Financial Statements Audit Report

Washington Counties Risk Pool

Thurston County

For the period October 1, 2013 through September 30, 2014

Published May 18, 2015

Report No. 1014265

Washington State Auditor

May 18, 2015

Board of Directors

Washington Counties Risk Pool

Tumwater, Washington

Report on Financial Statements

Please find attached our report on the Washington Counties Risk Pool’s financial statements.

We are issuing this report in order to provide information on the Pool’s financial condition.

Sincerely,

JAN M. JUTTE, CPA, CGFM

ACTING STATE AUDITOR

OLYMPIA, WA

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388

TABLE OF CONTENTS

Independent Auditor’s Report On Internal Control Over Financial Reporting And On

Compliance And Other Matters Based On An Audit Of Financial Statements Performed In

Accordance With Government Auditing Standards ....................................................................... 4

Independent Auditor’s Report On Financial Statements ................................................................ 6

Financial Section............................................................................................................................. 9

About The State Auditor’s Office................................................................................................. 35

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Washington State Auditor's Office

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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING AND ON COMPLIANCE AND

OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

Washington Counties Risk Pool

Thurston County

October 1, 2013 through September 30, 2014

Board of Directors

Washington Counties Risk Pool

Tumwater, Washington

We have audited, in accordance with auditing standards generally accepted in the United States

of America and the standards applicable to financial audits contained in Government Auditing

Standards, issued by the Comptroller General of the United States, the financial statements of the

Washington Counties Risk Pool, Thurston County, Washington, as of and for the years ended

September 30, 2014 and 2013, and the related notes to the financial statements, which

collectively comprise the Pool’s basic financial statements, and have issued our report thereon

dated April 30, 2015. Our report includes information about the Pool’s pending litigations. This

information is more fully described in Note 13 to the financial statements.

INTERNAL CONTROL OVER FINANCIAL REPORTING

In planning and performing our audits of the financial statements, we considered the Pool’s

internal control over financial reporting (internal control) to determine the audit procedures that

are appropriate in the circumstances for the purpose of expressing our opinion on the financial

statements, but not for the purpose of expressing an opinion on the effectiveness of the Pool’s

internal control. Accordingly, we do not express an opinion on the effectiveness of the Pool’s

internal control.

A deficiency in internal control exists when the design or operation of a control does not allow

management or employees, in the normal course of performing their assigned functions, to

prevent, or detect and correct, misstatements on a timely basis. A material weakness is a

deficiency, or a combination of deficiencies, in internal control such that there is a reasonable

possibility that a material misstatement of the Pool's financial statements will not be prevented,

or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a

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Page 4

combination of deficiencies, in internal control that is less severe than a material weakness, yet

important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph

of this section and was not designed to identify all deficiencies in internal control that might be

material weaknesses or significant deficiencies. Given these limitations, during our audit we did

not identify any deficiencies in internal control that we consider to be material weaknesses.

However, material weaknesses may exist that have not been identified.

COMPLIANCE AND OTHER MATTERS

As part of obtaining reasonable assurance about whether the Pool’s financial statements are free

from material misstatement, we performed tests of the Pool’s compliance with certain provisions

of laws, regulations, contracts and grant agreements, noncompliance with which could have a

direct and material effect on the determination of financial statement amounts. However,

providing an opinion on compliance with those provisions was not an objective of our audit, and

accordingly, we do not express such an opinion.

The results of our tests disclosed no instances of noncompliance or other matters that are

required to be reported under Government Auditing Standards.

PURPOSE OF THIS REPORT

The purpose of this report is solely to describe the scope of our testing of internal control and

compliance and the results of that testing, and not to provide an opinion on the effectiveness of

the Pool’s internal control or on compliance. This report is an integral part of an audit performed

in accordance with Government Auditing Standards in considering the Pool’s internal control

and compliance.

Accordingly, this communication is not suitable for any other purpose.

However, this report is a matter of public record and its distribution is not limited. It also serves

to disseminate information to the public as a reporting tool to help citizens assess government

operations.

JAN M. JUTTE, CPA, CGFM

ACTING STATE AUDITOR

OLYMPIA, WA

April 30, 2015

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Washington State Auditor's Office

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INDEPENDENT AUDITOR’S REPORT ON

FINANCIAL STATEMENTS

Washington Counties Risk Pool

Thurston County

October 1, 2013 through September 30, 2014

Board of Directors

Washington Counties Risk Pool

Tumwater, Washington

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of the Washington Counties Risk Pool,

Thurston County, Washington, as of and for the years ended September 30, 2014 and 2013, and

the related notes to the financial statements, which collectively comprise the Pool’s basic

financial statements as listed on page 9.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements

in accordance with accounting principles generally accepted in the United States of America; this

includes the design, implementation, and maintenance of internal control relevant to the

preparation and fair presentation of financial statements that are free from material misstatement,

whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We

conducted our audits in accordance with auditing standards generally accepted in the United

States of America and the standards applicable to financial audits contained in Government

Auditing Standards, issued by the Comptroller General of the United States. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements.

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor

The procedures selected depend on the auditor’s

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Washington State Auditor's Office Page 6

considers internal control relevant to the Pool’s preparation and fair presentation of the financial

statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the Pool’s internal control.

Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness

of accounting policies used and the reasonableness of significant accounting estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects,

the financial position of the Washington Counties Risk Pool, as of September 30, 2014 and 2013,

and the changes in financial position and cash flows thereof for the years then ended in

accordance with accounting principles generally accepted in the United States of America.

Matters of Emphasis Regarding Pending Litigations

As discussed in Note 13 to the financial statements, the Pool is a defendant in a lawsuit relating

to insurance coverage and an assignment of rights dispute. Our opinion is not modified with

respect to this matter.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the

management’s discussion and analysis on pages 10 through 13 and claims development

information on pages 31 through 32 be presented to supplement the basic financial statements.

Such information, although not a part of the basic financial statements, is required by the

Governmental Accounting Standards Board who considers it to be an essential part of financial

reporting for placing the basic financial statements in an appropriate operational, economic or

historical context. We have applied certain limited procedures to the required supplementary

information in accordance with auditing standards generally accepted in the United States of

America, which consisted of inquiries of management about the methods of preparing the

information and comparing the information for consistency with management’s responses to our

inquiries, the basic financial statements, and other knowledge we obtained during our audit of the

basic financial statements. We do not express an opinion or provide any assurance on the

information because the limited procedures do not provide us with sufficient evidence to express

an opinion or provide any assurance.

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Washington State Auditor's Office

Page 7

Supplementary and Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that

collectively comprise the Pool’s basic financial statements as a whole. The List of Participating

Members (Schedule T-1) and Department of Enterprise Services (DES) Schedule of Expenses

(Schedule T-2) are presented for purposes of additional analysis and are not a required part of the

basic financial statements. Such information has not been subjected to the auditing procedures

applied in the audit of the basic financial statements and, accordingly, we do not express an

opinion or provide any assurance on it.

OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING

STANDARDS

In accordance with Government Auditing Standards, we have also issued our report dated

April 30, 2015 on our consideration of the Pool’s internal control over financial reporting and on

our tests of its compliance with certain provisions of laws, regulations, contracts and grant

agreements and other matters. The purpose of that report is to describe the scope of our testing

of internal control over financial reporting and compliance and the results of that testing, and not

to provide an opinion on internal control over financial reporting or on compliance. That report

is an integral part of an audit performed in accordance with Government Auditing Standards in

considering the Pool’s internal control over financial reporting and compliance.

JAN M. JUTTE, CPA, CGFM

ACTING STATE AUDITOR

OLYMPIA, WA

April 30, 2015

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Washington State Auditor's Office

Page 8

FINANCIAL SECTION

Washington Counties Risk Pool

Thurston County

October 1, 2013 through September 30, 2014

REQUIRED SUPPLEMENTARY INFORMATION

Management’s Discussion and Analysis – 2014

BASIC FINANCIAL STATEMENTS

Statement of Net Position – 2014 and 2013

Statement of Revenues, Expenses and Changes in Fund Net Position – 2014 and 2013

Statement of Cash Flows – 2014 and 2013

Notes to Financial Statements – 2014

REQUIRED SUPPLEMENTARY INFORMATION

Ten-Year Claims Development Information – 2014

SUPPLEMENTARY AND OTHER INFORMATION

List of Participating Members (Schedule T-1) – 2014 and 2013

DES Schedule of Expenses (Schedule T-2) – 2014 and 2013

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Washington State Auditor's Office

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WCRP… Management’s Discussion and Analysis

The management of the Washington Counties Risk Pool (“WCRP” or “Pool”) presents this narrative

overview and analysis (“MD&A”) of WCRP’s financial activities for its 26^thFiscal Year, which ended

September 30, 2014. To more fully understand its financial position, this MD&A should be considered in

conjunction with the information in the Pool’s companion financial statements and accompanying notes.

The Pool was “Created by Counties for Counties” in August 1988 as an association of member counties

independent of all other associations of which the counties are members.

WCRP’s foundational

agreement authorized its creation pursuant to Chapters 48.62 and 39.34, Revised Code of Washington

(“RCW”), “to provide member counties programs of joint self-insurance, joint purchasing of insurance, and

joint contracting for or hiring of personnel to provide risk management, claims handling, and

administrative services.”

WCRP is neither an “insurer” (RCW 48.010.050) nor an insurance company, and it is not subject to the

special laws and rules that govern insurers and insurance companies. Washington’s pools operate under

the State’s “pooling” laws and regulations, specifically RCW 48.62 and Washington Administrative Code

(“WAC”) 200-100. Pools are risk-sharing entities that must first be approved by and are thereafter

overseen by and report to the State Risk Manager. They are not regulated by the Office of the Insurance

Commissioner. And as public entities, pools are subject to annual audits by the State Auditor’s Office.

Most of WCRP’s operating revenues consist of contributions from (assessments paid by) its member

counties. The Pool’s operating expenses consist primarily of payments made to resolve claims, including

allocated loss adjustment expenses, and for the premiums for the coverages acquired from superior-rated

commercial reinsurers and excess liability, property and cyber risk/security insurance carriers.

The Pool has no other component units for which it is financially accountable. It operates as an

enterprise (proprietary) fund and uses the accrual accounting basis in accordance with the U.S. generally

accepted accounting principles applicable to governmental enterprise funds. This fund type is used for

‘business type activities’ that are intended to recover all or a significant portion of their costs through user

fees and charges. Revenues are recognized when earned, and expenses are recognized when incurred.

Overview of the Financial Statements

The basic financial statements are comprised of two components: the financial statements and the notes

to those financial statements. The Statement of Net Position presents information on all of an entity’s

assets and liabilities at fiscal year-end, with the difference between the two reported as Net Position.

Over time, increases or decreases in net position may serve as a useful indicator of whether the financial

position of the entity is improving or deteriorating.

The Statement of Revenues, Expenses and Changes in Net Position presents details of an entity’s

revenues and expenses during the fiscal year that resulted in the reported Change in Net Position -

revenues exceeding expenses result in Income; revenues less than expenses result in Loss. Revenues

and expenses are reported in this statement for some items that will (or did) result in cash flows in future

or past periods (e.g. incurred claims costs, earned but unused vacation leave).

The Statement of Cash Flow presents the cash provided for and used by an entity’s operations and

categorized by operating, capital and investing activities. The effects of accrual accounting and non-cash

activities such as depreciation have been removed by adjustment. This statement reconciles the

beginning and ending cash balances reflected in the Statement of Net Position.

The Notes to the Financial Statements provide additional information essential to fully understanding the

data provided in an entity’s financial statements.

Financial Statements

This MD&A is presented with three comparative financial statements: the Comparative Statement of Net

Position; the Comparative Statement of Revenues, Expenses and Changes in Net Position, and the

Comparative Statement of Cash Flow, along with a budgetary variation summary.

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COMPARATIVE FINANCIAL INFORMATION

Washington Counties Risk Pool

NET POSITION

During Fiscal 2014, when its assets grew 1% ($0.48 million) to $47.41 million, WCRP liabilities were

reduced by 7% (+$2.17 million) to $28.04 million, and producing a ratio (assets to liabilities) of 1.69:1. For

reference, the Fiscal 2004 ratio was 0.94:1. And but for the members’ reassessments receivables

(“retroactive assessments”) included in Fiscal 2004’s assets, that ratio would have been 0.74:1.

WCRP’s Net Position, which is also referred to as “net assets” or “owners’ equity”, improved 16% (+$2.65

million) to $19.37 million as of September 30, 2014. And since Fiscal 2004 ended “negative” $0.69

million, its Net Position improved more than $20.06 million over the course of the past ten years. $1.07

million of the Net Position is held in Capital Assets (net of debt); leaving $18.30 million both to satisfy the

State Risk Manager’s solvency provisions (WAC 200.100.03001(3)) and to apply towards WCRP’s own

sufficiency requirements in section D.2 of the Board of Directors’ Underwriting Policy.

09/30/2014

$46,343,850

1,069,560

09/30/2013

$46,017,808

919,442

09/30/2012

$41,159,087

950,134

Current Assets

Non-Current Assets

Total Assets

$47,413,410

$46,937,250

$42,109,221

Current Liabilities

Non-Current Liabilities

Total Liabilities

$16,165,933

11,878,306

$28,044,239

$17,888,932

12,325,473

$30,214,405

$28,165,704

1,080,500

$29,246,204

Restricted Net Position

$12,500,000

919,442

3,303,403

$16,722,845

$4,834,776

950,134

7,078,107

$12,863,017

Invested (Net) in Capital Assets

Non-Restricted Net Position

Total Net Position

1,069,560

18,299,611

$19,369,171

REVENUES, EXPENSES and CHANGES IN NET POSITION

Operating Income of $2.38 million was realized in Fiscal 2014, a 37% decrease from 2013. Still, the 2014

amount is the third largest in recent years and 55% more than the annual average (2004 – 2013).

Revenues grew $1.05 million (+7%), yet Expenses increased $2.42 million (+22%) primarily due to $2.54

million in independent actuary adjustments to the Pool’s claims-related reserves and $0.58 million in

premium increases for the reinsurance, excess insurance and property insurance policies acquired.

Claims Reserves are determined annually for the Pool’s Joint Self-Insurance Liability Program (JSILP) by

the independent actuary. 584 third-party liability claims (and lawsuits) were reported by member counties

to the Pool during Fiscal 2014, a 5.5% reduction in year-over-year filings and a continuation of the decline

in annual filings the Pool has experienced the past several years. The new filings raised the to-date total

(Oct 1988 – Sep 2014) to 19,820, with only 359 cases remaining classified as ‘open’ at year-end 2014.

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The actuaries project another 283 cases from all years as incurred but not yet reported (“IBNR”), raising

the Pool’s estimated ultimate case count to 20,103 as of September 30, 2014.

Net Reserves are estimated as of September 30, 2014 at $14.68 million, a very modest year-over-year

increase of $0.06 million (+0.4%). Increased corridor layer estimates were nearly offset by the decreased

estimate for the Pool’s self-insured retention (SIR). Gross reserving estimates declined 3.3% ($1.10

million) in Fiscal 2014 to $32.67 million, with $17.99 million ceded to applicable commercial insurers. The

2014 Net Reserves include $2.69 million (-21.1% from Fiscal 2013) for the SIR losses, $10.84 million

(+8.0%) for the deductibles within the reinsurers’ “corridor” programs, $0.13 million (-13.3%) for losses in

the quota-shared (10%) upper reinsured layer, and $1.02 million (+0.1%) for estimated unallocated loss

adjustment expenses (ULAE). By comparison, Fiscal 2004’s Net Reserves totaled $11.99 million, which

only included the Pool’s SIR ($11.35 million) and ULAE ($0.64 million) estimates. NOTE: The corridor

programs from and involving WCRP’s initial layer(s) reinsurers began eight years ago. They included an

occurrence coverage maximum of $0.5 million during the first three years, $1.0 million during the next

three years, and both $1.0 million and $2.0 million the past two years. Occurrence minimums have

remained (since these programs began) the greater of the applicable member’s deductible or $100,000.

FY-2014

FY-2013

FY-2012

Operating Revenues

Member JSILP Assessments

Member WCPP Assessments

Prior Year’s JSILP Assessments (reverse RSA)

Operating Revenues – Miscellaneous

Total Operating Revenues

Non-Operating Revenues (and Expenses)

Interest Income

Other Non-Operating Revenues

Total Non-Operating Revenues

Total Revenues

$11,727,035

3,072,645

661,000

150,000

$15,610,680

$11,487,536

2,927,485

$11,648,053

2,799,807

150,000

$14,565,021

107,627

$14,555,487

$219,858

48,320

$268,177

$150,638

(39,007)

$111,631

$47,004

12,950

$59,954

$15,878,857

$14,676,652

$14,615,441

Operating Expenses

Adjustments to (All JSILP) Claims Reserves

Adjustment to ULAE Reserve

$4,149,091

573

$1,580,840

28,568

$2,067,166

142,510

Premiums for JSILP Insuring Policies

Premiums for Property Insurance Policies

Depreciation, Bad Debt & Administrative Expenses

Rate Stabilization Accounts (JSILP / WCPP)

Total Operating Expenses

4,169,152

2,959,396

1,954,321

3,745,615

2,798,095

1,931,616

732,090

6,113,108

2,726,208

1,733,484

$13,232,533

$10,816,824

$12,782,476

CHANGES IN NET POSITION

$2,646,325

$16,722,846

$19,369,171

$3,859,828

$12,863,017

$16,722,845

$1,832,965

$11,030,052

$12,863,017

Beginning Net Position (October 1^st)

Ending Net Position (September 30^th)

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Washington State Auditor's Office Page 12

BUDGET VARIATIONS

Fiscal 2014

Actual

Budget

Variance

Operating Revenues:

Member C/A – Liability Coverage

Prior Year’s Member C/A – Liability Coverage

Member C/A – Property Insurance

Member Services Revenues

$11,727,035

661,000

3,072,645

150,000

$11,727,035

$0

661,000

2,463

3,070,182

150,000

0

Total Operating Revenues

$15,610,680

$14,947,217

$663,463

Operating Expenses:

Current Year “SIR” Claims Reserves

$1,259,129

2,975,000

650,000

(1,075,806)

360,768

(20,000)

573

$1,259,129

2,975,000

650,000

$0

0

Current Year’s “1^stLayer Corridor” Claims Reserves

Current Year’s “2^ndLayer Corridor” Claims Reserve

Adjustment for Prior Year’s “SIR” Reserves

Adjustment for Prior Year’s “Corridor” Reserves

Adjustment for “10% Quota-Shared” Claims Reserve

Reserve for Unallocated Loss Adjustment Expenses

Rate Stabilization Account (JSILP)

(1,075,806)

360,768

(20,000)

573

(747,802)

(1,500)

0

747,802

1,500

3,593,317

575,835

2,959,396

62,300

2,454,285

$15,278,564

Rate Stabilization Account (WCPP)

Premiums for Reinsurances Purchased

Premiums for Excess Insurances Purchased

Premiums for Property Insurance Purchased

Depreciation (of Capital Assets) Expense

Administrative (OH) Expenses

3,593,317

575,835

2,959,396

70,000

1,884321

$13,232,533

0

7,700

(569,964)

($2,046,031)

Total Operating Expenses

Operating Income / (Loss)

$2,378,147

($331,347)

$2,709,494

Non-Operating Revenues / (Expenses):

Interest Income

$219,858

26,409

$206,400

25,320

$13,458

1,089

Rental Income (Net)

Miscellaneous Income

2,133

Gain on Sale of Asset

Total Non-Operating Revenues / (Expenses)

19,778

$268,178

7,580

$239,300

12,198

$28,878

Changes in Net Position

$2,646,325

($92,047)

$2,738,372

Net Position, Beginning of Fiscal Period

$16,722,845

$0

NET POSITION, End of Fiscal Period

$19,369,170

$16,630,798

$2,738,372

Capital Assets and Long-Term Debt

Capital Assets acquired during FY-2014 included the acquisitions of Suite F (aka Suite 100) in the Pool’s

headquarters facility for $148,481, three fleet autos totaling $77,894 (gains from sales of the replaced

units totaled $19,778), and an electronic telecommunications system for $8,435. (NOTE: Readers should

view Note 7 in the ‘Notes to the Financial Statements’ for an expanded Capital Assets discussion.)

The Washington Counties Risk Pool had not pursued any long-term debt.

Request for Information

Recall that this MD&A is provided for those interested in a general overview of the financial operations of

the Washington Counties Risk Pool. Questions concerning the information provided and WCRP’s

financial report, or requests for additional information, should be addressed to: WASHINGTON

COUNTIES RISK POOL, Attn: Executive Director Vyrle Hill, 2558 R W Johnson Rd SW, Suite 106,

Tumwater, WA, 98512-6103; or telephone 360/292-4495.

