PURMIT Board of Trustees Meeting
March 9, 2016
9:00 a.m. – 2:00 p.m.
Minutes
Trustees Present: Ryan Hagemann (WOU); Craig Morris (SOU); George Marlton (OIT); Patrick Hughes (OSU)
Trustees Present by Phone: Brian Roy (PSU) Trustees Absent: Lara Moore (EOU)
Others Present: James Parker (DWT); Ryan Britz (Berkley); Ashley Grealish (USSE); Karen Graham (AJG); James Martinez (AJG); Ty Goare (AJG); Jon Paulsen (Berkley); Sheri Reintjes (Berkley); Kim Severson (Berkley), James Rozzi (RPS), Joshua Fletcher (Lexington), Ted Dow (Lexington)
Others Present by Phone: Jaime Kilcoyne (K Financial); Annette Schmidt and Jeff Nass (Berkley Risk)
Call to Order
Chair Patrick Hughes called the meeting to order at 9:00 a.m.
Roll Call
Roll call was taken of those present and on the phone.
Review and approval of minutes
Meeting minutes from the December 3 Board of Trustees meeting reviewed and discussed. Ryan Britz brought two items to the attention of the Board: the meeting minutes from the December 3 meeting that were distributed with the board packet inadvertently omitted page three. Mr. Britz redistributed the meeting minutes with page three included. Mr. Britz pointed out that page four of the December 3 meeting minutes, specific to the section related to the start date of the claims contract with Berkley, had the incorrect year, with the meeting minutes showed 2015, the correct year is 2016.
Action:
A motion was made by Mr. Morris to approve the minutes and corrections. The motion was seconded by Mr. Marlton. The motion carried with no objections.
Financial Audit discussion
Mr. Kilcoyne from K Financial presented the audit findings to the Trustees. Mr. Kilcoyne indicated that the 2015 audit was the first audit performed of the Trust’s finances by K Financial. Mr. Kilcoyne indicated that first time audits are often challenging for all parties and that Berkley provided the documents needed to adequately perform the audit. Mr. Kilcoyne indicated that there are two letters included in the audit packet: Statute 114 and Statute 115. Statute 114 outlines the responsibility of the auditor. Statute 115 outlines the responsibility of the Trust’s management. Statute 115 letter is used for management communication of any items regarding internal controls. Mr. Kilcoyne pointed out four items that were present during the 2014 term: accounts payable cut- off procedures properly reported; claim payment reconciliation; journal entry reconciliation and approval and SOC-1 report for claim handling. Mr. Morris requested a status update on these items from Berkley and Ms. Schmidt indicated she will address his question during her portion of the financial presentation.
Mr. Kilcoyne continued to address K Financial’s process for auditing. Most of K Financial’s time is spent on IBNR and loss and expense reserves. Mr. Kilcoyne expressed his thanks to the Trustees for selecting K Financial as the audit firm. Mr. Kilcoyne also expressed his thanks for the ability to present the audit work to the Trustees.
Action:
A motion was made by Mr. Hughes to approve the audited financial statement. The motion was seconded by Mr. Marlton. The motion carried with no objections.
Preliminary Allocation Discussion
Mr. Britz presented the preliminary allocation worksheets with the group. Mr. Britz started out by addressing the four areas that need to be adequately priced and accounted for as part of the allocation process: insurance costs, operational costs, expected claim costs (current and prior year development) and surplus. Mr. Britz commented that the intent for this meeting was to produce an allocation for each of the member institutions to provide some guidance as to what they can reasonably expect to be their individual program cost allocations as well as discuss any desired program structure changes. Mr. Britz discussed the workers’ compensation coverage and indicated that the information presented uses the estimated payrolls provided by each university as well as the expiring experience mods and other SAIF factors. SAIF will not have their quotes to PURMIT until late April. Mr. Britz commented that the actuarial ultimate loss pick provided by PWC was utilized for the worker’s compensation expected claims cost allocation. Mr. Britz did not use any fund surplus to offset the workers compensation allocation amounts. Ms. Graham questioned how adverse loss development in prior years would be handled through the allocation process. Mr. Parker commented that the workers’ compensation is not a pooled coverage and that each university stands on its own and therefore adverse claim experience would directly affect the university that experienced the claims.
