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Financial Statements
TEAM TRANSPORTATION
WORKERS’ COMP TRUST
December 31, 2012
Financial Statements
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012
Independent Auditor’s Report ........................................................................................................ 1
Balance Sheets ............................................................................................................................... 3
Statements of Operations ............................................................................................................... 4
Statements of Comprehensive Income (Loss) ............................................................................... 5
Statements of Changes in Members’ Deficit ................................................................................. 6
Statements of Cash Flows .............................................................................................................. 7
Notes to Financial Statements ........................................................................................................ 9
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Firley, Moran, Freer & Eassa, CPA, P.C.
5010 Campuswood Drive ∙ East Syracuse, NY 13057
p: 315.472.7045 f: 315.472.7053 www.fmfecpa.com
INDEPENDENT AUDITOR’S REPORT
New York State Workers’ Compensation Board
Team Transportation Workers’ Comp Trust
Albany, New York
Report on the Financial Statements We have audited the accompanying financial statements of Team Transportation Workers’ Comp Trust
(the “Trust”), which comprise the balance sheets as of December 31, 2012 and 2011, and the related
statements of operations, comprehensive income (loss), changes in members’ deficit and cash flows for
the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements Management, the New York State Workers’ Compensation Board (the “Board”) and the Trust’s
administrator, are responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. Except as
explained in the Basis for Disclaimer of Opinion paragraph, we conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion on the balance sheets as of December 31, 2012 and 2011, and the related statements of
operations, comprehensive income, changes in members’ deficit, and cash flows for the year ended
December 31, 2012.
An Independently Owned Member, McGladrey Alliance
McGladrey Alliance is a premier affiliation of independent accounting and consulting firms. McGladrey Alliance member firms maintain their name, autonomy and independence and are responsible for their own client fee arrangements, delivery of services and maintenance of client relationships.
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Basis for Disclaimer of Opinion (for the Year Ended December 31, 2011) The Trust’s current management was not responsible for maintaining accounting records during 2011;
adequate documentation from the prior administrator did not exist to perform audit procedures necessary
to document and evaluate internal controls to assure the proper recording of transactions during 2011,
resulting in substantial adjustments to the accounts. Adequate evidential matter in support of transactions
recorded by the prior administrator was not available in many cases. There have been significant changes
in employees and key management personnel since 2011, creating a lack of continuity in the accounting
system. Further, present management was unable to furnish us with representations of facts and
circumstances regarding certain transactions arising during 2011, as they were not responsible for the
operation of the Trust during that year.
Disclaimer of Opinion (for the Year Ended December 31, 2011) Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we
have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion
on the results of operations and cash flows for the year ended December 31, 2011. Accordingly, we do
not express an opinion on the results of operations and cash flows for the year ended December 31, 2011.
Opinion In our opinion, the balance sheets of Team Transportation Workers’ Comp Trust as of December 31, 2012
and 2011, and the statements of operations, comprehensive income, changes in members’ deficit, and
cash flows for the year ended December 31, 2012 present fairly, in all material respects, the financial
position of Team Transportation Industry Workers’ Comp Trust as of December 31, 2012 and 2011, and
the results of its operations and its cash flows for the year ended December 31, 2012 in accordance with
accounting principles generally accepted in the United States of America.
Emphasis-of-Matter As discussed in Note G to the financial statements, uncertainty exists regarding the ultimate timing and
realization of reinsurance recoverable balances of approximately $3,480,000 recorded in the Trust’s
balance sheets at December 31, 2012 and 2011, due from Reliance Insurance Company (in Liquidation),
an insolvent reinsurer placed in liquidation by order of the Commonwealth Court of Pennsylvania. Our
opinion is not modified with respect to this matter.
