1. Making the Difficult Decision to Assess
AGRIP
2017 Fall Educational Forum
Renaissance Baltimore Harborplace Hotel
Baltimore, MD

2. Why this topic?
Start a discussion on a issue potentially facing some pools
Share our steps of a successful assessment story
Provide proof an assessment is survivable

3. Overview
What does your pool administration and governance structure look like?
How often and what do you communicate with your membership?
What indicators present a need for an assessment?
What is the legality of an assessment in your state/pool?
Rebuilding trust with the membership

4. Governance Structure What is your board make up?
Elected Officials
Administrators or employees of your pool members
A mix of each
The frequency of board meetings?
What is the pool administration reporting to the board?
If there are sub-committees are they being utilized?
What are the current board policies in place?

5. Our Story
The governing board wasn’t being updated on the pool at least quarterly
Board approved rate increases weren’t being implemented
Weren’t having annual membership meetings
The sub-committees in by-laws weren’t being used
Audit reports (technically financial reviews at that time) were not being shared with our membership
Cash flow was being supported with loans from another fund to support weekly claim costs

6. Assessment Indicators
*Not an exhaustive list*
Review results of annual benchmark financial ratios or use a Risk Based Capital approach performed by your actuary or auditors
Consider auditor’s opinion on the pool’s audit if they insert an on-going concern
Anticipation of future statute or policy changes that might drive projected costs into an unfavorable financial position or put additional regulatory oversight on a pool
AGRIP’s Financial Benchmark Ratios are also a resource to measure the fiscal soundness of your pool

7. Our Ending Net Positions
FY $4,400,343
FY $12,110,588*
FY $13,576,263**
FY $11,231,172
*First time since FY 2009 the fund increased its Net Position
**First year of a full scope audit rather than financial review
FY $8,581,581
FY $7,847,041
FY $7,357,068
FY $5,439,339
FY $5,174,874
FY $5,791,011
FY $2,557,027
FY $2,878,052
FY $1,448,135

8. Assessment Preparation
Is there support from the governing board to assess
How prepared or informed is your membership of a pending assessment?
How urgent is the assessment?
Balance sheet vs. cash flow deficit
Assess before it gets into a cash flow situation
Use the previously discussed financial ratios to determine how much
Discuss various assessment payment options
Give members choice

9. Our Story
Members were made aware of the fund deficit the year prior to our assessment via regional in-person meetings
Region meetings held in July 2014
July 1, 2015 we switched health TPAs and the fund had a Change in Net Position in excess of $1 million. First time in 7 years the fund had a positive Change in Net Position
The initial plan was communicated in March 2015 we were going to eliminate the deficit over many years by funding contributions at a higher confidence level

10. Assessment Execution
Remember: Communication with the membership is key
Assessment message must be clear and concise
Anticipate questions and have them answered beforehand
In person meeting vs. or phone call notification
Governing board will take official action to assess
Know your by-laws and state statutes surrounding pooling and assessing the membership
Official action before or after assessment discussion

11. Our Story
In October 2016 we brought together our entire membership to announce an $11.2 million assessment after we provided the FY 2016 audit to show the program increased its Net Position and the program had indicated it can stand on its own.
After two years of discussing the assessment to the sub-committee they agreed to abandon the confidence level plan and do an assessment
New South Dakota legislation capping school district fund balances was going into effect later that year.
Half the schools in the pool would’ve been impacted by the new legislation
What is a better way to use one-time money than for a one-time assessment expense!

12. Assessment Execution
Give the membership options on how to pay the assessment
Is the board going to allow:
Straight one-time lump sum payment
Multiple year repayment plan with or without an interest rate
Maybe it means funding at a very high CL for a set number of years

13. Assessment Execution
Depending on the size of the assessment and pool members perception there is a potential for negative publicity out of it and the media might attempt to run with it
How involved is your state’s legislature in pooling?
Preface your members with talking points to the media or if you are comfortable have your members refer all media questions to a single pool staff member (or board member if he or she is comfortable)
Get ready for criticism from our commercial agent friends.

14. Our Story
Our board made the assessment official on October 31, 2016 and allowed districts to pay their assessment in a one-time lump sum or over four years with a small interest rate.
A Memorandum of Understanding was required to be signed and returned by each district and all MOUs returned by end of February 2017.
Why did we want the board to have MOUs signed and returned?
US GAAP would allow us to accrue the receivable on the balance sheet and push us into positive Net Position

15. Our Story What happened in FY 2017:
Beginning Net Position-July 1, 2016
-$12,110,588
Net operating revenue
35,969,801
Claims, Claims Adj Exp, G&A, etc.
31,109,035
Net Income
4,860,766
Assessment Received/Receivable
11,691,304
Ending Net Position-June 30, 2017*
$4,441,482
*Per RBC we would be out of any type of regulatory control if we were a commercial carrier

16. Re-building Trust
Your members are going to ask what the pool is going to do to ensure this doesn’t happen again.
Our responses:
Surplus Policy
Assessment Policy
Continued financial benchmarking to governing body
Continued transparency and membership communication
Continued pool governing board & staff professional development
Coverage revision(s) if applicable

17. Our Story
For FY 2018 we retained 100% of our membership and added two new school districts to the health fund
The negative publicity has blown over and our members are extremely happy with the new TPA
We have not been asked to return and testify to a legislative sub-committee

18. Our Story There was some related fallout:
Assessing the health fund, as we anticipated, impacted our membership in the property/liability fund
Our property/liability fund had negative Net Position two years ago and we continue to strengthen the balance sheet without an assessment so far, but have reduced certain limits.

19. Conclusion An assessment is survivable!
Always maintain open communication and transparency with the governing board and pool members
Keep your fiscal house in order to attract new membership and even new pool employees
An assessment is survivable!

20. Contact Information
Matt Flett Chief Financial Officer Director of Protective Trust Services Associated School Boards of South Dakota 306 E. Capitol Avenue, Suite 100 Pierre, SD

21. Thank you! Open Forum/Questions