausted, or ( 3) an inordinate
number of claims in a given year which could cause the then-available
excess insurance premiums to skyrocket -- all situations translating
into local budgetary and political distress .
To safeguard against such risks , JPAs worked with risk
management personnel to counteract the negative side-effects . A
majority of JPAs have adhered to the importance of projecting
estimated losses, with various "comfort levels" for the organization,
by periodically conducting actuarial studies of the group' s loss
data. These are usually conducted on an annual or bi-annual basis .
Also , most JPAs have set up "catastrophic loss funds" , "incurred but
not reported" ( IBNR) funds , loss contingency funds , and have
encouraged their individual members to establish internal loss
reserve funds . The rule-of-thumb for internal loss reserve funds is
usually two to three times the SIR (or deductible ) amount . Thus , the
risk to the organization is buffered by conservative reserving and
financial management practices .
The JPA of Today
The JPA of today is not very different in structure from the
organizations just described. Most of the noted program design
features are still being utilized in one form or another, and a
majority of the initial JPAs are still functioning successfully , with
reportedly few members withdrawing. Only one city JPA, the San
Mateo County Cities JPA, is known to have disbanded when unable to
locate excess insurance . Many of its members merged into other
existing JPAs .
However, there is one significant difference between today' s
JPA and those initial JPAs : the lack of excess insurance coverage .
This time , insurance companies even lost interest in bulk premiums
from large groups , and whether cancelled mid-year or at renewal ,
individual public entities and JPAs have had few choices when
evaluating their plans for future operations :
( 1 ) Do nothing -- abandon all attempts to purchase insurance ,
"go bare" and pay each year' s losses. out of that year' s
operating budget;
( 2 ) Succumb to the insurance company demands ( if any) ;
Purchase expensive and restrictive insurance coverage ,
-3-
facing, most likely, a "claims-made" policy form;
A "claims-made" policy responds only to claims that are
both incurred and made, or filed, during 'the policy,
period. Once the policy period ends , the "claims-made"
policy ceases to respond . The old occurrence policy
responded to incidents which occurred during the policy
period, regardless of when the claim Was "made" or
"filed" . "Extended Reporting Period" coverages can
usually be purchased for "claims-made" policies to cover
specific periods of time ( "tails" ) following a policy' s
expiration . Also , "claims-made" policies contain
significant aggregate limitations and are filled with
exclusions subject to laser endorsements excluding
coverage in future policy periods after an accident has
already occurred. )
( 3 ) Convert to a fully self-insured, risk-sharing JPA (from
either a previous group-purchase or pooling arrangement
which had "traditional" excess insurance coverage) , share
in losses above individual SIRS to the full limits of the
JPA organization;
( 4 ) Create a new "super pool " JPA which would provide excess
liability insurance above either a primary JPA' s limits ,
or high individual self -insured retentions (SIRS ) ;
As the appended Profiles demonstrate , the benefits of ( 3 ) and
( 4 ) have appealed to most JPAs , since conversion began rapidly either
just prior to, or during, most renewals this past year . Thus , the
organizational goals and objectives quickly shifted to meet current
demands : ( a) survive and eliminate future dependence upon the
commercial insurance marketplace; (b) provide broader coverage via
the organization' s own "Memorandum of Coverage" ; and (c ) build up
financial reserves for greater stability, i . e. , larger excess
liability funds , higher excess insurance limits , and/or revived
loss-fund bank accounts .
Emerging from rapid re-organization, today' s resilient and
"weathered" JPA is able to offer programs that meet the liability
coverage needs that member agencies are not able to find in the
commercial marketplace. Bold concepts such as : (a) a voice in
insurance-organization activities and membership, (b) financial
direction and decision-making, (c ) the ability to participate in
coverage-structuring combined With ( d) deeper understanding of the
individual/collective exposures so the organization' s coverage form
is balanced and harmonious to the membership, and (e ) ultimate
freedom from the shackles of traditional insurance, are now
organizational components inherent to most JPAs . Thus, today' s JPA
has become a very distinct and viable insurance organization.
-4-
What is Available Now for California' s Cities?
Exhibit 1 , which is appended to this report, lists those JPAs
which are known to exist for cities within the state of California.
(Note the highlighted abbreviations beside each JPA. Due to leng-thly
names , the abbreviations will be used throughout the remainder of
this report. ) A total of 21 JPAs currently exist for California' s
cities , and slightly over 50% of the listed JPAs were formed since
1984 .
It is interesting to note increased flexibility. A few of the
JPAs (GCJPA, YCPARMIA) have allowed other types of public entities to
join, usually when the services (exposures ) were homogeneous to the
rest in the group. It is also interesting to note that several JPAs
are expanding beyond regional service to entire statewide service,
taking full advantage of a greater spread of risk (refer to Exhibit
2 ) . '
Program detail , such as membership limitations , qualification
criteria, rating and assessment, are almost always issues peculiar to
a JPA and subject to final decision and change by the Board of
Directors , risk manager, or an underwriting committee of the JPA. In
a few cases ( CCRMA, NCCIF, and OCCRMA) , such decisions are handled by
the insurance carrier ( see the JPA Profiles following Exhibit 3 )
because the JPA purchases traditional insurance and is , thus , subject
to underwriter and/or policy terms . The desire for more program
control , autonomy and stability often motivates a JPA toward full
self-insurance ( i . e. , SCJPIA) .
The Memb,ersh?p Areas of California' s JPAs
Exhibit 2 , appended to this report, has been compiled by
plotting the boundaries of each existing JPA on a map of the State of
California . Each JPA Profile includes a map which identifies , when
possible , the JPA' s membership area.
It should be noted that many of the JPAs are open to
considering "homogeneous" (or uniform) cities from other areas of the
state , and the appropriate program manager should be contacted for
further definition of the JPA' s service area . Case in point is the
Marin Cities Liability Management Authority. Although originally
formed primarily to service the cities in Marin County , other cities
outside Marin with similar demographics , geography and exposures can
be considered for membership. Other JPA managers also stated that
their JPA may consider members outside their current area, but
preferred that such a comment not appear on their Profile .
The placement of California' s JPAs on maps provided some
interesting conclusions . There are apparent heavy concentrations of
-5-
overlapping JPAs in two specific areas of the state -- the San
Francisco Bay Area and Southern California. Outlying areas , such as
the eastern counties which adjoin the state of Nevada ( from Modoc
County in the north, to Inyo County in the south) , appear to have
limited regional selections ; while Alpine, Mono and Ingo Counties may
have only a few of the statewide service-area JPAs from which to
choose, and then membership qualification may depend upon the size of
the city.
In addition, the 12-county area termed the Central Valley Area
in Exhibit 2 is represented by only one regional JPA, the CSJVRMA, in
addition to the statewide JPAs (ACCEL, CAL-JPIA, CMIA and MCLMA) ,
although Kern County is swept into the ICRMA boundaries . About six
months ago, another group of cities in the Central Valley attempted
to form the "San Joaquin Valley JPA" . However, the interested cities
which numbered about 25 , later opted to join the more established
CSJVRMA.
When examining the JPA Profiles , ultimate distinction between
and evaluation of the membership-area -JPA will depend upon an
interested city' s exposure profile, size, location and "political
identification" with the other members in the organization.
JPAs With Statewide Membership Areas
Of the 'Lour JPAs noted as having statewide membership areas ,
ACCEL , is interested only in larger California cities ; the MCLM.A is
interested in considering members similar to those of Marin County;
CMIA will consider any city' s application and possibly special
service districts , as well , thus offering an additional option (other
than a regional JPA) to the smaller California city. CAL-JPIA will
accept applications from regional JPAs as well as larger individual
cities ; but most likely will not consider applications from the Los
Angeles area . It is also reported that CAL-JPIA may soon cease to
consider any additional applications , thus , closing its membership.
Currently, all the statewide JPAs are fully self-insured,
meaning that all risks above individual member SIRs are pooled and
shared by the membership. In many cases , additional contributions
are made to a variety of excess liability fund layers , depending upon
the city' s (or JPA s ) desired level of excess coverage . Also , most
of the JPAs offer a variety of SIRS (deductibles ) from which members
can select . Only two JPAs , CMIA ( a statewide JPA) and Glenn County
JPA ( a Northern California Area JPA) , offer coverage from the first
dollar of loss , and in contrast, "super-pool" CAL-JPIA requires a
minimum SIR of $250 , 000 , because the program is tailored to JPAs and
large-city participants that desire and can afford higher SIRS .
-6-
During the past year, various JPAs- have explored the
feasibility of issuing Certificates of Participation (COPs ) to fund
future unknown liabilities . To date, no COPS have been offered as
various legal and practical problems have arisen; however , CMIA
continues to aggressively pursue the issuance of COP' s and feels that
if bond counsel can work out the complexities , this approach will
provide a secure and stable funding method. Also , ICRMA in Southern
California is reportedly considering issuing COPS , and may do so as
early as mid-1987 .
Last month, insurance-industry periodical Business Insurance,
reported that the nation' s first bond-financed self-insurance pool
for public entities was formed by the Louisiana Public Facilities
Authority in August. The Authority reportedly sold $280 million in
tax-exempt bonds to establish the "Local Government Liability
Insurance Program" , and is expected to offer general liability and
auto coverages to qualifying public entities . Currently, a similar
bond-financed pool is being formed in the state of Montana, as well .
Although the legalities vary from state to state , it may only be a
matter of time before other organizations will be successful in
implementing this type of program in California.
aAs With Local/Regional Member:shhip Areal'
Exhibit 2 further segregates JPAs into specific regional
membership areas, in addition to those covering the full state : ( 1 )
the Northern California Area; ( 2 ) the San Francisco Bay Area; ( 3 ) the
Central Valley Area; (4 ) the Southern California Area, and , ( 5 ) the
state' s Coastal Areas .
NORTHERN CALIFORNIA AREA: The six JPAs which include all or
part of Northern California as membership areas , are each quite
unique . Three of the six, GCJPA, REMIF and YCPARMIA, service only
small specific areas -- Glenn County, the Napa/Sonoma Area, and Yolo
County, respectively . REMIF and GCJPA are not interested in new
members , but YCPARMIA will entertain applications from cities in Yolo
County. What remains are about 20 Northern California counties whose
cities have three regional JPAs (for small and medium-sized cities )
to consider, in addition to the statewide JPAs .
Two of the remaining regional JPAs , NCCIF and SCORE, are
designed for smaller cities ranging in population size from 1 , 000 to
20 , 000 spanning nearly all of Northern California. The one remaining
regional JPA, the BCJPA, is designed for medium to larger-sized
cities and also will encompass all of Northern California , including
the San Francisco Bay Area. (This JPA is discussed in the "San
Francisco Bay Area" section. ) NCCIF is one of the few JPAs left
which group-purchases excess insurance above the member cities'
deductibles on a claims-made and more limited coverage form. The
JPA, SCORE , is a risk-sharing JPA with $250 , 000 in limits above
members' SIRS of '$2, 500 to $25 , 000 . It is currently being considered
for excess insurance coverage by the CAL-JPIA "super-pool' Both
NCCIF and SCORE offer the "banking plan" option for members to handle
losses .
-7-
One of the JPAs , the OCCRMA, continues to offer its members
traditional excess insurance, above individual deductibles . However,
the coverage is on a claims-made basis and more restrictive in
scope. As the JPA name indicates , this JPA is only for Orange County
cities . Membership applications are reviewed by the carrier, and
although the JPA would like to accept new members , the program is
closed.
Another Southern California JPA, SDCCRMA, was similar in design
to OCCRMA until recently when it opted to become a risk-sharing and
self-insured JPA. While it previously serviced only the San Diego
County area, it may consider opening its membership to homogeneous
cities throughout the state . However, since it currently is in
transition and contemplating some restructuring, it will no doubt
consider boundary changes at a later date .
The largest southern California JPA for municipalities , the
SCJPIA, recently voted to fully self-insure and offer limits to $10
million. The new program has two pooled layers of coverage: a
primary layer (above SIRs of $20 , 000 ) to $500 , 000 ; an excess layer of
$9 . 5 million (excess of the first $500 , 0b0 layer) . Separate
contributions are collected for each loss fund. As its name denotes ,
the service area encompasses Southern California; however, this JPA
did accept the city of Bishop, located in Inyo County . Although the
JPA currently has a growth-moratorium in effect, it is expected to be
lifted soon.
A newer risk-sharing JPA for small and medium-sized cities is
the CVJPIA, slightly less broad in service area than the SCJPIA, and
one which offers limits of $5 million. This JPA offers its members
deductibles ranging from $25 , 000 to $125 , 000 , and a "banking-plan'"
option for financing losses . Interest is charged at prevailing
rates . Although the current membership base consists of cities
primarily in the desert regions , consideration is being given to the
formation of a "super-pool" ( similar in design to the statewide
CAL-JPIA) for only Southern California entities .
The ICRMA organization, which services Riverside County and all
counties contiguous to, and including Los Angeles County , is in a
state of transition -- currently self-insuring all losses to $5
million, but later expected to elevate limits to $10 Million after
offering COP' s for sale . It is anticipated that the sale of COPs ,
which will bring about $25 Million to the organization , should occur
sometime in early-1987 . The program has re-opened, and applications
are accepted no later than February 1 (of the year in which
membership is to be affected) in order to have a July 1 effective
date . This process will be conducted annually.
It is reported another JPA, the California Agencies Risk
Management Authority ( "CARMA" ) , may form for larger Southern
California cities , possibly expanding to other homogeneous cities
statewide. Currently, its three large cities are evaluating an
-9-
off-shore "captive" in Bermuda to provide $10 Million in limits above
SIRS of $500 , 000 or $1 . 5 Million. This program is being designed by
the coordinators of the OCCRMA, and although there is- some feeling it
is expensive, proponents view the "captive" approach as an entre'
into the reinsurance marketplace later on.
THE COASTAL AREAS : The remaining area for discussion is the
Coastal Area of the state which, for this discussion, spans south of
the San Francisco Bay to just north of the Southern California Area,
or through Santa Barbara County .
This service area purposely omits the San Francisco Bay and
Southern California Areas , and coincidentally excludes the coastal
area north of San Francisco (for Mendocino, Humboldt or Del Norte
Counties , for instance) , because no specific regional JPAs exist
there. Although, REMIF or MCLMA might qualify as "coastal" , they
were better discussed elsewhere.
There are three JPAs noted for the Coastal Area: CCSIF, MJPIA
and SBAJPA ( in addition to the Northern California Area and statewide
JPAs which could service this area) . Only two of the JPAs are
operating: CCSIF and SBAJPA. The MJPIA is in the process of
formation.
. The JPA, CCSIF, still offers members traditional insurance with
limits to $3 million and city deductibles of $1 , 000 to $100 , 000 . The
policy form is more restrictive and on a claims-made basis . A
banking plan is available and membership is open to medium-sized
central coast cities only. Membership, in this case, is the ultimate
decision of the insurance underwriter.
While the SBAJPA is interested only in cities within the Santa
Barbara Area with a population-base between 5 , 000 and 20 , 000 , the
other two JPAs , CCSIF and MJPIA, are more open to considering a wider
service area along the coast . The SBAJPA, which formed in July of
1986 , was just accepted into CAL-JPIA effective September 1 , 1986 .
The organization will have limits to $10 million, above the JPA' s
retention of $250 , 000 . The JPAs losses are pooled beyond city SIRS
of $1 , 000 to $10 , 000 and a banking plan for handling losses is
available to members . Although the service area is stated as "the
Santa Barbara Area" , exact boundaries should be verified with the
Program manager since the JPA is so new.
Still in formation stages , the MJPIA will not be in full
operation until October 1 , 1986 . It is hoping to offer $10 million
in limits but an actuarial study will pronounce the organization' s
full funding capabilities . It may cap the membership size to 12
cities and may also change its name to the "California Coastal
Insurance Authority" . Its service area will probably be much the
same as that for CCSIF, however, questions about the potential
program should be directed to the program designer (noted in the
"manager" category of the Profile) .
-10-
As evidenced by the membership area maps and Profiles , the
existing JPA' s have many distinguishing features, and although it
appears that there are an abundance for the state of California, it
can hardly be said that any two are identical and servicing the same
geographical area of the state . In addition, each organization
harbors its own complexities in a variety of program-design areas
such as cost-allocation formulas , underwriting and rating,
assessments or retrospective premium adjustments . For this reason,
any JPA being considered for application purposes should be carefully
analyzed -- especially in terms of the underwriting and rating
structures, and perhaps most importantly, the assessment capabilities
for later adjustments of "deposits" or initial premiums .
The Coverage-Exclusion Spreadsheet (Exhibit 3)
Additional differences between JPAs can be identified in
Exhibit 3 , the Coverage-Exclusion Spreadsheet. This spreadsheet
lists the industry' s more notable liability insurance exclusions
which were extracted from the policy form of a current public-entity
insurer.
It is apparent that each JPA contains members with unique
exposures for which the organization either accepts responsibility or
excludes coverage . For those self-insured JPAs writing their own
Memoranda of Coverage , exclusions are usually left to the Board of
Directors , the risk manager and/or an underwriting committee , often
with recommendations about probability of loss from actuaries or
risk-management consultants . A delicate balance must exist between
an organization' s coverage and exposures , so that the JPA is neither
too restrictive, nor subject to too much volatility . For those few
JPAs which offer traditional insurance , the policy scope is
restrictive , tightly scrutinized and generally subject to at-random
changes by the underwriter.
It should be noted that perhaps the most broad Memorandum of
Coverage for a fully self-insured JPA is that of the MCLMA; the most
restrictive insurance policy coverage forms are, of course, those
claims-made forms which are offered to the few JPAs still utilizing
traditional insurance company excess coverage. It should also be
noted that some JPA program representatives were not at liberty to
disclose their form' s exclusions , thus , no data is indicated on the
exhibit .
The Coverage Exclusion matrix notes exclusions not coverages ;
thus , where no checkmark is noted , coverage is presumed to be in
effect . Again, it is recommended that the program manager be
contacted to verify all coverage questions , so no misinterpretations
of coverage occur.
-11-
EXHIBIT 2.
CALIFORNIA' S JOINT POWERS AIITBORITIES
FOR MUNICIPALITIES
BY REGION
(As of September, 1986 )
I . JPA' s With Statewide Service Areas:
A. Association of California Cities Excess Liability
( "ACCEL" ) Joint Powers Authority;
B. California Joint Powers Insurance Authority
( "Cal-JPIA" ) -- a "super JPA" ;
C. California Municipal Insurance Authority ( "CMIA" ) ;
D. Marin Cities Liability Management Authority
( "MCLMA" ) .
II . JPA' s Considered To Be "Local- or, ;Regional" in
Service-Providing Areas : '
A. NORTHERN CALIFORNIA AREA:
1 . Bay Cities Joint Powers Authority ( "BCJPA" ) ,
also noted under "San Francisco Bay Area" ;
2 . Glenn County JPA ( "GCJPA" ) ;
3 . Northern California Cities Insurance Fund
( "NCCIF" ) ;
4 . Redwood Empire Municipal Insurance Fund
( "REMIF" ) ;
5 . Small Cities Organized Risk Entity ( "SCORE" ) ;
6 . Yolo County Public Agency Risk Management
Insurance Authority ( "YCPAR.MIA" ) .
B. SAN FRANCISCO BAY AREA
1 . Association of Bay Area Governments ( "ABAG" )
Plan Corporation;
2 . Bay Cities Joint Powers Authority ( "BCJPA" ) ,
also noted Under "Northern California Area" ;
3 . Contra Costa County Risk Management Insurance
Authority ( "CCCRMIA" ) ;
4 . Marin Cities Liability Management Authority
( "MCLMA" ) , noted in I . above.
C . CENTRAL VALLEY AREA:
1 . Central San Joaquin Valley Risk Management
Authority ( "CSJVRMA" ) .
1�
ORANGE COUNTY CITIES SURVEY
EXCESS LIABILITY POOLS
F NAME JOINT POINERA
:AUTHORITY POOL
Anaheim ACCEL
Brea OCCRMA
Buena Park N/A
Costa Mesa N/A
Cypress OCCRMA
Dana Point CJPIA
Fountain Valley CJPIA
Fullerton ICRMA
Garden Grove N/A
Huntington Beach BICEP
Irvine OCCRMA
Laguna Beach OCCRMA
Laguna Hills CJPIA
Laguna Niguel CJPIA
La Habra N/A
Lake Forest CJPIA
La Palma OCCRMA
Los Alamitos OCCRMA
Mission Viejo CJPIA
Newport Beach N/A
Orange OCCRMA
Placentia PARSAC
San Clemente OCCRMA
San Juan Capistrano CJPIA
Santa Ana BICEP
Seal Bech OCCRMA
Stanton OCCRMA
Tustin OCCRMA
Villa Park CJPIA
Westminster OCCRMA
ACCEL Authority for California Cities Excess Liability
OCCRMA Orange County Cities Risk Management Authority
CJPIA California Joint Powers Insurance Authority
ICRMA Independent Cities Risk Management Authority
BICEP Big Independent Cities Excess Pool
PARSAC Public Agency Risk Sharing Authority of California
N/A Self Insured and/or Purchase Commercial
BICEP Excess Workers' Compensation
City of Huntington Beach
i
i
0.1800 '
i
0.1600 i
0.1400
I
0.1200
o �
d 0.1000
0
0 0.0800
� I
Ci 0.0600
0.0400 I I
0.0200
1
I
� I
0.0000
rn rn rn Cl) 0) rn rn m
rn O N ce) V In (0 W
00 a) rn rn rn rn rn rn
rn I
rn
I
I
i
i
89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98
SIR 350,000 350,000 350,000 350,000 350,000 350,000 350,000 1,000,000 500,000
Payroll 45,144,734 52,987,422 56,674,000 52,097,383 61,348,207 60,594,331 59,381,915 56,488,910 56,558,998
Premium 80,586 88,754 76,380 71,732 67,176 66,351 61,757 20,901 24,299
Composite 0.1785 0.1675 0.1348 0.1377 0.1095 0.1095 0.1040 0.0370 0.0430
%.,tTY OF HUNTINGTON BEACm
MEETING DATE: 4/6/98 DEPARTMENT ID NUMBER: CK-98001
Council/Agency Meeting Held: Co00
Deferred/Continued to: 44 , (awf�9'�
❑Approved ❑ Conditionally Approved ❑ Denied D4Pv (!/—y Clerk's Signature
Council Meeting Date: 4/6/98 Department ID Number: CK-98001
CITY OF HUNTINGTON BEACH x
REQUEST FOR ACTION
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS N �`--—<1-1
SUBMITTED BY: CONNIE BROCKWAY, CITY CLERK A
D > x�
PREPARED BY: CONNIE BROCKWAY, CITY CLERK &
D j
SUBJECT: RECEIVE & FILE BIG INDEPENENT CITIES EXCESS POOL`(6ICEP)
FINANCIAL STATEMENTS & INDEPENDENT AUDITOR-'S REPORT
Fstatement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s)
Statement of Issue: The BICEP Joint Powers Agreement between the BICEP member
cities requires the Big Independent Cities Excess Pool (BICEP) Financial Statements and
Supplementary Information With Independent Auditors Report to be filed as a Public Record
with each of the BICEP member cities. The report includes Independent Auditors Report,
Balance Sheets, statements of Revenue and Expenses, and changes in Fund Balances,
Statements of Cash Flows, Notes to Financial Statements, and Claims Development
Information for the years ended June 30, 1997, and June 30, 1996.