sign East Syracuse, New York
November 5, 2013
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BALANCE SHEETS
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31,
2012 2011
ASSETS
Cash and cash equivalents $ -0- $ 340,877
Balances due from the NYS Workers’ Compensation Board 469,926 -0-
Investments--available-for-sale -0- 2,186,764
Contributions and assessments receivable, net 171,335 4,309,188
Reinsurance receivable 206,852 167,518
Reinsurance recoverable 16,778,223 19,517,245
Other receivables -0- 791,941
Security deposit -0- 479,325
Accrued investment income -0- 12,422
Deferred income taxes 13,140,000 13,950,000
TOTAL ASSETS $ 30,766,336 $ 41,755,280
LIABILITIES AND MEMBERS’ DEFICIT
LIABILITIES
Unpaid losses and loss adjustment expenses:
Case-basis reserves $ 28,609,257 $ 8,910,779
Unallocated loss adjustment expenses 2,400,000 3,700,000
Incurred but not reported claims 16,628,882 45,198,476
TOTAL UNPAID LOSSES AND LOSS
ADJUSTMENT EXPENSES, NET 47,638,139
57,809,255
Accounts payable and accrued expenses 223,106 304,275
Due to NYS Workers’ Compensation Board
assessment account funds 770,540
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NYS Workers’ Compensation Board
assessments payable--current 267,255
6,738
Accrued NYS Workers’ Compensation Board assessments 2,352,383 5,465,035
TOTAL LIABILITIES 51,251,423 63,585,303
MEMBERS’ DEFICIT (20,485,087) (21,830,023)
$ 30,766,336 $ 41,755,280
See notes to financial statements.
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STATEMENTS OF OPERATIONS
TEAM TRANSPORTATION WORKERS’ COMP TRUST
Year ended
December 31,
2012 2011
Revenues:
Income from NYS Workers’ Compensation Board $ 472,297 $ -0-
Member premiums and assessments -0- 4,025,447
Investment income 24,907 197,101
Realized gain on sales of investments--available-for-sale 144,781 147,356
Surety bond proceeds, net 175,675 -0-
TOTAL REVENUES 817,660 4,369,904
Expenses (offsets to expenses):
Claims (3,506,601) 29,742,688
NYS Workers’ Compensation Board assessments (200,781) 4,861,344
Excess insurance -0- 37,443
Professional and administrative fees 728,765 346,347
Uncollected contributions and assessments 4,104,647 -0-
Other 30,653 84,228
TOTAL EXPENSES 1,156,683 35,072,050
Loss before income taxes and cumulative
effect of change in accounting estimate (339,023)
(30,702,146)
Income resulting from the cumulative effect of
change in accounting estimate of NYS
assessment for inactive trusts 2,651,354
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INCOME (LOSS) BEFORE INCOME TAXES 2,312,331 (30,702,146)
Deferred income tax provision (benefit) 810,000 (12,140,000)
NET INCOME (LOSS) $ 1,502,331 $ (18,562,146)
See notes to financial statements.
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STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
TEAM TRANSPORTATION WORKERS’ COMP TRUST
Year ended
December 31,
2012 2011
Net income (loss) $ 1,502,331 $ (18,562,146)
Other comprehensive loss:
Unrealized holding (losses) gains on available for sale
securities arising during the period, net (12,614)
45,149
Reclassification adjustment for gains
included in operations (144,781)
(147,356)
(157,395) (102,207)
COMPREHENSIVE INCOME (LOSS) $ 1,344,936 $ (18,664,353)
See notes to financial statements.
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STATEMENTS OF CHANGES IN MEMBERS’ DEFICIT
TEAM TRANSPORTATION WORKERS’ COMP TRUST
Members’
deficit
Accumulated
other
comprehensive
income (loss)
Total
members’
deficit
Balances at December 31, 2010 $ (3,425,272) $ 259,602 $ (3,165,670)
Net loss (18,562,146) (18,562,146)
Other comprehensive loss (102,207) (102,207)
BALANCES AT DECEMBER 31, 2011 (21,987,418) 157,395 (21,830,023)
Net income 1,502,331 1,502,331
Other comprehensive loss (157,395) (157,395)
BALANCES AT DECEMBER 31, 2012 $ (20,485,087) $ -0- $ (20,485,087)
See notes to financial statements.