Mr. Britz then discussed the General Liability allocation, mentioning that the information presented was based on the structure, retention and deductible amounts of the expiring program. The expected claim costs used were supplied and taken directly from the actuarial study. The premium for the excess liability insurance is expected to be reduced by 4%. Mr. Britz was waiting on confirmation of this information and did not have confirmation from the excess carriers that the credit had been applied. The surplus calculation process remained the same as in past years. Mr. Parker commented on the surplus requirement as determined by the State of Oregon. Mr. Britz commented that because there was no fund surplus allocation for the GL line, there was no off-set to the allocation amounts for GL. Mr. Britz further commented that Berkley did not utilize any fund surplus amounts to offset the allocation amount for any line of coverage. This is a change from the prior administrator. Mr. Roy commented that the Trustees and the administrator need to develop surplus goals for the Trust so the Trustees can better decide on allocation and pricing actions from year to year. Mr. Marlton requested further information about the allocation to OIT and how it was determined. Mr. Britz commented that he would discuss any specifics Mr. Marlton would like to explore. Mr. Marlton indicated he would like to set a conference call to have that discussion.
Auto liability allocation steps followed the same process and the general liability. Expected claim costs were taken directly from the actuarial study. Excess premium was apportioned per the pricing of the excess carrier. Operational costs we allocated using same methodology of the other coverages. There was no fund surplus off-set to the allocation.
Mr. Britz next discussed the property coverage. The property coverage has an effective date of 10/15 but the Trustees have expressed an interest moving the date to 7/1 so there is a common effective date for all Trust coverage. Berkley requested Arthur J. Gallagher to explore the possibility of changing the effective date to 7/1 and what steps need to occur to have this happen. Arthur J. Gallagher reported that they are working with the property carrier to develop options and believe that changing to an effective date of 7/1 will be a possibility for the Trust. Mr. Britz continued the property coverage discussion explaining that the allocation process for this coverage was the same as the others previously mentioned.
Finally, the direct specialty coverages that are placed based on a group purchasing philosophy were presented. These coverages are not pooled within the Trust and as such the premium was allocated to each member institution per carrier pricing.
The Trustees requested that Berkley work to analyze the revised liability retention amounts at varying levels to assist with determining the correct level of risk as well as surplus goals of the Trust going forward. Mr. Morris outlined the following takeaways: firm up cost/allocation with updated information from Arthur J. Gallagher and SAIF, run pro-forma models to provide guidance for discussion of surplus goals and Berkley to assist any member institutions with internal allocation questions.
July 1, 2016 Insurance Renewal Discussion
Ms. Graham from Arthur J Gallagher presented the renewal terms and conditions for coverage effective 7/1/2016. Ms. Graham mentioned the team that supports the PURMIT coverage brokering, specifically James Martinez and Ty Goare. Ms. Goare is new to the PURMIT program and will be taking on primary responsibility for coordination and placement of coverage. Mr. Martinez will continue to be involved with the program but in a different capacity than what he was previously. Ms. Graham commented that the Trust’s decision to hire an administration firm to handle the insurance operations of the Trust have given the insurance markets more confidence in the stability of the program and it is expected that as the Trust moves forward, there will be additional markets that will be interested in supporting the Trust.
Ms. Graham commented that they requested the excess carriers to provide quote options at varying retention levels. The costs for the reduced Trust retention needs to be weighed against the offset in claim costs for the reduced retention. Berkley will work with Arthur J. Gallagher and PWC and provide analysis of buy down options and associated costs and benefits. In addition to the expiring limits option, Ms. Graham provided terms and conditions for an additional limit of $25M above $50M. Ms. Graham also presented an alternative carrier approach to the $25M x $25M layer via a risk purchasing group. Ms. Graham commented that terms and conditions will be finalized and shared with Berkley for final allocation and discussion with the Trustees.
