accredited with excellence

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2 accredited with excellence California Joint Powers Risk Management Authority has been Accredited with Excellence by the California Association of Joint Powers Authorities (CAJPA) since May 28, 1991.

3 mission statement The California Joint Powers Risk Management Authority is a member directed excess liability risk retention pool that is dedicated to protecting its members from catastrophic losses and meeting the needs of its members by: Providing comprehensive, stable, and affordable excess liability coverage Offering competitive and flexible coverage programs Delivering quality risk management services Preserving financial strength and solvency

4 open house for a new office

5 table of contents Message from the General Manager... About California Joint Powers Risk Management Authority... Staff Members Board of Directors Committees... General Liability Program... Optional Coverage Programs... Property... Boiler & Machinery... Automobile Physical Damage... Special Events Insurance Facts & Figures Total Assets Member Payroll Rates & Claims Expenses vs. Investment Income Member Contributions vs. Redistributions Redistributions Net Cost & Net Benefits Property Values & Rates Management s Discussion & Analysis Independent Auditor s Report... 31

6 message from the general manager Program year encompassed significant changes and challenges for the CJPRMA organization; most importantly, the retirement of its long time general manager, the purchase 1 of a permanent facility and the on-going economic crisis. Robert German joined CJPRMA in 1992 serving as the second general manager in the organization s history. Over the 18 plus years that Bob served as general manager, he took CJPRMA from an organization with assets of $25 million to an organization with assets in excess of $95 million. Bob was also well recognized for his outstanding abilities in managing and controlling litigation. Bob retired from CJPRMA in April The Board of Directors and staff would like to express their appreciation for his many years of service and dedication to the organization and wish him many years of happiness in his retirement. Many years ago, Robert German embraced the vision of a permanent home for CJPRMA. After searching extensively, a location was found in Livermore and CJPRMA purchased a building in After a lengthy process of design and build, CJPRMA occupied its new home in March The building provides adequate space for administration, as well as a state of the art facility for Board of Directors meetings and member training sessions. The property located in the Montevina Business Park will serve the organization for many years to come.

7 As we have experienced, the public sector business model is very different than that of the past. The current economic crisis is having a significant impact on all of our members. CJPRMA recognizes the challenges being presented to our member organizations and we continually strive to improve and make our programs flexible and cost effective. Coverage documents, memorandums of coverage and re-insurance models are continually reviewed to insure the greatest coverage for our members at a reduced cost. To that extent, the President of the Board of Directors, Bill Henderson, created three standing committees that will allow the organization to keep pace with our competition. The committees which report directly to the Executive Committee include the: Coverage and Claims Committee, Risk Management Committee and Training and Education Committee. These committees work closely with the general manager and Executive Committee to further develop programs that are of benefit to the members. CJPRMA understands that the current crisis is far from over and we know that minimizing the impact on our member s resources is more critical than ever. As an organization, CJPRMA has also experienced an alarming increase in litigation driven by the economic downturn. We continue to aggressively manage our litigation, preserving the economic solvency of the organization. CJPRMA has enjoyed a long standing relationship with its re-insurer Munich Re. This relationship has resulted in very competitive pricing at the reinsurance layer. A combination of proactive pricing in reinsurance, a newly developed model for funding and an outstanding investment history has allowed CJPRMA to provide stable pricing for its members while at the same time expanding and enhancing services. This model approach to business will allow CJPRMA to meet and exceed the requirements of its membership for years to come. CJPRMA values its members and understands the importance of each individual member s contribution to the organization as a whole. 2 CJPRMA intends to continue to strive for improvement. We will work non-stop to insure that our members and the resources of this organization are positioned for long term financial stability and growth. We are a member driven organization that understands the marketplace and will continue to evolve to meet the economic crisis. David J. Clovis General ManaGer California Joint Powers risk ManaGeMent authority

8 about CJPRMA The California Joint Powers Risk Management Authority (CJPRMA) is a statewide risk retention pool that was established in 1986 to provide excess general liability coverage for its members. Its creation was a direct reaction to the insurance industry s decision to decline to cover public entities in California. Insurance companies felt, collectively, that public agencies represented very high risk exposures. As a result, they either declined to renew coverage or elevated premiums to levels that were simply unacceptable. 3 The members of CJPRMA determined that the risk exposure had been greatly exaggerated and decided to pool their collective resources in order to provide coverage for all participants. That effort resulted in the provision of broader coverage at lower rates than were previously available. Since cash contributions were utilized to fund the program and no debt was incurred, it also provided a substantial financial return on their investment. A redistribution of funds has taken place each year since The amount of funding that is returned to the members is determined through an annual actuarial study. More importantly, there has never been an assessment of the members in CJPRMA s history. Currently, the membership is comprised of 17 individual cities and 4 joint powers authorities. The combined membership represents about 100 public entities throughout the state. The program provides $40 million in excess liability coverage through a combination of pooled risk retention and commercial reinsurance. CJPRMA also provides programs for the group purchase of commercial insurance coverage for property, boiler & machinery, and automobile physical damage.