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STATEMENTS OF CASH FLOWS
TEAM TRANSPORTATION WORKERS’ COMP TRUST
Year ended
December 31,
2012 2011
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income (loss) $ 1,502,331 $ (18,562,146)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Realized gain on investments (144,781) (147,356)
Amortization (accretion) of bond premium, net 2,087 (67,790)
Uncollected contributions and assessments 4,104,647 -0-
Deferred income tax provision (benefit) 810,000 (12,140,000)
(Increase) decrease in assets:
Balances due from NYS Workers’ Compensation Board (469,926) -0-
Contributions and assessments receivable 33,206 (3,721,909)
Reinsurance receivable (39,334) (167,518)
Reinsurance recoverable 2,739,022 (18,492,023)
Other receivables 791,941 (791,941)
Security deposit 479,325 7,500
Accrued investment income 12,422 29,577
Increase (decrease) in liabilities:
Unpaid losses and loss adjustment expenses, net (10,171,116) 44,841,227
Due to NYS Workers’ Compensation Board
assessment account funds 770,540 -0-
Accounts payable and accrued expenses (81,169) 115,522
Accrued NYS Workers’ Compensation Board
assessments (2,852,135) 4,786,524
Unearned member premium contributions -0- (24,907)
NET CASH USED IN OPERATING ACTIVITIES (2,512,940) (4,335,240)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments--available-for-sale:
Purchases (315,780) (2,317,882)
Proceeds from sales and maturities 2,487,843 6,370,047
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,172,063 4,052,165
NET DECREASE IN CASH AND CASH EQUIVALENTS (340,877) (283,075)
Cash and cash equivalents at beginning of year 340,877 623,952
CASH AND CASH EQUIVALENTS AT END OF YEAR $ -0- $ 340,877
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STATEMENTS OF CASH FLOWS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
Year ended
December 31,
2012 2011
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Non-cash operating activities:
Activity in NYS Workers’ Compensation Board owned
accounts representing receipts and disbursements
made on the Trust’s behalf:
Collection of contributions and assessments $ 587,967 $ -0-
Interest income received $ 856 $ -0-
Claims paid, net of recoveries $ (2,342,611) $ -0-
Professional, administrative and other loss
adjustment expenses paid $ (926,474) $ -0-
Income taxes paid $ 66,271 $ -0-
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Organization: The Team Transportation Workers’ Comp Trust (the “Trust”) is a group self-
insurance trust that provided Workers’ Compensation coverage in the State of New York to
employers involved in the transportation industry. Contributions paid by members are used to
pay covered losses, claims administration and costs associated with the management of the
group, such as loss control, legal, accounting, actuarial, and excess insurance. Any excess of
contributions over expenses are returned to the Trust members as dividends on a pro rata share
basis. The Trust began providing coverage to its members in October 1995.
The Trust terminated in force policies effective December 31, 2010; however, the Trust is
responsible for paying all claims incurred prior to 12:01 a.m. January 1, 2011, which will likely
take several years. Effective February 1, 2012, as a result of the deterioration of the Trust’s
liquid assets to claims reserve ratio, the New York State Workers’ Compensation Board (the
“Board”) took possession of the Trust and began to authorize payments of claims on behalf of
the Trust. The Board has contracted a third party administrator (the “Trust Administrator”) to
carry out the day to day operations of the Trust. As of December 31, 2012, the Trust’s liabilities
are greater than its assets. The Board is currently in the process of seeking deficit contributions
from members of the Trust, since they are jointly and severally liable. In the event the Trust's
assets are inadequate to fund future operations, the Board is required to fund future remaining
claims and related obligations of the Trust. The Board will be reimbursed for the funding
provided to the Trust through collections on the deficit assessment billing issued to members by
the Board.
Significant Accounting Policies: The Trust follows the accounting standards set by the Financial
Accounting Standards Board (“FASB”). The FASB establishes accounting principles generally
accepted in the United States of America (“GAAP”) that are followed to ensure consistent
reporting of the financial condition, results of operations and cash flows of the Trust. References
to GAAP issued by the FASB in these notes to financial statements are to the FASB Accounting
Standards Codification (“FASB ASC”).
Use of Estimates: Management uses estimates and assumptions in preparing the financial
statements in accordance with GAAP. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the estimates that were used.
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NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--Continued
Cash and Cash Equivalents: For the purposes of the statements of cash flows, the Trust
considers all money market funds to be cash equivalents. During 2012 cash and cash equivalents
were transferred into accounts maintained and held by the Board on behalf of the Trust.
Balances Due From the NYS Workers’ Compensation Board: Balances due from the Board
represent amounts maintained and held by the Board on behalf of the Trust, in a bank account
owned by the Board. Subsequent to the Board taking possession of the Trust, cash and
investment accounts owned by the Trust were liquidated and transferred to accounts owned and
controlled by the Board on the Trust’s behalf. Portions of the Trust’s cash receipts and cash
disbursements are received or paid by the Board out of this account.
Recognition of Income from NYS Workers’ Compensation Board: Funds received from deficit
assessment billings are collected and maintained in cash accounts owned by the Board and are
not included in the financial statements. The Trust recognizes revenue on funds received from
deficit assessment billings once the Board makes them available to pay obligations of the Trust.
