@ Metn, FINANCE AND BUDGET COMMITTEE APRIL 14,2010 SUBJECT: PROPERTY INSURANCE PROGRAM FOR OPERATIONS

Size: px

Start display at page:

Download "@ Metn, FINANCE AND BUDGET COMMITTEE APRIL 14,2010 SUBJECT: PROPERTY INSURANCE PROGRAM FOR OPERATIONS"

Maximillian Smith
5 years ago
Views:

1 @ Metn, Metropolitan Transportation Authority One Gateway Plaza 213.g Te Los Angeles, CA metro.net 13 FINANCE AND BUDGET COMMITTEE APRIL 14,2010 SUBJECT: ACTION: PURCHASE ALL RISK PROPERTY AND BOILER AND MACHINERY INSURANCE RECOMMENDAT ION Authorize the Chief Executive Officer to purchase All Risk Property and Boiler and Machinery insurance policies for all property, at a not to exceed price of $2.2 million for the 12-month period effective May 10, 2010 through May 9, RATIONALE The All Risk Property and Boiler and Machinery insurance polices expire on May 9, Property insurance protects against losses to our structures and improvements, which are valued at almost $7.8 billion. In addition, property insurance is required by many contracts and agreements, such as our leaselleaseback deals involving a number of our operating facilities. Discussion Last month, we presented a Receive and File Board report outlining preliminary insurance quotations while our insurance broker, Aon Risk Services, continued marketing the property program to qualified insurance carriers to obtain final property insurance pricing. Final quotations for the property insurance program recommended last month have now been received from carriers with A.M. Best ratings indicative of acceptable financial soundness and ability to pay claims. The Recommended Program secures the All Risk deductible at $250,000 with no earthquake coverage and a flood deductible at 5% per location subject to a $250,000 minimum. If a loss exceeds the deductible, All Risk coverage is provided up to $350 million per occurrence for losses except $1 50 million for flood related damages. The Recommended Program represents an increase of $50 million All Risk and coverage over the prior year renewal. Attachment A is a premium history. Attachment B shows the outline of the recommended program structure. Attachment C outlines the carriers contacted with their associated A.M. Best rating.

The current and recommended programs of insurance are layered structures in that several insurance carriers participate with each contributing a portion of coverage.

2 The current and recommended programs of insurance are layered structures in that several insurance carriers participate with each contributing a portion of coverage. Carriers affiliated with Chartis (formerly known as American International Group or AIG) are currently part of the program of insurance. Continual monitoring through internal methods as well as updates provided by our insurance broker ensure that all carriers maintain the required financial ratings indicated by financial reporting agencies and as determined by A.M. Best. Chartis meets the ratings requirement at this time. In February, the staff and Aon Risk Services met with multiple domestic and foreign insurance providers to present our property risks and supplemental data. During the discussions we provided an overview of the system, including its extensive security infrastructure and fire protection. We also provided information and statistics on system operations, assets, and our loss history over the past eight years (no fixed property insurable events, one loss of rolling stock estimated at $750,000 and one loss of a non-revenue vehicle currently estimated at $150,000), in order to demonstrate the high quality risk that we offer to the property insurance marketplace. Our proactive approach of marketing directly to carriers led to increased interest from underwriters which yielded an additional carrier willing to participate in our program that has not previously participated. Adding the additional carrier resulted in the ability to increase MTA's All Risk coverage to $350 million per occurrence for losses. The increase in coverage is costing the agency approximately $100,000. Adding the proposed additional coverage is prudent because our total insured value of property has increased over the last seven years by nearly 50% with no increase in limits. We will be adding additional rail and bus rapid transit lines (Orange Line North extension, Exposition Phase II, Metro Gold Line Foothill Extension, Metro Green Line Extension to LAX, etc.) further increasing our total insured value. Accepting an additional carrier into our property program diversifies our pool of carriers and will allow greater competition for our property risks in the event of market hardening. This property renewal has given the MTA its lowest rate (dollars per total insured value) and its lowest total premium in at least ten years while securing higher limits for an expanding system. FINANCIAL IMPACT The funding for two months of $351,804 for this action is included in the FYI0 budget in cost center 0531, Risk Management - Non Departmental Costs, under projects Gateway Building Costs, Rail Operations - Blue Line, Rail Operations - Green Line, Rail Operations - Red Line, Gold Line, Oper Mgmt & Admin-SFV, Metro Orange Line, Oper Mgmt & Admin-SGV, Oper Mgmt & Admin -

Gateway, 304001 - Oper Mgmt & Admin - South Bay, 305001 - Oper Mgmt & Admin-West/Central, and 61 0061 - Owned Property in account 50601 (Ins Prem For Phys Damage).