Funding Source: Not applicable.
Recommended Action: Motion: Receive and File the Big Independent Cities Excess Pool
(BICEP) Financial Statements and Supplementary Information With Independent Auditor's
Report for the years ended June 30, 1997 and June 30, 1996.
Alternative Action(s): If Council has questions regarding this report, Council may defer
Receiving and Filing to a future meeting.
Analysis: The BICEP Agreement between cities requires this report to be filed as a public
record. In order for the City Clerk to make a report, audit or any other material a public record
in the City Clerk's Office, it must have first been seen, reviewed and accepted by the City
Council sitting as a legislative body. The material then becomes a part of the official Council \
minutes and official files of which the Council and public are aware and able to access as a \
public record.
98001 -2- 03/23/98 3:54 PM �/
REQUEST FOR ACTION
MEETING DATE: 4/6/98 DEPARTMENT ID NUMBER: CK-98001
Environmental Status: Not applicable.
Attachment(s):
City Clerk's
• . • - NumberDescription
fizz F 1 Communication from Gregory Spiker, ARM, BICEP General Manager
Ken Spiker and Associates, Inc.
2 BICEP Report &Audit and Attachments
RCA Author: Connie Brockway
98001 -3- 03123/98 3:54 PM
BIG INDEPENDENT CITIES EXCESS POOL JOINT POWERS AUTHORITY
c/o General Manager, Ken Spiker And Associates, Inc. 14156 Magnolia Blvd., Suite 103
Sherman Oaks, California 91423 (818) 788-0406 FAX No. (818) 784-1187
March 6, 1998
Ms. Connie Brockway, City Clerk
City of Huntington Beach
2000 Main Street
Huntington Beach, California 92648
Dear Ms. Brockway:
Enclosed please find a copy of the June 30, 1997, Big Independent Cities Excess
Pool (BICEP) Financial Statements and Supplementary Information With
Independent Auditor's Report for the years ended June 30, 1997, and 1996. The
BICEP Joint Powers Agreement requires the report to be filed as a public record
with each of the BICEP Member Cities. Please place the report in the appropriate
file in your office. Thank you for your cooperation.
Sincerely,
Gregory J. piker, ARM
BICEP General Manager
Ken Spiker And Associates, Inc.
GJS:sI
Enclosure
L
BIG INDEPENDENT CITIES EXCESS POOL
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
WITH INDEPENDENT AUDITOR'S REPORT
JUNE 30, 1997 and June 30, 1996
BIG INDEPENDENT CITIES EXCESS POOL
Table of Contents
Pacre
Financial Statements:
Independent Auditor's Report 1
Balance Sheets, June 30, 1997 and June 30, 1996 2
Statements of Operations and
Changes in Retained Earnings for the
years ended June 30, 1997 and June 30, 1996 3
Statements of Cash Flows for the
years ended June 30, 1997 and June 30, 1996 4
Notes to Financial Statements 6-11
Supplementary Information
Claims Development Information From Inception to
June 30, 1997. Required Supplementary Information 13
EDWARDS, EICHEL & BERANEK
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Big .Independent Cities Excess Pool
We have audited the accompanying balance sheets of the Big Independent Cities
Excess Pool (BICEP) at June 30, 1997, and 1996 and the related statements of
operations and changes in retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of BICEP's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the financial position of the Big Independent
Cities Excess Pool at June 30, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally accepted
accounting principles.
BICEP has nine years of historical data for use in its estimates of incurred but
not reported claims and the corresponding premium adjustments. Although BICEP
considers its experience and industry data in determining such amounts,
assertions and projections as to future events are necessary and ultimate losses
may be higher or lower than amounts projected.
The comparative schedule of Claim Development, on page 11 is not a required part
of the basic financial statements but is supplementary information required by
the Governmental Accounting Standards Board. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the supplementary information.
However, we did not audit the information and express no opinion on
Ap it.
6t�l� � ► Lk&o �
t
Pasadena, California Edwards, Eichel & Beranek
. December 22, 1997 Certified Public Accountants
468 N.RUSEMEM) Bou.i:\ARD
S UITL•#100
PASADE`A,CAIJFOR\I.-\91 107-3059
818/351-3S00
F:\x 818/351-3804
E-MAIL.76064.23 0c,Dompusenvexom
BIG INDEPENDENT CITIES EXCESS POOL
BALANCE SHEET
June 30, 1997 and June 30, 1996
ASSETS
1997 1996
Cash and cash equivalents,
unrestricted $ 23,894 $ 15,172
Restricted cash equivalents 2,324,626 261,710
Total cash and cash
equivalents (Note 2) 2,348,520 276,882
Investments (at cost, which
approximates market value) (Note 2) 13,374,158 15,387,801
Accrued interest receivable 180,671 198,042
Total assets $15,903,349 $15,862,725
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Accounts payable $ 16,021 $ 14,295
Unpaid losses and loss
adjustment expenses (Note 3) 4,260,747 4,006,065
Bonds payable (Note 4) 11,925,000 12,550,000
Less-unamortized issuance cost ( 1,119,553) ( 1,214,892)
10,805,447 11,335,108
Accrued interest payable 239,197 248,960
Estimated future premium
adjustments 581,937 258,297
Total liabilities 15,903,349 15,862,725
Retained earnings -- --
Total liabilities and
retained earnings $15,903,349 $15,862,725
The accompanying notes are an integral part of these financial statements.
2
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
Years ended June 30, 1997 and June 30, 1996
1997 1996
Revenue.:
Deposit premiums earned $ 2,164,599 $ 2,080,178
Premium refunds -- 18,542
Estimated future premium
adjustments (423,267) 361,901
1,741,332 2,460,621
Expenses:
Net increase in actuarially
determined unpaid losses and
loss adjustment expenses(note 3) 438,403 988,039
Purchased liability insurance
and reinsurance 1,188,666 1,398,567
General and administrative
expenses 159,764 155,437
1,786,833 2,542,043
Excess (deficiency) of
revenue over expenses,
before net investment
income (45,501) ( 81,422)
Net investment income:
Investment income 940,811 1,088,609
Interest expense (895,310) (1,007,187)
45,501 81,422
Excess of revenue
over expenses -- --
Retained earnings, at beginning
of year -- --
Retained earnings, at end of year $ -- $ --
These accompanying notes are an integral part of these financial statements.
3
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF CASH FLOWS
Years ended June 30, 1997 and June 30, 1996
1997 1996
Cash flows from operating activities:
.Excess (deficiency) of revenue
over expenses before net
investment income $ (45,501) $ (81,422)
Adjustment to reconcile excess
(deficiency) of revenue over
expenses before net investment
income to net cash provided by
operations:
Increase (decrease) in
accounts payable 1,726 4,325
Increase (decrease) in unpaid
losses and loss
adjustment expenses 254,682 (124,906)
premium
(Decrease) increase
in estimated future
premium adjustments payable 323,640 (359,451)
Net cash provided (used)
by operating
activities 534,547 (561,454)
Cash flows from investing activities:
Interest received 958,182 1,047,317
Net change in investment
portfolio
re issuance of new bonds
and refund of old bond issue
-- (1,882,301)
re: conversion of long-term
investments into cash
equivalents 2,013,643 Net cash derived from (used in)
investing activities 2,971,825 (834,984)
Continued on page 5
4
Cash flows from noncapital financing 1997 1996
activities:
.'Refunding of Series 1988 bonds and
issuance of 1996 bonds
Annual principal payments 1988 bonds -- (520,000)
Interest paid ( 809,734) (1.,050,247)
Refunding of remaining 1988 bonds -- (12,335,000)
Issuance of 1996 bonds -- 12,550,000
Net cost of funding new issue -- (745,100)
Principal payments 1996 bonds (625,000)Net cash (used) in noncapital
financing activities (1,434,734) (2,.100,347)
Net increase (decrease) in cash and
cash equivalents 2,071,638 (3,496,785)
Cash and cash equivalents at
beginning of year 276,882 3,773,667
Cash and cash equivalents at
end of year $ 2,348,520 $ 276,882
The accompanying notes are an integral part of these financial statements.
5
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations
Big Independent Cities Excess Pool (BICEP) was created effective September
23, 1988, by a joint powers agreement among five cities organized and
operating under the laws of the State of California. BICEP is organized
pursuant to the provisions of the California Government Code for the
purpose of providing joint insurance coverage and related risk-management
services for member cities. The extension of joint insurance coverage to
member cities began October 1, 1988.
BICEP's liability program offers a combination of pooled and commercially
purchased public auto and general liability coverages, plus errors and
omissions coverage, for losses in excess of the member cities' specified
self-insurance retention levels of one million dollars. Individual and
aggregate claims in excess of specified levels are covered by excess
insurance policies purchased from commercial insurance carriers which,
combined with the program's self-funded layers, offer a total of $25
million in coverage limits. Additionally, through its broker AON .Risk
Services, it enables its members to purchase property and worker's
compensation insurance as a group.
BICEP is a nonprofit California public agency; thus, it is tax-exempt. It
is also considered a "Special District" by the Office of the State
Controller, Division of Local Government Fiscal Affairs, for the purpose
of filing an Annual Report of Financial Transactions of Special Districts.
Basis of Accounting
The accounting records of BICEP are maintained on the accrual basis of
accounting.
Bond Issuance Costs
Bond issuance costs are amortized over the life of the bond issue using
the straight line method. In 1996 due, in part, to more advantageous
interest rates, the 1988 bond issue was retired and new bonds were issued
carrying substantially lower interest rates. Cost of issuance expense and
the premium paid on retirement are being amortized over the remaining life
of the original issue. See note 4 for further explanation.
Cash and Cash Eguivalents
BICEP considers money market funds and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash represents funds held in trust for payment of bond
principal and interest, future debt service, and claims payment.
6
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
Rebatable Arbitrage Earnings
Rebatable arbitrage earnings represents the excess of the amount earned on
all cash equivalents and investments over the amount which would have been
earned if such cash equivalents and investments were invested at a rate
equal to the bond yield for activity through January 1, 1995. This excess
is subject to change due to bond and investment activity occurring after
January 1, 1995.
Deposit Premium Revenue
Premiums are recognized as earned over the periods covered by the
policies.
Under the terms of the Liability Risk Coverage Agreement, between BICEP
and its member cities, premium adjustments resulting in additional premium
assessments or refunds were to commence in February 1992, covering the
experience of BICEP from inception. Estimates of such adjustments are
recorded in the financial statements annually as estimated future premium
adjustments. Premium adjustments are subject to change as the ultimate
cost of claims becomes known, investment income and expenses are realized,
and BICEP's costs are allocated to each Policy Year.
Unpaid Losses and Loss Adjustment Expenses
Estimated unpaid losses and loss adjustment expenses include an amount for
losses incurred but not reported. These estimates have been discounted to
their present value.
Liabilities are based on the estimated ultimate cost of settling the
claims, including the effects of inflation and other societal and economic
factors. The previously noted claims and ultimate recoveries will be
deducted from the gross amount of unpaid losses.
Claims which have been incurred but not reported to the claims
administrator at June 30, 1997 have been estimated through an independent
actuarial analysis based on loss development experience of BICEP and the
member cities and available industry loss development data.
BICEP's recognition of losses incurred but not reported is in conformity
with Government Accounting Standards Board (GASB10) , Accounting and
Financial Reporting for Risk Financing and Related Insurance Issues and
the Risk Finance Omnibus (GASB 30) and the American Institute of Certified
Public Accountants (AICPA) Statement of position 94-5.
USE OF ESTIMATES
Certain assets and liabilities are not subject to precise determination.
Specifically, unpaid loss and loss determination expense must be
estimated. Those losses that have occurred and not been reported can only
be estimated by actuarial methods. Since year ended June 30, 1995 the
$1,000,000 to $2,000,000 loss layer originally carried by BICEP has been
insured by outside carriers, reducing both the premiums and the risks to
the participating cities. Those losses in the $1,000,000 to $2,000,000
7
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
layer prior to July 1, 1994 generally have been reported but there is
always the possibility of ultimate cost exceeding original estimates.
RECLASSIFICATIONS
Certain reclassifications have been to fiscal year ended June 30, 1996
operating figures to simplify comparisons with June 30, 1997 results. The
changes made relate to including of amortization of bond issuance cost as
a component of interest expense in the statement of Operations and Changes
in Retained Earnings.
2. CASH AND INVESTMENTS
Under provisions of the California Government Code (Code) , BICEP is
authorized to invest in:
A variety of federal and state treasury obligations (including
local California agencies)
• Obligations or other instruments of or issued by a federal
agency or government sponsored enterprise
Bankers' acceptances which are eligible for purchase by the
federal reserve system (subject to certain limitations)
• Prime quality commercial paper (subject to certain
limitations)
• Negotiable certificates of deposit issued by nationally or
state chartered banks, savings and loan associates and credit
unions
Repurchase agreements or reverse repurchase agreements of any
securities authorized by the Code
Cash and Cash Equivalents, Unrestricted
At June 30, 1997, the net carrying amount and deposit balance was $23,894,
of which $19,460 was invested in the Local Agency Investment Fund an
investment pool maintained by the State Treasurer.
At June 30, 1996, the net carrying amount and deposit balance was $15,172
of which $14,739 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
Restricted Cash Equivalents and Investments
BICEP invests only in investments that are insured or registered, or for
which the securities are held by BICEP or its agent in BICEP's name.
Investments held by the Trustee at June 30, 1997, consist of:
Cash equivalent-repurchase agreements and cash $ 2,324,632
U.S. Treasury and Federal agency securities 13,374,158
$15,698,790
8
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 2 CASH AND INVESTMENTS (continued) :
Deposits and investments by governmental agencies are categorized in three
classes depending upon the relative level of risk.
Category 1 - Cash or investments fully insured or registered or where
the securities are held by the unit or its agent in the
unit's name.
Category 2 - Uninsured and unregistered instruments held by the
broker or advisor's trust department or an agent in the
unit's name.
Category 3 - Uninsured and unregistered investments held by the
broker or dealer or by its trust department of by an
agent but not in the unit's name.
All of Bicep's cash and investments are in category 1, excepting deposits
with the Local Agency Investment Fund (LAIF), which cannot be categorized.
3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
The following represents changes in the unpaid losses and loss adjustment
expenses for BICEP for the years ended June 30:
1997 1996
Unpaid losses and loss
adjustment expenses at
beginning of year $4,006,065 $4,130,971
Payments of claims reported
(all events occurred in
previous policy years) (183,721) (1,112,945)
Increase in funding levels
for previous policy years. 438,403 988,039
Total unpaid losses and loss
adjustment expenses at end
of year $ 4,260,747 $ 4,006L065
4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE:
In January 1989, BICEP issued Revenue Bonds Series 1988A for the purpose
of acquiring working capital and to finance underwriting expenses. These
bonds were outstanding until early 1996 when, as provided in the Bond
Purchase Agreement Dated January 29, 1996, revenue bonds in the face
amount of $12,550,000 were issued for the advance refunding of the 1988
issue. The new issue carries stated interest rates varying from 5.0 per
cent to 6.5 per cent in contrast to the 8.1253 per cent average yield of
the remaining outstanding bonds of the refunded issue.
9
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 4 BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE (continued)
Interest on the bonds is payable semi-annually at rates ranging from 5.0%
to 6.15%. Principal maturities range from $625,000 to $1,215,000 and are
due annually on March 1, from 1997 through 2009.
The bonds maturing after March 1, 2004 are subject to optional early
redemption on either March 1, principal and interest payment date or
September 1, interest payment date, at a premium, if any, as follows:
March 1, and September 1, 2004 101.0%
March 1, and September 1, 2005 100.5%
March 1, 2006 and thereafter 100.0%
The bonds are assigned the first rights to pay principal and interest from
premiums and interest income earned. Each member city is obligated to pay
all premiums as assessed, except when for some reason insurance coverage
is discontinued. Principal and interest payments for the succeeding five
years are as follows:
Year ending '
June 30 Principal Interest Total
1998 735,000 715,630 1,450,630
1999 770,000 678,880 1,448,880
2000 810,000 640,380 1,450,380
2001 850,000 597,450 1,447,450
2002 900,000 549,850 1,449,850
The accounting for the refunding, as prescribed by the Governmental
Accounting Standards Board (GASB) were as though the cost of the new issue
including legal and underwriting fees, refunding premiums, remaining
issuance costs of the retired issue were a prospective adjustment of the
interest rate to be amortized over the remaining life of the refunded
issue. (The new issue is paid off in 2009, the same as the refunded
issue. )
Those costs deferred are summarized as follows:
Remaining unamortized cost old issue $504,214
Premium paid on refunding 370,050
Cost of issuance, new issue 372,599
1,246,863
Less amortization taken between March 1, 1996
and June 30, 1996. 31,971
Balance outstanding, June 30, 1996 to be amortized
through 2009. $1,214,892
Amortization taken year ended June 30, 1997 95,339
Unamortized balance, June 30, 1997 1,119,553
Amount of annual amortization to be taken through 2009 95,339
10
BIG INDEPENDENT CITIES EBCESS. POOL
NOTES TO FINANCIAL STATEMENTS
continued
5. REINSURANCE:
Historically BICEP has reinsured its risks under excess of loss
reinsurance agreements for the purpose of limiting its maximum exposure
on any one loss Or group of losses. BICEP is contingently liable for
losses and loss adjustment expenses related to ceded business to the
extent that its reinsurer is unable to fulfill its commitments.
Management believes that its reinsurer is and will continue to be able to
satisfy its obligations under the reinsurance agreement for years through
June 30, 1997.
During the years ended June 30, 1995, June 30, 1996 and June 30, 1997
because of substantial reductions in rates BICEP placed all of its
liability coverages with private insurance carriers. This includes the $1
million to $2 million layer, which was previously retained.
BICEP's liabilities for unpaid losses and loss adjustment expenses as of
June 30, 1997, have been estimated net of amounts that would be
recoverable from the reinsurer. For the years ended June 30, 1995, June
30, 1996 and June 30, 1997 BICEP has no direct liability having placed all
of its coverages with outside carriers.
6. RELATED-PARTY TRANSACTIONS:
Aon Risk Services, formerly Rollins Hudig Hall, serves as BICEP's
insurance broker and brokered $2,241,557 in insurance agreements during
the period ended June 30, 1997 and $2,614,551 in the year ended June 30,
1996.
7 SUBSEQUENT EVENT - PROPOSED SETTLEMENT OF A MAJOR CLAIM
For several years a major unsettled claim has drawn the attention of
BICEP, the reinsurer, its attorneys and the member city in which the
incident occurred. As a result of negotiations between the participating
parties and the claimants the matter has been settled. BICEP's share of
the settlement was expected to be approximately the amount provided for.
I
11
SUPPLEMENTAL INFORMATION
12
BIG INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION
Cumulative from inception through June 30, 1997
Policy Year Ended June 30
1989 1990 1991 1992
1. Net deposit premium
revenue earned and
investment income $ 799,203 $2,341,824 $2,216,499 $2,125,932
2_ Other costs 338,203 1,619,824 1,359,499 1,322,932
3. Estimated incurred
claims and expenses,
end of policy year 543,000 778,000 857,000 803,000
4. Paid claims (cumula-
tive) as of:
End of policy year -- -- --one year later -- -- $ 4,736 $3,845
Two years later -- $3,640 $114,925 --
Three years later -- $28,381 $577,599 3,887
Four years later -- $28,410 636,139 1,015,020
Five years later -- -- 649,556 1,046,716
Six years later -- -- 797,804
Seven years later -- --
Eight years later -- --
5. Re-estimated incurred
claims and expenses;
End of policy year 543,000 778,000 857,000 803,000
One year later 496,000 722,000 807,806 767,049
Two years later 461,000 657,391 1,004,736 10,000
Three years later 435,842 691,497 3,004,736 240,316
Four years later 352,937 33,256 3,434,720 182,038
Five years later 250,000 45,187 3,269,842 234,991
Six years later 24,895 32,362 2,263,827
Seven years later 18,181 4,413
Eight years later --
6. Increase (decrease) in
estimated
incurred claims and
expenses from end
of policy year $(543,000) $(773,587) $1,406,827 $(568,009)
The table above illustrates how BICEP's earned revenues and investment income compare
to related costs of loss and other expenses assumed by BICEP as of the end of each
policy year. The rows of the table are defined as follows: 1. This line shows the
total of each fiscal year's earned deposit premiums and investment income, net amounts
earned for purchased reinsurance. 2. This line shows each fiscal year's other
operating costs including overhead and claims expense not allocable to individual
claims. 3. This line shows the estimated incurred losses and allocated loss
adjustment expenses as originally reported at the end of the first year in which the
event that triggered coverage under the contract occurred (both paid and accrued) net
of loss assumed by excess or reinsurers. 4. This line shows the cumulative amounts
paid as of the end of successive years for each policy year. 5. This section of rows
shows how each policy year's incurred claims and expenses increased or decreased as of
the end of successive years. This annual re-estimation results from new information
received on known claims, re-evaluation of existing information on known claims, as
well as emergence of new claims not previously known. 6. This line compared the
latest re-estimated incurred claims and expenses amount to the amount originally
established (line 3) and shows whether this latest estimate of claims and expenses
costs are greater or less than originally thought. As data for individual policy years
mature, the correlation between original estimates and re-estimated accounts is
commonly used to evaluate this accuracy of incurred claims and expenses currently
recognized in less mature policy years.
