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HomeMy WebLinkAboutMMIAMontana Municipal Insurance Authority November 25, 2002 Mary Embieton City Clerk-Treasurer City of Laurel PO Box 10 Laurel MT 59044 NOV 2 7 2C02 CITY OF I..,AUREL Re: Requested Approval of Revised and Restated Program Agreement(s) To Permit Parlicipation in Interstate Group Reinsurance and Excess Insurance Program URGENT ACTION REQUESTED Dear Ms. Embleton: This is to request that your City/Town Council consider and approve a resolution authorizing the City/Town to execute an Amended Revised and Restated Program Agreement for either the Liability or Workers' Compensation Programs, or both if your entity participates in each Program. This action will permit the MMIA to participate in an interstate group reinsurance and excess insurance program. The Board of Directors of the MMIA believes that participation in GEM, the Government Entities Mutual, Inc., will result in cost savings to the MMIA and its members compared to the cost of purchasing reinsurance and excess insurance from the commercial market. However, the MMIA may not participate in GEM unless the Program Agreement is amended to specifically authorize such participation. Moreover, the MMIA's current reinsurance policy for FY 02/03 must be renewed before January 1,2003. In order to take advantage of any cost savings from participation in GEM, the MMIA needs approval of the Pro.qram Agreement before December 3'I, 2002. Enclosed with this letter are several documents: 1. A summary of GEM in question and answer format, Draft resolutions, which you may use in this form or modify as you see fit, are attached. A "red lined" copy of the current Program Agreement which shows all the proposed changes. A final copy of the new Program Agreement for your execution after favorable action by your Council. P.O. Box 6669, Helena, Montana 59604-6669 (406) 443-0907 In MT: 1-800-635-3089 Fax (406) 449-7440 We apologize for providing you these documents on short notice. While the MMIA Board and staff have been working on this proposal for over a year, the quotations for estimated premiums for 2003 have only recently become available. As a result, the Board at its meeting on November 22, 2002 for the first time was able to make a final determination that there would be specific, immediate short term benefits to the MMIA's participation in GEM. Because time is of the essence, if you have any questions about the amendments, the GEM program, or anything else related to this request, please do not hesitate to contact either Alan Hulse or me. Once your governing body has taken the indicated action, please return the signature page, with original signatures, for each Program Agreement to the MMIA as soon as possible. We must receive these signature pages before December 30, 2002. Thank you for your prompt attention to this matter. Sincerely, Bob Worthington CEO Att: O:\VWilham\GEM\GEM MernbershipApprovalLtrNov2002.doc QUESTIONS AND ANSWERS CONCERNING PARTICIPATION OF MMIA IN GOVERNMENT ENTITIES MUTUAL, INC. (GEM) What is GEM? The MMIA has been participating in a group purchase entity, the National Public Entities Excess (NPX), to access markets for our reinsurance for a number of years. As it became more difficult to obtain excess and reinsurance, the members of NPX determined it was in the best interest of the members to develop a captive insurance company. Government Entities Mutual, Inc. (GEM) will be a captive insurance organization that will provide excess and/or reinsurance markets for its members. GEM will provide aportion of the coverage and reinsure the remaining portions. This will allow GEM members to more readily and economically obtain reinsurance. Who will be participating in GEM? Along with the MMIA, various public entity pools from around the United States will be participating in GEM. These include Delaware Valley Insurance Trust (DVIT), Illinois Park District Risk Management Agency (PDRMA), Virginia Transit Liability Pool (VTLP), New Hampshire Public Risk Management Exchange (PRIMEX), Washington Government Entity Pool (WGEP), Washington State Transit Insurance Pool (WSTIP), Washington Cities Insurance Authority (WCIA), Wisconsin Municipal Insurance Company (WM/C), Miami (Ohio) Area Risk Insurance Trust (MARCIT), and Texas School Boards Association (TASB). It is anticipated that these agencies will be initial participants in GEM, with a significant number of pools stating an intent to participate as their insurance coverage renews during the coming year. Why did the MMIA become interested in GEM? Prior to September 11,2001, the MMIA had begun to look at alternatives to provide excess insurance and reinsurance at more affordable rates than the commercial market. After September 11,2001 the reaction of the commercial markets made it all the more appropriate to