bj post office box 12305 - government of new york

BJ Program Risk Management, Inc.Post Office Box 12305

Albany, New York 12212-2305

The Program Specialists

March 21, 2000

Ms. Suzanne LengioSelf-Insurance OfficeNYS Workers' Compensation Board20 Park StreetRoom 201Albany, NY 12207

Re: Health Care Providers Self-Insurance TrustAnnual Report

Dear Suzanne,

Please find enclosed two (2) copies of the HCP/SIT 1999Annual Report. In addition toproviding our program participants with the current years financials, we use this as part of ourpromotional material for prospective participants.

Please let me know if you have any questions or need additional copies.

Yours truly,

~eYPresident

1021 Watervliet-Shaker Road

Albany, New York 12205

e-mail: prm.com

Tel: 518/456-5557

800/958-7475Fax: 518/456-7080

Boardof TrusteesMichael Reda, ChairpersonAurora Home CareCheektowaga, NY

Thomas Buckley, SecretaryfTreasurerVNA of AlbanyAlbany, NY

Todd BrasonWILLCARE, Inc.Buffalo, NY

Robert CallaghanNew York Nursing Care, Inc.Hauppauge, NY

Jordan ShamesNeighbors Home CareBronx, NY

Carmen FlittHomemakers Upstate Group, Inc.Tonawanda, NY .

Judy Balaban-KraussWellness Home Care Ltd.Goshen, NY

Sanford KatzPriority Home CareNew York, NY

Ronald FieldCommunity Health CenterJohnstown, NY

Joel Hodes, Esq., Legal CounselWhiteman Osterman & HannaAlbany, NY

Phyllis Wang, PresidentHCPSITAlbany, NY

Page2 HCPSIT 1999 Annual Report

Growth IJlProgress

Covered Payroll (in millions)$400

$350

.$300

1997

Number of Participants140

120

$250

$200

$150

$100

$50

$01996 1997 1998 1999

100

80

.60

40

20

01996 1998 19991997

Average Experience ModifICation

1.061.041.02

10.980.960.940.920.9

1998 1999

HCPSIT1999Annual Report Page 3

The Year ii1Review

How did the Health Care Providers Self-InsuranceTrust do in 1999?

The one-sentence answer: growthcombinedwith a continuationof stable rateshas made the Trust an even better vehiclefor home care providers in New York Stateto satisfy their workers' compensationneeds.

The Health Care ProvidersSelf-Insurance Trust hadanother yea( of steadygrowth in 1999, andcontinued to demonstratethe strength and stabilitythat has become itshallmark.

Significant Growth

The fiscal year for the Trust ends on October 31.The 1999 fiscal year (October 31, 1998 throughOctober 31, 1999) saw 24 new members joiningthe Trust. These new membersadded $80,855,649in new payroll and $1,215,826 in newcontributions.

A comparison of statistics as of 10/31/98 and10/31/99 shows:

. Number of participants increased from 110 to128, a 16% increase.

. Contributions increased from $5,663,828 to$6,332,937, a 12% increase.

. Covered payroll increased from $316,992,496to $407,882,444, a 29% increase.

. Average experience modification decreasedfrom 0.98 to 0.95, a 3% decrease.

The growth continued after October 31, 1999-asof January 31, 2000, the total number of Trustparticipants was 135, with estimated payroll of

Page 4 HCPSIT 1999 Annual Report

$461,000,000 and estimatedcontributions of $6,900,000.

Stable Rates

, '

.,A, wprd frQm,a.,part;cipant:"04F,£?iperience~rfrB<Trust has been vety positive.

Th13~inlttalpif1m'Jc{' jJdctioni 'Whilesignificant, is only, "', ,,' ,!\,~,"'..2" ,,', ..,,", ",. ,,' ... ,,' , "

,a ...$/Tlaf(fJq.liieQtJe2f]f~TJtffe';'valu.e to' us. The ongoing,'" ""0. '"',:,,~'':..Iii_,j'~'-:,,::'''';.J...i..;''' ~',..~~~~:hilitvof,LL- r"'Ir"'IJ(

The continued strength and stabilityof the Trust was once again

.. demonstratedby its abilityto holdrates steady during 1999, as it hasfor the past three years. From itsinception, a major goal of the Trusthas been to consistently maintainstable (andvery competitive) rates.This allows providers to planfor thecost of worker!:?'compensation in away that is not possible forcompanies who must deal with the vagaries andfluctuations of the commercial workers'compensation market.

- For any business, the promise of self-insurancegroups in general is lower rates. In the field ofworkers' compensation, that is possible becauseof the opportunity to actually reduce costs by

reducing injuries - and accidents. (See,accompanying articleon "Safety'j

The soft market has, however, caused some self-,insurance groups -to take questionable risks thathave come back to haunt them. Seeking the lowestconceivable rates for the current-year, they haverisked the financial stability of the group. The Trust

Trust expandsreinsurancecoverageHCPSIT significantly expanded the reinsurance that supports the self-insurance pool in 1999.

As of October 31, 1999, the Trust has purchased "statutorY" Employers Liability coverage and"statutory" Aggregate reinsuranceand, by doing so, now has coverage equal to fully insured plansfor these two features. There is no additional cost to the participants of the Trust for this addedprotection. . .Since its inception in 1993, the Trust has maintained Employers Liability and Aggregate reinsurance,with specific limits. The fact that the reinsurer has now agreed to provide each of these coverageswithout limits i,sa testament to the strength and stability of the Trust and is another unique featurethat distinguishes it from most other self-insurance trusts in New York State. The Trust may, in fact,be the first self-insurance trust in New York State to feature statutory Employers Liability andstatutory Aggregate reinsurance.

Employers Liability covers a situation where, for example, one agency has contracted with anotherfor services and an injured employee sues the other agency who, in turn, sues the employer.Aggregate reinsurance covers total losses above a set amount. This additional reinsurance issignificant in that it provides additional protection to Trust participants and, once again, demonstratesthe conservative manner in which the Trust is being operated.

HCPSIT 1999 Annual Report Page 5

has not done this. Program Risk Management, Inc.(PRM), Program Administrator for the Trust, hasworked hand-in-hand with the Board of Trustees to

carve out a conservative, fiscally prudent coursethat ensures the long term viability of theorganization.

Low rates? Yes, always. Dangerously low rates thatwould probably attract a volume of new participantsbut might be followed the next year by drastic hikes,participants pulling out and the future in doubt? No.

The Trust has been prudently managed for the long

Safety is the keytI

'r:f

The Trust has made safety in the workplace a top priority for all its participants.A key advantage ofthe self-insurance concept is the potential to create actual savings by reducingclaims and injuries.

The most successful and financially stable self-insurance programs have succeeded in creatingsaferworkplaces by instituting strong and comprehensive safety programs. In-depthknowledge ofa particular industry (home care, in the case of the Trust) and comprehensive data about thatindustry creates the opportunity to establish "best practices"-techniques and programs that reallywork and succeed in reducing injuries. Reductions in the number and severity of accidents andinjuries translates directly to the bottom line of the provider by keepingcosts and contributions low.

Education and communication are essential to ensure that all Trust participants have theopportunity-and the obligation-to join in safety training.

The Trust's Loss Qontrol/Safety Committee, working in collaboration with Program RiskManagement, Inc., ProgramAdministrator,created the Trust's Risk Managementand Loss ControlManual. The Manual is used to work with participants to reviewmonthly loss runs,develop accidentprevention methods and encourage prompt reporting of claims after incidents. .

The Trust arranges for professionals from PRM's Risk Management and Loss Control Division totravel the state meeting one-on-onewith participants to analyze individual results and to communicatethe safety practices and techniques that have been proven to work. Not only does this help theindividual provider to implement loss control programs, it also provides feedback that aids allparticipants.

Ih addition, the Trust sponsors a series of educational seminars on Loss Con~rol, Risk Managementand Safety Management in the workplace, held two or three times each year in various locationsaround New York. The seminars, staffed by PRM experts, are another vital component of thesafety effort.