Investments--Available for Sale: The Trust is required to categorize each investment as either
held-to-maturity, available-for-sale, or trading. At December 31, 2011, the Trust did not
maintain an investment held-to-maturity or trading portfolio. Securities not classified as held-to-
maturity or trading are classified as available-for-sale and recorded at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive income/loss.
Purchase premiums and discounts are recognized in interest income using the effective interest
method over the terms of the securities. Declines in the fair value of available-for-sale securities
below their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management considers (1) the
length of time and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, (3) the current liquidity and volatility of the
market for each of the individual security categories, (4) the projected cash flows from the
specific security type, (5) the financial guarantee and financial rating of the issuer, and (6) the
intent and ability of the Trust to retain its investment in the issuer for a period of time sufficient
to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are
recorded on the trade date and are determined using the specific identification method. The
Trust’s investment portfolio was liquidated in 2012.
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NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--Continued
Fair Value of Investments: FASB ASC Topic 820, “Fair Value Measurements and Disclosures”,
requires fair value measurements of the Trust’s assets and liabilities. Fair value is an estimate of
the price the Trust would receive upon selling a financial instrument in a timely transaction to an
independent buyer or the most advantageous market of the financial instrument. FASB ASC
Topic 820 established a three tier hierarchy to maximize the use of observable market data and
minimize the use of unobservable inputs and to establish classification of fair value
measurements for disclosure purposes. Various inputs are used in determining the value of the
financial instruments as noted below:
Level 1 - quoted prices in active markets for identical investments.
Level 2 - quoted prices in active markets for similar investments, or quoted prices for
identical or similar investments in markets that are not active, or inputs other than
quoted prices that are observable for the investment.
Level 3 - significant valuation assumptions not readily observable in a market.
The Trust determines the fair value of its investment portfolio based on quoted market values
where available or on estimates using present values or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument.
The fair value of Common Stocks were determined using Level 1 inputs as defined above and
were recorded on a recurring basis. Level 1 also included U.S. Government agency, and U.S.
Treasury securities which were traded by dealers or brokers in active markets.
The fair value of mortgage backed securities were determined using Level 2 inputs as defined
above and were on a recurring basis.
The Trust’s investment portfolio was liquidated in 2012.
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NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--Continued
Contributions and Assessments Receivable: The Trust is currently in run-off status and
payments for future claims and administrative expenses will be funded from member payments
to the Board or its administrator. Contributions and assessment receivables represent amounts
that were outstanding prior to the Board taking possession of the Trust. Uncollected
contributions and assessments of $4,104,647 in the 2012 statement of operations primarily
represent the balance of contributions and assessments that remained unpaid at the time of the
Board’s February 2012 possession of the Trust. The Trust wrote-off or reserved these balances
as the receivables will effectively be re-billed under the Board’s deficit assessment billing. Any
amounts collected will be accounted for within the Board owned accounts as described herein.
Contributions and assessments receivable are written off when they are determined to be
uncollectible. The allowance for doubtful accounts is estimated based on the Board’s ability to
enforce and pursue collection. The allowance for doubtful accounts approximated $540,000 and
$-0- at December 31, 2012 and 2011, respectively.
Unpaid Losses and Loss Adjustment Expenses and Reinsurance Recoverable: Liabilities for
unpaid losses and loss adjustment expenses are estimates of ultimate future payments to be made
to settle all claims for reported losses and estimates of incurred but not reported losses based on
past experience. Estimates of liability for claims are established on an undiscounted basis of
expected ultimate payment amounts (see Note D). Management believes that the liability for
unpaid losses and loss adjustment expenses is adequate to cover the ultimate cost of claims
incurred; however, such estimates may be more or less than the amount ultimately paid when the
claims are settled. Changes in the estimated liability are reflected in expenses as the estimates
are revised. It is at least reasonably possible that the Trust’s recorded estimates will change
within the near term.
Litigation costs with respect to claims arising from insurance coverage, as well as expenses
related to processing of unprocessed claims are considered in establishing the estimated liability
for unpaid losses and loss adjustment expenses. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the reinsured business.
The recoverability of these assets depends on the reinsurers’ ability to perform under the
reinsurance agreements. Management utilizes an actuarial service in its calculation of this
estimated liability and the related reinsurance recoverable.