13
Policy Year Ended June 30
1993 1994 1995 1996 1997
$2,317,408 $2,513,490 $1,941,159 $1,776,903 $1,916,360
1,705,829 1,717,915 1,715,043 1,190,895 1,6501761
886,906 1,035,407 -- -- --
-- -- -- 56
3,488 -- --
91,785 100 -- -- --
92,322 3,285
886,906 1,035,407 -- -- --
10,000 767,244 -- --
711,287 809,059 --
455,341 1,231,328
100,884 --
($486,022) $195,921 --
RCA ROUTING
S% EET
INITIATING DEPARTMENT: CITY CLERK'S OFFICE
SUBJECT: BICEP
COUNCIL MEETING DATE: April 6, 1998
�� RCA �►T�TACHM.ENTS `��� �,��� _� ��
STATUS
Ordinance (w/exhibits & legislative draft if applicable) Not Applicable
Resolution (w/exhibits & legislative draft if applicable) Not Applicable
Tract Map, Location Map and/or other Exhibits Attached
Contract/Agreement (w/exhibits if applicable)
(Signed in full by the City Attomey) Not Applicable
Subleases, Third Party Agreements, etc.
(Approved as to form by City Attomey) Not Applicable
Certificates of Insurance (Approved by the City Attomey) Attached
Financial Impact Statement (Unbudget, over $5,000) Attached
Bonds (If applicable) Attached
Staff Report (If applicable) Attached
Commission, Board or Committee Report (If applicable) Attached
Findings/Conditions for Approval and/or Denial Attached
� EXP TIO.N FOR MISSING ATTACHMENTS 3 LANAI b
_` - z �_REVIEWED� y RETURNEDFOR_ s FE-D
.Administrative Staff ( ) ( )
Assistant City Administrator (Initial) ( ) ( )
City Administrator (Initial)
City Clerk ( )
�EXPLNATI:ONFOR�RETU:RN OF- Ill
(Below Space For City Clerk's Use Only)
RCA Author: Connie Brockway
CITY OF HUNTINGTON BEAC
MEETING DATE: May 5, 1997 DEPARTMENT ID NUMBER: CK 97-001
Council/Agency Meeting Held: .5,Z!Z 97 /�o'?o
Deferred/Continued to:
0-A'p roved ❑ Conditionally Approved ❑ Denied Ate• Gity Clerk's Signature
Council Meeting Date: May 5, 1997 Department ID Number: CK 97-001
CITY OF HUNTINMON BEACH s
REQUEST FOR COUNCIL ACTION
O c;-im
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS — C`""'
r
i�T n
N = =o
SUBMITTED BY: CONNIE BROCKWAY, CITY CLERK CS m
LAO r
PREPARED BY: CONNIE BROCKWAY, CITY CLERK C.6 ' j
SUBJECT: Big Independent Cities Excess Pool (BICEP) Financial Statements &
Independent Auditor's Report
[statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environ 1 Status,Attachment(s)
Statement of Issue: The BICEP Joint Powers Agreement between the BICEP member
cities requires the Big Independent Cities Excess Pool (BICEP) Financial Statements and
Supplementary Information With Independent Auditors Report to be filed as a Public Record
with each of the BICEP member cities. The report includes Independent Auditors Report,
Balance Sheets, Statements of Revenue and Expenses, and changes in Fund Balances,
Statements of Cash Flows, Notes to Financial Statements, and Claims Development
Information from Inception to June 30, 1996.
Funding Source: Not applicable.
Recommended Action: Motion: Receive and File the Big Independent Cities Excess Pool
(BICEP) Financial Statements and Supplementary Information With Independent Auditor's
Report for the year ended June 30, 1996 and June 30 1995.
Alternative Action(s): If Council has questions regarding this report, Council may wish to
defer Receiving and Filing to a future meeting.
Analysis: The BICEP Agreement between cities requires this report to be filed as a public
record. In order for the City Clerk to make a report, audit or any other material a public
record in the City Clerk's Office, it must have first been seen, reviewed and accepted by the f
City Council sitting as a legislative body. The material then becomes a part of the official
CK97001.DOC 04/23/97 2:14 PM
AUTHOR:Carrol Gibbons
kc-QUEST FOR COUNCIL ACTIuIN
MEETING DATE: May 5, 1997 DEPARTMENT ID NUMBER: CK 97-001
Analysis (Continued)
Council minutes and official files of which the Council and public are aware and able to
access as a public record.
Environmental Status: Not applicable.
Attachment(s):
NumberCity Clerk's
Page
1. Communication from Gregory Spiker, ARM, BICEP General Manager
Ken Spiker and Associates, Inc.
2. BICEP Report &Audit and Attachments
CK97001.DOC 04/23/97 2:14 PM
AUTHOR:Carrol Gibbons —2—
BIG INDEPENDENT CITIES EXCESS POOL JOINT POWERS AUTHORITY
c/o General Manager, Ken Spiker And Associates, Inc. 14156 Magnolia Blvd., Suite 103
Sherman Oaks, California 91423 (818) 788-0406 FAX No. (818) 784-1187
April 16, 1997
s
"o
Ms. Connie Brockway, City Clerk t'
City of Huntington Beach
2000 Main Street
Huntington Beach, California 92648
Dear Ms. Brockway:
Enclosed please find a copy of the June 30, 1996, Big Independent Cities Excess
Pool (BICEP) Financial Statements and Supplementary. Information With
Independent Auditor's Report for the years ended June 30, 1996, and 1995. The
BICEP Joint Powers Agreement requires the report to be filed as a public record
with each of the BICEP Member Cities. Please place the report in the appropriate
file in your office. Thank you for your cooperation.
Sincerely,
Gregory J. Spiker, ARM
BICEP General Manager
Ken Spiker And Associates, Inc.
GJS:sI
Enclosure
REWEST FOR CITY COUNCIL AuTION
MEETING DATE: November 3, 2003 DEPARTMENT ID NUMBER: CK2003-9
Analysis: The BICEP Agreement between cities requires this report to be filed as a public
record. In order for the City Council to make a report, audit or any other material a public
record in the City Clerk's Office, it must have first been presented to the City Council sitting
as a legislative body. The material then becomes a part of the official Council minutes and
official files of which the Council and public are aware and able to access as a public record.
Environmental Status: Not Applicable
Attachment(s):
City Clerk's
Page Number No. Description
1. Communication dated August 13, 2003 from Gregory Spiker, ARM,
BICEP General Manager, Ken Spiker and Associates, Inc.
2. BICEP Report &Audit and Attachments
RCA Author: Brockway,X5404
GARCA'S\2003RMCK2003-9 BICEP.doc -3- 10/10/2003 4:42 PM
' S J��jt'r4 tk�1�1�A'•'i/i7
BIG INDEPENDENT CITIES EXCESS POOL JOINT POWERS AUTHORITY
Ah-
c/o General Manager, Ken Spiker And Associates, Inc. 1100 South Flower Street, Suite 2100
Los Angeles, California 90015-2115 • (213) 748-0066 • FAX No. (213) 748-6101
August 13, 2003
City Clerk
City of Huntington Beach
2000 Main Street
Huntington Beach, CA 92648
RE: Big Independent Cities Excess Pool Joint Powers Authority (BICEP)
Financial Statements and Supplementary Information with Independent
Auditor's Report June 30, 2002 and 2001
Enclosed please find a copy of the above-referenced report. The BICEP Joint
Powers Agreement requires the report to be filed as a public record with your office.
Please place the report in the appropriate file in your office. Thank you for your
cooperation.
Sincerely,
Greg ry J. iI A M WK
BICEP General Manager
Ken Spiker And Associates, Inc.
GKS/tmck
Enclosure
ATTACHMENT 2
BIG INDEPENDENT CITIES EXCESS POOL
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
WITH INDEPENDENT AUDITOR'S REPORT
JUNE 30, 2002 and 2001
•� 4
l
BIG INDEPENDENT CITIES EXCESS POOL
Table of Contents
Pace
Financial Statements:
Independent Auditor's Report 1
Balance Sheets 2
Statements of Operations and
Changes in Retained Earnings 3
Statements of Cash Flows 4
Notes to Financial Statements 6
Supplementary Information
Claims Development Information From 1993 to
June 30, 2002. Required Supplementary Information 13
EDWARDS, EICHEL & BERANEK
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Big Independent Cities Excess Pool
We have audited the accompanying balance sheets of the Big Independent Cities
Excess Pool (BICEP) at June 30, 2002, and 2001 and the related statements of
operations and changes in retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of BICEP's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 2002 and 2001 financial statements referred to above present
fairly, in all material respects, the financial position of the Big Independent
Cities Excess Pool at June 30, 2002 and 2001, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
BICEP has ten years of historical data for use in its estimates of incurred but
not reported claims and the corresponding premium adjustments. Although BICEP
considers its experience and industry data in determining such amounts,
assertions and projections as to future events are necessary and ultimate losses
may be higher or lower than amounts projected.
The comparative schedule of Claim Development, on pages 14 and 15 is not a
required part of the basic financial statements but is supplementary information
required by the Governmental Accounting Standards Board. We have applied certain
limited procedures, which consisted principally of inquiries of management
regarding . the methods of measurement and presentation of the supplementary
information. However, we did not audit the information and express no opinion on
it. n A
&AA*%W6 F J►
Pasadena, California Edwards, Eichel & Beranek
Certified Public Accountants
650 SIERRA MADRE VILLA AVENUE
SUITE#202
PAS.ADENA,CALIFORNIA 91 107-2067
626/351-3800
FAx 626,'351-3804
WEBSITE www.eebcpas.com
BIG INDEPENDENT CITIES EXCESS POOL
BALANCE SHEET
June 30, 2002 and 2001
ASSETS
2002 2001
Cash and cash equivalents,
unrestricted $ 29,855 $ 64,689
Restricted cash equivalents 512,205 86,209
Total cash and cash
equivalents (Notes 2 and 5) 542,060 150,898
Investments, at market (Note 2) 14,867,023 13,831,004
Accrued interest receivable 253,496 269,208
Accounts receivable -- 13,900
Prepaid expense -- 1,361
Total assets $15,662,579 $14,266,371
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Accounts payable $ 20,835 $ 64,887
Unpaid losses and loss
adjustment expenses (Note 3) 2,107,308 612,796
Bonds payable (Note 4) 7,860,000 8,760,000
Less-unamortized issuance cost 659,835 755,174
7,200,165 8,004,826
Accrued interest payable 166,338 183,759
Estimated future premium
adjustments (Note 5) 6,167,933 5,400,103
Total liabilities 15,662,579 14,266,371
Retained earnings -- --
Total liabilities and
retained earnings $15,662,579 $14,266,371
The accompanying notes are an integral part of these financial statements.
2
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 2. CASH AND INVESTMENTS (continued) :
Cash and Cash Equivalents, Unrestricted
At June 30, 2002, the net carrying amount and deposit balance was $29,855,
of which $19,565 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
At June 30, 2001, the net carrying amount and deposit balance was $64,689
of which $60,538 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
Restricted Cash Equivalents and Investments
BICEP invests only in investments that are insured or registered, or for
which the securities are held by BICEP or its agent in BICEP's name.
Investments held by the Trustee consist of:
Cash equivalent-repurchase agreements 2002 2001
and cash $ 512,205 $ 86,209
U.S. Treasury and Federal agency
securities 14,667,023 13,831,004
$15,379,228 $13,917,213
Deposits and investments by governmental agencies are categorized in three
classes depending upon the relative level of risk.
Category 1 - Cash or investments fully insured or registered or where
the securities are held by the unit or its agent in the
unit's name.
Category 2 - Uninsured and unregistered instruments held by the
broker or advisor's trust department or an agent in the
unit's name.
Category 3 - Uninsured and unregistered investments held by the
broker or dealer or by its trust department of by an
agent but not in the unit's name.
All of Bicep's cash and investments are in category 1, excepting deposits
with the Local Agency Investment Fund (LAIF) , which cannot be categorized.
Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
The following represents changes in the unpaid losses and loss adjustment
expenses for BICEP for the years ended June 30:
2002 2001
Unpaid losses and loss
adjustment expenses' at
beginning of year $ 612,796 $828,023
Payments of claims reported
(all events occurred in
previous policy years) (19,790) (8,786)
9
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (continued) :
Increase (decrease) in
funding levels 1,514,302 (206,441)
Total unpaid losses and loss
adjustment expenses at end
of year $ 2,107,308 $ 612,796
Note 4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE:
In January 1989, BICEP issued Revenue Bonds Series 1988A for the purpose
of acquiring working capital and to finance underwriting expenses. These
bonds were outstanding until early 1996 when, as provided in the Bond
Purchase Agreement Dated January 29, 1996, revenue bonds in the face
amount of $12,550,000 were issued for the advance refunding of the 1988
issue. The new issue carries stated interest rates varying from 5.0 per
cent to 6.5 per cent in contrast to the 8.1253 per cent average yield of
the remaining outstanding bonds of the refunded issue.
Interest on the 1996 bonds is payable semi-annually at rates ranging from
5.0% to 6.15%. Principal maturities range from $625,000 to $1,215,000 and
are due annually on March 1, from 1997 through 2009.
The bonds maturing after March 1, 2004 are subject to optional early
redemption on either March 1, principal and interest payment date, or
September 1, interest payment date, at a premium,. if any, as follows:
March 1, and September 1, 2004 101.0%
March 1, and September 1, 2005 100.5%
March 1, 2006 and thereafter 100.0%
The bonds are assigned the first rights to pay principal and interest from
premiums and interest income earned. Each member city is obligated to pay
all premiums as assessed, except when for some reason insurance coverage
is discontinued. Principal and interest payments for the succeeding five
years are as follows:
Year ending
June 30 Principal Interest Total
2003 $ 950,000 $ 497,650 $ 1,447,650
2004 1,005,000 440,650 1,445,650
2005 1,070,000 379,345 1,449,345
2006 1,135,000 311,875 1,446,875
2007 1,205,000 239,235 1,444,235
2008 and 2009 $2,495,000 S 241,030 S 2,736,030
$7,8�60,O000 $2,1� $ 9,969,785
10
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 4. BONDS PAYABLE AND ADVANCED REFUNDING OF 1988 BOND ISSUE (continued) :
The accounting for the refunding, as prescribed by the Governmental
Accounting Standards Board (GASB) were as though the cost of the new issue
including legal and underwriting fees, refunding premiums, remaining
issuance costs of the retired issue were a prospective adjustment of the
interest rate to be amortized over the remaining life of the refunded
issue. (The new issue is paid off in 2009, the same as the refunded
issue. )
Those costs deferred are summarized as follows:
Remaining unamortized cost old issue $ 504,214
Premium paid on refunding 370,050
Cost of issuance, new issue 372,599
1,246,863
Less amortization taken between March 1, 1996
and June 30, 1996. 31,971
Balance outstanding, June 30, 1996 to be amortized
through 2009. 1,214,892
Amortization taken years ended June 30
1997 78,362
1998 through 2002 at $95,339 per year (5 years) 476,695
Amortization to date 555,057
Remaining unamortized balance S 659,835
Note S. ESTIMATED FUTURE PREMIUM ADJUSTMENTS:
BICEP's accounting has consistently charged or credited annually results
of operations to the participant cities because as a group they are
accountable for the benefits or lack thereof of the pool's operations.
GASB 31 became effective for years ended June 30, 1998 with retroactive
adjustment of prior years' results preferred.
Review of the relationship of cost to market values of investments at July
1, 1996 indicated a minor difference between cost and market value of
those investments held by the trustee ($26,568 of market value lower than
cost on investments at cost of $15,649,511) . Accordingly, no adjustment
was made at July 1, 1996.
At June 30, 1997 market exceeded cost by $75,565 and at June 30, 1998
market exceeded cost by $172,618. At June 30, 1997 financial statements
were restated as follows:
Investments Estimated Future
held by trustee Premium Adjustments
As originally reported $13,374,164 $581,943
Market value adjustment 75,565 75,565
As restated $13,449,729 657 508
11
I
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note S. ESTIMATED FUTURE PREMIUM ADJUSTMENTS (continued) :
At June 30, 2002 and June 30, 2001 investment securities are valued at
market.
Note 6. REINSURANCE:
Historically BICEP has reinsured its risks under excess of loss
reinsurance agreements for the purpose of limiting its maximum exposure
on any one loss or group of losses. BICEP is contingently liable for
losses and loss adjustment expenses related to ceded business to the
extent that its reinsures is unable to fulfill its commitments.
Management believes that its reinsures is and will continue to be able to
satisfy its obligations under the reinsurance agreement for years through
June 30, 2002. There have been instances in which BICEP has paid claims
in excess of its layer of coverage or on ceded coverages due to special
circumstances.
For the years beginning in the year ended June 30, 1995, and continuing
through June 30, 2000, because of substantial reductions in rates, BICEP
placed all of its liability coverages with private insurance carriers.
This included the $1 million to $2 million layer, which was previously
retained. In years ended June 30, 2002 and 2001 BICEP shared the
$1,000,000 to $2,000,000 layer with the excess carrier.
BICEP's liabilities for unpaid losses and loss adjustment expenses as of
June 30, 2002 and June 30, 2001, have been estimated net of amounts that
would be recoverable from the reinsures. For the years ended June 30, 1995
through June 30, 2000 BICEP had no direct liability having placed all of
its coverages with outside carriers, except in those rare instances that
there was a reason to go beyond the coverage limitations. In years ended
June 30, 2001 and 2002, as previously noted, the $1,000,000 to $2,000,000
layer was shared.
Note 7. SUBSEQUENT EVENT - WITHDRAWAL OF POMONA
The City of Pomona notified the Authority of its intention to withdraw
effective July 1, 2003. The terms of the Operating Agreements provide for
withdrawal but are in conflict with Pomona's proposal. Assuming eventual .
agreement by the parties, Pomona will be credited with its share of the
future premium adjustment account less allocable bonds to be retired and
its share of actuarial and realized losses. Because incurred losses may
take several years to evaluate, the process of withdrawal may require
passage of a certain amount of time.
12
SUPPLEMENTARY INFORMATION
BIG INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION
Ten years, Calculation through June 30, 2002
Policy Year Ended June 30
1993 1994 1995 1996 1997
1. Net deposit premium
revenue earned and
investment income $2,317,408 $2,513,490 $1,941,159 $1,776,903 $1,916,360
2. other costs 1,705,829 1,717,915 1,715,043 1,190,895 1,650,761
3. Estimated incurred
claims and expenses,
end of policy year 886,906 1,035,407 -- -- --
4. Paid claims (cumula-
tive) as of:
End of policy year -- -- -- --One year later -- -- -- 56 Two years later 3,488 100 -- 11,428 --
Three years later 91,785 3,285 106 1,214,988 --
Four years later 92,322 1,106,257 3,024 1,217,445 --
Five years later 92,321 1,067,076 2,589 1,221,408 2,513
Six years later -- 1,107,802 -- 1,223,769 --
Seven years later -- -- -- -- --
Eight years later -- -- -- -- --
Nine years later -- -- -- -- --
S. Re-estimated incurred
claims and expenses:
End of policy year 886,906 1,035,407 -- --One year later 10,000 767,244 -- --Two years later 711,287 809,059 -- -- --
Three years later 455,341 1,231,328 -- 59,562 --
Four years later 100,884 2,195,310 106 1,214,989 2,513
Five years later 131,267 2,097,417 3,024 1,221,676 --
Six years later 92,322 1,139,546 15,106 2,445,373 --
Seven years later 99,635 1,067,748 2,412 -- --
Eight years later 91,815 -- -- -- --
Nine years later -- -- -- -- --
Ten years later -- -- -- -- --
6. Increase (decrease) in
estimated
incurred claims and
expenses from end
of policy year $(795,091) $ 32,341 $ 2,412 $2,445,373 $ -2;513
See Footnote on Page 14
13
Policy Year Ended June 30
1998 1999 2000 2001 2002
$2,016,625 $2,317,676 $2,137,519 $2,231,046 $2,180,406
1,563,652 1,656,277 1,661,874 1,671,750 1,675,939
-- -- -- -- 973,285
4,433 2,372 -- 1,354 --
-- 4,526 1,323 -- --
5,898 -- -- -- --
-- -- -- 5,000 300,000
-- -- -- 1,354 --
-- 2,372 1,323 -- --
10,000 752,198 -- -- --
15,000 -- -- -- --
$ 15,000 $ 752,198 $ 1,323 $ 1,354 $ 300,000
BIG INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION
Ten years' Calculation through June 30, 2000
Explanation of the Claims Development table on the preceding page
The table on the preceding page illustrates how BICEP's earned revenues and investment
income compare to related costa of loss and other expenses assumed by BICEP as of the
end of each policy year. The rows of the table are defined as follows: 1. This line
shows the total of each fiscal year's earned deposit premiums and investment income,
net amounts earned for purchased reinsurance. 2. This line shows each fiscal year's
other operating costs including overhead and claims expense not allocable to individual
claims. 3. This line shows the estimated incurred losses and allocated lose
adjustment expenses as originally reported at the end of the first year in which the
event that triggered coverage under the contract occurred (both paid and accrued) net
of loss assumed by excess or reinsurers. 4. This line shows the cumulative amounts
paid as of the end of successive years for each policy year. S. This section of rows
shows how each policy year's incurred claims and expenses increased or decreased as of
the end of successive years. This annual re-estimation results from new information
received on known claims, re-evaluation of existing information on known claims, as
well as emergence of new claims not previously known. 6. This line compared the
latest re-estimated incurred claims and expenses amount to the amount originally
established (line 3) and shows whether this latest estimate of claims and expenses
costs are greater or less than originally thought. As data for individual policy years
mature, the correlation between original estimates and re-estimated accounts is
commonly used to evaluate this accuracy of incurred claims and expenses currently
recognized in less mature policy years.