9 staff Staff David J. Clovis, General Manager Lola Deem, financial analyst Anna Swanson, office assistant Saima Kumar, office assistant Board Counsel A. Byrne Conley, esq. Gibbons & Conley Treasurer Roger Carroll, finance Director town of loomis (score) Investment Manager Chandler Asset Management 4 Financial Auditor Maze and Associates Actuary Mujtaba Datoo arm tech Insurance Broker Marsh 3252 Constitution Drive livermore, California (925) (925) (fax)

10 members City of Alameda City of Fairfield City of Livermore City of Chico City of Fremont City of Lodi Northern California Cities Self-Insurance Fund Including the Cities of anderson, auburn, Colusa, Corning, Dixon, folsom, Galt, Gridley, Jackson, lincoln, Marysville, oroville, Paradise, red Bluff, rio Vista, rocklin, willows, yuba City City of Petaluma City of Redding Redwood Empire Municipal Insurance Fund Including the Cities of arcata, Cloverdale, Cotati, eureka, fort Bragg, fortuna, healdsburg, lakeport, remif, rohnert Park, sebastopol, sonoma, st. helena, ukiah, willits, windsor 5 City of Richmond City of San Leandro City of Santa Rosa City of Roseville City of San Rafael Small Cities Organized Risk Effort Including the Cities of Biggs, Colfax, Crescent City, Dorris, Dunsmuir, etna, ft. Jones, ione, isleton, live oak, loomis, loyalton, Montague, Mt. shasta, Portola, rio Dell, shasta lake, susanville, weed, williams, and yreka City of Stockton City of Vacaville City of Sunnyvale City of Vallejo Yolo County Public Agency Risk Management Insurance Authority Including Capay Valley fire Protection District, Clarksburg fire Protection District, Cottonwood Cemetery District, the City of Davis, Davis Cemetery District, Davis woodland water supply Project authority, Dunnigan fire Protection District, east Davis fire Protection District, esparto unified school District, Madison Community service District, Madison fire Protection District, no Man's land fire Protection District, sacramento-yolo Port District, springlake fire Protection District, west sacramento, the City of winters, winters Cemetery District, winters fire Protection District, the City of woodland, yolo County, yolo emergency Communications agency, yolo County habitat Conservation JPa, yolo County historical Museum, yolo County in-home support services Public authority, yolo County lafco, yolo County law library, and yolo-solano air Quality Management District

11 board of directors Darrell Handy, City of alameda Jessica Henry, City of Chico Kim Greer, City of fairfield Steven Schwarz, City of fremont William Henderson, City of livermore Janet Hamilton, City of lodi Dixon Coulter, nccsif Ronald Blanquie, City of Petaluma Chris Carmona, City of redding Jeffrey Davis, remif Robyn Kain, City of richmond Stacey Haney, City of roseville 6 Mary Ann Perini, City of san leandro Robert Epstein, City of san rafael Lynne Margolies, City of santa rosa Roger Carroll, score Kathleen Williams, City of stockton Anthony Giles, City of sunnyvale Sandy Hess, City of Vacaville Harry Maurer, City of Vallejo Jeffrey Tonks, ycparmia

12 executive committee Bill Henderson, livermore President Jeff Tonks, ycparmia - Vice President Jessica Henry, Chico Chris Carmona, redding Dixon Coulter, nccsif Janet Hamilton, lodi Kathleen Williams, stockton Harry Maurer, Vallejo 7

13 general liability program Participation in this program is mandatory. it is an occurrence based risk retention program which utilizes commercial reinsurance for the upper level limits. it provides $40 million in broad form general liability coverage to the participants. that includes coverage for automobile liability, third party bodily injury and property damage, personal injury, and public officials errors and omissions. 8 the coverage from $500,000 to $5 million is pooled in two layers, from $500,000 to $1 million and from $1 million to $5 million. the coverage from $5 million to $40 million is provided through a commercial reinsurance program. the coverage is subject to a retained limit of either $500,000 or $1 million. there is no annual aggregate, except for a few specific types of claims. Member contributions are based on payroll. the rates are established through an actuarial study that is conducted annually.

