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Home My WebLink About22-City Clerk I CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION Dept: City Clerk's Office ~(Q)~V Subject: BICEP Joint Powers Authority financial statements & supplementary information for fiscal years ending June 30, 1995 and 1996. From: Rachel G. Clark, City Clerk Date: April 23, 1997 Synopsis of Previous Council action: 3/16/92 -- Received and filed statements for FY ending June 30, 1991. Recommended motion: That the Mayor and Common Council receive and file the Big Independent Cities Excess Pool (BICEP) financial statements and supplemental information for the fiscal years ending June 3D, 1995 and 1996. t..l)l~ .i..;~. I" ..'~ t'.;..C":;. .:.... j..e.:.,:"; ~." . I~~: LJ ~~~L /:::J C;~- Signature Contact person: Rachel G. Clark Phone: ';002 Supponing data attached: Yes Ward: FUNDING REQUIREMENTS: Amount: Source: (Acct. No.l (Acct. Oescriotionl Finance: Council Notes: Continued to () 5 IF! 1"17 5/5/'17 , 75-0262 Agenda Item No.J..:J- BIG INDEPENDENT CITIES EXCESS POOL JOINT POWERS AUTHORITY c/o General Manager, Ken Spiker And Assodates, Inc. 14156 Magnolia Blvd., Suite 103 Sherman Oaks, California 91423 . (818) 788.0406 . FAX No. (818) 784.1187 ..........., .-- " . "_..J-'''J1 r 'Jl i-.r1l! April 16, 1997 ..- Ant 21 NI:5':' Ms. Rachel Clark, City Clerk City of San Bernardino 300 North D Street San Bernardino, California 92418 Dear Ms. Krasney: 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:sl Enclosure , \ \ \ BIG INDEPENDERr CITIES EXCESS POOL FIHlUICIAI. STATEMEJlTS AND SUPPIoEMEIITARY INFORMATION WID INDEPENDERr AUDITOR' S REPORT JUNE 30, 1996 aDd June 30, 1995 \ '. \ \ \ \ :iF J.. d-- 5/5/97 BIG INDEPENDENT CI~IES EXCESS POOL ~able of Collt:ellt:a paoe Financial St:at:ement:s: Independent: Audit:or's Report: Balance Sheets, June 30, 1996 and June 30, 1995 1 2 St:at:ement:s of Revenue, Expenses and Changes in Retained Earnings for the years ended June 30, 1996 and June 30, 1995 3 St:at:ement:s of Cash Flows for t:he years ended June 30, 1996 and June 30, 1995 Not:es to Financial St:atements 4 6-11 Supplement:ary Information Claims Development Informat:ion From Inception to June 30, 1996. Required Supplementary Information 13 EDW.-\RDS. EICHEL & BERA:\EK CERTIfiED Pl"BlIC _-\CCOl::'\T -\:>;TS 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, 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 out:ome cannot be predicted. 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 it. Pasadena, California January 22, 1997 f~'Jl~ f;.I...' " !l....-...-1-- Edwards, Eichel & Beranek Certified Public Accountants -J.6~ ~. RI JSE\lF..\D B( lLLE\ :l.KU SlIrE #IIX) P\S-\DE:\\. C \L1f()R:\I.\ 9 II 07-3059 818/351-3S00 F-\:\ SI8/351-3XO-J. E-~(,'IL 76064.2J@'.:ompuser\,e..:om BIG IHDEPENDERr CI~IES EXCESS POOL BALANCE SBEE~ June 3D, 1996 and June 3D, 1995 ASSETS Cash and cash equivalents, unrestricted Restricted cash equivalents Total cash and cash equivalents (Note 2) Investments (at cost, which approximates market value) (Note 2) Accrued interest receivable Total assets LIABILITIES AND RETAINED EARNINGS Liabilities: Accounts payable Unpaid losses and loss adjustment expenses (Note 3) Bonds payable (Note4) Less-unamortized issuance cost Accrued interest payable Estimated future premium adjustments Total liabilities Retained earnings Total liabilities and retained earnings 1996 ~ s 15,172 s 11,381 261.710 3.76'.'A6 276,882 3,773,667 15,387,801 13,505,500 198,042 156,750 S15.862.725 ~'7.435.917 s 14,295 s 9,970 4,006,065 4,130,971 12,550,000 ( 1.214.892) 11,335,108 12,855,000 ( 530.339\ 12,324,661 248,960 350,084 2SR.,Q7 ';'0 '31 15,862,725 17,435,917 !=:15.862.725 $17.435.917 The accompanying notes are an integral part of these financial statements. 2 BZG ZHDEPEHDENr CZ~ZES EXCESS POOL S~S OF RBVEHUE, EXPENSES lUlD CllANGES ZH !lftAZHED EARHZHGS Year. ended JUDe 30, 1996 and JUDe 30, 1995 1996 1995 Revenue: Deposit premiums earned Premium refunds Estimated future premium adjustments $ 2,080,178 18,542 $ 2,511,981 31;1 'l34 (7'l7. 277) 2.460.654 1.714.704 Expenses: Het increase in actuarially determined unpaid losses and. loss adjustment expenses Purchased liability insurance and reinsurance General and administrative expenses 988,039 1,398,567 84,541 1,676,802 213.534 184.520 2 . 600 . 140 1. 945.863 Excess (deficiency) of revenue over expenses, before net investment income 1139.486) "11.159\ Net investment income: Investment income Interest expense 1,088,609 I 949.123\ 139.486 1,305,980 11.074.821\ 231.159 Excess of revenue over expenses Retained earnings, at beginning of year Retained earnings, at end of year 5 5 These accompanying notes are an integral part of these financial statements. 