1. To Retain or not to Retain – That is the Question
Strategic Planning Workshop
Presented to:
STRIMA
State Risk and Insurance Management Association
September 16, 2009
Presented to:
Presented by:
Steven P. Kahn, CPCU, ARM | Managing Director ARM Tech / Aon Global Risk Consulting Phone: Fax:
Presented by:
Steven P. Kahn, CPCU, ARM | Managing Director ARM Tech / Aon Global Risk Consulting Phone: Fax:

2. Risk Financing Objectives
Lowest long term cost of risk
Cost stable within selected parameters

3. Cost of Risk Retained losses Risk transfer costs
Program operation expenses
Balance these costs to achieve desired outcome

4. Estimate Total Retained Losses
Projected Ultimate Losses (000)
Year
Workers
Compensation
Property
Liability
Estimated
Misc.
Total
2000
$ 5,000
$ 750
$15,000
$150
$20,900
2001
8,000
500 25
16,525
2002
7,000
150
10,000
350
17,500
2003
1,000
7,500
175
19,175
2004
2,000
9,000
300
19,300
2005
13,500
1,250
12,000
200
26,950
2006
8,500
400
17,400
2007
4,000
11,000 50
23,550
2008
900
20,050

5. Determine Large Losses
Number of Claims Exceeding $250,000
Range ($)
Liability
Workers
Compensation
Property
Total
$250,000 – $500,000 43 61
104
500,001 – 750,000 11 7 18
750,001 – 1,000,000 3 4
1,000,001 – 2,500,000 15 2 19
2,500,001+ 1

6. Observations on Expected Losses
$20 to $23 million per year total
Individual claims exceeding $2.5 million are rare

7. What is Risk Working definition:
Deviation of actual results from expected results
We are concerned with your ability to retain the unexpected

8. Risk Retention
How much can the state afford to retain and still meet major financial objectives?

9. Source of Funds Risk management internal service fund
General fund ending balance
Special or enterprise funds
Sale of bonds
Governors reserve
Catastrophe reserve
Tax increase (not likely)

10. Payment of Unexpected Losses
In the aggregate
Per event

11. Loss Retention Capacity
Sum of
Losses state can expect to pay
Unexpected losses state can afford to pay and still meet major financial objectives
Determine amount per event and aggregate

12. Schedule of Current Insurance
Line of Coverage
Retention
Limit
Annual Premium
Aircraft
$0 Liability
$50,000 – Hull
10,000,000
2,200,000
125,000
Blanket Property
250,000
500,000,000
3,750,000
Excess Liability
1,000,000
25,000,000
1,250,000
Blanket Crime Insurance
50,000
3,000,000
225,000
Capital Art Collection
25,000
75,000
State Park Historical Cabins
5,000
750,000
45,000
Auto Liability – Van Pool
62,000

13. Other Considerations
Amount state can afford to retain vs amount it makes sense to retain
Credit for alternative retentions
Need for a particular service
Contractual requirements
Legislative mandates
Can’t insure some losses
Multi-year retentions
Buy in from senior management