14 optional coverage programs 9 Property Program the Property Program is a group purchase of commercial insurance. it provides $300 million in coverage to the participants, subject to a deductible of $25,000 with no annual aggregate. the rates are negotiated each year and premiums are based on property values. Boiler & Machinery Program the Boiler & Machinery Program is a group purchase of commercial insurance. it provides $21.25 million in coverage with deductibles that vary from member to member. the rates are negotiated each year and also vary from member to member. under the current programs, losses are adjusted by one designated company. it coordinates the Property and Boiler & Machinery losses in order to eliminate any potential coverage gaps. Automobile Physical Damage the apd Program is a group purchase of commercial insurance for vehicles valued in excess of $25,000. it provides $5 million per occurrence in coverage to the participants, subject to a deductible of $10,000, with no annual aggregate. the rates are negotiated each year and premiums are based on vehicle values. Special Events Insurance Program the special events Program is provided by Gales Creek insurance services. this program provides $1 million in coverage limits for third parties utilizing member facilities. the rates are negotiated annually and premiums are based upon size and type of events.

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16 facts & figures total assets 11 as of June 30, 2010, CJPrMa has total assets of $100 million. this is an increase of $5.9 million from the prior year, and $24.9 million since the organization has received $215.6 million in member contributions since it has returned over $95.7 million (44.4%) to the members in the form of redistributions. the unexpended portion of over $94 million remains in the investment program.

17 total member payroll since 2006, the amount of member payroll has increased by $232.3 million (17%), to a total of approximately $1.65 billion. since this is the basis upon which member contributions are calculated, the growth has helped to maintain the organization s financial stability 12

18 payroll by member entity 13 the JPa members account for 33% of the total payroll. the largest is ycparmia (13%). the individual cities account for 67 % of the total payroll, with the largest being stockton (8%).

19 liability rates (Per $100 of Payroll) since 2006, liability rates have decreased by.286/$100 of payroll (27.8%), for a $500,000 retained limit, and by.138/$100 of payroll (18.23%) for a $1 million retained limit. these decreases reflect the organization s strong financial position and its responsiveness to the members financial difficulties. 14

20 claims expenses vs. investment income 15 in 2010, investment income reached over $8.7 million; claims expenses were $3.6 million. CJPrMa s very successful investment program has generated enough revenue to pay for over 90% of its claims and administrative expenses, leaving the vast majority of its core assets untouched. however, economic fluctuations can cause severe variations in the rate of return. Claims expenses are also subject to extreme variations based on a number of factors.

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22 liability program member contributions vs. redistributions (in Millions by Program Year) (in Millions) 17 the CJPrMa program has created a pool of funds which generates enough investment income to pay the vast majority of its claims and administrative expenses. in order to achieve that goal, the investment program was divided into two parts, the loss Payment account and the long term investment account. these accounts have continually generated a rate of return which has exceeded their benchmarks. of the $215.6 million that has been collected as member contributions, over $95 million (44.4%) has been returned to the members in the form of redistributions and over $94 million (43.8%) remains in the investment program.

23 redistribution by fiscal year 18 in 1989, CJPrMa began returning excess equity to its members. since that year, over $95 million has been returned to the members. that represents approximately 46% of their initial contributions. these redistributions are a reflection of the organization s sound investment practices and strong fiscal management.

24 net cost/net benefit People working in the public sector remember the crises of the 1980's and 1990's when insurance companies charged outrageous rates for limited amounts of coverage or refused to write any coverage at all for some public agencies. CJPrMa was formed as a direct challenge to those misconceptions regarding the risk of covering public agencies. the success of its program has proven those insurance industry assumptions to have been inaccurate. two measures of the success of the CJPrMa liability Program are net cost and net benefit. 19 with reference to net cost, the difference between what has been paid in (approximately $215.6 million) and what has been returned to the members (approximately $95.7 million) is