pursue options for the benefit of Montana cities and towns. As noted above, GEM is being formed by many of the same local government pooled programs who are participants in NPX, who all have the same concerns for their respective programs; namely, to provide affordable and consistent excess and reinsurance policies. What will it cost for the MMIA to participate in GEM? The MMIA will need to make a premium deposit inthe amount of $500,000.00 inthe GEM account. This amount will come on a pro rata basis from both the Liability and Workers' Compensation Programs, with the shares determined by the amount of annual premium paid by each program to GEM. In addition to this deposited amount, annual premiums will be charged to MMIA for excess or reinsurance for our Liability and Workers' Compensation .. Programs. What will be the benefits to participation? The principal benefit to the MMIA is that reinsurance or excess insurance will be provided for each of our programs from a dependable source at more affordable rates. Because GEM will self-insure the first $1 million of reinsurance for each of our programs, that layer of coverage will be provided directly by the pooled program. Reinsurance coverage above that layer will be procured from the commercial markets with the advantage of the group purchasing power of all GEM participants. In addition, if the GEM program proves to be successful, the founding members, of which the MMIA would be one, would be eligible for a return of all or a portion of the premium deposit, depending upon the success of the program and the continuing actuarially determined needs of GEM. What risks are involved in participation? Perhaps the easiest way to assess GEM is to look at the MMIA. The MMIA was formed in 1986 to pool the exposures of Montana cities and towns. All participants provided capital for the development of MMIA and assumed the risks associated with its growth and development. Each member has subsequently enjoyed the Programs success. GEM is a captive insurance organization that allows very similar benefits to the participating government pools. The single largest risk is the potential for several calls upon the first $1 million of GEM coverage which requires each member to make additional premium deposits. To help offset against this risk, each of the MMIA's programs will cross-indemnify the other, so that if the losses which necessitate a call for an additional premium deposit comes from liability claims, for example, then the MMIA's Liability Program would be required to make the additional contribution to the surplus account. Conversely, if the losses came from workers' compensation coverage, the MMIA's Workers' Compensation Program would be required to meet the call. In an extreme case, if the GEM program became insolvent, the IvlMIA would lose its premium deposit. Finally, if the MMIA decided to withdraw from the GEM program for any reason, there are limitations contained in the GEM membership agreements on how quickly any remaining premium deposit would be refunded. Participation in GEM has therefore been considered by the MMIA Board to represent a long-term commitment. What will MMIA do if the MIVlIA's members do not authorize participation in GEM? MMIA will continue to do what it has done for the past several years in procuring excess and 2 reinsurance coverage; namely, shop the commercial market. What cost savings does the MMIA expect in its first year of participation in GEM. In the first year, MMIA expects to pay approximately $140,000 for liability reinsurance and $250,000 for workers' compensation reinsurance. For the current year, the MMIA is paying $175,000 and $285,000, respectively. Preliminary quotations for the next policy years suggest increases of 20 to 40% above current premiums. Of course, savings for tlfis first year do not constitute a guarantee of savings in any future year. However, the MMIA Board believes that the benefits of a group purchasing pool should result in continued savings in future years. What do the Amendments to the Program Agreements provide? The principal changes are designed to authorize participation in a group excess or reinsurance program. In the case of the Workers' Compensation Program, specific authorization is required to clarify that participation in GEM will not violate the prohibition against the commingling of Workers' Compensation funds with any other program's assets. In addition, changes were made to update the Program Agreements in terms of a change in title of the CEO and other manuscript changes to incorporate in one set of new documents various amendments previously made to the Workers' Compensation Program Agreement and reflect the passage of time since the issuance of the bonded indebtedness of each Program. 0 :kB W or thington~B obkNPX~GEM Documents~GEM Q&A for membership B.112502xtoc