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ABAG PLAN Corp. Strategic Planning Meeting

ABAG PLAN Corp. Strategic Planning Meeting. October 9, 2002 Campbell, CA. AGENDA. Where are we now? Progress Since Last Meeting Issues Remaining Where are we going? 1 year 2-5 years. AGENDA. Review of Objectives & Next 8 Months Progress Since Last Meeting

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ABAG PLAN Corp. Strategic Planning Meeting

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  1. ABAG PLAN Corp.Strategic PlanningMeeting October 9, 2002 Campbell, CA

  2. AGENDA • Where are we now? • Progress Since Last Meeting • Issues Remaining • Where are we going? • 1 year • 2-5 years

  3. AGENDA • Review of Objectives & Next 8 Months • Progress Since Last Meeting • Issues at Next Board Meeting • Future Trends and Coverage Issues • Environment Changes • Managing Pool Funds • What is the ultimate goal? • WOTS Analysis and Updated Objectives • Where Do We Go From Here?

  4. Planning Meeting Goals • Review & Renew our Mission • Agree on future characteristics of the pool • Clear idea of what members want to achieve • Establish benchmarks for determining success

  5. Issues For Today • Digest remaining issues from last meeting • Review current financial condition & ratios • Review current environment of pool • Plan for funding beyond meeting goal of $10 mil in SIR Fund • Assess WOTS • Revise objectives

  6. ABAG PLAN Mission Statement The purpose of the PLAN is to benefit the citizens of each Member Entity by establishing a stable, cost-effective self-insurance, risk sharing and risk management program for each Member Entity.

  7. 2001 Planning Meeting Progress • Eight Goals Identified • Update Strategic Plan Annually - we’re here! • Funding Policy - Approved 5/22/02 • Staffing Plan - Approved & Implemented • Document Review - begun but limited • Evaluate Loss Control Approach - begun • Define Committee Roles - begun • Become Accredited? TBD • Wrap up for CIP? Not needed

  8. Remaining Goals • Document Review • Evaluate Loss Control Approach • Define Committee Roles • Staffing Plan - Continue to Monitor • Update Strategic Plan - Annually • Become Accredited? TBD based on Doc Review

  9. Goals Completed by Next Board Meeting • Document Review • Claim Policy • Authority Levels • Dispute Resolution • Evaluate Loss Control Approach • Loss Control Policy • Expectations • Enforcement

  10. Big Issues For Next Board Meeting • DIVIDENDS • SIR Fund Target of $10 mil reached • Potential for Dividends - Declare? • SIR • Increase SIR to $10 mil? • Continue to purchase excess insurance? • Are we done contributing to SIR Fund? • Where do we go from here?

  11. Other Issues For Next Board Meeting • Document Review • So far have been addressing via policies and past precedent but at some point will need to “roll up” in to governing documents. • Where to put policies re withdrawal & reentry? • Revise Memo of Coverage? Risk Coverage Agreement? • Work on draft?

  12. Other Issues at Next Board Meeting • Extent of Support for Risk Management Programs - Loss Control Policy • Develop list of required policies & programs? • To what extent do we mandate policies and how do we enforce? • Funding commitment • Expand current offerings

  13. Financials as of 6/30/02 • Liability Program - $35 Mil Assets • $15.7 Mil Total Liabilities (50% CL) • $19.3 Mil Retained Earnings • Property Program - $2 Mil Assets • $159,000 Total Liabilities • $1,925,725 Retained Earnings

  14. 6/30/02

  15. 6/30/02

  16. Investment Earnings

  17. Liability Deposits

  18. Dividend Distribution

  19. Financial Ratio Numbers • Net Deposits = $4.5 Mil • Total Liabilities = $15.7 Mil • Total Fund = $19.3 Mil

  20. Funding PolicyBenchmarks • Yearly Deposit at least 50% CL • Goal = 70%. • Total Fund to SIR ratio at least 2:1 • Goal = 3:1 • Maintain SIR Fund = PLAN SIR • Goal = $10 Million • Maintain Risk Margin Fund at 90% CL

  21. Exhibit 20 Fund to SIR • Measures Conservatism in Funding • Commercial insurers typically at 10:1 to 20:1 • Pools typically at 5:1 to 15:1 • ABAG ratio is below benchmarks at 3.8:1 • Within Funding Policy Goal of 3:1 • Minimum = 2:1 • Options to consider • Lower SIR • Increase Surplus

  22. Exhibit 21 Deposit to Fund • Measures growth potential supported by Fund • Commercial insurers typically at 1:1 to 3:1 • Pools typically at 5:1 to 2.5:1 • PLAN ratio is better than benchmarks at .23:1 • Options • Write more business • Return surplus

  23. Exhibit 22 Loss Reserves to Fund • Measures contingency funding • Commercial insurers typically at 1:1 to 3:1 • Pools typically at 0.4:1 to 2.5:1 • PLAN ratio is within benchmarks at .81:1 • $15.7:$19.3 • Options • Write more business • Return surplus

  24. Future Trends and Coverage Issues • Insurance Market Continues to Harden  • Coverage is being restricted  • Mold • Terrorism • Interest Rates Remain Low  • Funding goal is to increase to 70% CL  • PLAN Document & Coverage Review 

  25. Future TrendsInsurance Market • Expect continued price increases • Impact on Funding Options • Impact on SIR • Coverage Restrictions • PLAN exclude terrorism or mold, too? • Others on the way?