25 approximately $119.9 million. since approximately $94 million remains in the program, the net cost of providing liability coverage to all of its members, for twenty-four years, has been a total of approximately $25.5 million. that's an average cost of $1.1 million per year. with reference to net benefit, since 1986, the members of CJPrMa have made in excess of $215.6 million in contributions to the program. of that amount, approximately $95.7 million has been returned to the members. approximately $94 million remains in the investment program. in addition, over $66.8 million has been paid to cover members' claims. that's a total of approximately $257 million in equity and benefits. since only $215.6 million was charged, in the form of contributions, the net benefit to the members of CJPrMa has been more than $41.3 million in excess of their contributions. the founders of CJPrMa were correct when they assumed that the insurance industry had miscalculated the risks of providing liability coverage to public agencies. Proof of that is reflected in the financial success of its program. 20

26 property program total insured values (in Billions) 21 CJPrMa provides a commercially insured program for the property of its members. since 2006, the total insured value of that property has increased approximately $3 billion (68%), from $4.3 billion to over $7 billion. in the program year, the total insured values increased over $2 billion (40%). this was a direct result of the completion of a two year property appraisal.

27 property program values by member entity 22 the largest member of the property program, in terms of total insured values (tiv), is remif (15%). the largest individual city is stockton (14%).

28 property program rates 23 (Per $100 of Valuation) since 2006, the rate charged for providing coverage under the commercially insured property program has decreased by.018 (36.7%), from.049/$100 of valuation to.031/$100 of valuation. the last three years have been a direct reflection of softening market conditions, low loss rate and a long term relationship with Munich re.

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30 manageme discussion & analysis 25 the management of California Joint Powers risk Management authority (CJPrMa) is pleased to present the following discussion and analysis of the operating results, financial condition and liquidity of CJPrMa for the fiscal year ended June 30, this discussion should be read in conjunction with the financial statements and notes to the financial statements included with this report. Overall Program Highlights CJPrMa is a joint powers authority created by certain California cities and other joint powers authorities to provide a pooled approach to the members liability coverage as allowed under the California Government Code. at June 30, 2010 it consisted of 21 members representing over 100 public entities throughout California. the program provides $40 million in excess liability coverage through a combination of pooled risk retention and commercial reinsurance. in addition to the liability program, CJPrMa provides for the group purchase of commercial insurance for property, auto physical damage, and boiler and machinery coverage.

31 nt s Fiscal Year 2010 Financial Highlights Entity-wide and Fund Basis CJPrMa had $48.95 million in net assets at June 30, of this amount, $48.9 million was restricted for the liability program and $12,389 was restricted for the property program. GasB statement no. 34 requires the issuance of entity-wide financial statements as well as fund financial statements. however, since CJPrMa has only one fund and that fund is accounted for as an enterprise fund, the entity-wide financial statements are also the individual fund statements. 26 Overview of the Authority s Basic Financial Statements Maze & associates, Certified Public accountants, has performed an independent audit of our financial statements in accordance with generally accepted auditing standards. the assets, liabilities, revenues and expenses are reported on a full-accrual basis. the Basic financial statements are in two parts: 1) Management s Discussion and analysis (this part), and 2) the Basic financial statements, which include the entity-wide financial statements, along with the notes to these financial statements.

32 the Basic financial statements comprise the entity-wide financial statements. these financial statements provide both a short-term and a long-term view of CJPrMa s financial activities and financial position. Description of the Basic Financial Statements CJPrMa s financial statements are prepared in conformity with generally accepted accounting principles and include amounts based upon reliable estimates and judgments. the financial statements include a statement of net assets and a statement of revenues, expenses and Changes in net assets. The Statement of Net Assets presents information on CJPrMa s assets and liabilities; the difference between the two representing CJPrMa s net assets, or pool equity. The Statement of Revenues, Expenses and Changes in Net Assets presents information showing total revenues versus total expenses and shows how CJPrMa s net assets changed during the fiscal year. all revenues and expenses are recognized as soon as the underlying event occurs, regardless of the timing of related cash flows. thus, revenues and expenses are reported in this statement for some items that will result in the disbursement or collection of cash during future fiscal years (i.e. the expense associated with an increase in claims liability, involving cash outlay in future time periods). 27 The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the financial statements. the notes describe the nature of CJPrMa s operations and significant accounting policies and clarify unique financial information. Capital Assets at the end of fiscal 2010, CJPrMa capital assets included $183,000 invested in land and $2.6 million in a building. in addition, there was $306,728 invested in capital assets, net of depreciation, consisting of office furniture and office equipment. Analysis of Overall Financial Position and Results of Operations

