Financial Statements Audit Report

Washington Counties Risk Pool

Thurston County

For the period October 1, 2014 through September 30, 2016

Published May 30, 2017

Report No. 1019281

Office of the Washington State Auditor

Pat McCarthy

May 30, 2017

Executive Director

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,

Pat McCarthy

State Auditor

Olympia, WA

Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  Pat.McCarthy@sao.wa.gov

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 ................................................................ 7

Financial Section........................................................................................................................... 10

About The State Auditor’s Office................................................................................................. 42

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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, 2014 through September 30, 2016

Executive Director

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, 2016 and 2015, and the related notes to the financial statements, which

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

dated May 30, 2017. As discussed in Note 2 to the financial statements, during the year ended

September 30, 2016, the Pool implemented Governmental Accounting Standards Board

Statement No. 72, Fair Value Measurement and Application.

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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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.

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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.

Pat McCarthy

State Auditor

Olympia, WA

May 30, 2017

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INDEPENDENT AUDITOR’S REPORT ON

FINANCIAL STATEMENTS

Washington Counties Risk Pool

Thurston County

October 1, 2014 through September 30, 2016

Executive Director

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, 2016 and 2015, and

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

financial statements as listed on page 10.

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 opinions 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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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 opinions.

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, 2016 and 2015,

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

As discussed in Note 2 to the financial statements, in 2016, the Pool adopted new accounting

guidance, Governmental Accounting Standards Board Statement No. 72, Fair Value

Measurement and Application. 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 11 through 14, pension plan information on

pages 36 through 37 and risk pools information on pages 38 through 39 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

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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.

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 and Department of Enterprise Services (DES) Schedule of Expenses 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

May 30, 2017 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.

Pat McCarthy

State Auditor

Olympia, WA

May 30, 2017

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FINANCIAL SECTION

Washington Counties Risk Pool

Thurston County

October 1, 2014 through September 30, 2016

REQUIRED SUPPLEMENTARY INFORMATION

Management’s Discussion and Analysis – 2016 and 2015

BASIC FINANCIAL STATEMENTS

Statement of Net Position – 2016 and 2015

Statement of Revenues, Expenses and Changes in Net Position – 2016 and 2015

Statement of Cash Flows – 2016 and 2015

Notes to Financial Statements – 2016 and 2015

REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Proportionate Share of the Net Pension Liability – PERS 1 & 2/3 – 2016

Schedule of Employer Contributions – PERS 1 & 2/3 – 2016

Ten-Year Claims Development Information – 2016

SUPPLEMENTARY AND OTHER INFORMATION

List of Participating Members – 2016 and 2015

DES Schedule of Expenses – 2016 and 2015

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WASHINGTON COUNTIES RISK POOL

2558 R.W. Johnson Road SW, Suite 106

Tumwater, WA 98512-6103

Created by Counties for Counties

Management’s Discussion &Analysis

The Washington Counties Risk Pool (WCRP) management provides this discussion and analysis for the Pool’s

financial activities following the conclusion of its 28^thFiscal Year (FY), ending September 30, 2016. The information

in this discussion and analysis should be considered in conjunction with that in the financial statements and

accompanying notes to understand WCRP’s financial position.

WCRP has no other component units for which it is financially accountable. It operates as an enterprise fund and uses

the accrual accounting basis in accordance with the U.S. generally accepted accounting principles. 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.

WCRP’s operating revenues consist mostly of assessments paid by its member counties. Its operating expenses consist

primarily of payments made to resolve liability claims, including allocated loss adjustment expenses, and for

premiums for reinsurances and excess liability, property and cyber risk/security insurance policies acquired from

superior-rated commercial carriers.

Discussion of the Financial Statements:

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

financial statements. WCRP’s three financial statements in a condensed format are presented hereafter with three-

year comparative data.

The Statement of Net Position presents information on an entity’s assets and liabilities at fiscal year-end with the

difference between them reported as Net Position.

