Strategic Planning Workshop

1. Strategic Planning Workshop Washington StateTransit Insurance Pool Presented to: Presented by: Steven P. Kahn, CPCU, ARM | Managing DirectorARM Tech / Aon Global Risk ConsultingPhone: 949-470-4341 Fax: 847-953-1672email: steven_kahn@armtech.com August 2008

2. Contents for Strategic Planning Retreat Workbook

3. Section IV – Financial Review 2

4. Financial Data – WSTIP

5. Ratios – WSTIP

6. Net Assets to SIR • Measure of solvency • Indicates number of unexpected losses needed to consume net assets • = Net assets / largest SIR

7. Gross Assessments To Net Assets • Measure of net asset adequacy • As ratio increases, the more likely it is that a high loss year will erode surplus • = Gross Assessments / Net Assets

8. Net Assessments To Net Assets • Measure of net asset adequacy • As ratio increases, the more likely it is that a high loss year will erode net assets • = Net Assessments / Net Assets

9. Loss Reserves To Net Assets • Measure of net asset adequacy • As the ratio increases, the more likely it is that upward development in loss reserves will exhaust net assets • = Loss Reserves / Net Assets

10. Expense Ratio • Measure of efficiency • Low ratio indicates efficient administration (within reason) • = All Operating Expenses / Net Assessments

11. Combined Ratio • Measure of profitability • Indicates ability to fund operations from net assessments • = (All Operating Expenses + Retained Losses) / Net Assessments

12. Net Assets to SIR – WSTIP

13. Gross Assessments to Net Assets – WSTIP

14. Net Assessments to Net Assets – WSTIP

15. Loss Reserves to Net Assets – WSTIP

16. Expense Ratio – WSTIP

17. Combined Ratio – WSTIP

18. Financial Data – Comparison Pools

19. Ratios – Comparison Pools

20. Net Assets to SIR – Comparison Pools

21. Gross Assessments toNet Assets – Comparison Pools

22. Net Assessments toNet Assets – Comparison Pools

23. Loss Reserves toNet Assets – Comparison Pools

24. Expense Ratio – Comparison Pools

25. Combined Ratio – Comparison Pools

26. WSTIP Performance on State Ratios

27. WSTIP Financial Model – Data

28. WSTIP Financial Model – Ratios

29. Section V – The Future 28

30. WSTIP Vision • We are the premier providers of high-quality risk and management-related products and services for all facets of the transit industry

31. WSTIP Mission Our mission is to provide value-added services for our members. We will accomplish this by: • Reducing member’s cost of risk, • Providing comprehensive management services, • Looking at innovative opportunities, and • Encouraging alliances and partnerships

32. Core Values • We treat everyone fairly and with respect • We value innovation and embrace technology as a partner • We are committed to excellence in service delivery and cost-effective programs • We value our employees • We value integrity and ethical conduct • We value the diversity of our members • We speak with one voice

33. New Services • Physical test for candidates • Monthly driving record checks • Bus stop quality evaluation and scoring tool • Criminal background checks on drivers and others • Personnel procedures training • Sample job descriptions • Training materials library • Other…

34. New Coverages • Employee benefits pool • Employee benefits group purchase • Legal services – contractual disputes • Assist non-profit agencies form their own pool • Assist with non-hazard risks • Other…

35. Section VI – Strategic Partners 34

36. Growth • New members • New associates • New services • Other states • Other...

37. Striking a Balance • Rate level • Rate stability • Net asset level • WSTIP retention

38. Governance • Role of new, small transit entities • Standing committees • Other...

39. Consider Effect of Change in Operating Environment • Insurance market cycles • Changes in number of size of members • One ore more catastrophic losses • Change in legal environment • Loss of excess insurer (e.g., Kemper and Reliance)

40. Guidelines for Net Asset Rate Credit Sample guidelines: • Net assets > gross member assessments • Net assets > 1.5 x member assessments • Net assets > 15 x largest SIR • Combined ratio < 1.00, average of last two years • Net assets > losses & ALAE reserve at 80% confidence level

41. WSTIP Financial Target • Select and maintain financial ratios • Select net assets to SIR ratio • Select gross assessments to net assets ratio • Select loss reserves to net assets ratio