33 CJPRMA Pool Assets total assets increased $5.9 million, from $94.2 million at June 30, 2009 to $100 million at June 30, this increase is attributable to an increase in investments due to a continued improvement in market conditions. CJPrMa s investments are managed by Chandler asset Management and held in a custodial account with the Bank of new york. the managed portfolio consists of securities invested in accordance with CJPrMa s investment policy and the California Government Code. Cash is held in fidelity institutional Government Money Market fund #657 (fidelity). fidelity is a money market account and is used as a pass-through for the purchase and sale of the authority s investments. Cash is also held in the local agency investment fund (laif), an external investment pool managed by the state treasurer s office. CJPrMa s investment income from interest and realized gains on investments was $5.5 million. investment income from unrealized gain on investments was $3.3 million. total investment earnings were $8.8 million for fiscal year CJPrMa carries its investments at fair market value, as required by generally accepted accounting principles. at June 30, 2010, the fair market value of investments exceeded the cost by $6.4 million. the ability of CJPrMa s excess funds to earn investment income has a direct effect on the liability program because it is used to help offset the premium contributions paid by the members. when investment income falls short of projections, additional funding may be required to meet actuarial estimates. CJPrMa takes these interest rate conditions into consideration when developing annual premium contributions. 28 the following graphs depict the make-up of CJPrMa s cash and investments at June 30, 2010 and June 30, 2009.

34 Redistribution of Equity 29 in fy 2009/10, CJPrMa continued its practice of redistributing excess equity to its members. through strong claims management and sound investment practices, the organization has been able to return dividends of approximately $96 million since the liability program redistribution for fy 2009/10 was approximately $4.7 million. the following graph shows the redistributions for the last ten years.

35 CJPRMA Claims Liabilities the liability for claims for the liability program, increased from $45.3 million at June 30, 2009, to $50 million at June 30, a claim liability for ibnr totaling approximately $9.2 million was recorded for the current program year. for the fiscal year ending June 30, 2010, CJPrMa contracted with arm tech/aon Global risk Consulting for an actuarial valuation of its claim costs. this is used to project liabilities for future years as well as to provide projected funding levels for current and prior years. funding for the 2009/10 fiscal year was calculated at the 70% confidence level and not discounted. the 70% confidence level assumes that there is a 70% chance that the amount collected will be sufficient to cover losses. for financial statement purposes, the liability for claims has been recorded on an expected and undiscounted basis as required by GasB statement no Economic Outlook and Major Initiatives Liability Program redistributions to members, which represent refunds of excess contributions, will again be allocated. CJPrMa will be soliciting request for Proposal for Broker of record. Property Program no changes are anticipated. Boiler & Machinery Program no changes are anticipated. Automobile Physical Damage Program no changes are anticipated. Contacting the Authority s Financial Management these Basic financial statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the authority s finances. Questions about these statements should be directed to the California Joint Powers risk Management authority at 3252 Constitution Drive, livermore, Ca

36 independent auditor s report 31 Maze and associates

37 statement of net assets For the Year Ended June 30,

38 revenues, expenses and changes For the Year Ended June 30,

39 statement of cash flow For the Year Ended June 30,

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41 Harry B. Maurer 36

42 photography credits 37 Cover... CJPrMa Main office livermore inside cover B... City hall alameda Plaza at night san leandro inside cover C... CJPrMa Main office open house livermore Page 3...the Guardian of the Creek Prince Gateway Park santa rosa Page 4...CJPrMa ribbon Cutting livermore Page 6...Baylands Park sunnyvale Marina Petaluma Page 7...Parking structure Mural Chico (Amber Holinsworth) Page 8...welcome arch lodi Page Civic Building interior redding Page Church of saint raphael and Mission san rafael arcangel san rafael Page yolo County Courthouse woodland Page Downtown arcata university Center redding historic sign eureka Page Point san Pedro san rafael Page windmill fairfield Page arena stockton Page empress theatre Vallejo Gold Miner statue auburn Page aqueduct anderson Downtown arcata City hall richmond (Y.K. Cheung) Page Motor training Day san leandro Page libby water tower sunnyvale Page 21...sundial Bridge at sunset redding Page Public library folsom City hall fairfield shopping Center fremont Page Mackerricher state Park fort Bragg Page old Municipal Building Chico (Amber Holinsworth) Page City hall san leandro Page Ballena Bay alameda ardenwood historic farm fremont rancho solano fairfield Page City hall stockton sunset Mt. shasta Carousel Vacaville Page rios lovell winery livermore Page rainbow over Civic Center roseville Page harry B. Maurer Memorial Page Gunner the Police Dog san leandro

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