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estimated;and the cost of liability claims incurred in the past couple years has increased compared to previous years. The increases in liability loss costs fall into four main areas. In all four areas,the cost increase isn't because we're seeing more claims; it's because the average cost of the claims we're seeing has increased. Here's a quick look at what we're seeing: • Land use claims make up the Iargest amount of liability loss costs—about 23 percent. Litigation costs related to land use regulation and development had been averaging between$2 and$2.5 million per year,but we now estimate that the costs for both 2006 and 2007 will be more than$3 million and the cost for 2008 appears likely to be in the same range. Part but not all of the increased cost is due to a small number of relatively expensive claims. • • Police liability costs also have also increased. Police liability accounts for about 19 percent of all liability loss costs. The overall cost has increased due to a couple factors. First,we've had some negative surprises in several cases we took to trial. (In other words,the juries found the city or officer liable in cases in which we expected to prevail,and/or decided the damages were significantly greater than we'd estimated.) Second, we've been seeing some new types of claims in the past couple years,most notably claims relating to TASER use. • Employment liability costs have also been high in the past couple years. This has mostly been driven by a small number of individual claims that have turned out to be very expensive. The good news,though,is that the number of employment liability claims hasn't changed much in the past few years, and is still well below what we'd typically seen in previous years. • Sewer claim costs also have been growing. Since 2004,sewer claims have averaged$1.7 million per year. Before 2004 it was unusual to see sewer claim costs hit $1 million per year. As in the other areas,the numbers of claims hasn't changed significantly,but the average cost per claim has increased. This is due largely to greater awareness of mold problems resulting in more costly clean-up. In addition,more finished basements mean more expensive items to replace. The upcoming increase in the statutory liability limits is also a factor in the liability rate increase, though it's actually a relatively minor element. In addition, savings in reinsurance costs have somewhat tempered the liability rate increase. Here's what's behind the other property/casualty rate changes. • Auto. Both auto liability and auto physical,damage losses have been coming in below the levels the rates were designed to fund. That, combined with some reductions in our reinsurance costs this year,makes it possible to reduce these rates again. The increase in the rate for the Uninsured/Underinsured Motorist(UM/UIM)coverage is due to some growth in the cost of claims incurred in previous years: • • Machinery breakdown coverage. The 15 percent rate reduction is mostly is due to a significant reduction in reinsurance costs for this coverage. 2 •