Fiscal Years Ending

09/30/2015

COMPARATIVE STATEMENT OF

NET POSITION

09/30/2014

$46,343,850

1,069,560

09/30/2016

$45,838,799

1,011,091

Current Assets

Capital Assets (Net)

Total Assets

$47,703,622

1,089,480

$47,413,410

$48,793,102

$46,849,889

Total Deferred Outflows of Resources

$63,610

$134,538

Current Liabilities

Non-Current Liabilities

Total Liabilities

$16,165,932

11,878,307

$28,044,239

$17,455,251

12,401,409

$29,856,660

$19,682,994

9,315,965

$28,998,959

Total Deferred Inflows of Resources

$83,946

$12,069

Net Investment in Capital Assets

$1,069,560

$1,089,480

$1,011,091

Unrestricted Net Position

18,299,611

17,826,626

16,962,308

Total Net Position

$19,369,171

$18,916,106

$17,973,399

Analysis: The WCRP’s Net Position saw a year-over-year decrease of $942,707 between year-end 2015 and year-

end 2016. This was due to a combination of the settlement of the litigated matter outlined in Note 13 – Subsequent

Events in the Notes to Financial Statements, as well as the increase in liabilities as a result of the GASB 68 pension

liability calculation.

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WCRP 2015-16 Year-End

Management Discussion & Analysis

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

expenses during a fiscal year that resulted in the reported Change in Net Position — an increase in net position is the

result of revenues exceeding expenses, while a decrease in net position results when revenues are less than expenses.

COMPARATIVE STATEMENT OF

REVENUES, EXPENSES AND CHANGES

IN NET POSITION

FY-2014

FY-2015

FY-2016

Operating Revenues

Member MLC Assessments

Member Cyber Assessments

Member WCPP Assessments

Operating Revenues – Miscellaneous

Total Operating Revenues

Non-Operating Revenues (and Expenses)

Interest Income

Other (Net) Non-Operating Revenues

Total Non-Operating Revenues

Total Revenues

$11,727,035

$10,276,349

93,697

2,782,175

150,000

$10,654,325

126,005

2,696,205

150,000

3,072,645

150,000

$14,949,680

$13,302,221

$13,626,535

$219,858

48,320

$268,177

$257,362

26,857

$284,219

$340,586

(21,252)

$319,334

$15,217,857

$13,586,440

$13,945,869

Operating Expenses

Adjustments to (MLC) Claims/ULAE

Reserves

$4,149,664

4,169,152

$4,539,223

$4,536,127

Premiums for MLC Insuring Policies

Premium for Cyber Insurance Policy

Premiums for Property Insurance Policies

Depreciation, Bad Debt & Administrative

Expenses

3,821,325

93,697

2,681,290

3,906,713

126,005

2,485,368

2,959,396

1,954,321

2,252,141

3,834,364

,

Total Operating Expenses

$13,232,533

$13,387,676

$14,888,577

Changes in Net Position

$1,985,324,

$16,722,846

661,000

$198,765

$19,369,171

(651,830)

$(942,707)

$18,916,105

Beginning Net Position (October 1^st)

Prior Period Adjustment

Ending Net Position (September 30^th)

$19,369,171

$18,916,106

$17,973,398

Analysis: An overall increase in total operating expenses is largely attributed to the legal expenses incurred following

the resolution of the pending legal matter discussed in Note 13 – Subsequent Events. This increase is offset, however,

by an increase in revenues, a number of unspent budgeted line items, and finally, an increase in investment income.

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WCRP 2015-16 Year-End

Management Discussion & Analysis

Budget Discussion:

The WCRP Board of Directors approves the upcoming Fiscal Year budget at their Annual Meeting in July of each

year. Budgeted revenues and expenses are identified based on information known at the time of budget approval, with

the understanding that final premiums from reinsurers and excess insurers will be confirmed prior to the beginning of

the upcoming Fiscal Year. Budget amendments are generally not required and no amendments were requested during

FY2016.