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MCAG NO. 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF NET POSITION

Page 2 of 5

As of September 30, 2014 and 2013

ASSETS

As of

9/30/2014

9/30/2013

CURRENT ASSETS:

Cash and Cash Equivalents

Investments

$

8,733,724

33,265,546

$

17,745,096

26,135,502

Receivables:

Members' JSILP Deductibles Receivable

Excess Insurance/Reinsurance Recoverable

Members' JSILP Assessments Receivable

Members' WCPP Assessments Receivable

Other Accounts Receivables

1,010,395

1,686,629

1,263,222

369,702

11,672

467,448

57,273

892,124

702,421

13,569

4,375

Prepaid Expenses

2,960

TOTAL CURRENT ASSETS

$

46,343,850

$

46,017,808

NONCURRENT ASSETS:

Capital Assets (Net of Accumulated Depreciation)

$

1,069,560

47,413,410

-

$

919,442

46,937,250

-

TOTAL NON CURRENT ASSETS

TOTAL ASSETS

TOTAL DEFERRRED OUTFLOWS OF RESOURCES

LIABILITIES

CURRENT LIABILITES:

Claims Reserves:

"SIR" Reserves

Open Claims - SIR Reserves

IBNR Reserve - SIR

"1st/2nd Layers' Corridor" Reserves

Open Claims - Corridor Reserves

IBNR Reserve - Corridor

Accounts Payable

$

807,091

$

1,029,553

-

2,017,431

-

44,729

14,797,219

2,106,958

-

103,385

13,148,498

Unearned Revenue - Members Assessments

TOTAL CURRENT LIABILITIES

$

16,165,932

$

17,888,932

NON CURRENT LIABILITIES

Claims Reserves:

"SIR" Reserves

Open Claims - SIR Reserves

IBNR Reserve - SIR

Open Claims - Corridor Reserves

IBNR Reserve - Corridor

"8x2 10% Quota Share" Reserve

Reserve for ULAE

$

1,611,469

274,425

4,501,089

4,232,871

130,000

1,015,858

112,595

-

$

1,973,957

410,985

2,545,642

5,472,852

150,000

1,015,285

93,662

Compensated Absences

JSILP Rate Stabilization Account

WCPP Rate Stabilization Account

661,000

2,090

-

TOTAL NON CURRENT LIABILITIES

TOTAL LIABILITIES

$

11,878,307

28,044,239

-

$

12,325,473

30,214,405

-

TOTAL DEFERRED INFLOWS OF RESOURCES

NET POSITION:

Net Investment in Capital Assets

Restricted Net Position - WAC 200.100.03001

Restricted Net Position - Satisfaction of WCRP Policy (UWP Sec D-2)

Unrestricted Net Position

$

1,069,560

$

919,442

920,000

11,580,000

3,303,403

0

18,299,611

TOTAL NET POSITION

$

19,369,171

47,413,410

$

16,722,845

46,937,250

TOTAL NET POSTION AND LIABILITIES

The accompanying notes are an integral part of this financial statements

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Washington State Auditor's Office Page 14

WASHINGTON COUNTIES RISK POOL

STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET POSITION

MCAG NO 0774

Page 1 of 5

For the Fiscal Years Ended September 30, 2014 and 2013

Year Ended

9/30/2014

Year Ended

9/30/2013

OPERATING REVENUES:

Members' Assessments -- JSILP Coverage

Members' Assessments -- WCPP Insurance

Member Services - Revenues

$

11,727,035

3,072,645

150,000

$

11,487,536

2,927,485

150,000

Total Operating Revenues

$

14,949,680

$

14,565,021

OPERATING EXPENSES:

Current Year's "SIR" Reserves

$

1,259,129

3,625,000

(1,075,806)

360,768

573

$

1,531,606

3,600,000

(1,905,071)

(1,795,695)

28,568

Current Year's "1st/2nd Layers' Corridor" Reserves

Adjustment in Prior Years' "SIR" Reserves

Adjustment to Prior Years' "1st/2nd Layers' Corridor" Reserves

Adjustment in Reserve for ULAE

WCPP Rate Stabilization Account

-

2,090

JSLIP Rate Stabilitzation Account

-

730,000

150,000

-

3,199,125

546,490

2,798,095

51,673

Current Year's "8x2 10% Quota Share" Reserve

Adjustment of Prior Year's "8x2 10% Quota Share" Reserve

JSILP Reinsurance Premiums

Excess Liability Insurance Policies Premiums

WCPP Insurance Premiums

(20,000)

3,593,317

575,835

2,959,396

70,000

1,884,321

Depreciation Expense

Operating Expenditures

1,879,943

Total Operating Expenses

$

13,232,533

$

10,816,824

OPERATING INCOME (LOSS)

$

1,717,147

$

3,748,197

NON OPERATING REVENUES (EXPENSES)

Interest Income

Rental Income

Rental Expense

Bad Debt Expense - Franjo Beach Property Recovery

Miscellaneous Income

$

219,858

34,996

(8,587)

-

2,133

19,778

$

150,638

30,731

(5,215)

(66,010)

1,487

-

Gain (Losses) on Capital Assets Disposition

Total Nonoperating Revenues (Expenses)

CHANGES IN NET POSITION

$

268,178

1,985,325

16,722,845

661,000

$

111,631

3,859,828

12,863,017

-

TOTAL NET POSITION, Beginning of Year

PRIOR PERIOD ADJUSTMENT

TOTAL NET POSTION, End of Year

19,369,170

$

16,722,845

The accompanying notes are an integral part of this financial statements

____________________________________________________________________________________________________________________

Washington State Auditor's Office

Page 15

WASHINGTON COUNTIES RISK POOL

STATEMENT OF CASH FLOWS

MCAG NO. 0774

Page 3 of 5

For the Fiscal Years Ended September 30, 2014 and 2013

Year Ended

9/30/2014

Year Ended

9/30/2013

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash received from Members & Insurers

Cash payments for goods and services

Cash payments to employees for services

$

11,092,175

(12,089,617)

(931,946)

$

17,085,548

(8,639,520)

(896,452)

Net Cash Provided (Used) by Operating Activities

(1,929,388)

7,549,576

CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Purchase of Equipment & Building

Cash from Rental of Office (net)

Non Operating Miscellaneous Income

Bad Debt Expense -- Franjo Beach Property Recovery

Gain on Sale of Assets

(234,811)

26,409

2,133

0

(20,981)

25,516

1,485

(66,010)

-

34,472

Net Cash Provided (Used) from Capital and Related Financing Activities

CASH FLOW FROM INVESTING ACTIVITIES:

Interest Income

$

(171,797)

$

(59,989)

$

219,858

$

150,638

Net Cash Provided (Used) by Investing Activities

Increase (Decrease) in Cash and Cash Equivalents

$

(1,881,327)

43,880,599

41,999,271

$

7,640,225

36,240,373

43,880,599

Cash and Cash Equivalents - Beginning of the Year

Cash and Cash Equivalents (including restricted) - End of the Year

The accompanying notes are an integral part of this financial statements

Year Ended

9/30/2013

Year Ended

9/30/2013

RECONCILIATION OF OPERATING INCOME TO NET CASH

PROVIDED (USED) BY OPERATING ACTIVITIES

OPERATING INCOME

$

1,717,147

$

3,748,197

Adjustments to Reconcile Net Operating Income to Net

Cash provided (used) by Operating Activities:

Depreciation Expense

70,000

(2,208,784)

(721,509)

(20,000)

804,992

573

0

(2,090)

(1,648,721)

58,656

18,932

51,672

2,782,378

(886,350)

150,000

627,910

28,568

661,000

2,090

458,148

(73,043)

(121)

Decrease (Increase) in Accounts Receivable

Increase (Decrease) in "SIR" Reserves

Increase (Decrease) in "8x2 10% Quota Share" Reserve

Increase (Decrease) in "1st/2nd Layers' Corridor" Reserves

Increase (Decrease) in Reserve for ULAE

Increase (Decrease) in JSILP Stabilization Account

Increase (Decrease) In WCPP Stabilization Account

Increase (Decrease) in Unearned Revenue

Increase (Decrease) in Accounts Payable

Increase (Decrease) in Accrued Liabilities

Increase (Decrease) in Prepaid Expenses

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

1,415

(1,929,388)

(876)

7,549,577

$

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES

The accompanying notes are an integral part of this financial statements

____________________________________________________________________________________________________________________

Washington State Auditor's Office Page 16

Washington Counties Risk Pool

October 1, 2013 through September 30, 2014

These notes are an integral part of the accompanying financial statements.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the Washington Counties Risk Pool (“WCRP” or “the Pool”) conform to generally accepted

accounting principles (“GAAP”). The following is a summary of the more significant policies:

a.

Reporting Entity

The WCRP was “Created by Counties for Counties” in August 1988 as an association of member counties

independent of all other associations of which the counties are members. The Pool’s foundational agreement

authorized its creation pursuant to Chapters 48.62 and 39.34, Revised Code of Washington (“RCW”), “to provide

member counties programs of joint self-insurance, joint purchasing of insurance, and joint contracting for or hiring

of personnel to provide risk management, claims handling, and administrative services.”

WCRP is neither an “insurer” (RCW 48.010.050) nor an insurance company, and it is not subject to the special laws

and rules that govern insurers and insurance companies. Washington’s pools operate under the State’s “pooling”

laws and regulations, specifically RCW 48.62 and Washington Administrative Code (“WAC”) 200-100. Pools are

risk-sharing entities that must first be approved by and are thereafter overseen by and report to the State Risk

Manager. They are not regulated by the Office of the Insurance Commissioner. And as public entities, pools are

subject to annual audits by the State Auditor’s Office.

The Pool is governed by a board of directors that consists of one director (and at least one alternate director)

representing each member county and appointed by the county’s legislative authority. The Board of Directors,

which includes both elected and appointed officials, meets three times each year with the Pool’s Annual Meeting

being held in the summer. The Board is responsible for a) determining the risk-sharing extent of the 3^rd-party self-

insured liability coverage provided by approving the insuring document (coverage form), b) selecting the

reinsurance(s) to acquire and the excess insurance(s) being jointly-purchased or offered for “member option”

purchase, c) approving the Pool’s annual operating budget(s) and work program(s), and d) approving the members’

deposit assessments and, when necessary, reassessments.

