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To Retain or not to Retain – That is the Question

To Retain or not to Retain – That is the Question. 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:

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To Retain or not to Retain – That is the Question

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  1. To Retain or not to Retain – That is the Question 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 DirectorARM Tech / Aon Global Risk ConsultingPhone: 949-470-4341 Fax: 847-953-1672email: steven_kahn@armtech.com Presented by: Steven P. Kahn, CPCU, ARM | Managing DirectorARM Tech / Aon Global Risk ConsultingPhone: 949-470-4341 Fax: 847-953-1672email: steven_kahn@armtech.com

  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)

  5. Determine Large Losses Number of Claims Exceeding $250,000

  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

  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

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