Fiscal 2016 Budget

Operating Revenues:

2015 Actual

$10,276,349

2016 Budget

2016 Actual

Member C/A – Liability Coverage

Member C/A – Property Insurance

Member C/A – Cyber Insurance

$10,654,325

2,696,205

126,005

$10,654,325

2,696,205

126,005

2,782,175

93,697

Member Services Revenues

150,000

Total Operating Revenues

$13,302,221

$13,626,535

Operating Expenses:

Current Year “SIR” Claims Reserves

Current Year’s “Corridor” Claims Reserves

Premiums for Reinsurances Purchased

Premiums for Excess Insurances Purchased

Premiums for Property Insurance Purchased

Premiums for Cyber Insurance Purchased

Depreciation (of Capital Assets) Expense

Administrative (OH) (with contingency)

Total Operating Expenses

$1,099,403

3,350,000

3,320,056

501,269

2,681,290

93,697

72,644

2,179,497

$13,297,856

$1,008,468

3,450,000

3,399,350

507,363

2,485,368

126,005

70,650

2,928,954

$13,976,158

$1,008,468

3,450,000

3,399,350

507,363

2,485,368

126,005

78,389

3,755,978

$14,810,921

Operating Income / (Loss)

$4,365

($349,623)

($1,184,386)

Non-Operating Revenues / (Expenses):

Interest Income

$257,362

35,956

$335,000

23,100

$340,586

38,137

Rental Income (Net)

Miscellaneous Income

Total Non-Operating Revenues / (Expenses)

$293,318

$297,683

$358,100

$8,477

$378,723

Changes in Net Position

($805,663)

Net Position, Beginning of Fiscal Period

$19,369,170

$18,916,105

NET POSITION, End of Fiscal Period

$19,666,853

$18,924,582

$18,110,442

Analysis: When evaluating the amount budgeted compared to the actual amount realized for Fiscal Year 2016, it is

again noteworthy that the increase in administrative expenses is largely the result of the legal expenses incurred

following the resolution of the pending legal matter described in Note 13 – Subsequent Events. The WCRP incurred

legal expenses during the handling of the legal matter described, an amount that is then offset by an increase in

revenues, a number of unspent budgeted line items and an increase in investment income.

WCRP 2015-16 Year-End

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Management Discussion & Analysis

Overall Analysis of Financial Position and Result of Operations:

The WCRP’s financial position continues to remain quite strong. While a slight decline in the Net Position has been

seen over the past two-year period, this followed a number of years which saw significant increases, as the membership

made intentional efforts to increase its fund balance, in anticipation of a change in the hardening of the commercial

insurance market and in anticipation of increasing its Self-Insured Retention (SIR). Further, the Pool was financially

positioning itself for utilizing funds to offset unexpected rate increases, a possibility which became a reality for the

2016-17 Fiscal Year, the resolution of its pending legal matter, and other unexpected liabilities or expenses, such as

the GASB 68 pension liability calculations.

While a few matters continue to remain pending against county members, the adverse outcome of which can further

impact the WCRP’s overall position, the Pool continues to remain confident in its claim handling. Appropriate reserve

estimates were included within the Pool’s FY-2016 financials for any such matter stemming from liability claim

against a member county. The WCRP anticipates continued success and favorable outcomes of cases currently

pending.

Finally, it should be noted that the WCRP’s assessments to its members have remained stable, an ongoing goal of the

organization, while the unrestricted Net Position continues to meet the solvency requirements established by the State

under Washington Administrative Code (WAC) 200-100, and continues to fall within the funding target established

by the WCRP Board of Directors.

Capital Asset and Long-Term Debt Activity:

No capital asset activities occurred during FY-2016 and no long-term debt has been pursued by the Washington

Counties Risk Pool.

Request for Information:

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,

2558 R W Johnson Rd SW, Suite 106, Tumwater, WA, 98512-6103; or by telephone at (360) 292-4500.

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MCAG NO. 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF NET POSITION

As of September 30, 2016 and 2015

ASSETS

As of

9/30/2016

9/30/2015

CURRENT ASSETS:

Cash and Cash Equivalents

Investments

$

4,896,133

33,966,134

$

3,536,452

40,765,231

Receivables:

Members' MLC Deductibles Receivable

Excess Insurance/Reinsurance Recoverable

Members' MLC Assessments Receivable

Members' Cyber Liability Receivable

Members' WCPP Assessments Receivable

Other Accounts Receivables

715,119

178,909

609,756

13,115

2,701,123

131,482

44,351

571,772

541,618

1,491,720

-

759,650

26,843

7,676

Accrued Interest

Prepaid Expenses

2,582,677

2,660

TOTAL CURRENT ASSETS

$

45,838,799

$

47,703,622

NONCURRENT ASSETS:

Capital Assets (Net of Accumulated Depreciation)

$

1,011,091

46,849,889

$

1,089,480

48,793,102

TOTAL NON CURRENT ASSETS

TOTAL ASSETS

TOTAL DEFERRED OUTFLOWS OF RESOURCES

Deferred Outflows -- GASB 68

$

134,538

$

63,610

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

$

1,177,614

$

1,038,133

-

4,141,666

-

219,305

14,144,409

2,750,093

-

240,493

13,426,532

Unearned Revenue - Members Assessments

TOTAL CURRENT LIABILITIES

$

19,682,994

$

17,455,251

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

$

1,979,323

65,544

$

1,988,116

(246,342)

8,176,775

494,469

240,000

986,452

122,464

639,475

2,945,766

2,163,980

120,000

1,116,000

85,660

Compensated Absences

Net Pension Liability -- GASB 68

839,692

TOTAL NON CURRENT LIABILITIES

$

9,315,965

$

12,401,409

TOTAL LIABILITIES

$

28,998,959

$

29,856,660

TOTAL DEFERRED INFLOWS OF RESOURCES

Deferred Inflows on Pensions

$

12,069

$

83,946

NET POSITION:

Net Investment in Capital Assets

Unrestricted Net Position

1,011,091

16,962,308

1,089,480

17,826,626

TOTAL NET POSITION

17,973,399

18,916,106

The accompanying notes are an integral part of this financial statements

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Washington State Auditor's Office Page 15

MCAG NO 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET POSITION

For the Fiscal Years Ended September 30, 2016 and 2015

Year Ended

9/30/2016

Year Ended

9/30/2015

OPERATING REVENUES:

Members' Assessments -- MLC Coverage

Members' Assessments Cyber Coverage

$

10,654,325

126,005

$

10,276,349

93,697

Members' Assessments -- WCPP Insurance

Member Services - Revenues

2,696,205

150,000

2,782,175

150,000

Total Operating Revenues

$

13,626,535

$

13,302,221

OPERATING EXPENSES:

Current Year's "SIR" Reserves

$

1,008,468

3,450,000

575,252

(507,141)

129,548

(120,000)

3,399,350

507,363

$

1,099,403

3,350,000

(4,642)

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

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

MLC Reinsurance Premiums

13,868

(29,406)

110,000

3,320,056

501,269

93,697

Excess Liability Insurance Policies Premiums

Cyber Premiums

126,005

WCPP Insurance Premiums

Depreciation Expense

2,485,368

78,389

2,681,290

72,644

Operating Expenditures

3,755,975

2,179,497

Total Operating Expenses

$

14,888,576

$

13,387,676

OPERATING INCOME (LOSS)

$

(1,262,041) $

(85,455)

NON OPERATING REVENUES (EXPENSES)

Interest and Investment Income

Rental Income

Rental Expense

Fair Value Adjustment on Investments

Gain (Losses) on Capital Assets Disposition

$

340,586

38,137

(6,380)

(55,261)

2,252

$

257,362

35,956

(9,098)

0

-

Total Nonoperating Revenues (Expenses)

CHANGES IN NET POSITION

$

319,334

$

284,220

198,765

(942,707) $

TOTAL NET POSITION, Beginning of Year

18,916,105

$

19,369,170

(651,830)

Change in Accounting Principles -- GASB 68

PRIOR PERIOD ADJUSTMENT

-

$

TOTAL NET POSTION, End of Year

$

17,973,398

$

18,916,105

The accompanying notes are an integral part of this financial statements

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Washington State Auditor's Office