Providers who become participants in the Trust have a responsibility to other participants to keepclaims and losses down for everyone. Each participant must work to minimize the risk for allparticipants. The Trust's intensive safety efforts have been well-received by participants. Providerswho have been in the Trust since the beginning know just how well those safety efforts havesucceeded. .

Seven years worth of data and experience permits the Trust to continuously refine its safety andloss control practices. Every participant has benefited.

Page 6 HCPSIT 1999 Annual Report

I1I1

term and its success is borne out by its record ofstable rates, its ability to consistently attract newparticipants each year and the fact that fewproviders,oncetheyjoin theTrust,everleave. .

Reinsurance

A very significant 'eventoccurred in the fall of 1999when the Trust was able to expand its reinsurancecoverage by purchasing "statutory" EmployersLiability coverage and "statutory" Aggregatereinsurance. (See accompanying article on"Reinsurance.") Possibly the first self-insurancegroup in New York to achieve this milestone, the

. Trust once again stands out from its peers.

The Track Record

A proven track recordhas meant the Trust is now a .model for self-insurancegroupsand a successstorythat has few, if any, rivals in the field of workers'compensation. The Trust has provided low-cost

. coverage for providers, advancedcustomer serviceand kept the risks of self-insurance to a minimum.

At the end of 1999, HOP, sponsor of the Trust,conducted a comprehensivesurveyof its members,asking (among other things) their degree ofsatisfaction with various HCP programs andservices, including the Trust. Among thoseexpressing an opinion, the Trust receivedvery highsatisfaction ratings. Eliminating respondents whohad no opinion or no experiencewiththe Trust resulted in 87..93%expressing satisfaction(67.24%wereextremely satisfied) and another12.01% saying they were neutral.

Not a single person expressedactualdissatisfaction with the Trust.

An industry leader, the Trust is theonly self-insurance program withcomprehensive data on bestpractices in the home care industry.This has allowed the Trust tointroduce innovativeprogramsin losscontrol, accident prevention and

claims handling which have been a significant helpto all participants.

During 1999, as in previous years, the PRM LossControl team made on-site visits to all newparticipants and many existing participants.

The focus of the visits continues to be:

. Prompt reporting of claims.

. Accident investigation.

. Bloodborne pathogens standard.

. Controllingbackinjuries.

. Adherence to care plans.

. O'rivingandweather-relatedexposures.

. OSHAissues.

. . Ergonomics.

. Establishing a "Safety Culture."

In addition to these individual on-site visits, seminarson safety, .Iosscontrol and claims man~gement wereheld in the spring of 1999 in three locations aroundthe state, giving participants (and potentialparticipants) the chance to learn valuable processesand techniques. For 2000, the seminars will againbe offered and the on-site visits will continue,bringing new participants up to speed and


reinforcing the good practices of existingparticipants.

The future

Based on the past, it is safe to say that the entireworkers' compensation industrywillcontinue to seea boom and bust cycle-low rates and easyavailabilityfollowedby a hardening of the marketand higher rates followedby lower rates and readyavailability.

Where are we in the current cycle? Most likelyheaded toward somewhat higher rates over the next

few years as wellas increased

difficulty. inobt?iningcoverage,according to theexperts atProgram RiskManagement. (Inaddition to thetrends affectingthe industrythroughout theUnited States, anincrease inbenefit levels in

. NewYorkState isvery possible, even likely, in the next few years asbenefits in New York are lower than most otherstates and lower than all surrounding states. Thisalso, obviously, has an impact on rates charged forworkers' compensation.)

One thing is clear.The Trust has a record of stablerates (lower than competitors) cQmbined withfiscally-prudent management that has lowered theinherent riskswhile makinggreatstrides in reducingaccidents and injuries. That record is unmatched inNew York State.

Providers who would like to learn more about theTrust and whether they should join in this endeavor -

are invited to call PRM, the ProgramAdministrator,at 800/958-7475 for a comprehensive discussionand a rate quote.