Ongoing oversight of the Pool is furnished by an 11-person executive committee elected by and from the Pool’s

Board to staggered, 3-year terms. The committee meets throughout each year to: a) approve all disbursements and

review the Pool’s financial health; b) approve case settlements exceeding the applicable member’s deductible by at

least $50,000; c) review all claims with incurred loss estimates exceeding $100,000; and d) evaluate the Pool’s

operations and program deliverables, as well as the Executive Director’s performance. Members are also expected

to participate in the Board’s standing committees (finance, personnel, risk management, and underwriting) which

develop or review/revise proposals for and/or recommendations to the association’s policies and its coverages for

the Board’s formal consideration.

Six of the Pool’s 11-person staff handle and/or manage the several hundred liability cases annually filed upon and

submitted by the member counties for risk-shared coverage consideration. This includes determining coverage,

establishing reserves for covered events by estimating future payments for the losses and their related claims

adjustment expenses. The claims personnel have 115 years of combined claims handling experience. The

remaining staff support the Pool’s administrative needs or provide services that include assessing

members’/potential members’ risks, coordinating trainings; compliance auditing, coverage development and

marketing.

There are also professionals from some of the most respected organizations worldwide retained by the Board to

address specific needs of the Pool – PricewaterhouseCoopers, LLP furnishes independent actuarial services;

Strategic Claims Direction, LLC conducts independent claims auditing; Arthur J. Gallagher Risk Management

Services, Inc. provides insurance producer (broker) and advanced loss control services; and J. William Ashbaugh of

Hackett Beecher & Hart serves as coverage counsel. NOTE: Claims audits are occasionally performed by insurers.

____________________________________________________________________________________________________________________

Washington State Auditor's Office

Page 17

A new member county makes a 60-month commitment when joining the Pool. After that, a member may withdraw

at the end of any WCRP fiscal year provided the county has given the Pool written notice of its intent to withdraw at

least twelve months in advance of the fiscal year’s end. New members must be approved by a majority vote of the

(WCRP) Board, provided that a majority of the Board’s Executive Committee may approve the admission, fees and

initial deposit assessments/contributions for any new member counties with populations of less than 125,000. The

membership of the WCRP during this reporting period included 27 counties with population estimates ranging from

2,250 to 480,000. However, due to the cancellation of a county’s membership by the Board of Directors effective

April 29, 2014, the year concluded with 26 member counties.

Underwriting and rate-setting policies may be modified following consultations with the independent insurance

producer and/or actuary. Annual deposit assessments are adjusted to incorporate actuarial projections and

operational needs, and then approved by the (WCRP) Board. If the Pool’s assets were depleted, members would be

responsible for outstanding liabilities of the WCRP as pooling members are subject under present contingent

liabilities regulations to supplemental assessment(s) in the event of deficiencies.

Joint Self-Insurance Liability Program (“JSILP”): The Pool has provided risk-shared (jointly purchased and/or

jointly self-insured) occurrence-based coverage for 3^rd-party liability claims against members since October 1, 1988.

$20 million (member option for additional $5 million) in coverage was provided via the WCRP to its member

counties during Policy Year 2014 for bodily injury, personal injury, property damage, errors and omissions, and

advertising injury covered by a JSILP. That included jointly self-insured coverage from the WCRP of $10 million,

subject to the applicable member’s selected deductible, with the remainder as “following form” excess insurance

coverage. The WCRP acquired reinsurance for losses within its layer(s) of coverage exceeding the greater of one

hundred thousand dollars or the member’s deductible as protection for the Pool from unexpected losses and the

membership from contingent liabilities that might result otherwise. Members selected their occurrence deductible

amounts from the options (in thousands dollars) 10, 25, 50, 100, 250 or 500 available, which was/will be applied

towards their initial JSILP expenses. There are no annual aggregate limits for the payments the WCRP might make

for any one member county or for all member counties combined.

Washington Counties Property Program (“WCPP”): The WCRP also offered property coverage with

extraordinary limits from a consortium of higher-rated commercial carriers as a jointly-purchased membership

option for insuring the participating counties’ scheduled real and personal properties. This included $500 million for

typical “all other perils” coverage with $200 million per occurrence/annual aggregate catastrophe limits each for

earthquake and for flood coverages, and many sub-limited coverages including Equipment Breakdown / Boiler &

Machinery ($100 million) and Special Flood Hazard Areas ($25 million). Green Construction Upgrades,

Reproduction Coverage for Historic Structures, and Terrorism ($20 million) coverages were also included. AOP

occurrence deductibles, which the participant is responsible for, were selected by the participating counties from the

options that ranged between $5,000 and $50,000. Higher deductibles applied to catastrophe losses. During the 2014

policy year, 26 counties participated.

b.

Basis of Accounting and Presentation

The accounting records of the WCRP are maintained in accordance with methods prescribed by the State Auditor’s

Office under the authority of Chapter 43.09, RCW. The WCRP also follows the accounting standards established by

the Governmental Accounting Standards Board (GASB) Statement 10, Accounting And Financial Reporting For

Risk Financing And Related Insurance Issues, as amended by GASB Statement 30, Risk Financing Omnibus, and

GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment

Funds.

The WCRP uses the full-accrual basis of accounting where revenues are recognized when earned and expenses are

recognized when incurred. Capital asset purchases are capitalized, and long-term liabilities are accounted for within

the financial statements.

The principal operating revenues of the WCRP are member assessments (sometimes referred to as premiums or

contributions), while its operating expenses include claims paid from current year allowances as well as adjustments

to prior year’s reserves, premiums for reinsurances and excess and property insurances, and the Pool’s

administrative expenses.

____________________________________________________________________________________________________________________

Washington State Auditor's Office

Page 18

c.

Cash and Cash Equivalents

For the purposes of the Statement of Cash Flows, the WCRP considers all highly liquid investments with maturities

of three months or less when purchased to be cash equivalent.

d.

e.

Capital Assets and Depreciation

See Note 7

Receivables

The WCRP Board of Directors, acting through its Executive Committee, decides if any accounts are deemed

uncollectible. Uncollectible accounts are charged to expense in the period they are deemed uncollectible.

f.

Investments

See Note 3.

g.

Compensated Absences

Compensated absences are absences for which the employees will be paid such as vacation and sick leave. The

WCRP records accrued leave for compensated absences as an expense and liability when incurred.

Annual Leave may be accumulated up to 30 days and is payable upon resignation, retirement, or death. Note: The

executive director may accumulate up to 60 days, but will only be compensated at termination of employment for up

to 30 days. An employee with more than sixty days sick leave accrued may convert the days earned in the previous

year (less any sick leave days used in that year) to annual leave days at the rate of four days of sick leave for one day

of annual leave. Sick leave may accumulate up to 130 days. Sick leave does not vest until death or retirement, and

the accrued liability is booked at one-half of the amount earned.

h.

Unpaid Claim Liabilities

The WCRP establishes claims liabilities based upon independent actuarial estimates of the ultimate losses (costs of

claims), including future claims adjustment expenses for claims/lawsuits that have been reported but are not settled,

and for claims that have been incurred but are not yet reported. The length of time for which such costs must be

estimated varies depending on the coverage type involved. Estimated amounts of salvage and subrogation and

reinsurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Because actual claims

costs depend on such complex factors as inflation, changes in doctrines of legal liability and in damage awards, the

process used in computing claims liabilities does not necessarily result in an exact amount, particularly general

liability coverage.

Claims liabilities are actuarially recomputed and incorporate the Jury Verdict Value processes. The actuaries use a

variety of techniques and formulas that reflect recent settlements, claims frequencies, and other economic and social

factors to produce current estimates. A provision for inflation in the calculation of estimated future claims costs is

implicit in the calculation because reliance is placed both on actual historical data that reflects past inflation and on

other factors that are considered to be appropriate modifiers of past experience. Adjustments to claims liabilities are

charged or credited to expense in the periods in which they are made.

i.

Reinsurance

The WCRP acquires reinsurance (agreements) to directly reduce by risk transfer its exposure to large third-party

liability losses and indirectly its (present and past) member counties’ exposures to contingent liabilities.

Reinsurance permits recovery of substantial portions of the losses from commercial reinsurers, although it does not

discharge the primary liability of the WCRP (and its member counties by contingent liabilities) as the direct insurer

of the risks reinsured. The WCRP does not report reinsured risks as liabilities unless it is probable that those risks

will not be covered by reinsurers.

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Washington State Auditor's Office

Page 19

The cumulative to-date incurred loss amount deducted from claims liabilities as of September 30, 2014 and 2013 as

being reinsured were $81,874,290 and $78,487,123 respectively. Premiums ceded to reinsurers during 2014 and

2013 were $3,593,317 and $3,199,125 respectively. The independent actuary’s estimate for the ceded reinsured

amount of gross loss reserves as of September 30, 2014 was $17,991,359.

j.

Member Assessments and Unearned Member Assessments

Member assessments are collected in advance and recognized as revenue in the period for which the coverage is to

be provided. On the balance sheet, member assessments receivables were billed on or about September 1^stwith up

to the amount equivalent to 105% of the prior year’s assessment being due by September 30^th, and any remaining

assessments balance(s) due by the following January 31^st. The assessments calculated for liability coverage were

based in substantial part upon the members’ prior year’s worker hours and licensed units, and upon the values of the

real and personal properties scheduled by the participating counties for property coverage. Investment income is not

presently being considered for the determination of member assessments.

k.

l.

Unpaid Claims

Liability claims/lawsuits are charged to expenses as incurred. Claims reserves represent the accumulation of

estimates for reported, unpaid liability claims plus a provision for liability claims incurred but not reported (IBNR).

These estimates are continually reviewed and updated by WCRP’s consulting actuary and incorporate the Jury

Verdict Value processes. Any resulting adjustments are reflected in current earnings.

Reserve for Unallocated Loss Adjustment Expense

The reserve for unallocated loss adjustment expenses (ULAE) represents the estimated cost to be incurred with

respect to the settlement of both liability claims in process and those liability claims recognized as incurred but not

reported (IBNR). WCRP’s independent actuary estimates these liabilities at the end of each fiscal year. The

changes in these liabilities each year are reflected in current earnings.

m.

Exemption From Federal And State Taxes

Pursuant to revenue ruling number 90-74, income of Municipal Risk Pools is excluded from gross income under

IRC Section 115(1). RCW 48.62.151 exempts the WCRP from state insurance premium taxes and from business

and occupation taxes imposed pursuant to Chapter 82.04 RCW.

NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY

a)

This is a follow up to the fraud committed by a former WCRP employee. This matter was investigated by the SAO

and reported upon in Report No. 1001789 (issued July 20, 2009). The Mason County Prosecuting Attorney pursued

the former employee with criminal charges of First Degree Theft, and the former employee pleaded guilty.

Superior Court Judge Toni A. Sheldon sentenced the former employee to confinement in the custody of the state

Department of Corrections, and was then released from custody after serving the DOC-managed sentence. Judge

Sheldon also included restitution in favor of the Pool in the amount of $237,053.26 with payments of not less than

$50.00 per month commencing within 60 days following release from confinement. The order also reserved to the

Court jurisdiction to consider additional restitution amounts, if sought. Any funds from the sale of the property by

the WCRP were to offset the restitution amount.

The Pool obtained the real property by Quiet Title order, and then disposed of the reacquired real property via public

auction. The Pool’s Executive Committee accepted the highest bid of $85,000. Closing documents were signed

October 27, 2011.

While the restitution order against the former employee to our knowledge still stands as it was issued, the Executive

Committee asked the Mason County Prosecuting Attorney for support in requesting that the Court reduce the

restitution order to only reflect the added costs the Pool incurred. Those added costs totaled $21,737.25, and with

the $550.00 received during fiscal 2014, $1,990.00 in restitution payments from the former employee having been

forwarded by the Court through September 30, 2014. The Pool is still waiting to learn the Court’s updated

restitution response.

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Washington State Auditor's Office

Page 20

b)

Fraud was also committed during early 2014 by a WCRP (provisional) employee that involved improper (personal)

usage of a WCRP credit card. Full recovery was obtained before and in conjunction with the employee’s dismissal

by direct recovery payment(s) or as a withholding from the final earnings. This matter was reported to the SAO

July 18, 2014, and then reviewed later that month. Another review is expected to occur when the SAO is onsite for

the Pool’s next regular audit.

NOTE 3 - DEPOSITS AND INVESTMENTS

a.

Deposits

In accordance with RCW 39.58, WCRP deposits its funds into a public depository with collateral held in a multiple

financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC).

Funds are transferred between the WCRP’s public depository (depositories) and either the State Treasurer’s Local

Government Investment Pool (LGIP) or the Spokane County Treasurer’s Spokane County Investment Pool (SCIP).

There are no credit ratings for positions in external investment pools.

WCRP funds on deposit as of September 30, 2014 and September 30, 2013 were as follows:

9/30/2014

9/30/2013

Wells Fargo (checking)

$ 8,733,724

662,376

32,603,170

$ 2,984,910

14,760,186

15,104,136

11,031,366

$ 43,880,598

Washington State Investment Pool (LGIP)

Spokane County Investment Pool (SCIP)

Clark County Investment Pool (CCIP)

Total deposits and investments

$41,999,270

b.

Investments

Since no WCRP funds are invested outside an approved (RCW 39.58) public depository, there is no need for a

custodial credit risk policy.

Credit ratings are not available for positions in external investment pools.

All investments are reported at fair value.

NOTE 4 - JOINT SELF-INSURED RETENTION

The WCRP retains complete responsibility for the payment of covered liability claims, both within its specified self-insured

retention limits and that provided under its reinsurance contracts. The coverage provided under applicable excess insurance

contracts is separately administered with assistance only from the WCRP. During the past three fiscal years, the Pool has not

approved a settlement that exceeded the insurance coverage noted herein that is more specifically outlined in Note 5.

For policy years 2014 and 2013, WCRP’s per-occurrence retention limits for liability claims were $100,000 or the applicable

member’s deductible, whichever was greater. In addition, the first and second reinsurance layers’ Reinsurer’s liability for

ultimate net loss arising from General Liability including claims arising out of sexual abuse, Products Liability, Law

Enforcement Liability, Public Officials Liability, Employment Practices Liability Employee Benefits Liability business lines

exceeding the retention limit but less than $1,000,000, the Pool’s annual aggregate reinsurance is limited to $40,000,000, and

for those same claims between $1,000,000 and $2,000,000, the Pool’s annual aggregate reinsurance was limited to

$20,000,000. Furthermore, with regard to ultimate net loss subject to the third (upper) reinsurance layer, the Pool agreed to

accept a 10% quota-share of the for Policy Year 2013.

Through pre-funded member assessments (deposit assessments) collected immediately prior to or at the beginning of each

policy year, the WCRP committed assets for the years ended September 30, 2014 and 2013 of $1,259,129 and $1,531,606

respectively, and is committing $1,099,403 for PY-2015, specifically for the purpose of funding its self-insured retentions for

those years. Additional member assessments were collected as WCRP assets and are/were committed in support of the

____________________________________________________________________________________________________________________

Washington State Auditor's Office

Page 21

Pool’s “corridor deductible” exposures totaling $3,350,000 (PY-2015), $3,625,000 (PY-2014) and $3,600,000 (2013) as well

as $150,000 (PY-2013) for the Pool’s “10% quota-shared” exposure.

NOTE 5 – REINSURANCE/EXCESS INSURANCE CONTRACTS

Through Arthur J. Gallagher Risk Management Services, Inc., the Producer (Broker) of Record retained by the Pool’s Board

of Directors, the WCRP partners with multiple superior-rated commercial insurers¹by acquiring reinsurance agreements and

“following form” excess and property insurances. The limits²provided by these insuring agreements, contracts and policies

for PY-2014 follow:

I.

Joint Self-Insurance Liability Program (“JSILP”): Since October 1, 1988, the Pool has provided its member

counties with risk-shared (jointly purchased and/or self-insured), occurrence-based coverage for 3^rd-party liability

claims against members due to bodily injury, personal injury, property damage, errors and omissions, and advertising

injury under a JSILP Coverage Form.

The total “occurrence” coverage has grown over time to the $20 million limit that has existed since October 1, 2003.

Note: An additional “occurrence” limit of $5 million was available for member counties to acquire as an individual

(county-by-county) option during many of the JSILP years including PYs 2014 and 2013. Each member annually

selected a deductible amount from the options available, i.e. $10,000, $25,000, $50,000, $100,000, $250,000,

$500,000, which was/will be applied to each of the member’s occurrences from that year. There were/are no

aggregate limits for the payments the Pool made/will make for any one member county.

The initial $10 million of JSILP coverage was/is jointly self-insured. Reinsurance, subject to a self-insured retention

(“SIR”) equal to the greater of the applicable member deductible or $100,000, was acquired from multiple higher-rated

carriers as protection for the Pool from unexpected losses and for the membership from contingent liabilities that

might result otherwise. Reinsurance premiums ceded during the year totaled $3,593,317, while the independent

actuary’s estimate of the amounts recoverable from (excess and) reinsurers which reduced the liabilities of gross loss

reserves on the balance sheet (as of September 30, 2014) totaled $17,991,359.

The remaining coverage, up to $15 million, was acquired from a higher-rated commercial carrier as jointly-purchased

“following form” excess insurance.

II. Washington Counties Property Program (“WCPP”): Beginning with the PY-2006, the WCRP added jointly-

purchased (1^st-party) property coverage as an individual (county-by-county) option. This coverage was acquired from

a consortium of higher-rated commercial carriers. During PY-2014, 26 WCRP counties (including Clark County even

after its membership was cancelled) participated in the WCPP with covered properties (in composite) exceeding $2.7

billion.

The WCPP limits include $500 million for typical (All Other Perils or AOP) losses, $200 million for catastrophe

(earthquake or flood), and many sub-limited coverages including Equipment Breakdown / Boiler & Machinery ($100

million) and Special Flood Hazard Areas ($25 million). Green Construction Upgrades, Reproduction Coverage for

Historic Structures, and Terrorism ($20 million) coverages are also included.

AOP occurrence deductibles between $5,000 and $50,000 were/are selected by the participating counties which they

are solely responsible for paying. Higher deductibles amounts apply to catastrophe losses.

NOTE 6 - MEMBER'S SUPPLEMENTAL ASSESSMENTS AND CREDITS

RCW 48.62.141 and the WCRP Interlocal Agreement provide for the contingent liability of participants in the program if

assets of the program are insufficient to cover the program's liabilities. Deficits of the WCRP are financed through

supplemental (retroactive) assessments against those counties that were WCRP members for the deficient period(s). During

policy year 2014, there was no deficiency, and no additional retroactive assessments were levied or collected.

¹Page 3 of the Producer’s 1314 Summary of Insurance dated February 28, 2014 (attached) contains a listing of all

participating insurers (insurance carriers) with their ratings and admission status. Pages 4-5 contain the rating (solvency)

criteria applied.

²Pages 7-18 of the 1314 Summary of Insurance contain the participating insurers’ coverages and limits.

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Washington State Auditor's Office

Page 22

NOTE 7 – CAPITAL ASSETS

Capital assets are defined by WCRP policy as having an initial, individual cost of at least $2,500 and an estimated useful life

in excess of one year. Capital assets are recorded at historical cost.

Capital assets activities for the fiscal year ended September 30, 2014 were as follows:

Beginning

Balance

10/01/13

Ending

Balance

9/30/14

Increase

(Decrease)

Capital Assets Being Depreciated:

Building

Office Furnishings and Equipment

Total Capital Assets being Depreciated

$ 1,125,659

159,697

$ 1,285,356

148,481

86,330

234,811

1,274,140

169,100

1,443,240

(76,927)

Less Accumulated Depreciation for:

Building

Office Furnishings and Equipment

Total Accumulated Depreciation

$

252,058

113,857

365,915

47,712

22.288

70,000

299,770

73,912

373,682

(62,233)

TOTAL CAPITAL ASSETS NET

919,441

164,811

(14,694)

1,069,558

Capital assets activities for the fiscal year ended September 30, 2013 were as follows:

Beginning

Balance

10/01/12

Ending

Balance

9/30/13

Increase

(Decrease)

Capital Assets Being Depreciated:

Building

Office Furnishings and Equipment

Total Capital Assets being Depreciated

$ 1,125,659

170,513

$ 1,296,172

1,125,659

159,697

1,285,356

(10,816)

Less Accumulated Depreciation for:

Building

Office Furnishings and Equipment

Total Accumulated Depreciation

$

214,536

131,503

346,039

37,522

14,151

51,673

252,058

113,857

365,915

(31,797)

TOTAL CAPITAL ASSETS NET

950,133

(51,673)

20,981

919,441

When equipment is retired or otherwise disposed of, the original cost is removed from WCRP’s capital assets accounts, and

the net gain or loss on disposition is credited to or charged against income.

