1. 0 Strategic Planning Workshop Presented to: August 2008 Washington State Transit Insurance Pool Presented by: Steven P. Kahn, CPCU, ARM | Managing Director ARM Tech / Aon Global Risk Consulting Phone: 949-470-4341 Fax: 847-953-1672 email: steven_kahn@armtech.com

2. 1 Contents for Strategic Planning Retreat Workbook Workbook TabTopicPresenterTime Slot I Introduction Jamie Collier08:30 II WSTIP History Al Hatten08:35 III Strategic Planning Process Jeff Ristau08:50 IV WSTIP Financial Position Steven Kahn0900 WSTIP Operating Environment WSTIP Compared to Others V Strategic Partnerships  WSTA GEM  WSDOT WA ST Risk Manager Al Hatten10:00 VI What’s Next Steven Kahn 10:15 – BREAK 10:30 – 2:00 pm Lunch - about Noon WSTIP Purpose New Coverages & Services – Breakout Session Financial Practices Governance VII Lunch VIII Recap Steven Kahn2:00 pm IX Next Steps Al Hatten3:00 pm X Conclude About 3:30 pm

3. Section IV – Financial Review 2

4. 3 Financial Data – WSTIP

5. 4 Ratios – WSTIP

6. 5  Measure of solvency  Indicates number of unexpected losses needed to consume net assets  = Net assets / largest SIR Net Assets to SIR

7. 6  Measure of net asset adequacy  As ratio increases, the more likely it is that a high loss year will erode surplus  = Gross Assessments / Net Assets Gross Assessments To Net Assets

8. 7  Measure of net asset adequacy  As ratio increases, the more likely it is that a high loss year will erode net assets  = Net Assessments / Net Assets Net Assessments To Net Assets

9. 8  Measure of net asset adequacy  As the ratio increases, the more likely it is that upward development in loss reserves will exhaust net assets  = Loss Reserves / Net Assets Loss Reserves To Net Assets

10. 9  Measure of efficiency  Low ratio indicates efficient administration (within reason)  = All Operating Expenses / Net Assessments Expense Ratio

11. 10  Measure of profitability  Indicates ability to fund operations from net assessments  = (All Operating Expenses + Retained Losses) / Net Assessments Combined Ratio

12. 11 Net Assets to SIR – WSTIP

13. 12 Gross Assessments to Net Assets – WSTIP

14. 13 Net Assessments to Net Assets – WSTIP

15. 14 Loss Reserves to Net Assets – WSTIP

16. 15 Expense Ratio – WSTIP

17. 16 Combined Ratio – WSTIP

18. 17 Financial Data – Comparison Pools

19. 18 Ratios – Comparison Pools

20. 19 Net Assets to SIR – Comparison Pools

21. 20 Gross Assessments to Net Assets – Comparison Pools

22. 21 Net Assessments to Net Assets – Comparison Pools

23. 22 Loss Reserves to Net Assets – Comparison Pools

24. 23 Expense Ratio – Comparison Pools

25. 24 Combined Ratio – Comparison Pools

26. 25 WSTIP Performance on State Ratios State RatioGuidelinePass/Fail Equity to SIREquity at least 5x to 10x SIR 15Pass Provision for expected losses to equity Projected losses less than equity 0.28Pass Net reserves to equity Net reserves less than 1.50 x equity 0.43Pass Annual change in member equity Reduction does not exceed 10% 1.16Pass Changes in prior year loss reserves Prior year loss reserves increase less than 25% 1.15Pass

27. 26 WSTIP Financial Model – Data

28. 27 WSTIP Financial Model – Ratios

29. Section V – The Future 28

30. 29  We are the premier providers of high-quality risk and management-related products and services for all facets of the transit industry WSTIP Vision

31. 30 Our mission is to provide value-added services for our members. We will accomplish this by: 1.Reducing member’s cost of risk, 2.Providing comprehensive management services, 3.Looking at innovative opportunities, and 4.Encouraging alliances and partnerships WSTIP Mission

32. 31  We treat everyone fairly and with respect  We value innovation and embrace technology as a partner  We are committed to excellence in service delivery and cost-effective programs  We value our employees  We value integrity and ethical conduct  We value the diversity of our members  We speak with one voice Core Values

33. 32 New Services  Physical test for candidates  Monthly driving record checks  Bus stop quality evaluation and scoring tool  Criminal background checks on drivers and others  Personnel procedures training  Sample job descriptions  Training materials library  Other…

34. 33 New Coverages  Employee benefits pool  Employee benefits group purchase  Legal services – contractual disputes  Assist non-profit agencies form their own pool  Assist with non-hazard risks  Other…

35. Section VI – Strategic Partners 34

36. 35 Growth  New members  New associates  New services  Other states  Other...

37. 36 Striking a Balance  Rate level  Rate stability  Net asset level  WSTIP retention

38. 37 Governance  Role of new, small transit entities  Standing committees  Other...

39. 38 Consider Effect of Change in Operating Environment  Insurance market cycles  Changes in number of size of members  One ore more catastrophic losses  Change in legal environment  Loss of excess insurer (e.g., Kemper and Reliance)

40. 39 Guidelines for Net Asset Rate Credit Sample guidelines: 1.Net assets > gross member assessments 2.Net assets > 1.5 x member assessments 3.Net assets > 15 x largest SIR 4.Combined ratio < 1.00, average of last two years 5.Net assets > losses & ALAE reserve at 80% confidence level

41. 40 WSTIP Financial Target  Select and maintain financial ratios  Select net assets to SIR ratio  Select gross assessments to net assets ratio  Select loss reserves to net assets ratio