14
12137486101 KEN SPIKER &ASSOC T-829 P-002 OCT 09 '03 11:30
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SIG INDEPENDENT CITIES EXCESS POOL � D
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
WITH INDEPMMENT AUDITOR'S REPORT
JUKE 30, 2001 and 2000
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12137486101 KEN SPIKER &ASSOC T-829 P-003 OCT 09 '03 11:30
i�
A BIG INDEPBNDZNT CITIES EXCESS POOL
Yi
Table of Contents
Pave
Financial Statements:
Independent Auditor's Report 1
inii Balance Sheets 2
Statements of Operations and
Changes in Retained Earnings 3
Statements of Cash Flaws 4
{dW Notes to Financial Statements 6
Supplementary Information
is I
Ind Claims Development Information From 1992 to
June 30, 2001. Required Supplementary Information 13
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12137486101 KEN SPIKER &ASSOC T-829 P-004 OCT 09 '03 11:30
f
EDWARDS, EicHEL. & BERANEK
Cr_R:rlFlCD PUBLic.AC(:UUNTANTS
i
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Big Independent Cities Excess Pool
We have audited the accompanying balance sheets of the Big Independent Cities
Excess Pool (BICEP) at June 30, 2001, and 2000 and the related statements of
operations and changes in retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of BICEP's management.
our responsibility is to express an opinion on these financial statements based
on our audits.
we conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a teat 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 2001 and 2000 financial statements referred to above present
fairly, in all material respects, the financial position of the Big Independent
Cities Excess Pool at June 30, 2001 and 2000, and the resul.Vb of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
BICEP has ten years of historical data for use in its estimates of incurred but
j. not reported claims and the corresponding premium adjustments. Although BICEP
considers its experience and industry data in determining such amounts,
assertions and projections as to future events are necessary and ultimate losses
may be higher or lower than amounts projected_
The comparative schedule of Claim Development, on pages 14 and 15 is not a
required part of the basic financial statements-•biit is supplementary information
required by the Governmental Accounting Standards Board. We have applied certain
, j limited procedures, which consisted principally of inquiries of. management
regarding the methods of measurement and presentation of the supplementary
information. However, we did not audit the information and express no opinion on
I' it.
Pasadena, California Edwards, Eichel & Beranek
May 1, 2002 Certified Public Accountants
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650 SUERRA MAOM VILLA AvrN-Li..
SLATE 4202
PASADENA,CALIFORNIA 91107-2067
626/351-3800
FAx 626/351-3804
Wk6SITE w%v\N%cebcpas.com
12137486101 KEN SPIKER &ASSOC T-829 P-005 OCT 09 103 11:31
wi
BIG INDEPENDENT CITIES EXCESS POOL
w 1,131%,410= 88$ 1
June 30, 2001 au►4 2000
ASSETS
200� 000
Cash and cash equivalents,
unrestricted $ 64,689 $ 55,278
N1�
Restricted cash equivalents 86,209 146,425
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Total cash and cash
equivalents (Notes 2 and 5) 150,898 201,703
Investments, at market (Note 2) 13,831,004 12,610,663
Accrued interest receivable 269,208 245,127
Accounts receivable 13,900 --
Prepaid expense 1,361 937
Total assets $14,2� 6 13,058,430
i.
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LIABILITIES AND RETAINED EARNINGS
Liabilities:
Accounts payable $ 64,887 $ 41,475
el
Unpaid losses and lose
adjustment expenses (Note 3) 612,796 828,023
Bonds payable (Note 4) 8,760,000 91610,000
Leas-unamort•ized issuance cost 755,174 850,513
8,004,826 8,759,487
�. Accrued interest payable 183,759 199,696
Estimated future premium
adjustments (Note 5) 5,4.00,103 3,229,749
k
Total liabilities 14,266,371 13,058,430
Retained earnings -- --
Total liabilities and
retained earnings $149266,371 1 058,430
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The accompanying notes are an integral part of these financial statements.
2
12137486101 KEN SPIKER &ASSOC T-829 P-006 OCT 09 '03 11:31
6i
SIG INDEPENDENT CITIES EXCESS POOL
1w 9TA1'ENSN3'S OF OPERATIONS AND CHINW8 IN RETAINED EARNINGS
Years eaded ,Tune 30, 2001 and 2000
ti 2001 2Q00
Revenues:
Deposit premiums earned $ 2,258,706 $ 2,293,401
Estimated future premium
adjustments 11,812,024) (1,157,398)
446,682 1,136,003
Expenses:
Net increase (decrease) in actuarially
determined unpaid losses and
loss adjustment expenses(note 3) (206,441) (171,292)
Purchased liability insurance
and reinsurance 911,775 1,009,775
General and administrative
Iexpenses 178,428 153,387
60
883,762 991,871
Excess of (deficit of)
revenue over expenses,
before net investment
Luc ome (437,080) 144,132
Net investment income:
Investment income 1,113,932 577,238
Interest expense 676,852 721,370
437,080 (144,132)
i
Excess of revenues
over expenses -- --
Retained earnings, at beginning
of year
Retained earnings, at end of year -- --
64
The accompanying notes are an integral part of these financial statements_
I.
3
12137486101 KEN SPIKER &ASSOC T-829 P-007 OCT 09 '03 11:31
i�
SIG INDE 4ENDMT CITIES EXCESS POOL
ski STAT.ENMTS OF CASH FLOWS
Years ended June 30, 2001 and 2000
f
MI 2001 2000
Cash flown from operating activities:
Excess of revenues (deficit of)
over expenses before net
investment income $ (437,080) $ 144,132
Adjustment to reconcile excess
iil• (deficiency) of revenues over
expenses before net investment
; . income to net cash provided by
operations:
write up of investments to
market (612,782) (232,493)
Increase (decrease) in
ldi accounts payable 23,412 19,275
Increase (decrease) in unpaid
losses and loss
adjustment expenses (215,227) (1,354,815)
(Decrease) increase
in estimated future
premium adjustments payable 2,170,354 1,157,398
yew other asset changes-net (1�4) (937)
' I Net cash provided (used)
by operating
activities 914053 (267,440)
; i Cash flows from investing activities:
Pwsi Interest received 875,991 784,935
Net change in investment
portfolios
re: Conversion of long-term
investments to meet operating needs
2000, .purchases of long-term
investments 2001 (441,299) 320,862
Net cash provided by (used. for
investing activities)
434,692 1,105.797
I,
Continued on page 5
4
12137486101 KEN SPIKER &ASSOC T-829 P-008 OCT 09 '03 11:32
6i
510 INDEPENDENT CITIES EXCESS POOL
STA2394M OF CASH FLOWS
June 30, 2001 and 2000
(continued)
pil
Cash flows from noncapital financing 2001 2000
activities:
Interest paid 549,850 640,380
Ili1(, Principal payments 1996 bonds 850,000 810,000
Net cash (used) in noncapital
financing activities (1.399.850) (1,450,,380)
Net increase (decrease) in cash and
0 cash equivalents (50,805) (612,023)
cash and cash equivalents at
beginning of year 201,703 $13,726
cash and cash equivalents at
end of year 150,89.8 $ 201,703_
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The accompanying notes are an integral part of these financial statements.
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12137486101 KEN SPIKER &ASSOC T-829 P-009 OCT 09 '03 11:32
SIG INDEPENDENT CITIES EXCESS POOL
MOTES TO FINANCIAL 8TATZNZM'1'S
June 30, 3000 and 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and fterationa
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Big Independent Cities Excess Pool (BICEP) was created effective September
23, 1988, by a joint powers agreement among five cities organized and
operating under the laws of the State of California. BICEP is organized
pursuant to the provisions of the California Government Code for the
purpose of providing joint insurance coverage and related risk-management
services for member cities. The extension of joint insurance coverage to
member cities began October 1, 1988.
BICEP's liability program has offered a combination of pooled and
commercially purchased public auto and general liability coverages, plus
errors and omissions coverage, for losses in excess of the member cities,
specified self-insurance retention levels of one million dollars.
Individual and aggregate claims in excess of specified levels are covered
by excess insurance policies purchased from commercial insurance carriers
which, combined with the program's self-funded layers, offer a total of
$25 million in coverage limits. Additionally, through its broker, AON Risk
Services, it enables its members to purchase property and worker's
compensation insurance as a group.
BICEP is a nonprofit California public agency; thus, it is tax-exempt. It
is also considered a "Special District" by the Office of the State
Controller, Division of Local Government Fiscal Affairs, for the purpose
of filing an Annual Report of Financial Transactions of special Districts.
Basin of Accounting
The accounting records of BICEP are maintained on the accrual basis of
accounting.
{ Bond Issuance Costs
Bond issuance costs are amortized over the life of the bond issue using
the straight line method. In 1996 due, in part, to more advantageous
interest rates, the 1988 bond issue was retired and new bonds were issued
carrying substantially lower interest rates. cost of issuance expense and
the premium paid on retirement are being amortized over the remaining life
of the original issue. See note 4 for further explanation.
Cash and Cash .Equivaients
BICEP considers money market funds and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Restricted Cash
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Restricted cash represents funds held in trust for payment of bond
principal and interest, future debt service, and claims payment.
6
12137486101 KEN SPIKER BASSOC T-829 P-010 OCT 09 '03 11:33
i
BIG ZINDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL BMTENRIMS
continueQ
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Rebatable_Arbitrage Earnings
Rebatable arbitrage earnings represents the excess of the amount earned on
all cash equivalents and investments over the amount which would have been
earned if such cash equivalents and investments were invested at a rate
equal to the bond yield for activity through January 1, 1995. This excess
is subject to change due to bond and investment activity occurring after
January 1, 1995. as of the report date there have not been any rebates nor
is it anticipated there will be.
De»osi Premium Revenue
Premiums are recognized as earned over the periods covered by the
policies.
Under the terms of the Liability Risk Coverage Agreement, between BICEP
and its member cities, premium adjustments resulting in additional premium
assessments or refunds were to commence in February 1992, covering the
experience of BICEP frctn inception. Estimates of such adjustments are
recorded in the financial statements annually as estimated future premium
adjustments. Premium adjustments are subject to change as the ultimate
coat of claims becomes known, investment income and expenses are realized,
and BICEP's costs are allocated to each Policy Year.
UnpAU Losses and Loss Adjustment Expenses
Estimated unpaid losses and lose adjustment expenses include an amount for
losses incurred but not reported. These estimates have been discounted to
their present value.
Liabilities are based on the estimated ultimate cost of settling the
claims, including the effects of inflation and other societal and economic
factors. The previously noted claims and ultimate recoveries will be
deducted from .the gross amount of unpaid losses.
Claims which have been incurred but not reported to the claims
administrator at June 30, 2001 have been .estimated through an independent
actuarial analysis based on loss development experience of DICEP and the
member cities and available. industry loss development data.
BICEP's recognition of losses incurred but not reported is in conformity
with Government Accounting Standards Board (GASH 10), Accounting and
Financial Reporting for Risk Financing and Related Insurance Issues and
the Risk Finance Omnibus (GASH 30) and'the American Institute of Certified
Public Accountants (AICPA) Statement of position 94-5.
i.
At irregular intervals losses have occurred that fell either outside the
usual insured layer by the authority or outside the assumed coverages of
the excess carrier. In isolated instances BICEP has accepted claims
liability along with the insurance carrier and the city of the occurrence.
�+ In previous years there was a claim against a city involving due process
in a condemnation action, more recently a situation occurred in which one
police officer shot and killed another during a drug raid, a third such
situation has occurred during the current year.
7
12137486101 KEN SPIKER &ASSOC T-829 P-011 OCT 09 '03 11:33
BIB INDEPENDENT CITIBS EXCESS POOL
NOTES TO FINANCIAL STAT1*MMS
continued
Note 1. SUMMARY OF SIGNIPICANT ACCOtINTING POLICIES (continued):
Use of RstLmatss
0W Certain assets and liabilities are not subject to precise determination.
specifically, unpaid loss and lose adjustment expense must be estimated.
Those losses that have occurred and not been reported can only be
estimated by actuarial methods.. Since year ended June 30, 1995 the
$1,000,000 to $2,000,000 loss layer originally carried by BICEP has been
insured by outside carriers, reducing both the premiums and the risks to
the participating cities. Those losses in the $1,000,000 to $2,000,000
layer prior to July 1, 1994 generally have been reported but there is
always the possibility of ultimate cost exceeding original estimates.
Additionally, as noted previously, there can be the risk of denial of
coverage in borderline circumstances.
IIIIY -
Valuation of Investments
j0 Investments prior to year ended June 30, 1998 were recorded at cost. Those
investment securities are now valued at market as required by Governmental
Accounting standards Board (GASB 31), resulting in restatement of carrying
values of investments and changes in previously reported investment income
prior to year ended June 30, 1998. The cumulative effects of these
adjustments are reflected in the Estimated Future Premium Adjustments to
,pool participants. see note 5 for further explanation.
Note 2. CASH AND INVESTMENTS
under provisions of the California Government code (code), BICEP is
authorized to invest in:
• A variety of federal and state treasury obligations (including
local California agencies)
Obligations or other instruments of or issued by a federal
agency or government sponsored enterprise
• Bankers, acceptances which are eligible for purchase by the
federal reserve system (subject to certain limitations)
• Prime quality commercial paper (subject to certain
limitations)
Negotiable certificates of deposit issued by nationally or
state chartered banks, savings and loan associates and credit
unions
Repurchase agreements or reverse repurchase agreements of any
securities .authorized by the code
6W
5
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12137486101 KEN SPIKER &ASSOC T-829 P-012 OCT 09 '03 11:34
SIG I3DEPZ1W=T CITIM EXCESS POOL
nows To rINRUCIAL STATEMENTS
continued
Note 2. CASH AND INVESTMENTS (continued):
Cash and cash Eggiva] nts. Unrestricted
At June 30, 2001, the net carrying amount and deposit balance was $64,689,
of which $60,538 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
At.June 30, 2000, the net carrying amount and deposit balance was $55,278
of which $44,418 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
Restricted Cash Equivalents $Dd_ Investments
BICEP invests only in investments that are insured or registered, or for
which the securities are held by BICEP or its agent in BICEP's name.
Investments held by the, Trustee consist of:
cash equivalent-repurchase agreements 2001 2000
and cash $ 86,209 $ 146,125
+ U.S. Treasury and Federal agency
securities 13,831,004 12,610,663
513.917,213 51267566788
Deposits and investments by governmental agencies are categorized in three
classes depending upon the relative level of risk.
Category 1 - Cash or investments fully insured or registered or where
the securities are held by the unit or its agent in the
unit's name.
Wi
category 2 -- uninsured and unregistered instruments held by the
broker or advisor's trust department or an agent in the
unit's name.
im
Category 3 - Uninsured and unregistered investments held by the
broker or dealer or by its trust department of by an
agent but not in the unit's name.
All of Bicep's cash and investments are in category 1, excepting deposits
with the Local Agency Investment Fund (LAIF), which cannot be categorized.
Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
The following represents changes in the unpaid losses and loss adjustment
expenses. for HICEP for the years ended June 301
Unpaid losses and loss
adjustment expenses at
j beginning of year $ 828,023 $2,281,838
L.
Payments of claims reported
(all events occurred in
:J. previous policy years) (8,786) (1,183,524)
9
12137486101 KEN SPIKER &ASSOC T-829 P-013 OCT 09 103 11:34
BIG INABPB WZWT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Yi Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (continued) :
Increase (decrease) in
funding levels (206,441) (270,291)
Total unpaid losses and loss
ry adjustment expenses at and
of year $ 612,796 $ 828,023
Note 4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE:
1W
In January 1989, BICEP issued Revenue Bonds Series 1988A for the purpose
of acquiring working capital and to finance underwriting expenses. These
yr bonds were outstanding until early 1996 when, as provided in the Bond
Purchase Agreement Dated January 29, 1996, revenue bonds in the face
amount of $12,550,000 were issued for the advance refunding of the 1988
issue. The new issue carries stated interest rates varying from 5.0 per
cent to 6.5 per cent in contrast to the 8.1253 per cent average yield of
the remaining outstanding bonds of the refunded issue.
Interest on the 1996 bonds is payable semi.-annually at rates ranging from
5.0% to 6.15%. Principal maturities range from $625,000 to $1,215,000 and
are due annually on March 1, from 1997 through 2009.
The bonds maturing after March 1, 2004 are subject to optional early
redemption on either March 1, principal and interest payment date, or
September 1, interest payment date, at a premium, if any, as follows:
March 1, and September 1, 2004 101.0%
March 1, and September 1, 2005 100.5%
March 1, 2006 and thereafter 100.0%
The bonds are assigned the first rights to pay principal and interest from
premiums and interest income earned. Each member city is obligated to pay
all premiums as assessed, except when for some reason insurance coverage
is discontinued, Principal and interest payments for the succeeding five
years are as follows:
Year ending
June 30 Principal Interest Total
2002 900,000 549,850 1,449,850
2003 950,000 497,650 1,447,650
2004 1,005,000 440,650 1,445,650
2005 1,070,000 379,345 1,449,345
y� 2006 1,135,000 321,875 1,446,875
after 2006 $4,550,000 S 480,445 S 5,930,445
69,61�0,_000 52.6� 5tl, � S12,269,815
' to
12137486101 KEN SPIKER &RSSOC T-829 P-014 OCT 09 '03 11:35
RIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATMIENTS
continued
Note 4. BONDS PAYABLE AND ADVANCED REFUNDING OF 1988 BOND ISSUE (continued) :
YI
The accounting for the refunding, as prescribed by the Governmental
Accounting Standards Board (LASS) were as though the cost of the new issue
including legal and underwriting fees, refunding premiums, remaining
issuance costs of the retired issue were a prospective adjustment of the
interest rate to be amortized over the remaining life of the refunded
issue. (The new issue is paid off in 2009, the same as the refunded
issue.)
Those costs deferred are summarized as follows:
Remaining unamortized cost old issue $504,214
Premium paid on refunding 370,050
Cost of issuance, new issue 372,599
1,246,863
Less amortization taken between March 1, 1996
and June 30, 1996. 31,971
Balance outstanding, June 30, 1956 to be amortized
through 2009. 1,214,892
Amortization taken years ended June 30 -
1997 78,362
1998 95,339
1999 95,339
2000 95,339
2001 - 95.3 9
Amortization to date 459,718
Remaining unamortized balance S 755,174
Note S. ESTIMATED FUTURE PREMIUM ADJUSTMENTS:
Ibd BICEP•9 accounting has consistently charged or credited annually results
of operations to the partiolpent cities because as a group they are
accountable for the benefits or lack thereof of the pool's operations.
GASH 31 became effective for years ended June 30, 1998 with retroactive
adjustment of prior year's results preferred.
ci
Review of the relationship of cost to market values of investments at July
9:wt 1, 1996 indicated a minor difference between coat and market value of
those investments held by the trustee ($26,568 of market value lower than
cost on investments at cost of $15,649,511). Accordingly, no adjustment
was made at July 1, 1996.
At June 30, 1997 market exceeded cost by $75,565 and at June 30, 1998
market exceeded cost by $172,618. At June 30, 1997 financial statements
L;r were restated as follows:
Investments Estimated Future
: I hold by trustee Premium Adjustments
�+ As originally reported $13,374,164 $581,943
Market value adjustment 75,565 75,565
As restated 513.:449.729 57 08
�IIN11
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12137486101 KEN SPIKER &ASSOC T-829 P-015 OCT 09 '03 11:35
BIB INDEPMMENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATENEMS
Yi continued
Note 5. ESTIMATED FUTURE PREMIUM ADJUSTMENTS (Continued):
Yli
At June 30, 2001 and June 30, 2000 investment securities are valued at
market.
Note 6. REINSURANCE:
Historically BICEP has reinsured its risks under excess of loss
reinsurance agreements for the purpose of limiting its maximum exposure
on any one lose or group of losses. BICEP is contingently liable for
losses and loss adjustment expenses related to ceded business to the
extent that its reinsurer is unable to fulfill its commitments.
Management believes that its reinsurer is and will continue to be able to
satisfy its obligations under the reinsurance agreement for years through
June 30, 2001. There have been instances in which BICEP has paid claims
in excess of its layer of coverage or on ceded coverages due to special
circumstances.
For the years beginning in the year ended June 30, 1995, and continuing
through the present year, because of substantial reductions in rates,
BICEP placed all of its liability coverages with private insurance
w carriers. This includes the $1 million to $2 million layer, which was
previously retained.
BICEP's liabilities for unpaid losses and logs adjustment expenses as of
Y+ti June 30, 2001 and June 30, 2000, have been estimated net of amounts that
would he recoverable from the reinsurer. For the years ended June 30,
1995, and thereafter BICEP has no direct liability having placed all of
iW its coverages with outside carriers, except in those rare instances that
there may be a reason to go beyond the coverage limitations. Liability
premium costs are fixed through June 30, 2002. After that there may be a
need again to pool the $1,000,.000 to $2,000,000 layer of liability
coverage.
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12137486101 KEN SPIKER &ASSOC T-829 P-016 OCT 09 103 11:36
`Y
SUPPL ARY INFORMATION
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12137486101 KEN SPIKER &ASSOC T-829 P-017 OCT 09 '03 11:36
policy Year Ended June 30
j 1997 1998 1999 2000 2001
$1,916,360 $2,016,625 $2,317,676 $2,137,519 $ 2,231,046
w: 1,650,761 1,563,652 1,656,271 . 1,661,874 1,674,750
-- 4,433 -- -- --
__ -- -- 5,000
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$ 59,562 $ -- $ -- $ -- $ 5,000
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12137486101 KEN SPIKER &ASSOC T-929 P-018 OCT 09 '03 11:36
w
SIa INDEPENDENT CITIES EXCESS POOL.
Ten years' Calculation through June 30, 2000
W
swi
Explanation of the Claims Development table on the preceding page
The table on the preceding page illustrates how BICEP's earned revenues and investment
income compare to related costs of loss and other expenses assumed by BICEP as of the
end of each policy year. The rows of the table are defined as follows: 1. This line
shows the total of each fiscal year's earned deposit premiums and investment income,
net amounts earned for purchased reinsurance. 2. This line shows each fiscal year's
other operating costs including overhead and claims expense not allocable to individual
claims. 3. This line shows the estimated incurred losses and allocated loss
adjustment expenses as originally reported at the and of the first year in which the
event that triggered coverage under the contract occurred (both paid and accrued) net
of loss assumed by excess or reinsurers. 4. This line shows the cumulative amounts
paid as of the end of successive years for each policy year. 5. This section of rows
shows how each policy year's incurred claims and expenses increased or decreased as of
the end of successive years. This annual re-estimation results from new information
received on known claims, re--evaluation of existing information on known claims, as
well as emergence of new claims not previously known. 6. This line compared the
latest re-estimated incurred claims and expenses amount to the amount originally
established (line 3) and shows whether this latest estimate of claims and expenses
costs are greater or less than originally thought. As data for individual policy years
mature, the correlation between original estimates and re-estimated accounts is
commonly used to evaluate this accuracy of incurred claims and expenses currently
recognized in less mature policy. years.