3 BIG IHDEPEHDENr CITIES EXCESS POOL ST~S OF CASII FLOWS Years ended June 30, 1996 and June 30, 1995 1996 1995 Cash flows from operating Excess (deficiency) of over expenses before investment income 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 Increase (decrease) in accounts payable Increase (decrease) in unpaid.. losses and loss adjustment expenses premium Accounts receivable decrease(increase) (Decrease) increase in estimated future premium adjustments payable activities: revenue net $ (139,486) $ (231,159) 58,096 39,185 4,325 (27,949) 124,906) (1,230,669) 26,141 ~~q.4!;1\ 1.851.673 Net cash provided (used) by operating activities (561.4'-'-' 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 Net cash provided (used) by investing activities 1.882,301 1834.984\ 1.299.966 Continued on page 5 4 Cash flows from noncapita1 financing activities: Refunding of Series 1988 bonds and issuance of 1996 bonds Annual principal payments 1988 bonds Interest paid Refunding of remaining 1988 bonds Issuance of 1996 bonds Net cost of funding new issue Net cash (used) in noncapita1 financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 1996 1995 (520,000) ( 1,050,247) (12,335,000) 12,550,000 1745.1321 (485,000) (1,087,108) 12.100.3791 11.572.1081 (3,496,785) 155,080 ~ 773.61=;7 3.618 ~87 S 276.RR2 S 3.773.667 The accompanying notes are an integral part of these financial statements. 5 BIG INDEPENDENT CI~IES EXCESS POOL N~S ro FINANCIAL S~ATEHE:!r.rS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Oraanization and Ooerations 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 Accountina 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 Ecuivalents 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 IKDEPEND~ CI~IES EXCESS POOL Noo:ES ro FINANCIAL S~A~S continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): Rebatab1e Arbitraae Earninas 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. Deoosit 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 cla~s becomes known, investment income and expenses are realized, and BICEP's costs are allocated to each Policy Year. UnDaid Losses and Loss Adiustment Exoenses 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 "ost 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 (GASBlO), 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 HOTES TO FlHAHCIAI. STATEMEHTS cont.inued 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 limitations) commercial paper (subject to certain . 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 Eauivalents. 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 Eauivalents 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, 1995, consist of: Cash equivalent-repurchase agreements and cash U.S. Treasury and Federal agency securities Commercial paper $ 261,710 15,137,801 250.000 SlS.649.511 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 uni~ 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 broker or agent but and unregistered investments held by the dealer or by its trust department of by an 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 INDEPEHDEJI'r CITIES EXCESS POOL NOTES TO FINANCIAL STATEMENTS continued 3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (continued): 1996 Unpaid losses and loss adjustment expenses at beginning of year 1995 $4,130,971 $5,361,640 Provisions for insured events of the current year Additional provisions for prior years Payments of claims reported (all in previous policy years) Increase (decrease) in funding levels for previous policy years. 84,541 (1,112,945) 84,541 62,071) 988,039 ( 1,253,139) Total unpaid losses and loss adjustment expenses at end of year S4.006.065 S4. 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 March 1, and September 1, 2005 March 1, 2006 and thereafter 101. 0% 100.5% 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 Princioal Interest Total 1997 1998 1999 2000 2001 $625,000 735,000 770,000 810,000 850,000 $736,463 703,380 666,048 626,071 581,585 $1,361,463 1,438,380 1,436,048 1,436,071 1,431,585 9 BIG INDEPENDENT CIrIES EXCESS POOL NOrES ro FINANCIAL SrA~S cont.inued 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 Premium paid on refunding Cost of issuance, new issue $504,214 370,050 372.599 1. 246. 863 Less amortization taken between March 1, 1996 and June 30, 1996. 31. 971 Balance outstanding, June 30, 1996 $1. 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 anyone 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 insurance the period 1995. Services, formerly Rollins Hudig Hall, serves as BICEP's broker and brokered $2,614,551 in insurance agreements during ended June 30, 1996 and $2,668,832 in the year ended June 30, 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 CITIBS BXCESS POOL NOTES TO FINANCIAL STATEMBllTS continued Note 7 UNCERTAINTY RELATED TO A CLAIM INVOLVING A KEMBER 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. "'"' - 11 SUPPLBIO:Jr.rAL IlIFOllKA!rIOIf Policv Year Ended June 30 1993 1994 $2,317,408 1,705,829 $2,513,490 1,717,915 886,906 1,035,407 3,488 886,906 10,000 711,287 1,035,407 767,244 ($175,619) ($268,153) 1995 $2,511,981 1,305,980 $ 1996 2,080,178 1,088,609 $