Because each ICRMA member has the flexibility to select its member retained limit, ICRMA annually engages an actuary to estimate each member’s exposure to losses within its retained limit based on its own experience and prepare a customized report for each member. Reports are prepared for both the liability and workers’ compensation programs. The cost of the study(ies) are paid through ICRMA’s administrative expense.
The report(s) provide the following:
- A forecast of losses for the upcoming fiscal year for funding purposes, and
- Estimated outstanding liabilities associated with claims that have already occurred for reporting in the City’s financial statements.
The actuary creates rates, based on anticipated losses, to aid the City in appropriately funding and allocating its retained losses for the year. The rates are provided on both a discounted and undiscounted basis. Various discount rates are provided, and the determination of whether to discount rates should be based on the city’s investment earnings and the actual funding for these losses.
A key consideration in establishing your funding policy (i.e. how much money to set aside to cover the cost of these claims) is the amount of stability desired. The adjusted rates are provided at various probability levels. With each increase in probability level, the likelihood of having adequate funds to cover the claims that occur improves. Electing to fund at a low probability level increases the chances that the amount set aside to pay claims will not be sufficient.
The study provides the projected liability for unpaid losses for use in the City’s financial reporting. The liability is provided both undiscounted and discounted, and at various probability levels. The determination of whether to discount the funding rates and outstanding liabilities should be based on the city’s investment earnings and the actual of funding for these losses. If, for example, a city does not prefund for its losses, or set aside funds in reserve for such losses, then discounting liabilities would not be appropriate.