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Ken Spiker
And Associates, Inc. Government Consultants ■ Legislative Advocacy
Attention A11 BICEP Board Members:
KEN SPI KER AND A SSOCIA TES, INC.
IS PLEASED TO ANNOUNCE ITS UPCOMING
MOVE TO DOWNTOWN LOS ANGELES!
Effective April 2, 2001 , Ken Spiker And Associates' (KSA) new
offices will be located in Downtown Los Angeles, just one
block from the Staples Center. Our new mailing/street
address will be:
1 100 South Flower Street, Suite 2100
Los Angeles, California 90015-2115
We will be shutting down our Sherman Oaks office on Friday,
March 30th. Both the phone and fax lines will be shut down
that day, with service resuming on Monday, April 2nd, to the
following NEW numbers:
PHONE: (213) 748-0066
FAX: (213) 748-6101
As a result of this move, we expect to serve your needs
more effectively in the future. We appreciate your
patience during our brief transition.
14156 Magnolia Boulevard,Suite 103 ■ Sherman Oaks,California 91423-1181 ■ Telephone(818)990-6145 Fax(818)784-1187
CITY OF HUNTINGTON ACH
MEETING DATE: July 17, 2000 DEPARTMENT ID NUMBER:CK2000-05
Council/Agency Meeting Held: — 1— 3 io'-7
Deferred/Continued to:
A proved ❑ Conditionally Approved ElDenied W", it Cur , Signature
LY
Council Meeting Date: July 17, 2000 Department.ID Number: CK2000-05
CITY OF HUNTINGTON. BEACH _C
REQUEST FOR ACTION a
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SUBMITTED TO: HONORABLE AND CITY COUNCILMEMBERS = `✓�!�1r r.
SUBMITTED BY: CONNIE BROCKWAY, CITY CLERK
Jl
PREPARED BY: CONNIE BROCKWAY, CITY CLERK d►(3 cj
SUBJECT: RECEIVE & FILE BIG INDEPENDENT CITIES EXCESS POOL
(BICEP) FINANCIAL STATEMENTS & INDEPENDENT AUDITOR'S
REPORT - JUNE 30, 1999
Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s)
Statement of Issue: The BICEP Joint Powers Agreement between the BICEP member
cities requires the Big Independent Cities Excess Pool (BICEP) Financial Statements and
Supplementary Information With Independent Auditors Report to be filed as a Public Record
with each of the BICEP member cities. The report includes Independent Auditors Report,
Balance Sheet, Statements of Operations, Changes in Retained Earnings, Statements of
Cash Flows, Notes to Financial Statements,.and Claims Development Information from
inception to June 30, 1999.
Funding Source: Not Applicable
Recommended Action: Motion: Receive and File the Big Independent Cities Excess Pool
(BICEP) Financial Statements and Supplementary Information With Independent Auditor's
Report for the years ended June 30, 1999 and June 30, 199&
Alternative Action(s): If Council has questions regarding this report, Council may defer
Receiving and Filing to a future meeting.
CJ
ck2000-05 -2- .07/05/00 12:27 PM
f
1
REQUEST FOR ACTION
MEETING DATE: July 17, 2000 DEPARTMENT ID NUMBER:CK2000-05
Analysis: The BICEP Agreement between cities requires this report to be filed as a public
record. In order for the City Council to make a report, audit or any other material a public
record in the City Clerk's Office, it must have first been seen, reviewed and accepted by the
City Council sitting as a legislative body. The material then becomes a part of the official
Council minutes and official files of which the Council and public are aware and able to
access as a public record.
Environmental Status: Not Applicable
Attachment(s):
City Clerk's
Page Number No. Description
1. Communication dated May 1, 2000 from Gregory Spiker, ARM, BICEP
General Manager, Ken Spiker and Associates, Inc.
2. BICEP Report&Audit and Attachments
RCA Author: Connie Brockway
ck2000-05 -3- 07/05/00 12:27 PM
ATTACHMENT 1
3io . �5
BIG INDEPENDENT CITIES EXCESS POOL JOINT.--P;OWE=R:S, AUTHORITY
c/o General Manager, Ken Spiker And Associates, Inc. 14156 Magn'o'►ip Blvd Suite 103
l :A
Sherman Oaks, California 91423 (818) 78$ 0.4.06 FAX No. (818) 784-1187
1t�Ju lilt� -`1 jX
May 1, 2000
Ms. Connie Brockway, City Clerk
City of Huntington Beach
2000 Main Street
Huntington Beach, California 92648
Dear Ms. Brockway:
Enclosed please find a copy of the June 30, 1999, Big Independent Cities Excess
Pool (BICEP) Financial Statements and Supplementary Information With
Independent Auditor's Report for the years ended June 30, 1999, and 1998. The
BICEP Joint Powers Agreement requires the report to be filed as a public record
with each of the BICEP Member Cities. Please place the report in the appropriate
file in your office. Thank you for your cooperation.
Sincerely,
Gregory J. Spi e , ARM
BICEP General Manager
Ken Spiker And Associates, Inc.
GJS:sI
Enclosure
ATTACHMENT 2
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BIG INDEPENDENT CITIES EXCESS POOL
1 FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
WITH INDEPENDENT AUDITOR'S REPORT
JUNE 30, 1999 and 1998
1
1
1
1
1
1
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1
BIG INDEPENDENT CITIES EXCESS POOL
1
Table of Contents
Page
Financial Statements:
Independent Auditor's Report 1
Balance Sheets 2
Statements of Operations and
' Changes in Retained Earnings
3
Statements of Cash Flows
4
Notes to Financial Statements 6
Supplementary Information
' Claims Development Information From Inception to
June 30, 1999. Required Supplementary Information 14
EDWARDS, EICHEL & BERANEK
CDR'fIFIID PUBLIC AccoUNTANTS
' INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Big Independent Cities Excess Pool
We have audited the accompanying balance sheets of the Big Independent Cities
Excess Pool (BICEP) at June 30, 1999, and 1998 and the related statements of
operations and changes in retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of BICEP's management.
Our responsibility is to express an opinion on these financial statements based
' on our audits.
We conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits .to obtain reasonable
assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1999 and 1998 financial statements referred to above present
fairly, in all material respects, the financial position of the Big Independent
Cities Excess Pool at June 30, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with generally accepted
accounting principles.
BICEP has ten years of historical data for use in its estimates of incurred but
not reported claims and the corresponding premium adjustments. Although BICEP
considers its experience and industry data in determining such amounts,
assertions and projections as to future events are necessary and ultimate losses
may be higher or lower than amounts projected.
The comparative schedule of Claim Development, on pages 13 and 14 is not a
required part of the basic financial statements but is supplementary information
required by the Governmental Accounting Standards Board. We have applied certain
limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the supplementary
information. However, we did not audit the information and express no opinion on
' it.
' Pasadena, California Edwards, Pichel & Beranek
December 2, 1999 Certified Public Accountants
1
468 N.ROsi-.mFAU BoULEVARU
SUITE#100
PASADENA.CALIFORNIA 91 107-3059
626/351-3800
' FAx 626/351-3804
E-1\ Aii-76064.23CCompuserve.com
' BIG INDEPENDENT CITIES EXCESS POOL
BALANCE SHEET
June 30, 1999 and June 30, 1998
ASSETS
' 1999 1998
Cash and cash equivalents,
' unrestricted $ 43,116 $ 37,319
Restricted cash equivalents 770,610 1,928,089
iTotal cash and cash
equivalents (Notes 2 and 5) 813,726 1,965,408
Investments, at market (Note 2) 12,931,525 11,300,126
Accrued interest receivable 220,331 191,351
' Total assets $13,965,582 $13,456,885
1 LIABILITIES AND RETAINED EARNINGS
Liabilities:
' Accounts payable $ 22,200 $ 12,781
Unpaid losses and loss
adjustment expenses (Note 3) 2,182,838 1,105,931
tBonds payable (Note 4) 10,420,000 11,190,000
Less-unamortized issuance cost j 945,852) j 1,041,191)
' 9,474,148 10,148,809
Accrued interest payable 214,045 226,913
Estimated future premium
' adjustments (Note 5) 2,072,351 1,962,451
Total liabilities 13,965,582 13,456,885
Retained earnings -- --
Total liabilities and
retained earnings $13,965,582 $13,456,885
The accompanying notes are an integral part of these financial statements.
' 2
1
' BIG INDEPENDENT CITIES EXCESS POOL
STATEWENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
Years ended June 30, 1999 and June 30, 1998
t1999 1998
Revenues:
' Deposit premiums earned $ 2,444,808 $ 2,292,204
Premium refunds 6,895
Estimated future premium
adjustments ( 306,607) (1,287,966)
2,138,201 1,011,133
' Expenses:
Net increase in actuarially
' determined unpaid losses and
loss adjustment expenses(note 3) 1,089,238 34,586
Purchased liability insurance
and reinsurance 990,314 1,069,794
General and administrative
expenses 168,236 166,841
' 2,247,788 1,271,221
Excess (deficiency) of
revenue over expenses,
' before net investment
income (109,587) (260,088)
' Net investment income:
Investment income 870,938 1,058,773
Interest expense (761,351) (798,685)
109,587 260,088
Excess of revenues
' over expenses -- --
Retained earnings, at beginning
of year
Retained earnings, at end of year $ $
' The accompanying notes are an integral part of these financial statements.
' 3
' BIO INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF CASH FLOWS
Years ended June 30, 1999 and June 30, 1998
' 1999 1998
' Cash flows from operating activities:
Excess (deficiency) of revenues
over expenses before net
investment income $ (109,587) $ (260,088)
' Adjustment to reconcile excess
(deficiency) of revenues over
expenses before net investment
income to net cash provided by
operations:
Increase (decrease) in
accounts payable 9,419 (3,240)
' Increase (decrease) in unpaid
losses and loss
adjustment expenses 1,076,907 (3,154,816)
(Decrease) increase
in estimated future
premium adjustments payable 109,900 1,304,943
1 Net cash provided (used)
by operating
activities 1,086,639 (2,113,201)
' Cash flows from investing activities:
Interest received 841,958 945,246
' Net change in investment
portfolios
re: Conversion of long-term
investments into cash
equivalents and its reversal in 1999 (1,631,399) 2,328,015
re: Change in carrying value
of investments to market(note 5) -- (75,5651
Net cash provided by (used by
investing activities)
(789,441) 3,197,696
Continued on page 5
' 4
BIG INDEPENDENT CITIES EXCESS POOL
' STATEMENT OF CASE FLOWS
continued
1
' Cash flows from noncapital financing 1999 1998
activities:
' Interest paid (678,880) (732,607)
Principal payments 1996 bonds (770,0001 (735,000)
' Net cash (used) in noncapital
financing activities (1,448,8801 (1,467,6071
' Net increase (decrease) in cash and
cash equivalents (1,151,682) (383,112)
ICash and cash equivalents at
beginning of year 1,965,408 2,348,520
Cash and cash equivalents at
end of year S 813,726 $ 19965,408
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' The accompanying notes are an integral part of these financial statements.
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' 5
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations
' Big Independent Cities Excess Pool (BICEP) was created effective September
23, 1988, by a joint powers ,-agreement among five cities organized and
operating under the laws of the State of California. BICEP is organized
pursuant to the provisions of the California Government Code for the
purpose of providing joint. insurance coverage and related risk-management
services for member cities. The extension of joint insurance coverage to
member cities began October 1, 1988.
BICEP's liability program offers a combination of pooled and commercially
purchased public auto and -general liability coverages, plus errors and
omissions coverage, for losses in excess of the member cities' specified
' self-insurance retention levels of one million dollars. Individual and
aggregate claims in excess of specified levels are covered by excess
insurance policies purchased from commercial insurance carriers which,
combined with the program's self-funded layers, offer a total of $25
million in coverage limits. Additionally, through its broker AON Risk
Services, it enables its members to purchase property and worker's
compensation insurance as a group.
' BICEP is a nonprofit California public agency; thus, it is tax-exempt. It
is also considered a "Special District" by the Office of the State
' . Controller, Division of. Local Government Fiscal Affairs, for the purpose
of filing an Annual Report of Financial Transactions of Special Districts.
Basis of Accounting
The accounting records of BICEP are maintained on the accrual basis of
accounting.
Bond Issuance Costs
Bond issuance costs are amortized over the life of the bond issue using
' the straight line method. In 1996 due, in part, to more advantageous
interest rates, the 1988 bond issue was retired and new bonds were issued
carrying substantially lower interest rates. Cost of issuance expense and
the premium paid on retirement are being amortized over the remaining life
of the original issue. See note 4 for further explanation.
Cash and Cash Equivalents
' BICEP considers money market funds and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
' Restricted Cash
Restricted cash represents funds held in trust for payment of bond
1 principal and interest, future debt service, and claims payment.
1
' 6
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
Rebatable Arbitrage Earnings
' Rebatable arbitrage-earnings represents the excess of the amount earned on
all cash equivalents and investments over the amount which would have been
earned if such cash equivalents and investments were invested at a rate
' equal to the bond yield for activity through January 1, 1995. This excess
is subject to change due to bond and investment activity occurring after
January 1, 1995. As of the report date there have not been any rebates nor
' is it anticipated there will be.
Deposit Premium Revenue
' Premiums are recognized as earned over the periods covered by the
policies.
Under the terms of the Liability Risk Coverage Agreement, between BICEP
' and its member cities, premium adjustments resulting in additional premium
assessments or refunds were to commence in February 1992, covering the
experience of BICEP from inception. Estimates of such adjustments are
' recorded in the financial statements annually as estimated future premium
adjustments. Premium adjustments are subject to change as the ultimate
cost of claims becomes known, investment income and expenses are realized,
and BICEP's costs are allocated to each Policy Year.
' Unpaid Losses and Loss Adiustment Expenses
Estimated unpaid losses and loss adjustment expenses include an amount for
' losses incurred but not reported. These estimates have been discounted to
their present value.
' Liabilities are based on the estimated ultimate cost of settling the
claims, including the effects of inflation and other societal and economic
factors. The previously noted claims and ultimate recoveries will be
deducted from the gross amount of unpaid losses.
' Claims which have been incurred but not reported to the claims
administrator at June 30, 1999 have been estimated through an independent
actuarial analysis based on loss development experience of BICEP and the
member cities and available industry loss development data.
BICEP's recognition of losses incurred but not reported is in conformity
with Government Accounting Standards Board (GASB10), Accounting and
Financial Reporting for Risk Financing and Related Insurance Issues and
the Risk Finance Omnibus (GASS 30) and the American Institute of Certified
Public Accountants (AICPA) Statement of position 94-5.
' At irregular intervals losses have occurred that fell either outside the
usual insured layer by the authority or outside the assumed coverages of
' the excess carrier. In isolated instances BICEP has accepted claims
liability along with the insurance carrier and the city of the occurrence.
In previous years there was a claim against a city involving due process
in a condemnation action, more recently a situation occurred in which one
' police officer shot and killed another during a drug raid.
7
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
USE OF ESTIMATES
' Certain assets and liabilities are not subject to precise determination.
Specifically, unpaid loss and loss adjustment expense must be estimated.
Those losses that have occurred and not been reported can only be
' estimated by actuarial methods. Since year ended June 30, 1995 the
$1,000,000 to $2,000,000 loss layer originally carried by BICEP has been
insured by outside carriers, reducing both the premiums and the risks to
the participating cities. Those losses in the $1,000,000 to $2,000,000
' layer prior to July 1, 1994 generally have been reported but there is
always the possibility of ultimate cost exceeding original estimates.
VALUATION OF INVESTMENTS
Investments prior to year ended June 30, 1998 were recorded at cost. Those
investment securities are now valued at market as required by Governmental
Accounting Standards Board (GASB) 31, resulting in. restatement of carrying
' values of investments and changes in previously reported investment income
prior to year ended June 30, 1998. The cumulative effects of these
' adjustments are reflected in the Estimated Future Premium .Adjustments to
pool participants. See note 5 for further explanation.
Note 2. CASH AND INVESTMENTS
' Under provisions of the California Government Code (Code), BICEP is
authorized to invest in:
' • A variety of federal and state treasury obligations (including
local California agencies)
• Obligations or other instruments of or issued by a federal
' agency or government sponsored enterprise
• Bankers' acceptances which are eligible for purchase by the
federal reserve system (subject to certain limitations)
e Prime quality commercial paper (subject to certain
limitations)
' • Negotiable certificates of deposit issued by nationally or
state chartered banks, savings and loan associates and credit
unions
• Repurchase agreements or reverse repurchase agreements of any
securities authorized by the Code
8
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' Note 2. CASH AND INVESTMENTS (continued) :
Cash and Cash Equivalents, Unrestricted
' At June 30, 1999, the net carrying amount and deposit balance was $43,116,
of which $38,170 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
' At June 30, 1998, the net carrying amount and deposit balance was $37,319
of which $32,557 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
' Restricted Cash Equivalents and Investments
' BICEP invests only in investments that are insured or registered, or for
which the securities are held by BICEP or its agent in BICEP's name.
Investments held by the Trustee consist of:
Cash equivalent-repurchase agreements 1999 1998
' and cash $ 770,610 $ 1,928,089
U.S. Treasury and Federal agency
securities S12,931,525 511,300,126
S13,702,135 S13,228,215
Deposits and investments by governmental agencies are categorized in three
classes depending upon the relative level of risk.
Category 1 - Cash or investments fully insured-or registered or where
the securities are held by the unit or its agent in the
' unit's name.
-
Category 2 Uninsured and unregistered instruments held by the
broker or advisor's trust department or an agent in the
' unit's name.
Category 3 - Uninsured and unregistered investments held by the
' broker or dealer or by its trust department of by an
agent but not in the unit's name.
All of Bicep's cash and investments are in category 1, excepting deposits
' with the Local Agency Investment Fund (LAIF), which cannot be categorized.
Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
' The following represents changes in the unpaid losses and loss adjustment
expenses for BICEP for the years ended June 30:
1
Unpaid losses and loss 1999 1998
adjustment expenses at
beginning of year $1,105,931 $4,260,747
Payments of claims reported
(all events occurred in
' previous policy years) (12,331) (3,189,402)
' 9
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (continued) :
Increase in funding levels, 1998
relates to prior years, 1999
relates to current claim 1,089,238 34,586
Total unpaid losses and loss
' adjustment expenses at end
of year S 2,281,838 $ 1,105,931
' Note 4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE:
. In January 1989, BICEP issued Revenue Bonds Series 1988A for the purpose
of acquiring working capital and to finance underwriting expenses. These
' bonds were outstanding until early 1996 when, as provided in the Bond
Purchase Agreement Dated January 29, 1996, revenue bonds in the face
amount of $12,550,000 were issued for the advance refunding of the 1988
' issue. The new issue carries stated interest rates varying from 5.0 per
cent to 6.5 per cent in contrast to the 8.1253 .per cent average yield of
the remaining outstanding bonds of the refunded issue.
' Interest on the 1996 bonds is payable semi-annually at rates ranging from
5.0% to 6.15%. Principal maturities range from $625,000 to $1,215,000 and
are due annually on March 1, from 1997 through 2009.
The bonds maturing after March 1, 2004 are .subject to optional early
redemption on either March 1, -principal and interest payment date, or
September 1, interest payment date, at a premium, if any, as follows:
' March 1, and September 1, 2004 101.0%
March 1, and September 1, 2005 100.5%
' March 1, 2006 and thereafter 100.0%
The bonds are assigned the first rights to pay principal and interest from
premiums and interest income earned. Each member city is obligated to pay
' all premiums as assessed, except when for some reason insurance coverage
is discontinued. Principal and interest payments for the succeeding five
years are as follows:
' Year ending
June 30 Principal Interest Total
' 2000 $810,000 $640,380 $1,450,380
2001 850,000 597,450 1,447,450
2002 900,000 549,850 1,449,850
2003 950,000 497,650 1,447,650
' 2004 1,005,000 440,650 1,445,650
' 10
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' Note 4. BONDS PAYABLE AND ADVANCED REFUNDING OF 1988 BOND ISSUE (continued):
' The accounting for the refunding, as prescribed by the Governmental
Accounting Standards Board (GASB) were as though the cost of the new issue
including legal and underwriting fees, refunding premiums, remaining
' issuance costs of the retired issue were a prospective adjustment of the
interest rate to be amortized over the remaining life of the refunded
issue. (The new issue is paid off in 2009, the same as the refunded
issue. )
Those costs deferred are summarized as follows:
Remaining unamortized cost old issue $504,214
' Premium paid on refunding 370,050
Cost of issuance, new issue 372,599
1,246,863
' Less amortization taken between March 1, 1996
and June 30, 1996. 31,971
' Balance outstanding, June 30, 1996 to be amortized
through 2009. 1,214,892
Amortization taken years ended June 30
1997 78,362
1998 95,339
1999 95,339
' Remaining unamortized balance S 945,852
Note 5. RESTATEMENT OF AMOUNTS POTENTIALLY REFUNDABLE TO PARTICIPANT CITIES DUE
TO REVALUATION OF INVESTMENTS
' BICEP's accounting has consistently charged or credited annually results
of operations to the participant cities because as a group they are
accountable for the benefits or lack thereof of the pool's operations.
GASB 31 became effective for years ended June 30, 1998 with retroactive
adjustment of prior year's results preferred.
' Review of the relationship of cost to market values of investments at July
1, 1996 indicated a minor difference between cost and market value of
those investments held by the trustee ($26,568 of market value lower than
' cost on investments at cost of $15,649,511) . Accordingly, no adjustment
was made at July 1, 1996.
At June 30, 1997 market exceeded cost by $75,565 and at June 30, 1998
market exceeded cost by $172,618. At June 30, 1997 financial statements
were restated as follows:
Investments Estimated Future
held by trustee Premium Adiustments
As originally reported $13,374,164 $581,943
' Market value adjustment 75,565 75,565
As restated S13,449,729 1111,508
11
BIG INDEPENDENT CITIES EXCESS POOL
' NOTES TO FINANCIAL STATEMENTS
continued
' Note S. REINSTATEMENT OF AMOUNTS POTENTIALLY REFUNDABLE TO PARTICIPANT CITIES DUE
TO REVALUATION OF INVESTMENTS (cont. )
At June 30, 1998 and June 30, 1999 investment securities are valued at
' market.