Page 16

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zĞĂƌꢁꢃŶĚĞĚ

ϵͬϯϬͬϮϬϭϱ

ꢁ

ꢂꢀ^,ꢁ&>Kt^ꢁ&ZKDꢁKWꢃZꢀd/E'ꢁꢀꢂd/s/d/ꢃ^͗

ꢀĂƐŚꢂƌĞĐĞŝǀĞĚꢂĨƌŽŵꢂDĞŵďĞƌƐꢂΘꢂ/ŶƐƵƌĞƌƐ

ꢀĂƐŚꢂƉĂǇŵĞŶƚƐꢂĨŽƌꢂŐŽŽĚƐꢂĂŶĚꢂƐĞƌǀŝĐĞƐ

ꢀĂƐŚꢂƉĂǇŵĞŶƚƐꢂƚŽꢂĞŵƉůŽǇĞĞƐꢂĨŽƌꢂƐĞƌǀŝĐĞƐ

Ψꢂꢂꢂꢂꢂϭϯ͕ϯϴϲ͕ϱϭϭ Ψꢂꢂꢂꢂϭꢂ ϰ͕ϱϯϬ͕ϮϳϮ

;ϭϳ͕ϳϰϰ͕ϱϲϯͿ ;ϭϬ͕ϳϱϬ͕ϯϲϬͿ

;ϭ͕ϮϮϭ͕ϮϮϭͿ

;ϭ͕ϬϮϵ͕ϵϴϱͿ

EĞƚꢀꢁĂƐŚꢀWƌŽǀŝĚĞĚ ꢀ;hƐĞĚͿ ꢀďǇꢀKƉĞƌĂƚŝŶŐꢀꢂĐƚŝǀŝƚŝĞƐ

Ψꢂꢂꢂꢂꢂ;ꢂϱ͕ϱϳϵ͕ϮϳϯͿ ΨꢂꢂꢂꢂꢂꢂϮꢂ ͕ϳϰϵ͕ϵϮϲ

ꢂꢀ^,ꢁ&>Ktꢁ&ZKDꢁꢂꢀW/dꢀ>ꢁꢀEꢄꢁZꢃ>ꢀdꢃꢄꢁ&/EꢀEꢂ/E'ꢁꢀꢂd/s/d/ꢃ^͗

WƵƌĐŚĂƐĞꢂŽĨꢂꢂꢃƋƵŝƉŵĞŶƚꢂΘꢂꢄƵŝůĚŝŶŐ

ꢀĂƐŚꢂĨƌŽŵꢂZĞŶƚĂůꢂŽĨꢂKĨĨŝĐĞꢂ;ŶĞƚͿ

'ꢁ^ꢄꢂϲϴꢂͲͲꢂWĞŶƐŝŽŶꢂ>ŝĂďŝůŝƚǇꢂ;ŶĞƚͿ

ΨꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂͲ Ψꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ;ϵϮ͕ϱϲϯͿ

ϯϭ͕ϳϱϳ

;ϭϰϮ͕ϴϬϱͿ

Ϯϲ͕ϴϱϴ

;ϲϯϭ͕ϰϵϰͿ

EŽŶꢂKƉĞƌĂƚŝŶŐꢂDŝƐĐĞůůĂŶĞŽƵƐꢂ/ŶĐŽŵĞ

WƌŽĐĞĞĚƐꢂĨƌŽŵꢂ^ĂůĞꢂĂŶĚꢂDĂƚƵƌŝƚŝĞƐꢂŽĨꢂ/ŶǀĞƐƚŵĞŶƚƐ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂͲ ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂͲ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ;ϱϯ͕ϬϬϵͿ ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂͲ

EĞƚꢀꢁĂƐŚꢀWƌŽǀŝĚĞĚꢀ ;hƐĞĚͿ ꢀĨƌŽŵꢀꢁĂƉŝƚĂůꢀĂŶĚꢀZĞůĂƚĞĚꢀ&ŝŶĂŶĐŝŶŐꢀꢂĐƚŝǀŝƚŝĞƐ

ꢂꢀ^,ꢁ&>Ktꢁ&ZKDꢁ/Esꢃ^d/E'ꢁꢀꢂd/s/d/ꢃ^͗

Ψꢂꢂꢂꢂꢂꢂꢂꢂ;ꢂϭϲϰ͕ϬϱϳͿ Ψꢂꢂꢂꢂꢂꢂꢂꢂꢂ;ϲϵϳ͕ϭϵϵͿ

/ŶƚĞƌĞƐƚͬꢁĐĐƌƵĞĚꢂ/ŶĐŽŵĞ

ΨꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂϯϬϯ͕ϵϭϭ ΨꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂϮϰϵ͕ϲϴϱ

Ψꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂϯꢂ Ϭϯ͕ϵϭϭ ΨꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂϮϰϵ͕ϲϴϱ

EĞƚꢀꢁĂƐŚꢀWƌŽǀŝĚĞĚꢀ ;hƐĞĚͿ ꢀďǇꢀ/ŶǀĞƐƚŝŶŐꢀꢂĐƚŝǀŝƚŝĞƐ

/ŶĐƌĞĂƐĞꢁ;ꢄĞĐƌĞĂƐĞͿꢁŝŶꢁꢂĂƐŚꢁĂŶĚꢁꢂĂƐŚꢁꢃƋƵŝǀĂůĞŶƚƐ

Ψꢂꢂꢂꢂꢂ;ꢂϱ͕ϰϯϵ͕ϰϭϵͿ ΨꢂꢂꢂꢂꢂꢂϮꢂ ͕ϯϬϮ͕ϰϭϮ

Ψꢂꢂꢂꢂϰꢂ ϰ͕ϯϬϭ͕ϲϴϮ Ψꢂꢂꢂꢂϰꢂ ϭ͕ϵϵϵ͕Ϯϳϭ

Ψꢁꢁꢁꢁϯꢁ ϴ͕ϴϲϮ͕Ϯϲϯ Ψꢁꢁꢁꢁϰꢁ ϰ͕ϯϬϭ͕ϲϴϮ

ꢂĂƐŚꢁĂŶĚꢁꢂĂƐŚꢁꢃƋƵŝǀĂůĞŶƚƐꢁͲꢁꢅĞŐŝŶŶŝŶŐꢁŽĨꢁƚŚĞꢁzĞĂƌ

ꢂĂƐŚꢁĂŶĚꢁꢂĂƐŚꢁꢃƋƵŝǀĂůĞŶƚƐꢁ;ŝŶĐůƵĚŝŶŐꢁƌĞƐƚƌŝĐƚĞĚͿꢁͲꢁꢃŶĚꢁŽĨꢁƚŚĞꢁzĞĂƌ

dŚĞꢂĂĐĐŽŵƉĂŶǇŝŶŐꢂŶŽƚĞƐꢂĂƌĞꢂĂŶꢂŝŶƚĞŐƌĂůꢂƉĂƌƚꢂŽĨꢂƚŚŝƐꢂĨŝŶĂŶĐŝĂůꢂƐƚĂƚĞŵĞŶƚƐ

zĞĂƌꢁꢃŶĚĞĚ

ϵͬϯϬͬϮϬϭϲ

zĞĂƌꢁꢃŶĚĞĚ

ϵͬϯϬͬϮϬϭϱ

ZꢃꢂKEꢂ/>/ꢀd/KEꢁK&ꢁKWꢃZꢀd/E'ꢁ/EꢂKDꢃꢁdKꢁEꢃdꢁꢂꢀ^,

WZKs/ꢄꢃꢄꢁ;h^ꢃꢄͿꢁꢅzꢁKWꢃZꢀd/E'ꢁꢀꢂd/s/d/ꢃ^

KWꢃZꢀd/E'ꢁ/EꢂKDꢃ

Ψꢂꢂꢂꢂꢂ;ꢂϭ͕ϮϲϮ͕ϬϰϭͿ Ψꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ;ϴϱ͕ϰϱϱͿ

