Level Board Governance Executive Directors Finance Presenters James Marta CPA ARPM Principal James Marta amp Company LLP Jake OMalley Executive Director Municipal Pooling Authority ID: 424342
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What you need to Know to Make Decisions During Tough TimesLevel - Board GovernanceExecutive DirectorsFinance
PresentersJames Marta CPA, ARPMPrincipal James Marta & Company LLPJake O’MalleyExecutive DirectorMunicipal Pooling Authority
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Boards have had to make conscious decisions to trade off certain long-term objectives to meet member short-term needs. Do you know when you are going into the red zone? How can the board manage these short-term tradeoffs and meet long-term objectives? Session
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Assist boards members and managers to understand what the board should monitor and what needs to be communicated to help the board make decisions. Ensuring board members are involved, informed and the pool is meeting funding and stability targets.Objective
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EconomyPoliticalBenefit costs4
Our current environmentSlide5
Is your pool cutting its funding margin?Is your discount rate your using much larger than what you will be earning in the next few years?Are you returning net assets?Are your members cutting back on risk management
?Increasing SIR?Were these suppose to be short-term conditions that are now the “New Normal?”
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How is your JPA facing tough times?Slide6
Potential EffectDangerous CombinationLowering your confidence level puts you at more risk against large or multiple claims Returning equity that was earned over many years instead of gradually may quickly change the pool’s resistance to large changes in claims, or premium expenses
Discounting at a rate higher than future projected treasury rates can become a hidden expense as the actuary continues to “unwind” the discounted liabilities, you may not have the earnings to offset the recognized costs. You could be in a deficit and not know it if your discount rate is too high. The revenue wouldn’t be enough to cover the discounted claim liability.What are the consequences?
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Understand that there may be a gap between Members: What they want vs. what they needE.g. broad coverage, at low rates, with dividend streamRemind directors they wear two hats
Member ExpectationsJO7Slide8
Partnering to protect the human and financial resources of our Member Cities, thereby allowing Members to continually improve their level of community services. By:
Stabilizing rates and operational costsProviding responsive, innovative and professional risk management services;Exercising pro-active loss control and risk prevention programs to control costs and provide a safe work environment;Maintaining a leadership role in the JPA community
Mission Statement
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Highly placed & educated at their Agency (e.g. City Managers, Asst. City Managers, City Attorneys, Finance Directors, Risk Managers)They are part time to Pool managementStable within the Public Sector, but do move around
Very little experience in Pool financing, such as rating plans, retrospective formulas, ex-mods, etc.Work their way through Pool Board / Committee structure, then rotate out of key positionsTypical Pool Board of Directors
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Do members understand where you need to be?Are you making this information regularly available to make decisions.Are your target benchmarks part of your regular rate setting process?Are you trending losses and equity?
Where you need to be
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RatesFinancial positionBenchmarks (targeted equity)How have you faired in the pastWhat is on your horizonMembersHappy, content, they understand
How do you measure up?
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12Financial InformationSlide13
13Combination of TestsSlide14
Information over timeClaimsHow elements are changingLiability settlementsMedical costsStatutory benefitsFinancialEfforts
Social economicsOtherWhat should you look at?
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Internal Benchmarks: Workers’ Comp
LOST WORK DAYS PER CLAIM PER FISCAL YEAR
RATES VERSUS DIVIDENDS
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Internal Benchmarks: Risk Control
Injury Rates
Police Injury History
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Internal Benchmarks: Financials
CONSOLIDATED BALANCE SHEET
Equity Position Analysis by Program
CONSOLIDATED BALANCE SHEET
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LossesEquityMembersExposuresHow are you forecasting the future?
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Compare to your benchmarksCompare to where you have been over timeFigure out the directionHow do you look at this information
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Internal Benchmarks: Risk Control
Police Injuries
Bend, stoop lift carry, push, pull, reach, walk,run, slip, fall, Cum. Trauma
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External Benchmark: CIPRA
Loss Rate / Incident Rate
Average Cost
Per Claim
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Are you where you need to be?What can you do to change? What must you do?What are the realities?What next
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In risk financing your learn you can fund claims at different pointsBefore the lossDuring the lossAfter the loss
23Funding Your ClaimsSlide24
Among membersThrough fiscal yearsThis smoothes costs over time24
Risk financing and sharing allows pools to smooth lossesSlide25
Balancing wants and needs
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Pooling for long-term stability
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Communication, education and trainingMake your operation transparentDemonstrate you and your staff know what you’re doingGive the Directors the requisite skills to make intelligent, informed decisions
Taking the Mystery out of Pool Administration27JOSlide28
They understand organization governance – from their own work experienceProvide an understanding of risk management, risk financing, pool capitalization and fundingIntroduce enough knowledge, so they can ask staff the right questions
How Much do Directors Need to Know?28JOSlide29
The financing: the impact of short-term decisions on the long-term positionLower confidence levelHigher retentionReturning equity through dividendsReturning equity through rate discountsDiscount level not consistent with earnings
Zero rate increasesWhat you need to consider29Slide30
BenchmarksStrengths and weaknesses of benchmarksTracking these benchmarks over time; are they eroding?
What financial information the board should monitor30Slide31
Loss Control – Real Time Numbers
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What is changing, what isn’tClaim information
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What is the financial position?What is the direction?What is the GASB 68 impact? (recording pension liabilities)Where does the pool need to be going?What does the pool need to do to meet its goals; are you in the green, yellow or red zone?
In this cycle where do you think you are going and what does this mean in making decisions while balancing members wants and needs
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Set targets for equity that considerConfidence levelSelf-insured retentionRate Stabilization considerationsWatch the growth in medical insurance costs and analyze how medical costs would translate into increased workers’ compensation costs.
Analyze trendsTake a fresh look at equity targets
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35Summary of basic testsSlide36
Understand the cyclical nature of the markets “pragmatically look forward” Keep sufficient reserves . . . “when you have money you have options”Not succumb to cash flow budgeting and rate settingAnticipate trends
“The will to do what is needed”What you should be doing now36Slide37
We don’t want to be one of your problems. Being stable and reliable is what you need.Underfunding the pool will have long-term consequencesWe might be put into a position where we don’t have choices.
What does the pool manager need to be telling the board?37Slide38
Low ratesDividendsLower confidence levelsIs your discount rate achievable?38
Are you putting your pool at risk?Slide39
Remember:be conservativethink long-term stabilitydon’t fall behind by ratcheting down rates overtimedon’t get caught off guard
39ConclusionsSlide40
What will you do now?James Marta CPA, ARPM
Principal James Marta & Company LLPCertified Public Accountants916-993-9494 jmarta@jpmcpa.com
www.jpmcpa.com
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Questions?