SeIVice ProvidersTo best manage portions of the program, theTrust contracts with a variety of professionalservice providersincludingactuaries, auditorsand professional third-party claimsadministrators.

ProgramRiskManagement,Inc. (PRM), is theProgramAdministratorfor theTrust and is oneof the largest ProgramAdministrators in NewYork State. In addition to administering theTrus~and a companion program, the HealthCare ProvidersDisability BenefitsTrust, PRMalso offers a full line of traditional insuranceproducts to HCP members at low cost.

Actuarial ServicesStergiou & Gruber Risk Consultants, Inc.Lyndhurst, New JerseyInvestment AdviserThe Chase Manhattan Bank, N.A.Rochester, New York

AuditorDeChants, Fuglein & Johnson, LLPLatham, New York

Legal Counsel .

Whiteman Osterman & HannaAlbany, New York

Third-Party AdministratorPRM Claim Services, Inc.Albany, New York

FinancingA.I. Credit Corp.New York, New York

ReinsurerSafety National Casualty Corp.St. Louis, Missouri

Program AdministratorProgram Risk Management, Inc.Albany, New York

Page8

'lIT

HCPSIT 1999 Annual Report

Independent Auditors/ Report

> To The Board of Trustees

Health Care Providers Self-Insurance Trust

Albany, New York

We have audited the accompanying balance sheets of Health Care Providers Self-Insurance Trust asof October 31, 1999 and 1998, and the related statements of income and members' equity, cash flowsand comprehensive income for the years then ended. ~hese financial statements are the responsibilityof the Trust's management. Our responsibility is to express an opinion on these financial statementsbased on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standardsrequire that we plan and perform the audits to obtain reasonable assurance about whether the financialstatements are free 'of material misstatement. An audit includes examining, on a test basis; evidencesupporting the amounts and disclosures in the trnancial statements. An audit also includes assessingthe acc9unting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audits provide a 'reasonable basis forour opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Health Care Providers Self-Insurance Trust as of October 31, 1999 and 1998, andresults of its operations and its cash flows for the years then ended in conformity with generallyaccepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic financial statementstakenas a whole. Theaccompanyingsupplementaryinformationis presentedfor purposesof .

additional analysis and is not a required part of the basic financial statements. Such information hasbeen subjected to the auditing procedures applied in the audits of the basic financial statements and, inour opinion, is fairly stated in all material respects in relation to the basic financial statements taken asa whole. .

D~)~<J-~/WDeChants, Fuglein & Johnson, LLP

January 13, 2000


lJl"

Statements of Income1999 % 1998 %

CONTRIBUTIONSContributions Written $6,228,963 $ 5,235,781Less Program Administration Commissions (540.154) (527.841)

Net Contributions Written 5,688,809 4,707,940Change in Unearned Contributions (196.692) 686.328

Earned Contributions 5.492.117 5.394.268

OTHER INCOME (EXPENSE)Debt Modification (51,814) 0Interest 533,543 604,333Dividends 148,574 153,954Gain on Sale of Securities 2.178.376 1.182.803

Total Other Income (Expense) 2.808.679 1.941.090

TOTAL INCOME 8.300.796 100.0 7.335.358 100.0

OPERATING EXPENSESClaims Incurred

Claims 6,169,246 74.3 4,806,817 65.5Claims Reserve (686.717) 470.513 6.4

Total Claims Incurred 5,482,529 66.0 5,277,330 71.9Loss Adjusting Expense 528.223 6.4 481.315 6.6

Incurred Claims and Adjusting Expense 6.010.752 72.4 5.758.645 78.5

Workers Compensation Fund Assessment 989.218 11.9 388.300 5.3

Insurance ExpenseTrust Reinsurance 354,378 4.3 300,765 4.1Other Insurance 14.766 0.2 14.155 0.2

Total Insurance 369.144 4.5 314.920 4.3

General and Administration-Schedule 1 1.007.147 12.1 919.037 12.5

Total Operating Expenses 8.376.261 100.9- 7.380.902 100.6

LOSS FROM OPERATIONS (75,465) (0.9) (45,544) (0.6)