Mr. Martinez discussed the property coverage and change of renewal date options. The excess property carrier became involved with the program at 10/15/2015. As part of the property coverage transaction, the carrier is performing property inspections at all of the member sites. These inspections are critical to the support of the program by the property carrier as well as an important component to the risk management process of each institution and further to the Trust. Mr. Martinez commented that they are working with the carrier to revise the effective date from 10/15 to 7/1. It is important to note that there is currently a two-year rate guarantee, subject to a specific loss ratio. Mr. Martinez confirmed that changing the effective date appeared to be a reasonable request and that as part of the change there needs to be assurance that the current rate lock guarantee will hold or the possibility of resetting the rate and rate lock for another period. Mr. Martinez will work with the excess carrier and advise Berkley the outcome of the marketing efforts. Mr. Morris indicated that a common effective date, as long as terms and conditions remain favorable for the Trust, would be preferred.
Ms. Graham also presented another alternative product for the property coverage, being a three year aggregate product. There was some concern from the Trustees regarding the coverage and what happens when the aggregate limit is exhausted. Ms. Graham indicated the Trust would have the ability to purchase additional limit, though not certain of the reinstatement terms and conditions. Mr. Britz indicated that it would be important to know those specifics prior to moving forward with further discussion and analysis.
Ms. Graham also provided updates regarding the specialty coverage renewals:
- Crime – renewal option at $10M limit, deductible options at $100,000 and $50,000. Premium same as expiring for $100,000 deductible.
- Fine Arts – loss limit is adequate for exposures present. Premium is same as expiring.
- Foreign Package – rates same as expiring, limits same as expiring. Exposure has increased from last year. Continue to monitor and track exposures to ensure adequate limits.
- Multi Media – additional information needed from some of the members to finalize quote. Berkley will be working with the members to facilitate gathering of information.
- Non-owned aircraft – premium down due to decrease in exposure, limits same as expiring
Mr. Marlton expressed interest establishing cyber liability coverage either for the entire membership or for the TRU’s. Ms. Graham commented that if everyone were to purchase the coverage and have the coverage attached at a reasonable retention, there is potential for the purchase of adequate limits for each entity. Mr. Paulsen commented that a strategy may exist whereby a lower limit for the entire group and those that need more limit can purchase above the group limit. Ms. Graham and Mr. Martinez agreed that they would re-approach the marketplace and current carrier to see what options and limits exist based on this approach.
Financial Review as of 12/31/2015
Ms. Schmidt reported on the financial outlook of PURMIT. Ms. Schmidt informed the Trustees that the financials will be the same format as used by K Financial going forward for consistency. Ms. Schmidt provided an overview of the Q2 financials, including the following highlights:
Operating Results (on a combined basis – 2nd quarter, 2016)
- The total member contributions/revenue of $2.8M
- Total Losses & loss adjustment expenses of $2.8M
- General and administrative expenses of $331K
- Other Income of $900 dollars
- And a net loss to Surplus of $345K for the second quarter.
Operating Results (by fund – 2nd quarter, 2016)
Trust (which includes Direct Specialty and Operations)
- Total Revenue of $310K, Operating Expense of $304K, and resulting in operating income of $5K, and ending the second quarter in a positive net position of $62K.
G/L & Auto
- Total Revenue of $1M, Losses of $1.3M, resulting in operating loss of $320K, and carrying over a loss position from prior year of $2.6M, and ending the second quarter at a negative net position of $2.9M.
Property
- Total Revenue of negative $137K, losses of $66K, operating expense of $27K, resulting in operating loss of $231K, and carrying over a positive position from prior year of $1.6M, and ending the second quarter at a positive net position of $1.4M.