Capital assets are depreciated using the straight-line method over the following estimated useful lives:

Asset

Years

Building

30

Building Improvements

Vehicles

30

5

Equipment

5

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Washington State Auditor's Office Page 23

NOTE 8: SOLVENCY & RESTRICTED COMPONENT OF NET POSITION

Washington Administrative Code (WAC) 200-100 requires the Washington Counties Risk Pool to maintain certain levels of

primary and secondary assets to meet solvency standards. As defined in WAC 200-100-03001 total primary assets, i.e. cash

and cash equivalents less non-claims liabilities, must at least equal the independent actuary’s expected estimate of unpaid

claims. Furthermore, a pool’s total primary and secondary assets must at least equal the independent actuary’s 70%

confidence level estimate of unpaid claims. Secondary assets include insurance receivables, real estate or other assets less

any non-claim liabilities, the values for which can be independently verified by the state risk manager.

Actuary Solvency Test Results

As of September 30, 2014 and September 30, 2013

2014

2013

Primary Asset Test 1

Primary Assets

Unpaid Claims - Expected Level

Test 1 Result

$28,634,792

$14,680,000

PASS

$28,944,988

$14,615,706

PASS

Primary and Secondary Test

Secondary Assets

Primary plus Secondary Test

Unpaid Claims – 70% Confidence Level

Test 2 Result

$ 5,414,140

$34,048,932

$15,752,000

PASS

$3,056,652

$32,001,642

$15,536,000

PASS

NOTE 9: RESTRICTED AND UNRESTRICTED NET POSITION

In 2013, WCRP’s statement of net position included $12,500,000 of internally restricted net position, $920,000 of which was

to reflect the margin between the actuary’s loss estimates at the expected and the 70 percent confidence levels as required

above. The remaining $11,580,000 was restricted to satisfy WCRP’s minimum limitation upon the surplus as specified in

Section D.2 of the Board’s Underwriting Policy, i.e. “… enough funds to protect the Pool’s members from a 1-in-50 year

event assuming a ‘per occurrence’ retention of $0.5M.

In 2014, WCRP’s statement of net position was adjusted and no longer reflects any “internal” restrictions. This change was

to conform to GASB, which only allows for the reporting of “external” restrictions on net position. Yet the $19,369,171

(ending) Net Position certainly lies within the actuary’s estimated range ($11-22 million) for the Pool’s target fund balance

and would therefore satisfy its internal restriction (Section 2 of its Underwriting Policy).

NOTE 10: PRIOR PERIOD ADJUSTMENT

In PY2013, WCRP’s Statement of Net Position reflected non-current liabilities for rate stabilizations totaling $663,090.

During PY2014, $2,090 was returned to the member counties in the form of an assessment reduction. Making this correction

to PY2014 member revenues would have materially overstated the year’s members’ assessments. This adjustment was

therefore reported as a prior period adjustment.

NOTE 11 - PENSION PLANS

a.

Public Employees’ Retirement System (PERS) Plans 1, 2, and 3

The Washington Counties Risk Pool’s full-time and qualifying part-time employees participate in one of the following

statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing

multiple-employer public employee defined benefit retirement plans. The Department of Retirement Systems (DRS), a

department within the primary government of the State of Washington, issues a publicly available comprehensive annual

financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS

CAFR may be obtained by writing to: Department of Retirement Systems, Communications Unit, P.O. Box 48380, Olympia,

WA 98504-8380; or it may be downloaded from the DRS website at www.drs.wa.gov. The following disclosures are made

pursuant to GASB Statements No. 27, Accounting for Pensions by State and Local Government Employers and No. 50,

Pension Disclosures, an Amendment of GASB Statements No. 25 and No. 27.

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Plan Description

The Legislature established PERS in 1947. Membership in the system includes: elected officials; state employees; employees

of the Supreme, Appeals, and Superior Courts (other than judges currently in the Judicial Retirement System); employees of

legislative committees; community and technical colleges, college and university employees not participating in higher

education retirement programs; judges of district and municipal courts; and employees of local governments. PERS

retirement benefit provisions are established in Chapters 41.34 and 41.40 RCW and may be amended only by the State

Legislature.

PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes:

Plans 1 and 2 are defined benefit plans and Plan 3 is a defined benefit plan with a defined contribution component.

PERS members who joined the system by September 30, 1977, are Plan 1 members. Those who joined on or after October

1, 1977, and by either February 28, 2002 for state and higher education employees, or August 31, 2002 for local government

employees, are Plan 2 members unless they exercised an option to transfer their membership to Plan 3. PERS members

joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local

government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The

option must be exercised within 90 days of employment. Employees who fail to choose with 90 days default to Plan 3.

PERS is comprised of and reported as three separate plans for accounting purposes: Plan 1, Plan 2/3, and Plan 3. Plan 1

accounts for the defined benefits of Plan 1 members. Plan 2/3 accounts for the defined benefits of Plan 2 members, and the

defined benefit portion of benefits for Plan 3 members. Plan 3 accounts for the defined contribution portion of benefits for

Plan 3 members. Although members can only be a member of either Plan 2 or Plan 3, the defined benefit portions of Plan 2

and Plan 3 are accounted for in the same pension trust fund. All assets of this Plan 2/3 may legally be used to pay the defined

benefits of any of the Plan 2 or Plan 3 members or beneficiaries, as defined by the terms of the plan. Therefore, Plan 2/3 is

considered to be a single plan for accounting purposes.

PERS Plan 1 and Plan 2 retirement benefits are financed from a combination of investment earnings and employer and

employee contributions. Employee contributions to the PERS Plan 1 and Plan 2 defined benefit plans accrue interest at a rate

specified by the Director of DRS. During DRS’ Fiscal Year 2013, the rate was five and one-half percent compounded

quarterly. Members in PERS Plan 1 and Plan 2 can elect to withdraw total employee contributions and interest thereon, in

lieu of any retirement benefit, upon separation from PERS-covered employment.

PERS Plan 1 members are vested after the completion of five years of eligible service.

PERS Plan 1 members are eligible for retirement from active status at any age with at least 30 years of service, at age 55 with

25 years of service, or at age 60 with at least 5 years of service. Plan 1 members retiring from inactive status prior to the age

of 65 may receive actuarially reduced benefits.

The monthly benefit is 2 percent of the average final compensation (AFC) per year of service, but the benefit may not exceed

60 percent of the AFC. The AFC is the monthly average of the 24 consecutive highest-paid service credit months.

PERS Plan 1 retirement benefits are actuarially reduced to reflect the choice, if made, of a survivor option.

Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer

Price Index. The adjustment is capped at 3 percent annually. To offset the cost of this annual adjustment, the benefit is

reduced.

PERS Plan 1 provides duty and non-duty disability benefits. Duty disability retirement benefits for disablement prior to the

age of 60 consist of a temporary life annuity. The benefit amount is $350 a month, or two-thirds of the monthly AFC,

whichever is less. The benefit is reduced by any workers’ compensation benefit and is payable as long as the member

remains disabled or until the member attains the age of 60, at which time the benefit is converted to the member’s service

retirement amount.

A member with five years of covered employment is eligible for non-duty disability retirement. Prior to the age of 55, the

benefit amount is 2 percent of the AFC for each year of service reduced by 2 percent for each year that the member’s age is

less than 55. The total benefit is limited to 60 percent of the AFC and is actuarially reduced to reflect the choice of a survivor

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option. Plan 1 members may elect to receive an optional COLA amount (based on the Consumer Price Index), capped at 3

percent annually. To offset the cost of this annual adjustment, the benefit is reduced.

PERS Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members are eligible for

normal retirement at the age of 65 with five years of service. The monthly benefit is 2 percent of the AFC per year of service.

The AFC is the monthly average of the 60 consecutive highest-paid service months. There is no cap on years of service

credit; and a cost-of-living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually.

PERS Plan 2 members who have at least 20 years of service credit, and are 55 years of age or older, are eligible for early

retirement with a reduced benefit. The benefit is reduced by an early retirement factor (ERF) that varies according to age, for

each year before age 65.

PERS Plan 2 members who have 30 or more years of service credit and are at least 55 years old can retire under one of two

provisions, if hired prior to May 1, 2013:

•

With a benefit that is reduced by 3 percent for each year before age 65; or

With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter return-to-work rules.

PERS Plan 2 members hired on or after May 1, 2013 have the option to retire early by accepting a reduction of 5 percent for

each year of retirement before age 65. This option is available only to those who are age 55 or older and have at least 30

years of service.

PERS Plan 2 retirement benefits are actuarially reduced to reflect the choice, if made, of a survivor option.

PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component and member

contributions finance a defined contribution component. As established by Chapter 41.34 RCW, employee contribution rates

to the defined contribution component range from 5 percent to 15 percent of salaries, based on member choice. Members

who do not choose a contribution rate default to a 5 percent rate. There are currently no requirements for employer

contributions to the defined contribution component of PERS Plan 3.

PERS Plan 3 defined contribution retirement benefits are dependent upon the results of investment activities. Members may

elect to self-direct the investment of their contributions. Any expenses incurred in conjunction with self-directed investments

are paid by members. Absent a member’s self-direction, PERS Plan 3 contributions are invested in the Retirement Strategy

Fund that assumes the member will retire at age 65.

For DRS’ Fiscal Year 2013, PERS Plan 3 employee contributions were $99.0 million, and plan refunds paid out were $69.4

million.

The defined benefit portion of PERS Plan 3 provides members a monthly benefit that is 1 percent of the AFC per year of

service. The AFC is the monthly average of the 60 consecutive highest-paid service months. There is no cap on years of

service credit, and Plan 3 provides the same cost-of-living allowance as Plan 2.

Effective June 7, 2006, PERS Plan 3 members are vested in the defined benefit portion of their plan after ten years of service;

or after five years of service, if twelve months of that service are earned after age 44; or after five service credit years earned

in PERS Plan 2 by June 1, 2003. Plan 3 members are immediately vested in the defined contribution portion of their plan.

Vested Plan 3 members are eligible for normal retirement at age 65, or they may retire early with the following conditions

and benefits:

•

If they have at least ten service credit years and are 55 years old, the benefit is reduced by an ERF that varies with

age, for each year before age 65.