INCOME TAXES-Note 8 (79.806)

Statements of Cash Flows'1999 1998

CASH FLOWS FROM OPERATING ACTIVITIES

Net Cash Used by Operating Activities

$6,258,197703,725

(9,095,050)(7,935)

(77.316)

(2.218.379)

$6,012,455783,318

(7,973,774)(9,110)

(38.135)

(1.225.246)

Cash Received tram MembersInterest and Dividends ReceivedExpenses Paid in CashInterest Paid in CashIncome Taxes Paid in Cash

CASH FLOWS FROM INVESTING ACTIVITIES

Cash Paid tor InvestmentsCash Proceeds trom Sale at InvestmentsCash Proceeds trom Bonds Maturing/CalledCash Loaned as Line-at-CreditCash Paid tor Purchase at Equipment

Net Cash Provided By Investing Activities

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS

CASH AND CASH "EQUIVALENTS-Beginning at Year

CASH AND CASH EQUIVALENTS-Endat Year

The accompanying notes are an integral part of these financial statements.


(9,730,931) (5,136,727)7,880,837 6,603,5872,945,438 1,289,000(249,200) (217,300)

(22.805) (6.507)

823.339 2.532.053

(1,395,040) 1-,306,807

2.186.772 879.965

$ 791,732 $ 2,186,772

'"

Statements of Cash Flows1999 1998

RECONCILIATION OF NET INCOME TO NET CASHUSED BY OPERATING ACTIVITIES.NET INCOME $4.341 $3.351

ADJUSTMENTS TO RECONCILE NET INCOMETONET CASH USED BY OPERATINGACTIVITIES

DepreciationDebt ModificationAmortization of Bond PremiumGain on Sale of Securities

15,55951,8143,201

(2,178,376)

13,1730

3,385(1,182,803)

Decrease (Increase) in:

Accounts Receivable. .Interest and Dividends ReceivableIncome Tax Refund Receivable

Prepaid Income TaxesPrepaid Trust ReinsurancePrepaid Loss Adjustment ExpenseOther Prepaid ExpensesDeferred Income Tax Benefit

. 25,20821,608

(79,250)2,267

66,71912,592

(53,665)(82,150)

776,67421,645

(14,350)70,610

(66,719)(12,592)

(835)(142,965)

Increase (Decrease) in:

Accounts PayableUnearned ContributionsClaims ReserveAccrued Fund AssessmentAccrued Management FeeAccrued Income TaxesAccrued Loss Adjusting ExpenseOther Accrued Expenses

TotalAdjustments

NET CASH USED BY OPERATINGACTIVITIES

The accompanying notes are an integral partttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt

112,792 (31,193)200,718 (686,328)

(686,717) 470,513192,397 (273,197)

3,538 (91,298)2,011 (325)

94,120 (56,833)52.894 (25.159)

(2.222.720) (1.228.597)

$(2,218,379) $(1,225,246)

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Statements of ComprehensiveIncome1999 1998

NET INCOME $3.351$4.341

OTHER COMPREHENSIVE INCOME (LOSS)," NETOFTAX

Unrealized Gains (Losses) on Marketable Securities

Unrealized Holding Gains Arising During PeriodLess: Reclassification Adjustment for Gains Included

in Net Income

411,223 788,360

(761.038)(1.424.126)

(1.012.903) 27.322Other Comprehensive Income (Loss)

TOTAL COMPREHENSIVE INCOME (LOSS) $(1,008,562) $30,673

.The accompanying notes are an integral part of these financial statements.


~

Notes to FinancialStatementsNOTE 1-Summary of Significant Accounting Policies

The following is a summary of significant accounting policies consistently applied by management in thepreparation of the accompanying financial statements:

Trust Purpose-The Trust is a group self-insurance organization providing Workers' Compensationcoverage in the State of New York to employers in the home care industry. In addition, the Trust promotesa safety program dedicated to the prevention of occupational accidents and disease and to improve themedical care -and promote the rehabilitation of injured workers.