Workers Compensation (WC)
- Total Revenue of $1.5M, losses of $1.3M, small operating expense of $88 for a regulatory fee, resulting in operating income of $199K, and carrying over a positive net position from prior year of $2.6M, and ending the second quarter at a positive net position of $2.8M.
Ms. Schmidt briefly discussed the general and administrative expenses of $331K, and showing the comparison to the year-to date budget, and indicating that all expenses are on track.
Ms. Schmidt reviewed the Balance Sheet and a few highlights on a combined basis are as follows:
- Under Assets, cash and cash equivalents totaling $9.7M for Q2, this includes the operating and money market accounts, Accounts receivables of $302K, Fixed Assets of $81K which is the CSC Riskmaster Software, Prepaid Assets of $2.1M, which is the insurance premiums, for total Assets of $12.3M
- Total Liabilities of $11M which include reserves for losses and loss accrued expenses, and Accounts Payable of $255K.
- And ending the second quarter with $1.3M of Surplus.
Ms Schmidt also discussed the five items on the internal control letter from K Financial, indicating that these items will not be a concern going forward as they are all incorporated in the normal course of business at Berkley Risk Administrators.
Workers’ Compensation – Retrospective Rating Plan
Mr. Britz reviewed the SAIF policy and retrospective rating plan with the Trustees. This was an overview of the current WC program that has been in place going back to the DAS days. Mr. Britz outlined how the premium has been calculated, discussed experience mods and class code rates being used by SAIF. Mr. Britz also reviewed the retrospective rating plan from a current year as well as past years and the 10 year retrospective review of losses. In addition, Mr. Britz discussed the possibility of exploring another insurance option, self-insurance. Similar to other pooled Trust lines of coverage, there are many programs in existence today that utilize the self-insurance structure for WC. Mr. Morris expressed interest and agreed that it would be appropriate to continue to perform due diligence on other WC options for consideration by the Trustees. Mr. Parker commented that there are specific regulatory requirements that need to be considered and accomplished depending on the desired program structure. Mr. Britz commented that Berkley would continue to work through the process and bring back to the Trustees a plan for consideration to move this process forward.
Claims Discussion
Ms. Severson provided information to the Trustees regarding activities by Berkley staff since inception of the claim handling contract began effective January 1. Berkley has conducted conference calls with all current and former Trust members to get an understanding of all claims, processes, procedures and identification of any claims that are in need of immediate attention. In addition, Ms. Severson and other Berkley staff have met with three member universities and will be meeting with others in the near future. Berkley staff has requested that PURMIT members submit all Trust coverage claims to Ms. Severson so she can accurately assign those claims to the appropriate coverage part and assist with claim adjudication and communication where appropriate. Mr. Marlton asked if there needs to be rule or referendum to make certain all claims get reported to Berkley. Mr. Morris commented that the Risk Council should be made aware that all claims are to be reported to Berkley. Mr. Paulsen also commented that it is standard practice to discuss claims that exceed $100,000 with the Trustees. Berkley will bring claims that meet this threshold to the Trustees attention quarterly.
Action:
A motion was made by Mr. Morris that all members must report all claims related to PURMIT- procured policies (whether report only, within the member’s retention, or within the Trust layer) to Berkley as soon as practical. The motion was seconded by Mr. Hagemann. The motion carried with no objections.
Berkley staff discussed with the Trustees their initial thoughts on trends and development areas that have come to their attention in the early stages of their claim involvement. Legal bills incurred by member institutions were a focus of discussion. Berkley commented that there may be ways to reduce legal expenses on specific claims. Mr. Morris requested Berkley talk with member general counsel to discuss the findings and explore options to improve efficiency. Mr. Hagemann commented that there are times where the need exists to aggressively pursue litigation. Mr. Britz agreed with Mr. Hagemann that each claim has its own merits and there may be efficiencies recognized on certain claims or types of claims versus others. Berkley staff will continue to review legal spend on claims and present potential options for Trustee consideration.