If they have 30 service credit years and are at least 55 years old, and were hired before May 1, 2013, they have the

choice of a benefit that is reduced by 3 percent for each year before age 65; or a benefit with a smaller (or no)

reduction factor (depending on age) that imposes stricter return-to-work rules.

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•

If they have 30 service credit years, are at least 55 years old, and were hired after May 1, 2013, they have the option

to retire early by accepting a reduction of 5 percent for each year before age 65.

PERS Plan 3 benefits are actuarially reduced to reflect the choice, if made, of a survivor option.

PERS Plan 2 and Plan 3 provide disability benefits. There is no minimum amount of service credit required for eligibility.

The Plan 2 monthly benefit amount is 2 percent of the AFC per year of service. For Plan 3, the monthly benefit amount is 1

percent of the AFC per year of service. These disability benefit amounts are actuarially reduced for each year that the

member’s age is less than 65, and to reflect the choice of a survivor option. There is no cap on years of service credit, and a

cost-of-living allowance is granted (based on the Consumer Price Index) capped at 3 percent annually.

PERS members meeting specific eligibility requirements have options available to enhance their retirement benefits. Some

of these options are available to their survivors.

A one-time duty-related death benefit is provided to the beneficiary or the estate of a PERS member who dies as a result of

injuries sustained in the course of employment, or if the death resulted from an occupational disease or infection that arose

naturally and proximately out of the member’s covered employment, if found eligible by the Department of Labor and

Industries.

Funding Policy

Each biennium, the state Pension Funding Council adopts PERS Plan 1 employer contribution rates, PERS Plan 2 employer

and employee contribution rates, and PERS Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are

established by statute at 6 percent for state agencies and local government unit employees, and at 7.5 percent for state

government elected officials. The employer and employee contribution rates for Plan 2 and the employer contribution rate

for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3.

Under PERS Plan 3, employer contributions finance the defined benefit portion of the plan and member contributions finance

the defined contribution portion. The Plan 3 employee contribution rates range from 5 percent to 15 percent.

As a result of the implementation of the Judicial Benefit Multiplier Program in January 2007, a second tier of employer and

employee rates was developed to fund, along with investment earnings, the increased retirement benefits of those justices and

judges that participate in the program

The methods used to determine the contribution requirements are established under state statute in accordance with Chapters

41.40 and 41.45 RCW.

The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2013, are as

follows:

PERS Plan 1

9.21%**

6.00%****

PERS Plan 2

9.21%**

4.92%****

PERS Plan 3

9.21%***

*****

Employer*

Employee

* The employer rates include the employer administrative expense fee currently set at 0.18%.

** The employer rate for state elected officials is 13.73% for Plan 1 and 9.21% for Plan 2 and Plan 3.

*** Plan 3 defined benefit portion only.

**** The employee rate for state elected officials is 7.50% for Plan 1 and 4.92% for Plan 2.

***** Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member.

Both the WCRP and its employees made the required contributions. The WCRP required contributions for the years ending

September 30^thwere as follows:

PERS Plan 1

$ 13,086

PERS Plan 2

$43,270

$32,181

PERS Plan 3

$4,346

$6,577

2014

2013

2012

$

4,072

2,101

$31,585

$5,460

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b.

Qualified Pension Plan

The WCRP also participates in a defined contribution pension plan created in accordance with Internal Revenue Code

Section 401(a). This plan is with the International City/County Management Association (ICMA). Employer contributions

to the Qualified Pension Plan for the years ended September 30, 2014 and 2013 were $41,843 and $41,523, respectively.

There are no employee contributions to this plan.

NOTE 12 - DEFERRED COMPENSATION PLANS

The WCRP offers its employees a choice of three deferred compensation plans created in accordance with Section 457 of the

Internal Revenue Code. The plans are with the International City/County Management Association (ICMA), the Washington

State Department of Retirement, and Nationwide Retirement Solutions (NRS). The plans, available to all eligible employees,

permit them to defer a portion of their wages until future years. The deferred compensation is not available to contributing

employees until their termination, retirement, death, or unforeseeable emergency.

In 1998, the NRS and ICMA Deferred Compensation Program plans’ assets were placed into trust for the exclusive benefit of

participants and their beneficiaries. Pursuant to Governmental Accounting Standards Board (GASB) Statement 32, and since

the WCRP is no longer the owner of these assets, these plans’ assets and liabilities are no longer reported in the WCRP

financial statements.

NOTE 13 – SUBSEQUENT EVENTS

Coverage and Assignment of Rights Disputes – Davis/Northrop v. Clark County/Slagle: Clark County is a former

Member County of the Washington Counties Risk Pool (“WCRP” or “Pool”), having joined effective July 10, 2002 then

having its membership cancelled by the Pool’s Board of Directors effective April 29, 2014. On August 25, 2012, plaintiffs

Larry Davis and Alan Northrop filed a lawsuit against Clark County and its former sheriff’s detective Donald Slagle

(“Underlying Lawsuit”). On November 12, 2012, after comparing the allegations in the complaint to the terms and

conditions of the coverage afforded in the Joint Self-Insurance Liability Policy (“JSILP”) portrayed as applicable, the Pool

denied Clark County and its former employee coverage. Following the appeal procedure required by the Pool’s By-Laws,

Clark County and Slagle appealed the initial (Claims Manager’s) coverage denial to the Pool’s Executive Director. On

January 3, 2013, the Executive Director issued his decision affirming the initial coverage denial. Again following the

Bylaw’s appeal procedure on February 1, 2013, Clark County and Slagle appealed the coverage denial to the Executive

Committee of the Pool’s Board of Directors. On March 8, 2013, following a hearing held on Clark County and Slagle’s

appeal, the Executive Committee voted to affirm the coverage denial. The Executive Committee’s written decision was

issued on March 18, 2013.

Plaintiffs Davis and Northrop amended the lawsuit against Clark County and former sheriff’s detective Donald Slagle, which

was filed June 7, 2013 (“Amended Complaint”). On July 8 or 15, 2013, Clark County and Slagle tendered the Amended

Complaint to the Pool. On July 29, 2013, after comparing the allegations in the Amended Complaint to the terms and

conditions of the coverage afforded in the JSILP communicated as applicable, the Pool denied coverage for Clark County and

its former employee Donald Slagle. On August 23, 2013, and pursuant to the appeal procedure in the Pool’s By-laws, Clark

County and Slagle again appealed the initial (Claims Manager’s) coverage denial as to the allegations in the Amended

Complaint to the Pool’s Executive Director. On September 13, 2013, the Executive Director issued his decision affirming the

initial coverage denial. On October 12, 2013, Clark County and Slagle appealed the Executive Director’s decision pursuant

to the Bylaw’s appeal procedure to the Executive Committee of the WCRP Board of Directors. On November 1, 2013,

following another hearing before the Executive Committee on Clark County and Slagle’s new appeal, the Executive

Committee voted to affirm the coverage denial and issued its written decision in support of this action.

On September 27, 2013, Clark County and Slagle agreed to a settlement with plaintiffs Davis and Northrop which was

memorialized pursuant to Washington Court Rule 2A. Under the terms of the settlement, the defendants agreed to pay each

of the plaintiffs $5.25 million and to enter into a stipulated judgment and assignment of rights against defendants’ “insurers”,

including without limitation, the WCRP, in the amount of $17.25 million to each plaintiff. The plaintiffs agreed not to

execute against Clark County and Slagle above the $5.25 million payments. On October 23, 2013, Clark County and Donald

Slagle, and Davis and Northrop, entered into a formal Agreement memorializing the terms of the CR 2A agreement. On

October 30, 2013, the United States District Court in the Underlying Lawsuit entered a judgment against Clark County and

Slagle in favor of Davis and Northrop in the amount of $34.5 million. On December 19, 2013, the United States District

Court declined to exercise jurisdiction over Davis and Northrop’s request in the Underlying Lawsuit that the court determine

that the $34.5 million Judgment was reasonable.

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Clark County and Slagle have taken the position that the Pool’s 2009-2010 JSILP year provides coverage for the Underlying

Lawsuit. The Pool has denied any duty to defend or indemnify Clark County and Slagle for the Underlying Lawsuit. The

Pool also determined that the assignment of insuring rights by Clark County and former employee Donald Slagle to be both

in violation of the terms of the applicable JSILP and a breach of the provisions of the WCRP membership’s Interlocal

Cooperation Agreement.

WCRP v. Northrop, Davis, Clark County, and Donald Slagle – Cowlitz County Action: On November 4, 2013, the

WCRP filed a Complaint for Declaratory Relief and Breach of Contract in Cowlitz County Superior Court against Clark

County, Donald Slagle, Larry Davis and Alan Northrop. The Pool claimed breach of contract and sought a declaratory

judgment that the WCRP had no duty to defend or indemnify Clark County or Donald Slagle in the USDC

litigation. Lexington Insurance Company (a WCRP Reinsurer and Excess Carrier) requested that WCRP add them as a

Plaintiff, which WCRP did by filing an Amended Complaint on November 22, 2013. Defendants filed their Answers, and

asserted counterclaims against WCRP and Lexington for breach of the duty to defend, indemnify and settle, bad faith,

Consumer Protection Act violations, and related claims.

As expected, on March 13, 2014, Donald Slagle filed a motion for change of venue, requesting transfer of the case to Pierce

or King County. WCRP opposed this motion, and ultimately, on April 7, 2014, the Court ruled in WCRP’s favor, denying

Slagle’s motion for change of venue. On April 8, 2014, Defendants moved for summary judgment on their duty to defend

counterclaim. WCRP requested a continuance, which the Court granted, and also requested several depositions of the Clark

County witnesses, Mark Wilsdon, Ed Pavone, Steve Stuart, Bernard Veljacic and a CR 30(b)(6) expert, which request the

Court also granted.

On April 11, 2014, Defendants moved for pre-assignment of judge, which motion the Court granted. Judge Michael Evans

was originally assigned to the case, but Defendants subsequently filed a motion and affidavit of prejudice against him. Judge

Marilyn Haan was then assigned to the case.

On May 16, 2014, Defendants filed a motion to file an amended answer, adding additional counterclaims, and also requesting

to add AIG (a parent company of Lexington) as a party, which motion the Court granted.

Despite the fact that the Court had entered an order allowing the depositions of the Clark County witnesses to go forward,

WCRP ultimately had to file a motion to compel these depositions. The depositions went forward during July, August,

September and October 2014.

