full disclosure

Full Disclosure

Are you treading water, swimming upstream, or

are you leading the pack?

Perspective

• As a Risk Manager

• Consultant

• Re-insurer

Objective/Vision/Mission

• Credibility–Third-Party review of financial

statements

• Integrity• Accountability• Challenges• Comfort level as an administrator

How many Risk Management Organizations engage/contract

a separate Independent Financial Audit of your risk

management activities?

How many internally create financial information, and as a component part of the state,

your financials are blended into the State’s financials?

Is there anyone who does not create financial statements, nor obtain an audit of their program

of any type?

How many produce an Annual Report, either as required by

statute, or simply to inform the public of your financial

condition?

FULL DISCLOSURE

• Governments have a special responsibility to provide the public with a fair representation of their financial affairs.

• End users of the financial statements are:– Citizens– Members of your pool– Representatives of higher units of government– Bond rating organizations– Creditors/investors

• How do State Risk Management agencies of government promote full disclosure?

• How do State Risk Management agencies of government provide the public with a fair representation of their financial affairs?

• Interim (monthly) financial statements

• End of fiscal year financial statements

• End of fiscal year financial statements audited by an independent auditing firm

• Alternatively, third-party financial review with an opinion

• Produce a Comprehensive Annual Financial Report (CAFR)

Report of Independent Auditors

• Our responsibility is to express an opinion on these financial statements based on our audit.

• To make certain the audited financial statements are free from material misstatements.

• In our opinion, the financial statements present fairly, in all material respects, the financial condition of the organization.

Independent auditors agreed to do

• Express and opinion on financial statements

• Review required supplementary and other financial information for consistency

• Review CAFR

• Report on compliance on internal controls

• Issue a management letter

How many prepare a Comprehensive Annual

Financial Report (CAFR) and submit it to the Government Finance Officers Association

(GFOA) for review?

CAFR publishers

• Unit of government, i.e., – a state; – a risk management agency– County– Municipality– School district

• Public college of university• Public employee retirement system• Governmental investment pool

Government Finance Officers Association (GFOA)

• GFOA encourages all government units to prepare an easily readable and understandable comprehensive annual financial report.

• CAFR provides reviewers useful information in evaluating the financial condition of a government.

LOSS RATIO

Loss Ratio

147%

105%

79% 75%

0%

20%

40%

60%

80%

100%

120%

140%

160%

2002 2003 2004 Industry

EXPENSE RATIO

Expense Ratio

6%7%

10%

25%

0%

5%

10%

15%

20%

25%

30%

2002 2003 2004 Industry

Combined Ratio

Combined Ratio

153%

112%

89%100%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

2002 2003 2004 Industry

2004 Unpaid claims and claims adjustment expense

(in thousands)

• Liability

• Property

• Mine Subsidence

• House Bill 601

• Total

• $170,850

• $2,723

• $2,497

• $43,258

• $219,328

Claims Dollars Incurred by Customer Type

Fiscal Years 1987 Through 2004

48%

18%

8%

9%

6% 11%

State Agencies

Boards of Education

County Commissions

Cities / Towns

Other Local Governments

Non Profits

Components of Total Claim Liability by Customer and Line of Business

18%

23%

3%7%24%

2%

1%

1%

1%

20%

State Gen. Liab.

SB#3 Gen. Liab.

State Auto

SB#3 Auto

State Med Mal

SB#3 Med Mal

State Property

SB#3 Property

Mine Subsid.

HB 601

Nominal Ultimate Values

Ultimates

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ultimate Projections

• 1995• 1996• 1997• 1998• 1999• 2000• 2001• 2002• 2003• 2004• 2005• 2006

• $36,802,486• $42,693,402• $42,711,737• $41,615,477• $41,020,612• $37,939,062• $35,948,256• $41,331,465• $46,708,337• $61,161,270• $65,484,645• $63,852,757

FY 2006 SB#3 Premiums

13,284,394

5,791,335

5,174,5295,725,293

15,572,082

Non-Profits

Other local Gov't

Cities

County Comm.

Bd. of Educ.

Unaudited Balance Sheet as of June 30, 2005

AssetsCash 55,377,752 Advance deposit w/carrier 41,874,643 Receivables 740,752 Total short term assets 97,993,147

Investments 101,839,637

Total assets 199,832,784

LiabilitiesAccounts payable 955,661 small claims payable 43,297 Agents commissions 2,080,335 Unearned revenue 10,991,091 Current claim reserve 50,361,651 Total short term liabilities 64,432,035

compensated absences 166,553 Noncurrent claim reserve 134,707,393

Total long term liabilities 134,873,946

Total liabilities 199,305,981

Prior yr retained earnings (27,385,950) Transfer to Mutual (4,582,267) Retained earnings 32,495,020 Total retained earnings 526,803

Total liabilities and ret.earn. 199,832,784

Unfunded Liabilitynet asset (deficiency)

UNFUNDED LIABILITY

(80,000)

(70,000)

(60,000)

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

-

10,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Fiscal Years Ended June 30

Dollars (in thousands)

Abbreviated Combined unaudited Balance Sheet at June 30, 2005

Assets State SB #3 Mine Sub HB 601 Total

Total short term 48,319,525 42,882,889 2,076,065 4,714,668 97,993,147

Total long term 56,325,852 25,097,226 20,416,559 101,839,637

Total assets 104,645,377 67,980,115 22,492,624 4,714,668 199,832,784

Liabilities

Total short term 24,368,207 37,135,311 1,694,741 1,233,776 64,432,035

Total long term 73,082,873 58,042,259 1,068,579 2,680,235 134,873,946

Total Liabilities 97,451,080 95,177,570 2,763,320 3,914,011 199,305,981

Prior yr earn (defic) (15,690,572) (29,571,951) 17,356,992 519,580 (27,385,951)Transfer to Mutual (4,582,267) (4,582,267)Ret earn (deficiency) 22,884,868 2,374,496 2,372,312 4,863,344 32,495,020Tot earn (deficiency) 7,194,296 (27,197,455) 19,729,304 800,657 526,802

Tot liab+ret earn(def) 104,645,376 67,980,115 22,492,624 4,714,668 199,832,783

Abbreviated Combined unaudited Balance Sheet at June 30, 2005

Assets State SB #3 Mine Sub HB 601 Total

Total short term 48,319,525 42,882,889 2,076,065 4,714,668 97,993,147

Total long term 56,325,852 25,097,226 20,416,559 101,839,637

Total assets 104,645,377 67,980,115 22,492,624 4,714,668 199,832,784

Liabilities

Total short term 24,368,207 37,135,311 1,694,741 1,233,776 64,432,035

Total long term 73,082,873 58,042,259 1,068,579 2,680,235 134,873,946

Total Liabilities 97,451,080 95,177,570 2,763,320 3,914,011 199,305,981

Prior yr earn (defic) (15,690,572) (29,571,951) 17,356,992 519,580 (27,385,951)Transfer to Mutual (4,582,267) (4,582,267)Ret earn (deficiency) 22,884,868 2,374,496 2,372,312 4,863,344 32,495,020Tot earn (deficiency) 7,194,296 (27,197,455) 19,729,304 800,657 526,802

Tot liab+ret earn(def) 104,645,376 67,980,115 22,492,624 4,714,668 199,832,783