Mr. Paulsen provided an update on the claims transition process from the prior systems into Berkley’s in house program. Pulling the prior data from two sources proved a bit challenging for a variety of reasons. Berkley informed the Trustees that they worked with each member institution and the actuary to establish a “baseline” at the end of 2015 for the launch point going forward.
Berkley combined the data from both prior sources and tied to the actuarial report for consistency. When these data sets tie together, Berkley will push the information into their claim software. Once the claim information is loaded, Berkley will then begin adjudication and data entry for claim transactions going forward. Mr. Graham commented that these procedures and practices will assist with the placement of the excess coverage going forward. Berkley staff commented that their goal was to have all the claim info into their system and ready to produce a loss run as of the end of March.
Legal Counsel Update
Mr. Parker provided a banking and PUF update to the Trustees. The banking arrangement between PURMIT and Treasury is ready to move forward once the terms of the banking agreement are finalized. The next step will be to negotiate PURMIT’s ability to join the PUF. The DOJ has previously agreed that PURMIT is eligible to to participate in the PUF. However, the PUF agreement itself requires an attorney opinion letter. Mr. Parker outlined three options for the next step to have access to the PUF: (1) have DWT request that the DOJ allow OSU and Treasury to amend their agreement to expressly include PURMIT as a participating member in the PUF; (2) have DWT write the opinion letters requested by OSU; and/or have PURMIT participate in Treasury short term fund and try to amend legislation during next legislative session to include PURMIT as a named member of the PUF. Mr. Morris commented that if the Trust waits for next year’s legislative session, the Trust could miss out on the interest from the PUF for the remainder of this year and possibly next year.
Action:
A motion was made by Mr. Hagemann instructing DWT to pursue the first two options simultaneously and authorizing the Chair to pre-approve up to a $30,000 budget to complete the opinion letters described above for PURMIT’s inclusion in the PUF. The motion was seconded by Mr. Hughes. The motion carried with no objections.
Lexington Property Coverage Presentation
Ms. Graham introduced Mr. Rozzi, Mr. Fletcher and Mr. Dow to the Trustees. Mr. Rozzi works with RPS (a division of Arthur J Gallagher), Mr. Fletcher and Mr. Dow work for Lexington. Mr. Dow started the conversation by commenting that all inspections have been ordered for the member institutions and are anticipated to be complete by mid to late spring. All inspection results will be discussed individually with each institution as the inspections are completed. In addition to inspections, Lexington is also willing to assist with building plan reviews. Mr. Martinez asked if there had been any feedback from any of the institutions regarding the inspections to date and there had not been any. Mr. Martinez asked Mr. Fletcher if Lexington would be willing to consider a cancel/rewrite of the coverage at July 1, 2016. Mr. Fletcher commented that he did not see any issues with changing to a July 1 effective date. He did request that they be allowed some additional time to perform additional inspections before they made a final determination. Mr. Britz asked if there was any additional information needed by Lexington to keep this moving. Mr. Fletcher and
Mr. Rozzi commented that they have all of the underwriting information at this time and will wait for additional inspection results and then be in contact with their decision on the cancel/rewrite. Ms. Graham commented that there are some alternative products coming to the market that may be something PURMIT will want to consider. Mr. Rozzi commented that there is a 3 year aggregate product that has been made available to certain entities. The intent of the product is to engineer natural catastrophe type exposures to each client and add more science to the rating program compared to what has traditionally existed. The program would have a 3 year aggregate limit with one reinstatement provision. Mr. Rozzi commented that they will continue to work on this product with Lexington and provide additional information to Ms. Graham. Mr. Morris thanked Mr. Rozzi, Mr. Fletcher and Mr. Dow for making the trip to Oregon to introduce themselves and their products.
Other Items
Mr. Britz commented that the next meeting needs to be set so the Trustees can finalize open items prior to July 1. The Trustees agreed to set next meeting on May 4, 2016.
Adjourn
A motion to adjourn the meeting at 2:33 pm was made by Mr. Hughes. The motion was seconded by Mr. Morris. The motion carried with no objections.