Note 6. REINSURANCE:
' Historically BICEP has reinsured its risks under excess of loss
reinsurance agreements for the purpose of limiting its maximum exposure
on any one loss or group of losses. BICEP is contingently liable for
' losses and loss adjustment expenses related - to ceded business to the
extent that its reinsurer is unable to fulfill its commitments.
Management believes that its reinsurer is and will continue to be able to
satisfy its obligations under the reinsurance agreement for years through
June 30, 1999. There have been instances in which BICEP has paid claims
in excess of its layer of coverage or on ceded coverages due to special
circumstances.
For the years beginning in the year ended June 30, 1995, and continuing
through the present year, because of substantial reductions in rates,
BICEP placed all of its liability coverages with private insurance
carriers. This includes the $1 million to $2 million layer, which was
previously retained.
BICEP's liabilities for unpaid losses and -loss adjustment expenses as of
June 30, 1999 and June 30, 1998, have.been estimated net of amounts that
would be recoverable from the reinsurer. For the years ended June 30,
' 1995, and thereafter BICEP has no direct liability having placed all of
its coverages with outside carriers, except in those rare instances that
there may be a reason to go beyond the coverage limitations.
' Note 7. YEAR 2000 (Y2R) MATTERS
The year 2000 issue is the result of shortcomings in many electronic data
' processing systems and other electronic equipment that may adversely
affect a government's operations. BICEP basically uses "off-the shelf"
software in its computer processing and uses the latest updates available.
Accordingly, assuming its vendors update their software to be year 2000
compliant, BICEP will not encounter year 2000 problems in its information
processing. However, its sources of funding are individual member cities
and investments held in a bank trust department. These outside entities
' failure to be year 2000 compliant could impact BICEP's ability to operate.
Because of the unprecedented nature of the Year 2000 issue its affects and
the success of related remediation efforts will not be fully determinable
until the year 2000 and thereafter. Management cannot assure that BICEP
is or will be Year 2000 ready, that BICEP's remediation efforts will be
successful in whole or in part, or that parties with whom BICEP does
business will be year 2000 ready.
' 12
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BIG INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION '
Ten years' Calculation through June 30, 1999
Policy Year Ended June 30
1990 1991 1992 1993 1994
1. Net deposit premium
revenue earned and
investment income $2,341,824 $2,216,499 $2,125,932 $2,317,408 $2,513,491
4: 2. Other-costs 1,619,824 1,359,499 1,322,932 1,705,829 1,717,91
3. Estimated incurred
claims and expenses,
end of policy year 778,000 857,000 803,000 886,906 1,035,40�
4. Paid claims (cumula-
tive) as of:
End of policy year -- -- -- --one year later -- 4,736 3,845 3,488 101
Two years later 3,640 114,925 -- 91,785 3,28
Three years later 28,381 577,599 3,887 92,321 1,106,257
Four years later . 28,410 636,139 1,015,020 92,322
Five years later -- 649,556 1,046,716 92,321 1,067,07�
Six years later -- 797,804 1,072,588 --
Seven years later -- 2,949,498 -- -- --
Eight years later -- -- -- -- -�
Nine years later -- -- -- --
5. Re-estimated incurred
claims and expenses;
End of policy year 778,000 857,000 803,000 886,906 1,03540
One year later 722,000 807,806 767,049 10,000 767:244
Two years later 657,391 1,004,736 10,000 711,287 809,059
Three years later 691,497 3,004,736 240,316 455,341 1,231,32�
Four years later 33,256 3,434,720 182,038 100,884 2,195,31
Five years later 45,187 3,269,842 234,991 131,267 2,097,417
Six years later 32,362 2,263,827 1,089,648 92,322 =�
Seven years later 28,410 2,949,498 1,072,588 --
Eight years later -- -- -- --
Nine years later
Ten years later -- ,
6. Increase (decrease) in
estimated
incurred claims and ,
expenses from end
of policy year ($749,590) $2,092,498 $269,588 $(794,584) $1,062,010
1
13 '
' Policy Year Ended June 30
1995 1996 1997 1998 1999
' $1,941,159 $1,776,903 $1,916,360 $2,016,625 $2,317,676
1,715,043 .1,190,895 1,650,761 1,563,652 1,656,277
' __ 56 == 4,433
11,428
106
3,024 --
' -- 59,562
106 --
1
$ 106 $ 59,562 --
' BIG INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION
Ten years' Calculation through June 30, 1999
1
' Explanation of the Claims Development table on the preceding page
The table,on. the .preceding page illustrates how BICEPIa earned revenues and investment
income compare to related costs of loss and other expenses assumed by BICEP as of the
' and of each policy year. The rows of the table are defined as follows: 1. This line
shows the total of each fiscal year's earned deposit premiums and investment income,
net amounts earned for purchased reinsurance. 2. This line shows each fiscal year's
other operating costs including overhead and claims expense not allocable to individual
' claims. 3. This line shows the estimated incurred losses and allocated loss
adjustment expenses as originally reported at the end of the first year in which the
event that triggered coverage under the contract occurred (both paid and accrued) net
of loss assumed by excess or reinsurers. 4. This line shows the cumulative amounts
' paid as of the end of successive years for each policy year. 5. This section of rows
shows how each policy year's incurred claims and expenses increased or decreased as of
the end of successive years. This annual re-estimation results from new information
' received on known claims, re-evaluation of existing information on known claims, as
well as emergence of new claims not previously known. 6. This line compared the
latest re-estimated incurred claims and expenses amount to the amount originally
established (line 3) and shows. whether this latest estimate of claims and expenses
' costs are greater or less than originally thought. As data for individual policy years
mature, the correlation between original estimates and re-estimated accounts is
commonly used to evaluate this accuracy of incurred claims and expenses currently
recognized in less mature policy years.
' 14
RCA ROUTINGSHEET
INITIATING DEPARTMENT: City Clerk's Office
SUBJECT: Receive & File Big Independent Cities Excess Pool (BICEP)
Financial Statements & Independent Auditor's Report-
June 30, 1999
COUNCIL MEETING DATE: July 17, 2000
ATTACHMENTS STATUS
Ordinance (w/exhibits & legislative draft if applicable) Not Applicable
Resolution (w/exhibits & legislative draft if applicable) Not Applicable
Tract Map, Location Map and/or other Exhibits Not Applicable
Contract/Agreement (w/exhibits if applicable)
(Signed in full by the City Attorney) Not Applicable
Subleases, Third Party Agreements, etc.
(Approved as to form by City Attorney) Not Applicable
Certificates of Insurance (Approved by the City Attorney) Not Applicable
Financial Impact Statement Unbudget, over $5,000) Not Applicable
Bonds (If applicable) Not Applicable
Staff Report If applicable) Not Applicable
Commission, Board or Committee Report If applicable) Not Applicable
Findings/Conditions for Approval and/or Denial Not Applicable
EXPLANATI.ON.FOR MISSING ATTACHMENTS
'REM EWE D. . RETURNED FORWARDED;
Administrative Staff
Assistant City Administrator Initial
City Administrator Initial
City Clerk
..
EXPLANATION;FOR RETURN OF
.ITEM
SpaceOnly)
RCA Author: Connie Brockway
I ' i �llo /Pise 7riG in T
Council/Agency Meeting Held: 3/0•-7
Deferred/Continued to:
Approve ❑ Conditionally Approve ❑ enied _
6— _ 0 0rPj)7'1 Ity Clerk's Signature
Council Meeting Date: June 7, 1999 Department ID Number: CK-99003
CITY OF HUNTINGTON BEACH
REQUEST FOR ACTION J, �
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCILMEMBERSCO
,
SUBMITTED BY: CONNIE BROCKWAY, CITY CLERKa
PREPARED BY: CONNIE BROCKWAY, CITY CLERKS
z
C-')
SUBJECT: RECEIVE & FILE BIG INDEPENDENT CITIES EXCESS POOL �
(BICEP) FINANCIAL STATEMENTS & INDEPENDENT AUDITOR'S
REPORT
Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s)
Statement of Issue: The BICEP Joint Powers Agreement between the BICEP member
cities requires the Big Independent Cities Excess Pool (BICEP) Financial Statements and
Supplementary Information With Independent Auditors Report to be filed as a Public Record
with each of the BICEP member cities. The report includes Independent Auditors Report,
Balance Sheet, Statements of Operations, Changes in Retained Earnings, Statements of
Cash Flows, Notes to Financial Statements, and Claims Development Information from
inception to June 30, 1998.
Funding Source: Not applicable
Recommended Action: Motion: Receive and File the Big Independent Cities Excess Pool
(BICEP) Financial Statements and Supplementary Information With Independent Auditor's
Report for the years ended June 30, 1998 and June 30, 1997.
Alternative Action(s): If Council has questions regarding this report, Council may defer
Receiving and Filing to a future meeting.
�� I
I
REQUEST FOR ACTION
MEETING DATE: June 7, 1999 DEPARTMENT ID NUMBER: CK-99003
Analysis: The BICEP Agreement between cities requires this report to be filed as a public
record. In order for the City Council to make a report, audit or any other material a public
record in the City Clerk's Office, it must have first been seen, reviewed and accepted by the
City Council sitting as a legislative body. The material then becomes a part of the official
Council minutes and official files of which the Council and pubic are aware and able to
access as a public record.
Environmental Status: Not applicable
Attachment(s):
City Clerk's
Page Number No. Description
1. Communication dated May 14, 1999 from Gregory Spiker, ARM,
BICEP General Manager, Ken Spiker and Associates, Inc.
2. BICEP Report&Audit and Attachments
RCA Author: Connie Brockway
CK99003 -2- 05/26/99 9:57 AM
ATTACHMENT 1 JI-
T BIG INDEPENDENT CITIES EXCESS POOL JOINT POWERS AUTHORITY
c/o General Manager, Ken Spiker And Associates, Inc. 14156 Magnolia Blvd., Suite 103
(818) 788-0406 FAX No. (818) 784-1187
Sherman Oaks, California 91423
May 14, 1999
Ms. Connie Brockway, City Clerk
City of Huntington Beach
2000 Main Street
Huntington Beach, California 92648
Dear Ms. Brockway:
Enclosed please find a copy of the June .30, 1998, Big Independent Cities Excess
Pool (BICEP). Financial . .Statements and Supplementary Information With
Independent Auditor's Report for the years ended June 30, 1998, and 1997. The
BICEP Joint Powers Agreement requires the report to be filed as a public record
with each of the BICEP Member Cities. Please place the report in the appropriate
file in your office. Thank you for your cooperation.
Sincerely,
n n�
Gregory%J. i2, ARM
BICEP General Manager
Ken Spiker And Associates, Inc.
GJS:sI
Enclosure
I
ATTACHMENT 2
'r
BIG INDEPENDENT CITIES EXCESS POOL
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
WITH INDEPENDENT AUDITOR'S REPORT
JUNE 30, 1998 and June 30, 1997
BIG INDEPENDENT CITIES EXCESS POOL
Table of Contents
Paae
Financial Statements:
Independent Auditor's Report 1
Balance Sheets 2
Statements of Operations and
Changes in Retained Earnings for the
3
Statements of Cash Flows
4
Notes to Financial Statements 12
Supplementary Information
Claims Development Information From Inception to
June 30, 1998. Required Supplementary Information 13
EDWARDS, EICHEL & BERANEK
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Big Independent Cities Excess Pool
We have audited the accompanying balance sheets of the Big Independent Cities
Excess Pool (BICEP) at June 30, 1998, and 1997 and the related statements of
operations and changes in retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of BICEP's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misatatement. 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.
We believe that our audits provide a reasonable basis for our opinion.
Retroactive change was made to conform to provisions of GASB 31. Securities held
by the Trustee are for the purpose of earning sufficient funds to pay for claims
and to service debt. Accordingly, as June 30, 1998 and 1997 investments are shown
at market and an adjustment was made to estimated premium adjustments to reflect
the difference between cost and market. Those changes resulted in increase in
potential premium distributions to participating cities of $102,847 for the year
ended June 30, 1998 and $75,565 for the year ended June 30, 1997.
In our opinion, the 1998 and 1997 financial statements referred to above present
fairly, in all material respects, the financial position of the Big Independent
Cities Excess Pool at June 30, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally accepted
accounting principles.
BICEP has ten years of historical data for use in its estimates of incurred but
not reported claims and the corresponding premium adjustments. Although BICEP
considers its experience and industry data in determining such amounts,
assertions and projections as to future events are necessary and ultimate losses
may be higher or lower than amounts projected.
The comparative schedule of Claim Development, on pages 13 and 14 is not a
required part of the basic financial statements but is supplementary information
required by the Governmental Accounting Standards Board. We have applied certain
limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the supplementary
information. However, we did not audit the information and express no opinion on
it. 1
Pasadena, California Edwards, Eichel a Beranek
January 4, 1999 Certified Public Accountants
468 N.ROSEMEAD BOULEVARD
SUITE#100
PASADENA,CALIFORNIA 9 1 1 07-3059
626/35 1-3800
FAx 626/35 1-3801
E-MAIL 760664.23@computierve.com
BIG INDEPENDENT CITIES EXCESS POOL
BALANCE SHEET
June 30, 1998 and June 30, 1997
ASSETS
1998 1997
Cash and cash equivalents,
unrestricted $ 37,319 $ 23,894
Restricted cash equivalents 1,928,089 2,324,626
Total cash and cash
equivalents (Notes 2 and 5) 1,965,408 2,348,520
Investments, at market (Note 2) 11,300,126 13,449,729
Accrued interest receivable 191,351 180,671
Total assets $1394561885 $15,978,920
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Accounts payable $ 12,781 $ 16,021
Unpaid losses and loss
adjustment expenses (Note 3) 1,105,931 4,260,747
Bonds payable (Note 4) 11,190,000 11,925,000
Leas-unamortized issuance cost j 1,041,191) 1 1,119,553)
10,148,809 10,805,447
Accrued interest payable 226,913 239,197
Estimated future premium
adjustments (Note 5) 1,962,451 657,508
Total liabilities 13,456,885 15,978,920
Retained earnings -- --
Total liabilities and
retained earnings $13,456,885 $15,978,920
The accompanying notes are an integral part of these financial statements.
2
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
Years ended June 30, 1998 and June 30, 1997
1998 1997
Revenues:
Deposit premiums earned $ 2,292,204 $ 2,164,599
Premium refunds 6,895 --
Estimated future premium
adjustments (1,287,966) (423,267)
1,011,133 1,741,332
Expenses:
Net increase in actuarially
determined unpaid losses and
loss adjustment expenses(note 3) 34,586 438,403
Purchased liability insurance
and reinsurance 1,069,794 1,188,666
General and administrative
expenses 166,841 159,764
1,271,221 1,786,833
Excess (deficiency) of
revenue over expenses,
before net investment
income (260,088) ( 45,501)
Net investment income:
Investment income 1,058,773 940,811
Interest expense (798,685) (895,310)
260,088 45,501
Excess of revenues
over expenses -- --
Retained earnings, at beginning
ofyear -- --
Retained earnings, at end of year $ -- $ -
The accompanying notes are an integral part of these financial statements.
3
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF CASE FLOWS
Years ended June 30, 1998 and June 30, 1997
1998 1997
Cash flows from operating activities:
Excess (deficiency) of revenues
over expenses before net
investment income $ (260,088) $ (45,501)
Adjustment to reconcile excess
(deficiency) of revenues over
expenses before net investment
income to net cash provided by
operations:
Increase (decrease) in
accounts payable (3,240) 1,726
Increase (decrease) in unpaid
losses and loss
adjustment expenses (3,154,816) 254,682
(Decrease) increase
in estimated future
premium adjustments payable 1,304,943 399,211
Net cash provided (used)
by operating
activities . (2,113,201) 610,118
Cash flows from investing activities:
Interest received 945,246 958,182
Net change in investment
portfolios
ret Conversion of long-term
investments into cash
equivalents 2,328,015 2,013,643
ret Change in carrying value
of investments to market(note 5) (75,5651 (75,5651
Net cash provided by investing
3,197,696 2,896,260
Continued on page 5
4
BIG INDEPENDENT CITIES EXCESS POOL
STATEMENT OF CASH FLOWS
continued
Cash flows from noncapital financing 1998 1997
activities:
Interest paid (732,607) (809,734)
Principal payments 1996 bonds (735,0001 (625,0001
Net cash (used) in noncapital
financing activities (1,467,607) (1,434,734)
Net increase (decrease) in cash and
cash equivalents (383,112) 2,071,638
Cash and cash equivalents at
beginning of year 2,348,520 276,882
Cash and cash equivalents at
end of year $ 1,965,408 S 2,348,520
The accompanying notes are an integral part of these financial statements.
5
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations
Big Independent Cities Excess Pool (BICEP) was created effective September
23, 1988, by a joint powers agreement among five cities organized and
operating under the laws of the State of California. BICEP is organized
pursuant to the provisions of the California Government Code for the
purpose of providing joint insurance coverage and related risk-management
services for member cities. The extension of joint insurance coverage to
member cities began October 1, 1988.
BICEP's liability program offers a combination of pooled and commercially
purchased public auto and general liability coverages, plus errors and
omissions coverage, for losses in excess of the member cities' specified
self-insurance retention levels of one million dollars. Individual and
aggregate claims in excess of specified levels are covered by excess
insurance policies purchased from commercial insurance carriers which,
combined with the program's self-funded layers, offer a total of $25
million in coverage limits. Additionally, through its broker AON Risk
Services, it enables its members to purchase property and worker's
compensation insurance as a group.
BICEP is a nonprofit California public agency; thus, it is tax-exempt. It
is also considered a "Special District" by the office of the State
Controller, Division of Local Government Fiscal Affairs, for the purpose
of filing an Annual Report of Financial Transactions of Special Districts.
Basis of Accounting
The accounting records of BICEP are maintained on the accrual basis of
accounting.
Bond Issuance Costs
Bond issuance costs are amortized over the life of the bond issue using
the straight line method. In 1996 due, in part, to more advantageous
interest rates, the 1988 bond issue was retired and new bonds were issued
carrying substantially lower interest rates. Cost of issuance expense and
the premium paid on retirement are being amortized over the remaining life
of the original issue. See note 4 for further explanation.
Cash and Cash Eguivalents
BICEP considers money market funds and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash represents funds held in trust for payment of bond
principal and interest, future debt service, and claims payment.
6
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
Rebatable Arbitrage Earnings
Rebatable arbitrage earnings represents the excess of the amount earned on
all cash equivalents and investments over the amount which would have been
earned if such cash equivalents and investments were invested at a rate
equal to the bond yield for activity through January 1, 1995. This excess
is subject to change due to bond and investment activity occurring after
January 1, 1995.
Deposit Premium Revenue
Premiums are recognized as earned over the periods covered by the
policies.
Under the terms of the Liability Risk Coverage Agreement, between BICEP
and its member cities, premium adjustments resulting in additional premium
assessments or refunds were to commence in February 1992, covering the
experience of BICEP from inception. Estimates of such adjustments are
recorded in the financial statements annually as estimated future premium
adjustments. Premium adjustments are subject to change as the ultimate
cost of claims becomes known, investment income and expenses are realized,
and BICEP's costs are allocated to each Policy Year.
Unpaid Losses and Loss Adiustment Expenses
Estimated unpaid losses and loss adjustment expenses include an amount for
losses incurred but not reported. These estimates have been discounted to
their present value.
Liabilities are based on the estimated ultimate cost of settling the
claims, including the effects of inflation and other societal and economic
factors. The previously noted claims and ultimate recoveries will be
deducted from the gross amount of unpaid losses.
Claims which have been incurred but not reported to the claims
administrator at June 30, 1998 have been estimated through an independent
actuarial analysis based on loss development experience of BICEP and the
member cities and available industry loss development data.
BICEP's recognition of losses incurred but not reported is in conformity
with Government Accounting Standards Board (GASB10), Accounting and
Financial Reporting for Risk Financing and Related Insurance Issues and
the Risk Finance Omnibus (GASB 30) and the American Institute of Certified
Public Accountants (AICPA) Statement of position 94-5.
USE OF ESTIMATES
Certain assets and liabilities are not subject to precise determination.
Specifically, unpaid loss and loss adjustment expense must be estimated.
Those losses that have occurred and not been reported can only be
estimated by actuarial methods. Since year ended June 30, 1995 the
$1,000,000 to $2,000,000 lose layer originally carried by BICEP has been
insured by outside carriers, reducing both the premiums and the risks to
the participating cities. Those losses in the $1,000,000 to $2,000,000
7
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
layer prior to July 1, 1994 generally have been reported but there is
always the possibility of ultimate cost exceeding original estimates.
-VALUATION OF INVESTMENTS
Investments previously recorded at cost have valued at market as required
by Governmental Accounting Standards Board (GASB) 31, resulting in
restatement or carrying values of investments and changes in previously
reported investment income. The cumulative effects of these adjustments
are reflected in the Estimated Future Premium Adjustments to pool
participants. See note 5 for further explanation.
Note 2. CASH AND INVESTMENTS
Under provisions of the California Government Code (Code), BICEP is
authorized to invest in:
• A variety of federal and state treasury obligations (including
local California agencies)
• Obligations or other instruments of or issued by a federal
agency or government sponsored enterprise
• Bankers' acceptances which are eligible for purchase by the
federal reserve system (subject to certain limitations)
s Prime quality commercial paper (subject to certain
limitations)
• Negotiable certificates of deposit issued by nationally or
state chartered banks, savings and loan associates and credit
unions
• Repurchase agreements or reverse repurchase agreements of any
securities authorized by the Code
Cash and Cash Equivalents, Unrestricted
At June 30, 1998, the net carrying amount and deposit balance was $37,319,
of which $32,557 was invested in the Local Agency Investment Fund an
investment pool maintained by the State Treasurer.
At June 30, 1997, the net carrying amount and deposit balance was $23,894
of which $19,460 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
Restricted Cash Equivalents and Investments
BICEP invests only in investments that are insured or registered, or for
which the securities are held by BICEP or its agent in BICEP's name.