  26. Future TrendsInterest Rates • At record lows • Using 4.5% vs. Traditional 5% • 0.5% drop increased funding @ $200,000 and increased outstanding liabilities • No immediate pressure to increase • Possible Deflation • Any Estimates?

  27. Future Trends • Your Budgets? • Your Concerns?

  28. Funding Goal = 70% CL • Currently at 50% CL (up from @48%) • Raise to 60% for 2002-03? • Would add $626,556 or 14% to Current Funding ($5,153,766 v. $4,527,210) • Options? • Increase Funding • Use Retained Funds? • Lower SIR?

  29. PLAN Document Review • Bylaws • Joint & Several Liability? • Clean up language, incl.. Committee Roles • Revised Risk Coverage Agreement • Withdrawal, Expulsion & Reentry • Assessment • Clarify Ownership of Funds • Require Risk Management Program/Policies

  30. PLAN Coverage Review • Memo of Coverage • Clean up & Condense • Clarify intent and definitions • Add dispute resolution • Broaden Coverage? • Employment Practices Liability • Clarify Inverse Exclusions • Attorney Fees Covered? Emotional Distress?

  31. Managing Pool Funds • 1986 - 1990: Growth of Risk Margin Fund • 1991 - 1996: Dividends Declared • 1997 - 1998: $3.4 mil Dividend, SIR Fund Created and Net Expense = $196,000 • 1998 - 2001: Increased SIR, Loss Funding, & SIR Fund, Decreased Dividends • 2002 - 2005: SIR Fund Done? Dividends Again? Pool Nirvana?

  32. What is Adequate Amount of Retained Funds? • “It Depends” • Aversion to Risk • Ability to Assess • Large Loss Probability • Strategic Goals • Leverage Ratios

  33. Pool Nirvana • Assets & Interest >= Deposits + Admin • No new funds are EVER required • Is that a realistic goal? • Should it be a goal of the PLAN? • Great way to view dividends, interest, and funding from a strategic standpoint. • Measure of opportunity cost

  34. Pool NirvanaIs it Realistic? • Other Pools Achieved? • Under what conditions? • How has the PLAN compared? • Could we achieve it now?

  35. Pool Nirvana PLAN Results

  36. Pool Nirvana PLAN Results

  37. Pool Nirvana PLAN Results

  38. Pool Nirvana PLAN Net Expense

  39. Pool NirvanaWithout SIR Fund

  40. Net ExpenseSIR Fund Comparison

  41. Pool NirvanaShould It Be a Goal? • Other Uses of Funds • Dividends • Reduce Funding • Increase SIR • Increase Occurrence Limit • New Programs or Coverages • Increase Services - esp.. Loss Control

  42. Pool NirvanaShould It Be a Goal? • How would that change our current goals and practices? • SIR Fund = $10 mil • SIR = $10 mil? • Dividends? • Funding Credits

  43. Pool NirvanaReality • Interest Rate and Loss Probabilities make it unpredictable • Possible By-product of Overall Funding Strategy • Is a goal in the sense it reflects pool stability and efficiency • Good tool in measuring funding options and strategic objectives

  44. Pool NirvanaReality • Dividends should be used to make deposits more predictable • Help ease impact of budget fluctuations • Deposits above or below “predictable” level (@ = payroll increase) should be based on member’s compliance with loss prevention policies and preventable losses

  45. WOTS Analysis • Weaknesses • Opportunities • Threats • Strengths

  46. Prior Planning Meetings • Strengths & Benefits • Good Business Practices - Board, Staff & Members • Financially Sound • Members in Control & Act in Unison • Commitment to Training • Lower Premiums/stable pricing (How do we know?) • Equity Distribution

  47. Prior Planning Meetings • Weaknesses & Threats • Complacency & lack of flexibility in responding to change • Lack of some member involvement/connection • Claims & Litigation Management • Short-term vs. long-term thinking (i.e. equity expectations) • Pressure to reduce costs • No scheduled reassessment of member’s risk profile. • Bad Loss Trends - large loss(es) impact on equity/surplus

  48. 2001 Board SurveyTop Planning Issues • Insured vs. Self-Insured Funding • Addressing Specific Loss Control Issues • Maintaining Member Participation • Setting Objectives - Long & Short Term • Benchmarking • Keeping Costs Stable

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