presents Cost Recovery & Capital Preservation presented by JIM RUSSO, CSP, CSEP, CLTC, CSA, CFS GBS INSURANCE & FINANCIAL SERVICES jim_russo@ajg.com 800.606.1322 ext 5308 410.491.7786 (m)
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About Founded in the 1920s, Arthur J. Gallagher & Co., is one of the fourth largest insurance brokerage and risk management services companies in the world. As a publicly traded company we operate in approximately 22 countries providing a full range of retail and wholesale services. Arthur J Gallagher & Co. and its subsidiary companies (Gallagher Benefits Services, Gallagher Retirement Services and GBS Insurance and Financial Services) offer global insurance brokerage and alternative risk transfer services, employee benefits consulting, business consulting, financial and estate consulting and actuarial services. Gallagher also offers claims and information management, risk control consulting and appraisal services to clients around the world. 4
Forward As reported, the national decline in church attendance and continued personal economic struggles place financial pressures on churches and subsequently Dioceses around the country. This is not to assert that a decline in faith is at the root of this dilemma, but more to address that personal economic challenges impact the Diocese s capital. The communities your Diocese serve and support depend immensely on both the physical and financial health of your Diocese. Therefore, the perpetual need to educate, train and support seminarians to develop priests and tomorrow s spiritual leaders is an ongoing challenge and expense of approximately $250,000 per seminarian. Increasing expenses constantly challenge the success of any business. However, unlike the church, other businesses can raise prices and the cost of services to offset increasing expenses. Of course the church can continue to rely on the need for faithful stewardship to generate its revenue. However, the church can also employ additional and creative methods to recover its capital to offset normal business operating expenses and to stay ahead of the increase in expenses associated with the life-long obligation to support and maintain the health and welfare of its priests. 5
Objective To discuss tried-and-true long-term capital recovery methods designed to avoid the capital barrier your Diocese faces in the future. Recover the education and training costs of each seminarian for a period of twenty years. Transfer the risk & financial exposure caused by potential extended care events. Transfer the risk & financial exposure caused by the final expense obligation for each priest based on life expectancy. Become self reliant regarding additional, perpetual capital inflows. Increase capital reserves. 6
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It s All About To properly manage risk you must identify: 1.what the risks are; and 2.what s at risk. Then, once you have identified that, there are only three things you can do. 8
It s All About IGNORE You can pretend that risk is not present. But when bad things happen, and they always happen, you will more than likely not be prepared or at the very best you will not be prepared as well as you could have been. 9
It s All About ASSUME You might think that assume and ignore are the same. In a sense you would be right, but to assume the risk implies that you have taken the time to evaluate it, recognize what s at risk and then determine that you can overcome the financial losses associated with the identified risks. 10
It s All About TRANSFER You can choose to transfer the risk to an insurance company that will protect your organization financially in the event you suffer a loss from a covered risk. In addition you may be able to design a solution that refunds all capital outlays associated with the method of risk transfer you select. 11
Important Terms & Definitions ACTUARIES ASSET MANAGER BEAR MARKET BULL MARKET CASH FLOW INSTITUTIONAL INVESTOR MARKET CORRECTION P/E RATIO STANDARD & POOR STOCK ANALYST STOCK BROKER STOCK SPLIT TOTAL RETURN VALUE INVESTING 12
For-Profit vs. Not-For-Profit A for-profit organization may be formed to conduct any number of lawful business activities. The primary reason to form a forprofit organization is to earn a profit for the owners of the company. A not-for-profit organization (i.e. religious, charitable or educational) is generally formed for the common good of the public and are not focused on making a profit. 13
For-Profit vs. Not-For-Profit Since a for-profit organization is formed to make money for the owners, the profits (revenue minus expenses) of the company may be used for the company to make more money or may be distributed to the owners at the owner s discretion. Since a not-for-profit organization is formed to accomplish a specific social good, the profits (revenue minus expenses) raised are intended to be used to fulfill and expand its mission. 14
For-Profit vs. Not-For-Profit How can a for-profit organization increase revenue or raise capital? How can a not-for-profit organization increase revenue or raise capital? 15
For-Profit vs. Not-For-Profit Let s identify key people in a for-profit organization. Let s identify key people in a not-for-profit organization. 16
For-Profit vs. Not-For-Profit Why do for-profit organizations craft and implement key person plans? Can a not-for-profit organization craft and implement key person plans? 17
Reality Check The risk is real! The exposure is real! The solution is real! 18
Conclusion If you assume the risk, you are making a conscious decision to forego a recapitalization program that covers all hard costs associated with your education, training, benefits and potential extended care costs. Without a clear and defining method for making the right decision, the go/nogo decision is typically made based on what appears to be the lowest capital outlay at the time the decision is made. However, more times than not, the lowest capital outlay today ends up being a larger capital outlay tomorrow. With a proper analysis, evaluation and comparison of your total financial exposure, you will be able to make an informed and intelligent decision for your diocese. Our process will assist you in making the right decision. And finally, regardless of your final decision, your diocese will better equipped to manage and survive future financial challenges. 19
Thank You LET US HELP YOU PERPETUATE YOUR DIOCESE S CAPITAL BASE Cost Recovery & Capital Preservation JIM RUSSO, CSP, CSEP, CLTC, CSA, CFS GBS INSURANCE & FINANCIAL SERVICES jim_russo@ajg.com 800.606.1322 ext 5308 410.491.7786 (m) 20