Investments held by the Trustee consist of:
Cash equivalent-repurchase agreements 1998 1997
and cash $ 1,928,089 $ 2,324,626
U.S. Treasury and Federal agency
securities S11,300,126 13,449,729
$13,228,215 615,774,355
8
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 2. CASH AND INVESTMENTS (continued) :
Deposits and investments by governmental agencies are categorized in three
classes depending upon the relative level of risk.
Category 1 - Cash or investments fully insured or registered or where
the securities are held by the unit or its agent in the
unit's name.
Category 2 - Uninsured and unregistered instruments held by the
broker or advisor's trust_ department or an agent in the
unit's name.
Category 3 - Uninsured and unregistered investments held by the
broker or dealer or by its trust department of by an
agent but not in the unit's name.
All of Bicep's cash and investments are in category 1, excepting deposits
with the Local Agency Investment Fund (LAIF), which cannot be categorized.
Note 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
The following represents changes in the unpaid losses and loss adjustment
expenses for BICEP for the years ended June 30:
1998 1997
Unpaid losses and loss
adjustment expenses at
beginning of year $4,260,747 $4,006,065
Payments of claims reported
(all events occurred in
previous policy years) (3,189,402) (183,721)
Increase in funding levels
for previous policy years. 34,586 438,403
Total unpaid losses and loss
adjustment expenses at end
of year $ 1.105,931 S 4,260,747
Note 4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE:
In January 1989, BICEP issued Revenue Bonds Series 1988A for the purpose
of acquiring working capital and to finance underwriting expenses. These
bonds were outstanding until early 1996 when, as provided in the Bond
Purchase Agreement Dated January 29, 1996, revenue bonds in the face
amount of $12,550,000 were issued for the advance refunding of the 1988
issue. The new issue carries stated interest rates varying from 5.0 per
cent to 6.5 per cent in contrast to the 8.1253 per cent average yield of
the remaining outstanding bonds of the refunded issue.
9
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEk0:NTS
continued
Note 4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE (continued)
Interest on the bonds is payable semi-annually at rates ranging from 5.0%
to 6.15%. Principal maturities range from $625,000 to $1,215,000 and are
due annually on March 1, from 1997 through 2009.
The bonds maturing after March 1, 2004 are subject to optional early
redemption on either March 1, principal and interest payment date or
September 1, interest payment date, at a premium, if any, as follows:
March 1, and September 1, 2004 101.0%
March 1, and September 1, 2005 100.5%
March 1, 2006 and thereafter 100.0%
The bonds are assigned the first rights to pay principal and interest from
premiums and interest income earned. Each member city is obligated to pay
all premiums as assessed, except when for some reason insurance coverage
is discontinued. Principal and interest payments for the succeeding five
years are as follows:
Year ending
June 30 Principal Interest Total
1999 $770,000 $678,880 $1,448,880
2000 810,000 640,380 1,450,380
2001 850,000 597,450 1,447,450
2002 900,000 549,850 1,449,850
2003 950,000 478,652 1,428,652
The accounting for the refunding, as prescribed by the Governmental
Accounting Standards Board (GASB) were as though the cost of the new issue
including legal and underwriting fees, refunding premiums, remaining
issuance costs of the retired issue were a prospective adjustment of the
interest rate to be amortized over the remaining life of the refunded
issue. (The new issue is paid off in 2009, the same as the refunded
issue. )
Those costs deferred are summarized as follows:
Remaining unamortized cost old issue $504,214
Premium paid on refunding 370,050
Cost of issuance, new issue 372,599
1,246,863
Less amortization taken between March 1, 1996
and June 30, 1996. 31,971
Balance outstanding, June 30, 1996 to be amortized
through 2009. 1,214,892
Amortization taken July 1, 1996
through June 30, 1998 173,701
Remaining unamortized balance S 1,041,191
10
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 5. - RESTATEMENT OF AMOUNTS POTENTIALLY REFUNDABLE TO PARTICIPANT CITIES DUE
TO REVALUATION OF INVESTMENTS
BICEP's accounting has consistently charged or credited annually results
of operations to the participant cities because as a group they are
accountable for the benefits or lack thereof of the pool's operations.
GASB 31 became effective .for years ended June 30, 1998 with retroactive
adjustment of prior year's results preferred.
Review of the relationship of cost to market values of investments at July
1, 1996 indicated a minor difference between cost and market value of
those investments held by the trustee ($26,568 of market value lower than
cost on investments at cost of $15,649,511). Accordingly, no adjustment
was made at July 1, 1996.
At June 30, 1997 market exceeded cost by $75,565 and at June 30, 1998
market exceeded cost by $172,618. In 1997 financial statements were
restated as follows:
Investments Estimated Future
held by trustee Premium Adiustments
As originally reported $13,374,164 $581,943
Market value adjustment 75.565 75.565
As restated $13,449,729 657 508
Note 6. REINSURANCE:
Historically BICEP has reinsured its risks under excess of loss
reinsurance agreements for the purpose of limiting its maximum exposure
on any one loss or group of losses. BICEP is contingently liable for
losses and loss adjustment expenses related to ceded business to the
extent that its reinsurer is unable to fulfill its commitments.
Management believes that its reinsurer is and will continue to be able to
satisfy its obligations under the reinsurance agreement for years through
June 30, 1998.
During the years ended June 30, 1995, June 30, 1996, June 30, 1997 and
June 30, 1998 because of substantial reductions in.rates BICEP placed all
of its liability coverages with private insurance carriers. This includes
the $1 million to $2 million layer, which was previously retained.
BICEP's liabilities for unpaid losses and loss adjustment expenses as of
June 30, 1998 and June 30, 1997, have been estimated net of amounts that
would be recoverable from the reinsurer. For the years ended June 30,
1995, and thereafter BICEP has no direct liability having placed all of
its coverages with outside carriers.
11
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
Note 7. YEAR 2000 (Y2R) MATTERS
BICEP is aware of the year 2000 problem involving computer programming.
The problem arises because many computer systems are designed to handle
a two-digit year instead of a four-digit year. On January 1, 2000, unless
modified, some date related systems may interpret the "00" as 1900 and
cease operating.
For its information processing and reporting BICEP uses standard computer
software ATB 2.01 for Windows which has been represented as Y2R compliant..
Most, if not all, of its member cities are in similar situations. However,
there could be breakdowns in utility, public safety and other systems that
possibly could result in substantial claim experience or the individual
member cities' reliance on federal, state and county reporting and revenue
distribution could cause financial difficulty. Also, BICEP's investment
portfolio is accounted for by a bank trust department which also is
dependent on computer software.
Due to the wide range of possible occurrences management cannot give
assurances that complete Y2R compliance will be achieved. They are
assessing the situation, and as previously discussed, the possible
occurrences are for the most part external to the authority.
12
SUPPIAMOMMY INFORN2►TION
Bl%* INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION
Ten years' Calculation through June 30, 1998
Policy Year Ended June 30
1990 1991 1992 1993
1. Net deposit premium
revenue earned and -
investment income $2,341,824 $2,216,499 $2,125,932 $2,317,408
2. Other costs 1,619,824 1,359,499 1,322,932 1,705,829
3. Estimated incurred
claims and expenses,
end of policy year 778,000 857,000 803,000 886,906
4. Paid claims (cumula-
tive) as of:
End of policy year $ -- $ -- $one year later -- 4,736 3,845 3,488
Two years later $3,640 $114,925 -- 91,785
Three years later $28,381 $577,599 3,887 92,321
Four years later $28,410 636,139 1,015,020 92,322
Five years later -- 649,556 1,046,716
Six years later -- 797,804 1,072,588
Seven years later -- 2,949,498
Eight years later --
Nine years later --
5. Re-estimated incurred
claims and expenses;
End of policy year 778,000 857,000 803,000 886,906
One year later 722,000 807,806 767,049 10,000
Two years later 657,391 1,004,736 10,000 711,287
Three years later 691,497 3,004,736 240,316 455,341
Four years later 33,256 3,434,720 182,038 100,884
Five years later 45,187 3,269,842 234,991 131,267
Six years later 32,362 2,263,827 1,089,648
Seven years later 4,413 2,949,498
Eight years later
Nine years later
6. Increase (decrease) in
estimated
incurred claims and
expenses from end
of policy year $(773,587) $2,092,498 $286,648 $(755,639)
13
Policy Year Ended June 30
1994 1995 1996 1997 1998
$2,513,490 $1,941,159 $1,776,903 $1,916,360 $2,016,625
1,717,915 1,715,043 1,190,895 1,650,761 1,563,.652
1,035,407 -- -- -- --
100 -- 11,428 -- --
3,285 106 --
1,106,257 --
1,035,407 -- -- -- --
767,244 -- -- -- --
809,059 -- -- --
1,231,328 -- --
2,195,310 --
$1,159,903 --
BIG INDEPENDENT CITIES EXCESS POOL
CLAIMS DEVELOPMENT INFORMATION
Ten years' Calculation through June 30, 1998
Explanation of the Claims Development table on the preceding page
The table on the preceding page illustrates how BICEP's earned revenues and investment
income compare to related costs of loss and other expenses assumed by BICEP as of the
end of each policy year. The rows of the table are defined as follows: 1. This line
shows the total of each fiscal year's earned deposit premiums and investment income,
net amounts earned for purchased reinsurance. 2. This line shows each fiscal year's
other operating costs including overhead and claims expense not allocable to individual
claims. 3. This line shows the estimated incurred losses and allocated loss
adjustment expenses as originally reported at the end of the first year in which the
event that triggered coverage under the contract occurred (both paid and accrued) net
of loss assumed by excess or reinsurers. 4. This line shows the cumulative amounts
paid as of the end of successive years for each policy year. 5. This section of rows
shows how each policy year's incurred claims and expenses increased or decreased as of
the end of successive years. This annual re-estimation results from new information
received on known claims, re-evaluation of existing information on known claims, as
well as emergence of new claims not previously known. 6. This line compared the
latest re-estimated incurred claims and expenses amount to the amount originally
established (line 3) and shows whether this latest estimate of claims and expenses
costs are greater or less than originally thought. As data for individual policy years
mature, the correlation between original estimates and re-estimated accounts is
commonly used to evaluate this accuracy of incurred claims and expenses currently
recognized in less mature policy years.
14
11,r
RCA kOUTING SHEET
INITIATING DEPARTMENT: City Clerk's Office
SUBJECT: Receive & File Big Independent Cities Excess Pool (BICEP)
Financial Statements & Independent Auditor's Report
COUNCIL MEETING DATE: June 7, 1999
= RCA ATTACHMENTS STATUS
Ordinance (w/exhibits & legislative draft if applicable) Not Applicable
Resolution (w/exhibits & legislative draft if applicable) Not Applicable
Tract Map, Location Map and/or other Exhibits Not Applicable
Contract/Agreement (w/exhibits if applicable)
(Signed in full by the City Attorney) Not Applicable
Subleases, Third Party Agreements, etc.
(Approved as to form by City Attorney) Not Applicable
Certificates of Insurance (Approved by the City Attorney) Not Applicable
Financial Impact Statement (Unbudget, over $5,000) Not Applicable
Bonds (If applicable) Not Applicable
Staff Report (If applicable) Not Applicable
Commission, Board or Committee Report (If applicable) Not Applicable
Findings/Conditions for Approval and/or Denial Not Applicable
e
EXPLANATION FOR:MISSING ATTACHMENTS
...
REVIEWED , RETURNED FOR RDED"
Administrative Staff ( ) ( )
Assistant City Administrator (Initial) ( ) ( )
City Administrator (Initial)
City Clerk ( )
-:
EXPLANATION, FOR RETURN OF ITEM,
(Below • . For Only)
RCA Author: Connie Brockway
I
BIG INDEPENDENT CITIES
EXCESS POOL
CITY OF HUNTINGTON BEACH
CITY COUNCIL STUDY SESSION
AUGUST 17, 1998
Prepared By:
Gregory J. Spiker
BICEP General Manager
Ken Spiker And Associates, Inc.
i
TABLE OF CONTENTS
I. History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. Description of the Pool . . . . . . . . . . . . . . . . . . . . . . . . 3-5
III. Program Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
IV. Claims Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
V. BICEP Advantages At-A-Glance . . . . . . . . . . . . . . . . . . . 6
VI. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
VI I. Exhibit A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
A;HUNTBCH.RPT - 7/3/98 - 2 -
I. HISTORY
In February 1987, as a result of the insurance crisis for public entities, thirteen large
California cities began meeting to develop a viable liability risk financing program for
California cities over 100,000 in population. Those cities were:
Fullerton, Garden Grove, Huntington Beach, Oxnard, San
Bernardino, Santa Ana, Pomona, Los Angeles, Oakland,
Pasadena, Sacramento, San Diego, and Torrance.
Approximately twenty-seven meetings were held between the formation team that
consisted of a host of professional consultants and the prospective BICEP Member
Cities. As a result, the BICEP Joint Powers Insurance Authority was formed and
began providing insurance to its five founding members, effective October 1, 1998.
The eventual inability of the original thirteen cities to all join BICEP can be attributed
to three basic reasons:
A. The largest cities were skeptical about the practicality of sharing risk with smaller
cities.
B. Influential decision makers did not represent all cities during the formation study
process.
C. Certain cities were simply performing a "due diligence" exercise and did not
develop a commitment to the concept of a risk-sharing pool.
Nevertheless, the BICEP Program has performed excellently, as originally proposed
to the program members by its program consultants, in that it has: 1) stabilized
liability insurance premiums; 2) attracted cost-effective liability reinsurance from "A"
rated carriers; and 3) provided a budgetable and predictable long-term risk finance
solution for the pool members. In fact, BICEP was the only pool in California to
attract reinsurance upon the first year of its existence during the height of the
insurance crisis.
II. DESCRIPTION OF THE POOL
The Big Independent Cities Excess Pool Joint Powers Authority (BICEP) was
established in 1988, in accordance with the Government Code of the State of
California, as a way to "risk-share" insurance coverages by medium-to-large cities
within the state. To be eligible for BICEP, members must meet two important criteria:
each city must have a population of 100,000 or more, and each must have its own
risk manager.
As a joint powers authority, BICEP is governed by a Board of Directors consisting of
one representative or alternate from each of its member cities. The Board of
Directors elects its officers annually from this slate of candidates; meetings are held
at least quarterly at a convenient, centralized location. There are five founding
A:HUNTBCH.RPT - 7/3/98 - 3 -
members of BICEP: Huntington Beach, Oxnard, Pomona, San Bernardino, and Santa
Ana. New member marketing activities are ongoing to attract other members as well,
especially in the purchase of excess liability insurance where most larger cities must
self-insure catastrophic losses.
BICEP came about as a direct result of the municipal liability insurance crisis of
1985-86. When its cities discovered they could no longer purchase in the standard
insurance marketplace the kinds of commercial coverages they needed to effectively
protect their assets, they elected to finance a catastrophic loss pool through the sale
of bonds. This unique capitalization technique yielded a loss reserve fund to finance
$25 Million in limits. Each Member agreed to retain (self-insure) the first $1 Million
in losses. In February of 1996 the revenue bonds were refunded, which significantly
reduced financial costs over the life of the bonds.
The insurance market for municipalities has continued to soften since early 1987. In
response to the availability of competitively-priced insurance, BICEP continues to
protects its' capitalized assets with commercial insurance. Since 1988, the members
have purchased commercial liability insurance for the $2 Million to $10 Million layer.
In 1990, they also began purchase of direct reinsurance for the layer $5 Million
excess $10 Million and in 1991 began commercial insurance of the $15 Million to
$20 Million layer. In 1993 a commercial $18 Million excess of $2 Million layer was
purchased to replace the previous "pieces". Over the next four years, BICEP
purchased $19 Million excess of $1 Million due to substantial reductions in rates. At
present, BICEP purchases $24 Million excess of $1 Million. The history of BICEP's
Liability Insurance Program is depicted graphically in Exhibit A.
As BICEP is currently structured, each member pays an actuarially determined pure
risk premium for coverage from $1 Million to $2 Million, plus an additional amount for
administration costs and debt service on the bonds issued to create the pool (any
losses exceeding $20 Million are paid by members on an assessment basis).
Members share in the costs of the commercial insurance based on their percentage
share of the Pool. Pool percentages are determined by dividing each city's payroll
by the total BICEP payroll multiplied by a loss experience modification factor.
Because BICEP commands respect in the marketplace due to its group purchasing
power, Members have enjoyed broad coverages, highly competitive rates, and multi-
year rate guarantees. This market clout enables BICEP to secure the best available
coverages for all lines, including liability, property, workers' compensation, and
special events. The ultimate goal of the program is to provide coverage to Members
through insurance when it is available -- and to fall back on the pooled coverage
when it is not.
BICEP's officers and members are active in all phases of risk management and the
insurance industry. BICEP, as an organization, is a member of the PRIMA (Public
Risk Management Association) Pooling Section; its Past Presidents Karen Foster and
Jeff Stevens are active members of RIMS (Risk Insurance Management Society) and
PRIMA(Public Risk Management Association). It's current President, Jose' M. Mesa,
is a well-known Human Resources Director and is very active in Cal PELRA.
A:HUNTBCH.RPT - 7/3/98 - 4 -
After a nationwide search in 1990, BICEP selected Sherman Oaks, California-based
Ken Spiker And Associates, Inc. to oversee administration and marketing of the
BICEP program. Greg Spiker acts as BICEP's General Manager.
III. PROGRAM DOCUMENTS
The pooled insurance program operates pursuant to four major documents: a liability
risk coverage agreement, a trust indenture, a joint powers agreement, and a
memorandum of coverage.
The coverage agreement is the principal program agreement of the pooled liability
insurance program. It obligates the participating cities to make premium payments
and sets forth provisions for calculation of premium assessments, withdrawal from the
program, admission of new cities to the program, remedies upon default, and other
matters relating to the operation of the program.
The trust indenture is the agreement pursuant to which a trustee will agree to
authenticate the bonds, act as paying agent of the bonds, receive premium payments,
and hold funds of the BICEP program in trust.
The joint powers agreement is the "charter" pursuant to which BICEP is established
and sets forth the purposes and mode of governance of BICEP. The memorandum
of coverage is the annual policy of insurance purchased by the cities from BICEP.
BICEP also has established certain underwriting and claims administration standards
and liability claims quality control guidelines.
IV. CLAIMS HANDLING
The City of Huntington Beach does an excellent job of managing its' liability claims
program. Over the years, the City has reported 32 claims to BICEP. BICEP
maintains a claims watchlist that consists of generally those claims, which in our
judgement, may impact the BICEP layer of coverage (claims with a potential value
in excess of$1 Million). The following is a list of cases which have appeared on the
BICEP Watchlist:
City of Huntington Beach
Claimant Date of Loss
Peter Leiby, et al. 07/28/91
Nancy Smith 02/11/92
Randolph Scott 03/17/95
Rose Metzger, et al. 02/15/96
Theodore Franks, et al. 09/11/96
A:HUNTBCH.RPT - 7/3/98 - 5 -
BICEP took an active role regarding the Nancy Smith case. As you may recall,
BICEP retained the services of Girard Fisher of the law offices of Pollak, Vida, and
Fisher. Mr. Fisher was instrumental in the settlement of this matter. As monitoring
counsel for BICEP, he was able to meet with the City's defense counsel as well as
the City Council in order to provide BICEP's opinion as to liability and damage.
BICEP also took an active role in the Stanley Bloom matter. We again referred this
case to Girard Fisher for review on behalf of BICEP. Mr. Fisher conducted a
coverage review and reviewed the various causes of action brought forth by the
plaintiff. At the Appellate Court Settlement Conference, Mr. Fisher was instrumental
in that he counseled against entering into any settlement with the plaintiff, as it was
his opinion that the City ultimately would not have any liability exposure in this matter.
This counsel was given in concurrence with the City's own defense counsel. It is also
fair to point out that BICEP did not pursue a late notice defense, as the City could
very well have faced had they been dealing with a commercial insurance carrier
relative to this loss. This case clearly demonstrates the benefit of the BICEP
arrangement and the willingness of all parties to work together for a successful
resolution of a very complicated litigated claim.
V. BICEP ADVANTAGES AT-A-GLANCE
Matters relating to the BICEP Program are governed by BICEP participants.
Accordingly, each participating city has input into how the liability insurance program
is operated and BICEP, by its very nature, will always be responsive to the needs of
its' Members.
The advantages of participation in BICEP's pooled liability insurance programs
include the following:
♦ Created, owned, and operated by cities.
♦ Secures attractive rates for multi-city insurance coverages, including: liability,
workers' compensation, property programs, and special events coverage.
♦ Eliminates annual insurance shopping by city staff.
♦ Enhances Member Cities ability to budget by providing cost stability in spite of
market fluctuations.
♦ Cost savings -- no profit loading; tax exempt status; share in investment income;
lower overhead costs.
♦ Broader coverage terms, conditions and limits.
♦ Services tailored to needs of cities.
♦ Improved litigation management.
♦ Improved loss control.
♦ Stable premiums.
♦ Self-reliance -- BICEP is not dependent on the availability of commercial
insurance.
♦ The ability to purchase commercial insurance when it makes economic sense and
fall back on the pooled coverage when it doesn't.
A:HUNTBCH.RPT - 7/3/98 - 6 -
VI. CONCLUSION
In 1988 five cities recognized the value of working together to address the growing
challenges of risk management and insurance coverage. Today, as a result of the
cooperative and collective effort of its Member Cities, BICEP is poised to begin its
second decade of service to cities. BICEP applauds their vision.
A:HUNTBCH.RPT - 7/3/98 - 7 -
BICEP Program
LiabilityCoverageInsurance
$ Millions
$25 i !:
R�sk: �hare d b Mee mber �� i es s
g
$15
T
$10
$5
�-! MININEW
.._. .. 4MA,
,
$0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
INTEROFFICE MEMORANDUM
-.......... . ..................... .........-.............. ..... - ...............__..........
TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS
FROM: KAREN FOSTER
SUBJECT: BICEP JOINT POWERS AUTHORITY
DATE: 08/13/98
HISTORY
The City of Huntington Beach had no liability insurance coverage from
April 7, 1986 until the inception of the BICEP program on October 1,
1988. In 1988, the City's broker, Robert F. Driver, indicated that there
was no municipal liability insurance available (Attachment #1)
In the 1980's the municipal liability insurance marketplace was
extremely restrictive due to the large losses suffered in all lines of
insurance coverage and the tightening of the reinsurance market. In
addition, the "deep pockets" syndrome continued to increase the
amount of claims paid on behalf of municipalities. (Attachment #2)
As a result of the market chaos, there was very limited number of
insurance companies writing municipal liability insurance. The effect
on California cities was that the coverage was being restricted and the
prices were being increased in the magnitude of 300% to 1000%.
(Attachment #3) In 1986, the League of California Cities recognized
the growing problem and prepared a report on JPA's for liability
insurance (Attachment #4)
CURRENT STATUS
Participation in the BICEP program provides premiums stability in the
marketplace with a three-year rate guarantee. Currently, the market is
soft, insurance companies are competing to provide excess insurance,
and BICEP is buying cheap insurance and the pool does not retain any
risk. The City has more purchasing power as part of a pool than as an
individual entity purchasing insurance. Likewise, if we have a large
claim, we have more influence with the carriers as a large pool than as
an individual claimant. If we had a major loss as an individual entity,
there is the potential that we could not get insurance coverage.
Nationwide there are approximately 500 pools with 60% of the public
entities enrolled. In California, there are 200 different pools with
approximately 80% of all public entities enrolled in one. Some of the
large cities such as San Jose, San Francisco and Los Angeles are not
enrolled in pools. In Orange County, only 5 cities are not enrolled in a
pool. (Attachment #5)
The overall objective of BICEP is to shield the member cities from
financial and operational impairment through rate stabilization and rate
guarantee. During the hard market, when insurance was expensive
and difficult to place, BICEP was the only pool that could attract
reinsurance. The BICEP broker, Aon Risk Services, has consistently
been able to find cost effective and comprehensive coverage for the
benefit of the BICEP members.
City Options Concerning BICEP
➢ Continue in BICEP
Withdrawal from BICEP — The BICEP program requires a rolling three-year
commitment, which means that, effectively, a two-year notice is required for
the City to withdraw from the program. In the event the City elects to
withdraw, the City would be required to satisfy any remaining debt service
obligation. At present there would be a required payment of $2,543,501.
This amount consists of the City`s allocable share of the outstanding bond
principal and interest of $2,398,017 and $145,484, respectively. However,
the pro-rats share of any undesignated reserves would be applied to the
remaining debt service obligation and depending on claims experience,
withdrawal could result in either refunds or additional payments.
♦ Withdrawal from BICEP in favor of a traditional program. Although the
City probably could obtain insurance based on market conditions today,
there is no assurance of insurance cost savings. More importantly, there
is no assurance of insurance availability in the future when insurance
market conditions change. Withdrawal from BICEP is not recommended
as a long-range solution to the problem of market fluctuations.
2
1
1
1
1
1
1
BIG INDEPENDENT CITIES EXCESS POOL
i FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
WITH INDEPENDENT AUDITOR'S REPORT
JUNE 30, 1996 and June 30, 1995
1
1
1
1
i
1
1
1
i
1
BIG INDEPENDENT CITIES EXCESS POOL
Table of Contents
' Page
Financial Statements:
Independent Auditor's Report 1
Balance Sheets, June 30, 1996 and June 30, 1995 2
Statements of Revenue, Expenses and
Changes in Retained Earnings for the
years ended June 30, 1996 and June 30, 1995 3
' Statements of Cash Flows for the
years ended June 30, 1996 and June 30, 1995 4
' Notes to Financial Statements 6-11
Supplementary Information
Claims Development Information From Inception to
June 30, 1996. Required Supplementary Information 13
EDWARDS, EICHEL & BERANEK
CERTIFIED PURLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
' The Board of Directors
3ig Independent Cities Excess Pool
We have audited the accompanying balance sheets of the Big Independent Cities
Excess Pool (BICEP) at June 30, 1996, and 1995 and the related statements of
revenue, expenses and changes in retained earnings and cash flows for the years
then ended. These financial statements are the responsibility of BICEP's
management. Our responsibility is to express an opinion on these financial
' statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 financial statements referred to above present
fairly, in all material respects, the financial position of the Big Independent
Cities Excess Pool at June 30, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Note 7 to the financial statements discusses an issue that involves uncertainties
not presently resolved.
BICEP has nine years of historical data for use in its estimates of incurred but
not reported claims and the corresponding premium adjustments. Although BICEP
considers its experience and industry data in determining such amounts,
assertions and projections as to future events are necessary and ultimate losses
may be higher or lower than amounts projected.
A claim involving a member city whose cost -has exceeded that city's self-insured
retention is being defended by BICEP and its attorneys but BICEP has stated that
it is reserving its right to deny coverage. The excess carrier has categorically
denied coverage. The matter is currently under discussion by the various parties
and its outcome cannot be predicted.
The comparative schedule of Claim Development, on pane 11 is not a required part
' of the basic financial statements but is supplementary information. required by
the Governmental Accounting Standards Board. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the supplementary information.
However, we did not audit the information and express no opinion on it.
' Pasadena, California Edwards, Eichel & Beranek
January 22, 1997 Certified Public Accountants
468 N. ROSEMEAD BOULEVARD
SUITE#100
PASADENA.CALIFORNIA 91 107-3059
818/351-3800
' FAx 818/351-3804
E-MAIL 76064.23@compusen�e.com
' BIG INDEPENDENT CITIES EXCESS POOL
BALANCE SHEET
June 30, 1996 and June 30, 1995
ASSETS
' 1996 1995
Cash and cash equivalents,
unrestricted $ 15,172 $ 11,381
Restricted cash equivalents 261,710 3,762,286
Total cash and cash
equivalents (Note 2) 276,882 3,773,667
Investments (at cost, which
approximates market value) (Note 2) 15,387,801 13,505,500
' Accrued interest receivable 198,042 156,750
Total assets S15.862.725 $17,435.917
LIABILITIES AND RETAINED EARNINGS
Liabilities:
' Accounts payable $ 14,295 $ 9,970
Unpaid losses and loss
adjustment expenses (Note 3) 4,006,065 4,130,971
Bonds payable (Note4) 12,550,000 12,855,000
Less-unamortized issuance cost 1 1,214,892) ( 530,339)
11,335,108 12,324,661
Accrued interest payable 248,960 350,084
' Estimated future premium
adjustments 258.297 620,231
Total liabilities 15,862,725 17,435,917
' Retained earnings -- --
Total liabilities and
retained earnings S15.862.725 $17,435,917
' The accompanying notes are an integral part of these financial statements.
' 2
' BIG INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN RETAINED EARNINGS
Years ended June 30, 1996 and June 30, 1995
' 1996 1995
Revenue:
Deposit premiums earned $ 2,080,178 $ 2,511,981
Premium refunds 18,542
Estimated future premium
adjustments 361-934 (797-277)
2.460,654 1,714,704
Expenses:
' Net increase in actuarially
determined unpaid losses and
loss adjustment expenses 988,039 84,541
Purchased liability insurance
' and reinsurance 1,398,567 1,676,802
General and administrative
expenses 213,534 .184,520
' 2.600.140 1.9451863
Excess (deficiency) of
revenue over expenses,
' before net investment
income (139.4861 (231.1591
Net investment income:
' Investment income 1,088,609 1,305,980
Interest expense _( 949,123) (1,074.8211
139,486 231,159
' Excess of revenue over expenses -- --
Retained earnings, at beginning
' of year -- --
Retained earnings, at end of year
These accompanying notes are an integral part of these financial statements.
' 3
' BIG.INDEPENDENT CITIES EXCESS POOL
STATEMENTS OF CASH FLOWS
Years ended June 30, 1996 and June 30, 1995
' 1996 1995
' Cash flows from operating activities:
Excess (deficiency) of revenue
over expenses before net
investment income $ (139,486) $ (231,159)
' Adjustment to reconcile excess
(deficiency) of revenue over
expenses before net investment
income to net cash provided by
operations:
Amortization of bond issuance and
early refunding costs 58,096 39,185
Increase (decrease) in
' accounts payable 4,325 (27,949)
Increase (decrease) in unpaid
losses and loss
adjustment expenses ( 124,906) (1,230,669)
' premium Accounts receivable decrease(increase) --
26,141
(Decrease) increase
in estimated future
' premium adjustments payable 359.4511 1,851.673
Net cash provided (used)
by operating
activities (561,4221 427,222
Cash flows from investing activities:
Interest received 1,047,317 1,299,966
' Net change in investment
portfolio
re issuance of new bonds
and refund of old bond issue
' 1,882,301 --
Net cash provided (used) by
investing activities (834,984) 1,299,966
1
Continued on page 5
' 4
' Cash flows from noncapital financing 1996 1995
activities:
1 Refunding of Series 1988 bonds and
issuance of 1996 bonds
Annual principal payments 1988 bonds (520,000) (485,000)
Interest paid ( 1,050,247) (1,087,108)
Refunding of remaining 1988 bonds (12,335,000) --
' Issuance of 1996 bonds 12,550,000
Net cost of funding new issue (745,1321
Net cash (used) in noncapital
financing activities (2,100,379) (1,572,1081
Net increase (decrease) in cash and
1 cash equivalents (3,496,785) 155,080
Cash and cash equivalents at
1 beginning of year 3,773,667 3,618,587
Cash and cash equivalents at
end of year S 276.882 3,773,667
i
1
1
1 _
1
' The accompanying notes are an integral part of these financial statements.
5
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations
' Big Independent Cities Excess Pool (BICEP) was created effective September
231 1988, by a joint powers agreement among five cities organized and
operating under the laws of the State of California. BICEP is organized
pursuant to the provisions of the California Government Code for the
' purpose of providing joint insurance coverage and related risk-management
services for member cities. The extension of joint insurance coverage to
member cities began October 1, 1988.
BICEP's liability program offers a combination of pooled and commercially
purchased public auto and general liability coverages, plus errors and
omissions coverage, for losses in excess of the member cities' specified
self-insurance retention levels of one million dollars. Individual and
aggregate claims in excess of specified levels are .covered by excess
insurance policies purchased from commercial insurance carriers which,
combined with the program's self-funded layers, offer a total of $25
million in coverage limits. Additionally, through its broker AON Risk
Services, it enables its members to purchase property and worker's
compensation insurance as a group.
BICEP is a nonprofit California public agency; thus, it is tax-exempt. It
is also considered a "Special District" by the Office of the State
Controller, Division of Local Government Fiscal Affairs, for the purpose
of filing an Annual Report of Financial Transactions of Special Districts.
Basis of Accounting
The accounting records of BICEP are maintained on the accrual basis of
accounting.
' Bond Issuance Costs
Bond issuance costs are amortized over the life of the bond issue using
the straight line method. In 1996 due, in part, to more advantageous
interest rates the 1988 bond issue was retired and new bonds were issued
carrying substantially lower interest rates. Cost of issuance expense and
the premium paid on retirement are being amortized over the remaining life
of the original issue. See note 4 for further explanation.
Cash and Cash Equivalents
BICEP considers money market funds and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Rest icted Cash
' Restricted cash represents funds held in trust for payment of bond
.principal and interest, future debt service, and claims payment.
' 6
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) :
' Rebatable Arbitrage Earnings
Rebatable arbitrage earnings represents the excess of the amount earned on
' all cash equivalents and investments over the amount which would have been
earned if such cash equivalents and investments were invested at a rate
equal to the bond yield for activity through January 'l, 1995. This excess
is subject to change due to bond and investment activity occurring after
January 1, 1995. The interim calculation previously referred to indicates
that .there would be no arbitrage payable.
' Deposit Premium Revenue
Premiums are recognized as earned over the periods covered by the
policies.
Under the terms of the Liability Risk Coverage Agreement, between BICEP
and its member cities, premium adjustments resulting in additional premium
assessments or refunds were to commence in February 1992, covering the
experience of BICEP from inception. Estimates of such adjustments are
recorded in the financial statements annually as estimated future premium
adjustments. Premium adjustments are subject to change as the ultimate
cost of claims becomes known, .investment income and expenses are realized,
' and BICEP's costs are allocated to each Policy Year.
Unpaid Losses and Loss Adjustment Expenses
' Estimated unpaid losses and loss adjustment expenses include an amount for
losses incurred but not reported. These estimates have been discounted to
their present value.
Liabilities are based on the estimated ultimate cost of settling the
claims, including the effects of inflation and other societal and economic
factors. The previously. noted claims and ultimate recoveries will be
deducted from the gross amount of unpaid losses.
Claims which have been incurred but not reported to the claims
administrator at June 30, 1996 have been estimated through an independent
actuarial analysis based on loss development experience of BICEP and the
' member cities and available industry loss development data.
BICEP'S recognition of losses incurred but not reported is in conformity
with Government Accounting Standards Board (GASB10) , Accounting and
Financial Reporting for Risk Financing and Related Insurance Issues and
the Risk Finance Omnibus (GASB 30) and the American Institute of Certified
Public Accountants (AICPA) Statement of position 94-5.
2. CASH AND INVESTMENTS
Under •provisions of the California Government Code (Code) , BICEP is
authorized to invest in:
' . A variety of federal and state treasury obligations (including
local California agencies)
' 7
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
2. CASH AND INVESTMENTS (continued) :
• Obligations or other instruments of or issued by a federal
' agency or government sponsored enterprise .
• Bankers' acceptances which are eligible for purchase by the
federal reserve system (subject to certain limitations)
' • Prime quality commercial . paper (subject to certain
limitations)
' • Negotiable certificates of deposit issued by nationally or
state chartered banks, savings and loan associates and credit
unions
• Repurchase agreements or reverse repurchase agreements of any
securities authorized by the Code
Cash and Cash Equivalents, Unrestricted
At June 30, 1996, the net carrying amount and deposit balance was $15,172
of which $14,739 was invested in the Local Agency Investment Fund, an
investment pool maintained by the State Treasurer.
Restricted Cash Equivalents and Investments
BICEP invests only in investments that are insured or registered, or for
1 which the securities are held by BICEP or its agent in BICEP's name.
Investments held by the Trustee at June 30, 1995, consist of:
Cash equivalent-repurchase agreements and cash $ 261,710
U.S. Treasury and Federal agency securities 15,137,801
Commercial paper 250,000
15.649.51
' Deposits and investments by governmental agencies are categorized in three
classes depending upon the relative level of risk.
Category 1 - Cash or investments fully insured or registered or where
the securities are held by the unit or its agent in the
unit's name.
Category 2 - Uninsured and unregistered instruments held by the
' broker or advisor's trust department or an agent in the
unit's name.
Category 3 - Uninsured and unregistered investments held by the
broker or dealer or by its trust department of by an
agent but not in the unit's name.
All of Bicep's cash and investments are in category 1, excepting deposits
with the Local Agency Investment Fund (LAIF) , which cannot be categorized.
' 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
The following represents changes in the unpaid losses and loss adjustment
' expenses for BICEP for the years ended June 30:
8
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (continued) :
1996 1995
' Unpaid losses and loss
adjustment expenses at
beginning of year $4,130,971 $5,361,640
' Provisions for insured events --
of the current year 84,541
Additional provisions for
prior years- -- 84,541
' Payments of claims reported (1,112,945) ( 62,071)
(all in previous policy years)
Increase (decrease) in funding
levels for previous policy years. 988,039 { 1,253,139)
.Total unpaid losses and loss
adjustment expenses at end
of year $4.006.065 $4,130,971
4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE:
In January 1989, BICEP issued Revenue Bonds Series 1988A for the purpose
of acquiring working capital and to finance under writing expenses. These
bonds were outstanding until early 1996 when, as provided in the Bond
Purchase Agreement Dated January 29, 1996, revenue bonds in the face
amount of $12,550,000 were issued for the advance refunding of the 1988
issue. The new issue carries stated interest.rates varying from 5.0 per
cent to 6.5 per cent in contrast to the 8.1253 per cent average yield of
the remaining outstanding bonds of the refunded issue.
Interest on the bonds is payable semi-annually at rates ranging from 5.0%
to 6.15%. Principal maturities .range from $625,000 to $1,215,000 and are
' due annually on March 1, from 1997 through 2009.
The bonds maturing after March 1, 2004 are --subject to optional early
redemption on either March 1, principal and interest payment date or
September 1, interest payment date, at a premium, if any, as follows:
March 1, and September 1, 2004 101.0%
March 1, and September 1, 2005 100.5%
March 1, 2006 and thereafter 100.0%
The bonds are assigned the first rights to pay principal and interest from
premiums and interest income earned. Each member city is obligated to pay
' all premiums as assessed, except when for some reason insurance coverage
is discontinued.
Year ending
' June 30 Principal Interest Total
1997 $625,000 $736,463 $1,361,463
1998 735,000 703,380 1,438,380
1999 770,000 666,048 1,436,048
2000 810,000 626,071 1,436,071
2001 850,000 581,585 1,431,585
9
' BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' 4. BONDS PAYABLE AND ADVANCE REFUNDING OF 1988 BOND ISSUE cont.
The accounting for .the. refunding, as prescribed by the Governmental
Accounting Standards Board (GASB) were as though the cost of the new issue
including legal and underwriting fees, refunding premiums, remaining
issuance costs of the retired issue were a prospective adjustment of the
' interest rate to be amortized over the remaining life of .the refunded
issue.
Those costs deferred are summarized as follows:
Remaining unamortized cost old issue $504,214
Premium paid on refunding 370,050
Cost of issuance, new issue 372,599
1,246,863
Less amortization taken between March 1, 1996
and June 30, 1996. 31,971
' Balance outstanding, June 30, 1996 S1,214,892
5. REINSURANCE:
' Historically BICEP has reinsured its risks under excess of loss
reinsurance agreements for the purpose of limiting its maximum exposure
on any one loss or group of losses. BICEP is contingently liable for
' losses and loss adjustment expenses related to ceded business to the
extent that its reinsurer is unable to fulfill its commitments.
Management believes that its reinsurer is and will continue to be able to
satisfy its obligations under the reinsurance agreement for years through
' June 30, 1996.
.During the years ended June 30, 1995 and June 30, 1996 because of
:substantial reductions in rates BICEP placed all of its liability
' .coverages with private insurance carriers. This includes the $1 million
to $2 million layer, which was previously retained.
BICEP's liabilities for unpaid losses and loss adjustment expenses as of
' June 30, 1996, have been estimated net of amounts that would be
recoverable from the reinsurer. For the years ended June 30, 1995 and June
30, 1996 BICEP has no direct liability having placed all of its coverages
with outside carriers.
' 6. RELATED-PARTY TRANSACTIONS:
Aon Risk Services, formerly Rollins Hudig Hall, serves as BICEP's
insurance broker and brokered $2,614,551 in insurance agreements during
the period ended June 30, 1996 and $2,668,832 in the year ended June 30,
1995.
' 7 UNCERTAINTY RELATED TO A CLAIM INVOLVING A MEMBER CITY..
A claim is presently -being litigated involving due process on a
condemnation action whose costs have already exceeded that city's self-
insured retention and which BICEP, in the opinion of counsel, may not have
provided coverage due to the alleged willful nature of the alleged damages
inflicted. The reinsurer has denied coverage. BICEP has continued to pay
10
BIG INDEPENDENT CITIES EXCESS POOL
NOTES TO FINANCIAL STATEMENTS
continued
' Note 7 UNCERTAINTY RELATED TO A CLAIM INVOLVING A MEMBER CITY (CONT. )
for the cost of defense in excess of the self-insured retention but has
reserved its rights and is actively pursuing a course of attempting to
obtain a settlement before the matter reaches the courts.
' There are several matters in contention, the nature of the acts by the
member city, whether BICEP is liable for its level of coverage, that of
the excess carrier or at all, and whether or not the excess carrier has
liability.
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BIG INDEPENDENT CITIES EXCESS POOL ,
CLAIMS DEVELOPMENT INFORMATION
Cumulative from inception through June 30, 1996
Policy Year Ended June 30 ,
1989 1990 1991 1992
1. Net deposit premium 1
revenue earned and
investment income $ 799,203 $2,341,824 $2,216,499 $2,125,932
2. Other costs 3381203 1,619,824 1,359,499 1,322,932 ,
3. Estimated incurred
claims and expenses,
end of policy year 543,000 778,000 857,000 803,000 ,
4. Paid claims (cumula-
tive) as of:
End of policy year -- -- --One year later -- -- $ 4,736 $3,845
Two years later -- $3,640 $114,925
Three years later -- $28,381 $577,599 3,887
Four years later -- $33,256 636,139
Five years later -- --
Six years later --
5. Re-estimated incurred
claims and expenses;
End of policy year 543,000 778,000 857,000 803,000
One year later 496,000 722,000 807,806 767,049
Two years later 461,000 657,391 1,004,736 10,000
Three years later 435,842 691,497 3,004,736 240,316
Four -years later 352,937 33,256 3,434,720
Five years later 250,000 45,187
Six years later 24,895
6. Increase (decrease) in '
estimated
incurred claims and
expenses from end
of policy year $(518,105) $(732,813) $2,577,720 $(562,684) '
The table above illustrates how BICEP's earned revenues and investment income compare
to related costs of loss and other expenses assumed by BICEP as of the end of each
policy year. The rows of the table are defined as follows: 1. This line shows the '
total of each fiscal year's earned deposit premiums and investment income, net amounts
earned for purchased reinsurance. 2. This line shows each fiscal year's other
operating costs including overhead and claims expense not allocable to individual
claims. 3. This line shows the estimated incurred losses and allocated loss '
adjustment expenses as originally reported at the end of the first year in which the
event that triggered coverage under the contract occurred (both paid and accrued) net
of loss assumed by excess or reinsurers. 4. This line shows -the cumulative amounts
paid as of the end of successive years for each policy year. 5. This section of rows
shows how each policy year's incurred claims and expenses increased or decreased as of
the end of successive years. This annual re-estimation results from new information
received on known claims, re-evaluation of existing information on known claims, as
well as emergence of new claims not previously known. 6. This line compared the '
latest re-estimated incurred claims and expenses amount to the amount originally
established (line 3) and shows whether this latest estimate of claims and expenses
costs are greater or less than originally thought. As data for individual policy years
mature, the correlation between original estimates and re-estimated accounts is '
commonly used to evaluate this accuracy of incurred claims and expenses currently
recognized in less mature policy years.
13 '
' Policy Year Ended June 30
1993 1994 1995 1996
1
$2,317,408 $2,513,490 $2,511,981 2,080,178
1,705,829 1,717,915 1,305,980 1,088,609
886,906 1,035,407 -- --
' 3,488 --
' 886,906 1,035,407 -- --
10,000 767,244
711,287
($175,619) ($268,153)
1