Comprehensive Annual Financial Report - City of Santa Monica

CITY OF SANTA MONICA, CALIFORNIA
Notes to Basic Financial Statements, Continued
For the fiscal year ended June 30, 2009
(15) SELF INSURANCE
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of
assets; errors and omissions; injuries to employees and others; and natural disasters. The City has
chosen to establish risk financing internal service funds where assets are set aside for claim settlements
associated with such risks of loss up to certain limits and has obtained excess liability coverage through
the Authority for California Cities Excess Liability (ACCEL), a joint powers authority of twelve
medium-size California municipalities. ACCEL is a member of the California State Association of
Counties Excess Insurance Authority for the purpose of providing access to excess workers’
compensation coverage for major employee injury risks through a program of pooled self insurance/reinsurance
and insurance on a risk sharing basis.
The City retains self-insurance up to $1,000,000 for general liability, automobile liability, and bus
operations liability. ACCEL covers up to an additional $4,000,000 for all liabilities and arranges
placement of excess of liability insurance over $5,000,000 up to $100,000,000. The City retains self
insurance up to $750,000 for workers’ compensation. California State Association of Counties Excess
Insurance Authority covers up to an additional $4,000,000 for workers’ compensation and arranges for
excess of workers compensation over $5,000,000 and up to statutory limits. No claim settlements have
exceeded insurance coverage in any of the past three years.
In order to provide funds to pay claims, ACCEL collects premiums from each member. The premiums
paid are credited with investment income at the rate earning on the Authority’s investments. Based on
ACCEL’s June 30, 2009 audited financial statements, the City had deposits of $2,549,524 (17.1% of
ACCEL’s total deposits) net of unpaid claims with ACCEL. Total assets of ACCEL at June 30, 2009
were $30,625,253. ACCEL has no capital contributions.
The City’s unpaid claims liabilities are based on the results of actuarial studies. The unpaid claims
liabilities are compiled by the Risk Manager of the City and include amounts for claims incurred but not
reported as of year end. Claims liabilities are calculated considering the effects of inflation, recent
claim settlement trends including frequency and amount of payouts and other economic and social
factors. Net present values of the unpaid claims liabilities are estimated for the year ended June 30,
2009, based on interest rates of 4.45%. Revenues of the risk management funds, together with funds to
be provided in the future, are expected to provide adequate resources to meet liabilities as they come
due. Nonincremental claims expenses have not been included as part of the liability for claims.
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