In June 2014, Defendants moved to amend their answer again, this time adding as defendants ACE (a WCRP reinsurer),

WCRP Executive Director Vyrle Hill, and Will Ashbaugh, coverage counsel for the Pool. The Court ultimately granted this

motion.

On September 15, 2014, WCRP filed a motion for declaratory judgment, requesting that the Court rule that the assignment by

Clark County to Defendants Davis and Northrop was invalid. Defendants opposed, and also requested to strike certain

exhibits, claiming there was ex parte contact between counsel for WCRP and Clark County. The Court granted WCRP’s

motion for declaratory judgment on November 13, 2014, finding that consistent with Washington State statutes, WCRP was

not an insurer, was not governed by the traditional insurance law rules and cases, and that the assignment was invalid. The

Court also ruled that WCRP was entitled to attorney fees and costs.

The Court then heard oral argument on Defendants’ motion for partial summary judgment on the duty to defend on

November 21, 2014. On November 26, 2014, the Court ruled that all of the conduct related to Davis/Northrop’s claims

occurred in 1993, that Clark County did not join WCRP until 2002, and accordingly, WCRP had not breached its duty to

defend. Further, the Court ruled there was no duty to Slagle as well finding his rights were derived by and through his

employment relationship with Clark County.

Defendants moved for certification of the Court’s rulings for appellate review, which motion the Court granted on December

12, 2014.

Northrop/Davis v. WCRP – King County Action: On November 15, 2013, approximately ten days after WCRP filed its

action in Cowlitz County Superior Court, Davis and Northrop filed a lawsuit on the same issues in King County Superior

Court. On November 26, 2013, Davis and Northrop delivered a Tort Claim Notice to WCRP offices, which among other

documents, included the complaint filed in King County Superior Court against WCRP by Larry Davis and Alan Northrop as

the alleged assignees of Clark County.

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The case was originally assigned to Judge Julia Garratt. Davis and Northrop filed an affidavit of prejudice against her, and

the case was re-assigned to Judge Bill Bowman. In February 2014, WCRP filed a motion to dismiss or transfer venue, which

Davis/Northrop opposed. However, after the Cowlitz County court denied the motion for change of venue, Davis and

Northrop agreed to transfer the King County case to Cowlitz County, to be consolidated with the Cowlitz County action. The

Court entered an order transferring the case to Cowlitz County on April 11, 2014, which ended the King County action.

NOTE 14 - UNPAID CLAIMS LIABILITIES

As discussed somewhat in Notes 1.h and 1.k, the WCRP establishes a liability for both reported and unreported insured

events that include estimates of both future payments of losses and related claims adjustment expenses. The following

represents comparative changes in those aggregate liabilities for the WCRP’s SIR Reserves during the past two years:

2014

2013

SIR - Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 3,414,495

$ 4,300,846

SIR - Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

1,259,129

1,531,606

(1,074,553)

$ 3,599,071

(1,905,071)

$ 3,927,381

Total Incurred Claims and Claims Adjustment Expenses

SIR - Payments:

Claims and Claims Adjustment Expenses Attributable to

Insured Events of the Current Year

Claims and Claims Adjustment Expenses Attributable to

Insured Events of Prior Years

$

-

$

19,510

906,086

493,376

512,886

Total Payments

$

SIR -Total Unpaid Claims and Claims Adjustment Expenses

End of Year

$

2,692,985

$ 3,414,495

The actuary estimated the current Unpaid Claims and Claims Adjustment liability at the end of 2014 and 2013 to be $807,091

and $1,029,553 respectively.

The following, on the other hand, represents comparative changes in those aggregate liabilities for all unpaid claims

liabilities. (SIR and reinsurances’ Corridor Deductibles and Quota–Shared Amounts) during the past two years:

Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 13,600,420

4,884,129

$ 13,708,861

5,281,606

Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

(733,785)

(3,700,766)

Total Incurred Claims and Claims Adjustment Expenses

$ 17,750,764

$ 15,289,701

SIR - Payments:

Claims and Claims Adjustment Expenses Attributable to

Insured Events of the Current Year

Claims and Claims Adjustment Expenses Attributable to

Insured Events of Prior Years

$

-

$

19,510

4,086,862

1,669,771

1,689,281

Total Payments

$ 4,086,862

$

SIR -Total Unpaid Claims and Claims Adjustment Expenses

$13,663,903

$ 13,600,420

The actuary estimated the current SIR – Total Unpaid Claims and Claims Adjustment Liability at the end of 2014 and 2013 to

be $2,914,049 and $3,046,984 respectively.

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REQUIRED SUPPLEMENTARY INFORMATION

This required supplementary information is an integral part of the accompanying financial statements.

I.

Ten-Year Claims Development Information

The table below illustrates how the WCRP earned revenues (net of reinsurance) and investment income

compare to related costs of loss (net of loss assumed by reinsurers) and other expenses assumed by the

WCRP as of the end of each of the last ten years. The rows of the table are defined as follows:

c. This line shows the total of each fiscal year gross earned contribution revenue and

investment revenue, contribution revenue ceded to reinsurers, and net earned

contribution revenue and reported investment revenue.

d. This line shows each fiscal year's other operating costs of the WCRP including overhead and

claims expense not allocable to individual claims.

e. This line shows the WCRP gross incurred claims and allocated claims adjustment expenses,

claims assumed by reinsurers, and net incurred claims and allocated adjustment expenses (both

paid and accrued) as originally reported at the end of the first

year in which the event that triggered coverage under the contract occurred (called policy year).

f.

This section of ten rows shows the cumulative net amounts paid as of the end of

successive years for each policy year.

g. This line shows the latest reestimated amount of claims assumed by reinsurers as of the end of

the current year for each accident year.

h. This section of ten rows show how each policy year's net incurred claims increased or

decreased as of the end of successive years. (This annual reestimation results from new

information received on known claims, reevaluation of existing information on known claims,

as well as emergence of new claims not previously known.)

i. This line compares the latest reestimated net incurred claims amotmt to the amount originally

established (line 3) and shows whether this latest estimate of net claims cost is greater or less

than originally thought. As data for individual policy years mature, the correlation between

original estimates and reestimated amounts is commonly used to evaluate the accuracy of net

incurred claims currently recognized in less mature policy years. The columns of the table show

data for successive policy years.

2.

Reconciliation of Claims Liabilities by Type of Contract

The schedule presented in Note 14 presents the changes in claims liabilities for the past two years for the

WCRP's one type of contract, liability insurance.

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LIST OF PARTICIPATING MEMBERS

Schedule T-1

The following is a list of WCRP membership during the fiscal year 2013-2014

Adams County

Lewis County

Benton County

Chelan County

Clallam County

Clark County (**)

Columbia County

Cowlitz County

Douglas County

Franklin County

Garfield County

Grays Harbor County

Island County

Mason County

Okanogan County

Pacific County

Pend Oreille County

San Juan County

Skagit County

Skamania County

Spokane County

Thurston County

Walla Walla County

Whatcom County

Yakima County (*)

Jefferson County

Kittitas County

(*) Not participating in the jointly-purchased WCPP (property coverage) option.

(**) Membership cancelled by WCRP Board action effective at 12:00:01 April 29, 2014, but with authority

to continue WCPP participation through the fiscal/policy year (September 30, 2014).

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Washington State Auditor's Office

Page 33

WASHINGTON COUNTIES RISK POOL

DES Schedule of Expenses

Schedule T-2

MCAG NO. 0774

For Fiscal Years Ended September 30, 2014 and September 30, 2013

09/30/2014

09/30/2013

Insurance Premiums/Reserve Expense

ULAE Expense

$12,012,677

573

$12,557,406

28,568

Adjustment to Prior Years' "1st/2nd Layers' Corridor" Reserves

Adjustment to Prior Years' "SIR" Reserves

Adjustment to Prior Years" "10% (8x2 Layer) Quota Share

(1,075,806)

360,768

(20,000)

(1,795,695)

(1,905,071)

Contracted Services:

Actuarial

State Audit Expense

State Risk Manager Expenses

Legal Fees

73,800

9,477

11,734

149,743

30,103

69,332

119,300

9,922

11,734

158,053

41,362

74,299

IT Consultants

Other Consulting Fees

Broker Fees

-

Consulting Member Services Manager

25,150

28,650

General Administrative Expenses

Employee Salaries and Benefits

Communication

Supplies

Dues and Memberships

Travel - Employee

Committee and Board Meetings

Depreciation

Building and Auto Insurance

Operating Leases

931,946

15,335

28,658

8,734

77,271

84,467

70,000

16,255

120,226

18,472

86,039

112,705

14,875

896,452

12,739

24,116

5,616

90,638

100,103

51,673

14,518

33,998

16,732

104,198

112,453

25,059

Utilities

Member Services - Training

Member Services - Grants/Scholarships

Miscellaneous Expenses

Total Operating Expenses

$13,232,533

$10,816,824

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Washington State Auditor's Office Page 34

ABOUT THE STATE AUDITOR’S OFFICE

The State Auditor's Office is established in the state's Constitution and is part of the executive

branch of state government. The State Auditor is elected by the citizens of Washington and

serves four-year terms.

We work with our audit clients and citizens to achieve our vision of government that works for

citizens, by helping governments work better, cost less, deliver higher value, and earn greater

public trust.

In fulfilling our mission to hold state and local governments accountable for the use of public

resources, we also hold ourselves accountable by continually improving our audit quality and

operational efficiency and developing highly engaged and committed employees.

As an elected agency, the State Auditor's Office has the independence necessary to objectively

perform audits and investigations. Our audits are designed to comply with professional standards

as well as to satisfy the requirements of federal, state, and local laws.

Our audits look at financial information and compliance with state, federal and local laws on the

part of all local governments, including schools, and all state agencies, including institutions of

higher education. In addition, we conduct performance audits of state agencies and local

governments as well as fraud , state whistleblower and citizen hotline investigations.

The results of our work are widely distributed through a variety of reports, which are available

on our website and through our free, electronic subscription service.

We take our role as partners in accountability seriously, and provide training and technical

assistance to governments, and have an extensive quality assurance program.

Contact information for the State Auditor’s Office

Thomas Shapley

Deputy Director for Communications

Thomas.Shapley@sao.wa.gov

(360) 902-0367

(360) 725-5617

(360) 902-0370

(866) 902-3900

www.sao.wa.gov

Public Records requests

Main telephone

Toll-free Citizen Hotline

Website

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Washington State Auditor's Office Page 35