Due to NYS Workers’ Compensation Board Assessment Account Funds: Group and individual
self-insurers pay assessments to the Board assessment account funds. Through December 31,
2012, the Trust received advances from these assessment account funds. These amounts will be
paid back from future revenue received from the Board.
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NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--Continued
Accrued NYS Workers’ Compensation Board Assessment: The Trust has an accrued assessment
liability which reflects an estimate of the ultimate cost expected to be paid by the Trust for all of
the Board’s legally mandated assessments. As of December 31, 2012 and 2011, the Board has
calculated this accrued assessment on the basis of approximately 5.2% and 10.1%, respectively,
of the estimated reserve for losses and allocated loss adjustment expenses, plus an additional
amount calculated by the Board. In September 2012, the Board decreased the surcharge rate on
an assumption of liability policy (“ALP”) from 10.1% to 5.2% which resulted in a change to this
estimate. It is at least reasonably possible that the Trust’s estimated liability for these
assessments will change within the near term. See Note E for calculation of the accrued
assessment.
Income Taxes: The Trust is taxed as a mutual property and casualty insurance company for
federal income tax purposes and as a C corporation for state income tax purposes. Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for
deductible temporary differences, operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date
of enactment.
The Trust follows FASB ASC Topic 740-10 which addresses accounting for uncertainty in
income taxes and prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return and also provides guidance on various related matters such as derecognition, interest and
penalties, and disclosure. The Trust recognizes accrued interest and penalties related to
unrecognized tax benefits as a component of income tax expense. There was no impact to the
accompanying financial statements attributable to the uncertainties in income taxes portion of
FASB ASC Topic 740-10.
Events Occurring After Report Date: The Trust has evaluated events and transactions that
occurred between December 31, 2012 and November 5, 2013, which is the date the financial
statements were available to be issued, for possible disclosure and recognition in the financial
statements. There were no such events or transactions identified by the Trust.
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NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--Continued
Reclassification: At December 31, 2011, the reinsurance recoverable had been classified as an
offset to liabilities in the balance sheet. This classification was consistent with certain statutory
accounting practices used in the insurance industry. However, this classification was not in
accordance with GAAP, which requires the classification of reinsurance recoverable as an
asset. In order to conform to the 2012 presentation, the $19,517,245 reinsurance recoverable at
December 31, 2011 has been reclassified as an asset. This 2011 reclassification of the
reinsurance recoverable increased total assets and total liabilities as previously reported at
December 31, 2011 by $19,517,245, with no effect on members’ deficit or net loss.
NOTE B--REINSURANCE
The Trust purchased excess liability insurance (reinsurance) as required by the State of New
York to meet statutory requirements for Workers’ Compensation. These reinsurance policies do
not relieve the Trust from its obligation to policyholders. The insurance coverage is for excess
of the retention as follows:
Specific retention: $ 300,000 for October 15, 1995 to December 31, 2001
350,000 for January 1, 2002 to December 31, 2002
400,000 for January 1, 2003 to December 31, 2003
500,000 for January 1, 2004 to December 31, 2010
Aggregate
retention:
$ 4,981,180 for October 1, 1995 to December 31, 1997 with a $2,000,000 limit
4,366,316 for January 1, 1998 to December 31, 1998 with a $2,000,000 limit
4,550,351 for January 1, 1999 to December 31, 1999 with a $5,000,000 limit
5,621,720 for January 1, 2000 to December 31, 2000 with a $5,000,000 limit
6,629,261 for January 1, 2001 to December 31, 2001 with a $5,000,000 limit
5,402,082 for January 1, 2002 to December 31, 2002 with a $10,000,000 limit
6,047,683 for January 1, 2003 to December 31, 2003 with a $10,000,000 limit
8,863,442 for January 1, 2004 to December 31, 2004 with a $10,000,000 limit
6,517,513 for January 1, 2005 to December 31, 2005 with a $10,000,000 limit
7,358,486 for January 1, 2006 to December 31, 2006 with a $10,000,000 limit
-15-
NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE B--REINSURANCE--Continued
At December 31, 2012 and 2011, reinsurance recoverable amounted to $16,778,223 and
$19,517,245, respectively. The reinsurance receivable and recoverable are due from three
reinsurance companies under specific excess and aggregate policies. Estimated recoveries for
claims incurred but not reported (“IBNR”) approximated $3,950,000 at December 31, 2012, per
the independent actuarial report.
Failure of the reinsurers to honor their obligations could result in losses to the Trust. The Trust
evaluates the financial condition of its reinsurers to minimize its exposure to significant losses
from reinsurer insolvency. At December 31, 2012 at 2011 there are no losses recorded or
anticipated due to failure of the reinsurers to honor their obligations, with the exception of the
matter disclosed in Note G.
NOTE C--INVESTMENTS
During 2012, the Board liquidated all of the Trust’s investments--available-for-sale and
transferred the proceeds into accounts maintained and held by the Board. These funds were set
aside to pay future obligations of the Trust. The amortized cost and fair value of investments--
available for sale at December 31, 2011 is summarized as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2011
U.S. treasury and agency bonds $ 1,496,596 $ 134,937 $ 5 $ 1,631,528
Mortgage backed securities 343,645 9,975 210 353,410
Common stock 189,128 26,212 13,514 201,826
$ 2,029,369 $ 171,124 $ 13,729 $ 2,186,764
-16-
NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE D--UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the reserve for unpaid losses and loss adjustment expenses is summarized as follows:
2012 2011
Reserve balance at beginning of year $ 57,809,255 $ 12,968,028
Losses to be covered under reinsurance (19,517,245) (1,025,222)
Net reserve balance at beginning of year 38,292,010 11,942,806
Incurred claims (improvement) expense (3,506,601) 29,742,688
Paid (3,925,493) (3,393,484)
Net reserve balance at end of year 30,859,916 38,292,010
Losses to be covered under reinsurance 16,778,223 19,517,245
Reserve balance at end of year $ 47,638,139 $ 57,809,255
Reserve reconciliation:
Case-basis reserves $ 28,609,257 $ 8,910,779
Unallocated loss adjustment expenses 2,400,000 3,700,000
Incurred but not reported claims 16,628,882 45,198,476
Reserve balance at end of year $ 47,638,139 $ 57,809,255
Claims (improvement) expense reconciliation:
Incurred claims (improvement) expense $ (2,206,601) $ 26,732,313
(Decrease) increase in ULAE reserve (1,300,000) 3,010,375
Claims (improvement) expense $ (3,506,601) $ 29,742,688
At December 31, 2012 and 2011 the liability for unpaid losses and loss adjustment expenses,
including incurred but not reported claims, has been actuarially determined on an undiscounted
basis. Management selected this liability from the high end of a range of actuarially estimated
outcomes. As a result of changes in estimates of insured events in prior periods, the loss and loss
adjustment expenses decreased by $3,506,601 and increased by $29,742,688 in the years ended
December 31, 2012 and 2011, respectively.
-17-
NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE E--ACCRUED WORKERS’ COMPENSATION ASSESSMENT AND
CHANGE IN ACCOUNTING ESTIMATE
2012 2011
Unpaid losses and loss adjustment expenses:
Case-basis reserves $ 28,609,257 $ 8,910,779
Incurred but not reported claims 16,628,882 45,198,476
45,238,139 54,109,255
NYS assessment rate 5.2% 10.1%
2,352,383 5,465,035
Board calculated portion of assessment payable--current 267,255 6,738
Total accrued Workers’ Compensation Board assessments $ 2,619,638 $ 5,471,773
This liability is comprised of two components in the December 31, 2012 and 2011 balance
sheets: NYS Workers’ Compensation Board assessments payable--current (liability related to
activity subsequent to 2010 assessment cycle--April 1, 2010 - March 31, 2011) and Accrued
Workers’ Compensation Board assessments.
In September 2012, the Board reduced the surcharge imposed on an ALP from 10.1% to 5.2%,
which reduced the estimate of unpaid Board assessments due from insolvent and inactive trusts.
The cumulative effect of this charge in prior years was an increase in 2012 income of $2,651,354
and a $1,620,212 increase to net income after tax.
NOTE F--INCOME TAXES
The income tax provision (benefit) differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 34% to the pretax income (loss) for the years ended
December 31, 2012 and 2011 primarily due to state taxes.
The deferred tax asset consists of the following components as of December 31, 2012 and 2011:
2012 2011
Unpaid losses and loss adjustment expenses, net $ 2,700,000 $ 3,605,000
Accrued NYS assessment 160,000 375,000
Capital loss carryforward -0- 20,000
Net operating loss carryforwards (expiring in 2029 to 2031) 9,770,000 9,950,000
Allowance for doubtful accounts 510,000 -0-
$ 13,140,000 $ 13,950,000
-18-
NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE F--INCOME TAXES--Continued
Although the Trust has ceased writing policies and is in run-off status management has
concluded that the deferred income tax asset is ultimately realizable based on their estimation of
the Trust’s ability to generate future taxable income within the carryforward periods for the net
operating losses from assessments on, and collection of contributions from, former members of
the Trust.
The current provision for federal and state income taxes, otherwise payable for the year ended
December 31, 2012, was reduced by the utilization of net operating loss carryforwards at an after
tax benefit of approximately $240,000. The statute of limitations for potential federal and state
tax audits has expired for years ended December 31, 2008 and prior.
NOTE G--UNCERTAINTY WITH REINSURER
Reliance Insurance Company: The Trust purchased excess liability insurance (reinsurance) from
Reliance Insurance Company (“Reliance”) to reinsure against specific claims in excess of
$300,000 that may be incurred from October 1, 1996 to December 31, 2000. At December 31,
2012, approximately $3,480,000 is estimated to be due from Reliance and is included in the
Trust’s balance sheet under the caption “Reinsurance recoverable”. In addition, approximately
$140,000 due from Reliance is included in the balance sheet under the caption “Reinsurance
receivable”.
Reliance was placed into rehabilitation by order of the Commonwealth Court of Pennsylvania
(“the Court”) on May 29, 2001. On October 3, 2001, Reliance was declared insolvent by order
(“the Order”) of the Court. The Order appointed the Insurance Commissioner of Pennsylvania as
Liquidator of the Company (“the Liquidator”). Representatives of the Liquidator oversee the
daily operations of Reliance. The entity is now known as Reliance Insurance Company (in
Liquidation) (“Reliance”) or (“the Estate”). The principal activities since the date of liquidation
consist of the collection and marshalling of assets and determination of claims. All creditor
claims submitted to Reliance must be evaluated through the Proof of Claim process to determine
and assign the proper class priority and dollar value. The largest class of creditors represents
claims for losses under policies issued prior to liquidation. Ultimately, the net assets of the
Estate are expected to be distributed to creditors. Currently Reliance is statutorily insolvent.
-19-
NOTES TO FINANCIAL STATEMENTS--Continued
TEAM TRANSPORTATION WORKERS’ COMP TRUST
December 31, 2012 and 2011
NOTE G--UNCERTAINTY WITH REINSURER--Continued
Reliance Insurance Company--Continued: The Liquidator has yet to determine if it will honor
the Trust’s agreements with Reliance. The Board asserts that the agreements between the Trust
and Reliance will be honored by the Liquidator as excess insurance policies, as the Board has
successfully argued this position for other trusts under its control. In addition, although the
Liquidator acknowledges that they have been informed by the Trust of claims that are currently
reserved and estimated to exceed Reliance’s retention points, they have not yet evaluated those
claims for acceptance and will not do so until the payments on these claims reach the retention
points, which is not expected to occur in the near term.
Due to the uncertainty that exists as a result of the matter disclosed in the preceding paragraphs,
the ultimate timing and realization of the $140,000 receivable balance and the estimated
$3,480,000 recoverable balance due from Reliance cannot presently be determined.
Accordingly, no provision for any losses that may result has been made in the financial
statements. Nevertheless, due to the uncertainty with the realization of this reinsurance
receivable and recoverable, it is at least reasonably possible that management’s view of the
outcome will change in the near term.
NOTE H--COMMITMENTS AND CONTINGENCIES
The Trust provided employer liability coverage to its members as required by the Board. The
Trust has one open employer liability claim with incurred loss of approximately $330,000,
including $300,000 of case reserves as of December 31, 2012 and 2011. Management of the
Trust has represented that they are not aware of any other asserted or pending claims against any
members of the Trust under this coverage.
The Trust had posted a $675,675 surety bond in order to meet a portion of the Board’s statutory
deposit requirement. This surety bond was collateralized by a $500,000 letter of credit from
Bank of America. The letter of credit was collateralized by investments held in one of the
Trust’s investment accounts. During 2012, the Board exercised its rights under the surety bond
and collected $675,675, which was immediately made available to the Trust. As a result, the
Trust incurred a $500,000 loss of the investment collateral, resulting in net surety bond proceeds
of $175,675.
At December 31, 2011, the Trust had a security deposit of $479,325 posted with the Board. In
2012 the Board took possession of the security deposit and transferred the funds into accounts
maintained and held by the Board. These funds were set aside to pay future obligations to the
Trust.