Income Recognition-Contributions are considered short-duration contracts and are recognized as incomeover the period of the contract.

Accounting Method-The financial statements of the Trust have be!3n prepared on the accrual basis.

Concentration of Credit Risk-The Trust maintains its cash balances at various financial institutions in New

York. Accounts are insured by the Feder?1 Depository Insurance Corporation up to $100,000. At October31, 1999, there were no uninsured cash balances. The Trust also maintains cash balances in mutual fundmoney market accounts and securities with a bank investment department locp-ted in New York. Theseac'counts are insured up to,$200 million for fraud, theft or bankruptcy of the brokerage firm. They areotherwise uninsured. At October 31, 1999, the Trust's uninsured cash and securities balances were$17,463,852.

Cash and Cash Equivalents-Forthe purpose of the statements of cash flows, the Trust considers all cashand invested cashwith original maturities not in excess of three months to be cash equivalents.

Use of Estimates-The preparationof financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect the reported amounts ofassets'and liabilities and disclosure of contingent assets and liabilitiesat the date of the financialstatements and the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

Contributions-Contributionsare recorded based on estimated payroll of the participating members. Nofinal adjustment has been made in the 1999 contract year for the difference between estimateqcontributions and,contributions calculated based on audited payrolls of the members. Such finaladjustments will be made prospectively upon completion of such audits.

Property and Equipment-Propertyand'equipment are stated at cost. Depreciation is being recovered bythe straight-line method for book purposes and the accelerated method for tax purposes. The estimateduseful lives of the assets.are as follows:

Equipment 5-7 years Leasehold Improvements 5 years

Income Taxes-TheTrust recognizesthe tax effects of transactions in the year in which such transactionsenter in the determinationof net income, regardless of when recognizedfor tax purposes. The Trust willrecognize deferred taxes for income and expenses that are reported in different periods for tax andfinancial statement purposes in accordance with Statement of FinancialAccounting Standards No.1 09,Accountingfor IncomeTaxes. .

Reclassifications-Certainreclassifications have been made in the 1998 financial statements to conformwith the 1999 financial statement presentation.

HCPSIT 1999 Annual Report Page1S

Notes to FinancialStatementsNOTE 2-Marketable Securities

The Trust's investments in marketable equity and debt securities are classified as available-for-sale.Realized gains and losses, determined by using the specific identificationmethod, are included inearnings; unrealized gains and losses are reported as a separate component of members' equity.

The amortized costs and fair value were as follows at October 31, 1999 and 1998:

Amortized.Costs

GrossUnrealized

Gains

GrossUnrealized

LossesFair

ValueOctober 31. 1999

Available for Sale:

Equity SecuritiesUS Treasury and Agency ObligationsCorporate Obligations

Totals

October 31. 1998

Available for Sale:

Equity SecuritiesUS Treasury and Agency ObligationsCorporate Obligations

Totals

$8,701,4115,654,173

932.192

$15,287,776

$ 2,261,609623,994

15.384$2,900,987

$1,005,6760

1.977$1,0_Q7,653

$9,957,3446,278,167

945.599

$17,181,110

Unrealized gains on securities available-for-sale in the amount of $358,632 and $1,893,334 has beencharged to members' equity for the years ended October 31, 1999 and 1998, respectively.

The amortized costs and fair value of debt securities at October 31, 1999, by contractual maturity, areshown below.

US Treasury and Agency obligations:Due in one year or lessDue after one year through five years

. Due after five years through ten yearsDue after ten years

Total

Corporate obligations:Due in one year or lessDue after one year through five yearsDue after five years through ten yearsDue after ten years

Total


$9,682,922 $1,461,723 $976,812 $10,167,8335,649,776 20,882 116,350 5,554,3081.034.910 Q 30.811 . 1.004.099

$16,367,608 .$1,482,605 $1,123,973 $16,726,240

Amortized FairCosts Value

$558,383 $554,5501,055,875 1,034,7252,854,470 2,811,5331.181.048 1.153.500

$5,649,776 $5,554,308

$500,000 $499,7850 0

451,562 432,29683.348 72.018

$1,034,910 $1,004,099

'I

Notes to FinancialStatementsNote 2-Continued

During 1999 and 1998, sales proceeds and gross realized gains and losses on securities classified asavailable-far-sale were:

Gross Realized Losses

Sale Proceeds

Gross Realized Gains

NOTE 3-Note Receivable

The Trust provides a $600,000 line-of-credit, maturing October 31, 2000, to Health Care ProvidersDisability Benefits Trust, a related party. Interest on the unpaid principal balance is the prime rate (primerate being 8.25% as of October 31,1999). Interest income on this note was $9,851 and $16,841 for 1999and 1998, respectively. During ~hecurrent year, theTrust modifiedthe debt by $75,000 which included$23,186 of accrued interest.

NOTE 4-Letter-of-Credit

The Trust has an irrevocable letter-of-credit with Chase Manhattan Bank, NA in the amount of $5qO,000expiring April 16, 2000. The Trust incurred letter-of-credit charges of $4,576 and $5,500 in 1999 and 1998,respectively. Restricted amounts for the letter-of-credit are $83,652 and $558,629 in cash and $591,841and $499,100 in marketable securities for 1999 and 1998, respectively.

OTE 5-Unearned Contributions

Contributions are billed in advance of the respective coverage periods. Revenue is recognized as earne~ratably over the coverage period and the balance is recorded as unearned contributions.

In the event that Trust funds, including reinsurance, are not sufficient to cover,operating costs, the Trust'smembers would be assessed additional contributions to support its continuedoperations. Also, in theevent a member is unable to pay their respective obligations or leaves the Trust, the Trust would beresponsible to satisfy all obligations of that member.

Liabilities for Reported Claims and Incurred But Not Reported (IBNR) claims are estimated on the input ofconsulting actuaries and Trust management. The Trust's policy is to establish reserves for losses forreported claims on a case basis and for incurred but not reported claims on a basis of historicallyestablished industry statistical data and the Trust's own historical experience.

Since the Trust was recently organized, sufficient historical claims exp'8riencedoes not exist to support itsestimate of amounts ultimately payable for future claims incurred as of October 31, 1999 and 1998.

1999 1998

$10,826,275 $7,892,587

$2,719,016 $1,341,265

$(540,640) $(158,462)


However, management believes the recorded amounts fairly present the liability for estimated futureclaims based upon current assumptions and levels of activity.

Claims Reserve includes IBNR of $8,569,949 and $8,638,506 for 1-999and 1998, respectively.

NOTE 7-Accrued Management Fee

The Trust pays a management fee on gross contributions written to HCP Resources, Inc., a related party.Management fee expense was $398,013 and $381,573 for 1999 and 1998, respectively.

NOTE a-Income Taxes

The Trust's income tax expense (benefit) was as follows:

Total income tax expense (benefit)

DeferredFederal corporate tax benefitNYS franchise tax

Total

CurrentFederal corporate taxNYS franchise tax

Total

The Trust has New York State net operating loss carryforwards of $2,482,000 expiring through October 31,2019.

, The provision for federal income tax differs from the amount of income tax determined by applying thefederal statutory rate to pre-tax income. The differences are primarily due to certain expenses deductiblefor financial reporting purposes that are not deductible for tax purposes and provisions for various stateincome taxes. . .

NOTE 9-lnterest Expense.

The Trust finances its Trust reinsurance policy and incurred interest charges of $7,935 and $9,110 for1999 and 1998, respectively. .

NOTE 10-Reinsurance

The Trust hasbeen provided specific excess insurance as required by the State of New York, to statutoryfor workers' compensation and to $2,000,000 for employer's liability. Both are for excess of the retentionof $250,000 each accident. The Trust also has excess aggregate for both coverages at 100% of

HCPSIT 1999 AnnualReport

1999. 1998

$(82,150) $(142,965)Q Q

(82.150) (142.965)

0 93,7452.344. 3252.344 94.070

$(79,806) $(48,895)

Jl


contributions for the policy year and with a limit of $2,000,000. The premium for such coverage has beencalculated based on payrolls of the Trust's members. To the extent that the reinsurance company shouldbe unable to meet its obligations under the existing agreements, the Trust would be liable for suchdefaulted amounts. '

Effectiv~ November 1, 1999 the Trust increased its reinsurance coverage to provide statutory specificexcess coverage for both employers' liability and workers' compensation on a per accident basis and inthe annual aggregate.