3 Gateway, Oper Mgmt & Admin - South Bay, Oper Mgmt & Admin-West/Central, and Owned Property in account (Ins Prem For Phys Damage). The remaining ten months of premiums will be included in the FYI 1 budget, cost center 0532, Risk Management - Non Departmental Costs, under projects General Overhead, Rail Operations - Blue Line, Rail Operations - Green Line, Rail Operations - Red Line, Gold Line, Metro Orange Line, Operations Transportation, Operations Maintenance, and Owned Property in account (Ins Prem For Phys Damage). In FY 10, an estimated $2.2 million will be expensed on this item. Impact to Bus and Rail Operatins and Capital Budget The current fiscal year funding for this action will come from Enterprise Fund for $306,735, General Fund for $27,840 and Internal Service Fund for $17,229. No other sources of funds were considered for this activity because these are the funds that benefit from the insurance. This activity will slightly decrease ongoing operating costs from the prior fiscal year given the price savings over the prior year. ALTERNATIVES CONSIDERED Deductibles All Risk Limits Earthquake Limits Limits t Total Not to Exceed or Actual Premium Current Program $250,000 AII Risk/5% of $300 Million None $1 50 Million E2,221,763 Recommended Program $Z~O,OOO A~I Riskl5% of $350 Million None $150 Million $2,110,825, Option B $250,000 AII Risk15% Of None $150 Milfion $2,007,575 7 Option C $250,000 All of Earthquake and $300 Million $30 Mil'i0n $1 50 Million $5,000,000 Option D $250,000 All RisklS% of Earthquake and $300 Million $50 Million after first $50 million of seltinsu~d retention As Earthquake Limits $4,500,000 1 ATTACHMENTS A. PREMIUM HISTORY 6. FYI 1 FINAL PRICING C. CARRIERS CONTACTED Prepared by: Greg Kildare, Executive Officer Risk Management

4 ~hiewancial Services Officer and Treasurer Arthur T. Leahy C bief Executive Officer -

5 ATTACHMENT A PREMIUM HISTORY Premium History for Property and Boiler and Machinery Policies For Property lnsurance Policies Ending in the Following Fiscal Years FY04 FY05 FY06 FYO7 FY08 FY09 FYI0 All Risk $5.5 Mil $4.8 Mil $4.6 Mil $3.9 Mil $3.1 Mil $2.1 Mil $2.1 Mil Boiler & Machinery $1 00,000 $1 00,000 $1 00,000 $1 00,000 $1 00,000 $1 00,000 $1 00,000 Total Premium $5.6 Mil $4.9 Mil $4.7 Mil $4.0 Mil* $3.2 Mil* $2.2 Mil* $2.2 Mil* TlV = Total Ins. Val. $5.8 Bit $6.0 Bil $6.5 Bil $6.7 Bil $6.7 Bil $6.9 5il $7.6 Bil >Rate per Mil Ins. Val. $966 $817 $723 $597 $478 $31 9 $289 FYI1 est. $2.0 Mil $1 00,000 $2.1 Mil* $7.8 Bil $271 * Exciudes Earthquake Insurance PROPERTY INSURANCE PROGRAM FOR OPERAifONS

6 ATTACHMENT B FY't'I: FINAL PRICING AND CARRIERS LQS ANGELES COUNTY METROPOLlTAN TRANSPORTATION AUTHORtTY PRlMARYlEXCESS PROPERTY INSURANCE POLICY TERM: MAY 10,2010 TO MAY 9,2011 $ 50,000,000 Endurance American 400,000 AXY Lexington Insurance $ 50,000,00 Liberty Mutual Fire I Total $ 2,065,000 $ 45,825 I

7 ATTACHMENT C CARRIERS CONTACTED Com~anv ACE Bermuda lnsurance Limited Affiliated FM lnsurance Company Allianz Global Risks US tnsurance Company Allied World Assurance Company (U.S.) Inc. Arch Specialty lnsurance Company Ariel Reinsurance Company Ltd. Axis Surplus lnsurance Company Chubb Custom lnsurance Company Commonwealth lnsurance Company of America Continental Casualty Company Crum & Forster lnsurance Company Endurance American lnsurance Company Fireman's Fund lnsurance Company Globai Excess Partners GMAC Great American lnsurance Company Hartford Insurance Group Hiscox lnsurance Co Ltd Illinois Union insurance Company lnsurance Company of the West James River Insurance Company Lancashire lnsurance Co (UK) Ltd Lexington lnsurance Company (aka Chartis) Liberty Mutual lnsurance Company Lloyds Syndicate (AGM 2488) Lfoyds Syndicate (AML 2001 ) Lloyds Syndicate (BRT) LIoyds Syndicate (CSL 1084) LIoyds Syndicate (HIS 33) Lloyds Syndicate (LIB 4472) Lloyds Syndicate (MAP 2791 ) Lloyds Syndicate (MSP 31 8) Lloyds Syndicate (SJC 2003) Max Re Europe Limited Montpelier Reinsurance Ltd. Munich American Reassurance Company OneBeacon lnsurance Company Philadelphia lnsurance Company RLl lnsurance Company RSUl Indemnity CompanylLandmark SCOR Reinsurance Company St. Paul Travelers Swiss Reinsurance America Corporation Westchester Surplus Lines lnsurance Company XL lnsurance America, Inc. Zurich American lnsurance Company A.M. Best Ratinq A- (XII) A++ (XV) A (IX) A (XIV) Bermuda A- (XV) A (Xffl) A (IX) A- (IX) A- (VIII) A- (XI[) A- (XIV) A- (XIV) A (Xlfl) A+ (Xlll) A+ (XI A (XI!) A- (X) A ow A+ (XI) A ow A ow PROPERTY INSURANCE PROGRAM FOR OPERATiONS

PROPERTY INSURANCE PROGRAM FOR OPERATIONS

PROPERTY INSURANCE PROGRAM FOR OPERATIONS Metro Los Angeles County Metropolitan Transportation Authority One Gateway Plaza Los Angeles, CA 90012-2952 9 213-922.9200 Tel 213.922.9201 Fax metro.net FINANCE AND BUDGET COMMmEE APRIL 15, 2009 SUBJECT: