05.02 - Insurance Liability Coverage Waiver

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Property /Casualty The $12 million property/casualty dividend will be distributed during mid - December 2011 to those who are property/casualty members as of December 1, 2011. The dividend formula will be the same as that used during the past several years. According to the formula, a city's share is proportionate to the difference between the city's total earned premiums and total incurred losses for all years the city has been a member, with large individual losses capped for purposes of the formula. This approach recognizes cities that have been long -time members and that have been most successful in avoiding and controlling losses. LMCIT experienced a significant run of large property losses from both storms and fires during the second half of 2010 and the first half of 2011. Specifically, total property losses during that time were about $18 million, with 12 events accounting for approximately $13.4 million of that total. Because of this string of expensive property claims, we had initially anticipated that any dividend from the property/casualty program this year would likely be much smaller than in recent years, and we began communicating that message to cities early this summer. But as we worked through the analyses and actuarial estimates, it became clear that some positive trends and developments on liability and other coverages would more than offset those very high property loss costs. Much of that good liability experience was in two areas: Land use litigation and employment liability. In both cases, it's a combination of better- than - expected results on claims from earlier years, and fewer -than- expected new claims during the past year. • Land use litigation accounted for 21 percent of liability loss costs during 2007 -2010. Typically, . LMCIT receives about 65 to 70 claims each year. The number of claims was slightly down in 2009 (58 claims) and down even more in 2010 (46 claims). Incurred costs are similarly down for those years, though still over $2 million annually. The claim counts and costs for the first six months of 2011 also look encouraging, though it's far too early to determine whether land use costs and claims are decreasing permanently or if it's just an anomaly. • Employment liability (I 1 percent) and sewer backup liability (also 11 percent) are also major pieces of LMCIT's liability loss costs during 2007 -2010. Employment liability costs remained stable during 2007 -2009, but have shown a decline for 2010 and 2011. Sewer costs have remained stable in recent years, with some exceptions due to specific events. • Police liability accounted for 26 percent of all liability costs during 2007 -2010. Much of the claim costs are due to a relatively small number of expensive claims, and therefore can fluctuate greatly from year to year. These good experiences with liability losses, as well some reinsurance restructuring, helped offset the extraordinary property losses, thus creating the opportunity for LMCIT to return a $12 million dividend. Workers' Compensation The $6 million workers' compensation dividend will be distributed during mid -April 2012 to those who are workers' compensation members as of April 1, 2012. Unlike the property/casualty program, the workers' compensation program has only occasionally returned dividends, most recently in 2000. Workers' compensation losses tend to be less volatile year to year than property or liability losses. Because of this, the "cushion" or contingency margin built into the workers' compensation rates is substantially smaller, which in turn means a dividend is less likely. However, loss costs for the 2006 -2009 period turned out to be less than projected and, as a result, the Board determined that we could return a $6 million dividend and still maintain an appropriate fund balance. 1-._1 31 Page