NOTE 11-Commitments and Contingencies

The Trust has entered into a participati<;>nagreement with each member to provide risk managementservices, workers' compensation and employer's liability coverage. The agreement stipulates, amongother things, that each member is jointly and severally liable for the workers' compensation and employers'liability obligations of the Trust and its members which were incurred during the member's period-ofmembership in the Trust, irrespective of the subsequent termination of the membership in the Trust, theinsolvency or bankruptcy of another member of the 'Trust, or other facts or circumstances. Accordingly, thefinancial viability of the Trust is contingent upon the financial viability of the individual members.

NOTE 12-Comprehensive Income

Related tax effects allocated to other comprehensive income is as follows:

Before Tax Tax (Expense)Amount Benefit

Net of TaxAmount

October 31. 1999

Unrealized Gains on Securities:

Unrealized Holding Gains Arising DuringPeriod

Less: ReclassificationAdjustment forGains Realized in Net Income

Other Comprehensive Income

October 31. 1998

Unrealized Gains on Securities:

Unrealized Holding Gains Arising DuringPeriod

Less: ReclassificationAdjustment forGains Realized in Net Income

$1,194,485 $(406,125) $788,360

Other Comprehensive Income

(1,153,088)

$41 ,397

392,050 (761,038)

$27,322


$623,065 $(211,842) $411,223

(2.157.767) 733.641 (1.424.126)

$(1,534,702) $521,799 $(1,012,903)

JI.

See accompanying auditors' report.

HCPSIT 1999 Annual Reporl

Schedules of General and AdministrationJSchedule 1

1999 % 1998 %

Management Fee $398,013 4.7 $381,573 5.3Financing Supplement Expense 179,058 2.1 183;398 2.5

.ProfessionalFees 97,095 1.2 81,166 1.1Investment Administration Expense 90,829 1.1 98,216 1.3Legislative and Regulatory 42,767 0.5 29,167 0.4Legal Retainer 40,784 0.5 30,953 0.4Member Seminars 25,000 0.3 0 0.0Actuarial Services 24,000 . 0.3 24,000 0.3Workers' Compensation Audits 16,034 0.2 14,198 0.2Depreciati'onand Amortization 15,559 0.2 13,173 0.2Marketing and Promotion 15,526 0.2. 20,713 0.3Donations 10,000 0.1 0 0.0Interest Expense 7,935 0.1 9,110 0.1Foreign Taxes Paid 7,929 0.1 0 0.0Telephone 7,036 0.1 6,003 0.1Maintenance and Repairs 6,013 0.1 6,408 0.1Trustee Meeting Expenses 5,330 0.1 2,788 0.0Political Contributions 5,000 0.1 5,000 0.1Letter of Credit Expense 4,576 0.1 5,500 0.1Travel and Meals 3,089 0.0 2,105 0.0Office Supplies 2,603 0.0 1,961 0.0General Expense 2,202 0.0 1,139 0.0Other Meetings 512 0.0 1,651 0.0Postage and Shipping 167 0.0 255 0.0Bank Charges 65 0.0 65 0.0Conferences Attended 25 0.0 495 0.0

TOTAL GENERAL ANDADMINISTRATION $1,007,147 12.1 $ 919,037 12.5-

H

A word about "'lointand several" liability

As members of the Health Care Providers Self-Insurance Trust, participants agree tobe "jointly and severally" liable for the payment of all awards and assessments forthe period in which they are in the program. While the Trust is structured tominimize risk for all its members, it is important that you understand the extent ofyour potential liability. You should review the Trust documents and seek advice fromyour counsel prior to joining the program. .

bj post office box 12305 - government of new york

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