ꢀĚũƵƐƚŵĞŶƚƐꢁƚŽꢁZĞĐŽŶĐŝůĞꢁEĞƚꢁKƉĞƌĂƚŝŶŐꢁ/ŶĐŽŵĞꢁƚŽꢁEĞƚ

ꢁꢁꢁꢂĂƐŚꢁƉƌŽǀŝĚĞĚꢁ;ƵƐĞĚͿꢁďǇꢁKƉĞƌĂƚŝŶŐꢁꢀĐƚŝǀŝƚŝĞƐ͗

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢅĞƉƌĞĐŝĂƚŝŽŶꢂꢃǆƉĞŶƐĞ

ϳϴ͕ϯϴϵ

;ϵϱϳ͕ϵϬϭͿ

ϰϰϮ͕ϱϳϯ

ϳϮ͕ϲϰϰ

ϵϱϬ͕Ϭϭϳ

ϴϲ͕ϵϮϮ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢅĞĐƌĞĂƐĞꢂ;/ŶĐƌĞĂƐĞͿꢂŝŶꢂꢁĐĐŽƵŶƚƐꢂZĞĐĞŝǀĂďůĞ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂΗ^/ZΗꢂZĞƐĞƌǀĞƐ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂΗϴǆϮꢂϭϬйꢂYƵŽƚĂꢂ^ŚĂƌĞΗꢂZĞƐĞƌǀĞ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂΗϭƐƚͬϮŶĚꢂ>ĂǇĞƌƐΖꢂꢀŽƌƌŝĚŽƌΗꢂZĞƐĞƌǀĞƐ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂZĞƐĞƌǀĞꢂĨŽƌꢂh>ꢁꢃ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂhŶĞĂƌŶĞĚꢂZĞǀĞŶƵĞ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂꢁĐĐŽƵŶƚƐꢂWĂǇĂďůĞ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂꢁĐĐƌƵĞĚꢂ>ŝĂďŝůŝƚŝĞƐ

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ/ŶĐƌĞĂƐĞꢂ;ꢅĞĐƌĞĂƐĞͿꢂŝŶꢂWƌĞƉĂŝĚꢂꢃǆƉĞŶƐĞƐ

Eꢃdꢁꢂꢀ^,ꢁWZKs/ꢄꢃꢄꢁ;h^ꢃꢄͿꢁꢅzꢁKWꢃZꢀd/E'ꢁꢀꢂd/s/d/ꢃ^

;ϭϮϬ͕ϬϬϬͿ

ꢂꢂꢂꢂꢂꢂꢂꢂ;Ϯ͕ϭϲϵ͕ϵϮϱͿ ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂϱϴϬ͕ϰϭϴ

ϭϭϬ͕ϬϬϬ

ϭϮϵ͕ϱϰϴ

ϳϭϳ͕ϴϳϳ

;Ϯϭ͕ϭϴϵͿ

ϭϲϯ͕ϰϭϯ

;Ϯ͕ϱϴϬ͕ϬϭϳͿ

;Ϯϵ͕ϰϬϳͿ

Ϯϳϴ͕Ϭϯϰ

ϭϯϳ͕ϭϬϴ

ϲϰϵ͕ϯϰϱ

ϯϬϬ

Ψꢁꢁꢁꢁꢁꢁ;ϱ͕ϱϳϵ͕ϮϳϯͿ ΨꢁꢁꢁꢁꢁꢁꢁϮ͕ϳϰϵ͕ϵϮϲ

EKEꢂꢀ^,ꢁ/Esꢃ^d/E'͕ꢁꢂꢀW/dꢀ>͕ꢁꢀEꢄꢁ&/EꢀEꢂ/E'ꢁꢀꢂd/s/d/ꢃ^

ꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂꢂ

dŚĞꢂĂĐĐŽŵƉĂŶǇŝŶŐꢂŶŽƚĞƐꢂĂƌĞꢂĂŶꢂŝŶƚĞŐƌĂůꢂƉĂƌƚꢂŽĨꢂƚŚŝƐꢂĨŝŶĂŶĐŝĂůꢂƐƚĂƚĞŵĞŶƚƐ

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 17

October 1, 2015 Thru September 30, 2016

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 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 of the Revised Code of Washington

(“RCW”).

The WCRP is governed by its 26-member Board of Directors with a President, Vice-President,

and Secretary/Treasurer serving as its annually elected officers. The WCRP Board meets three

times each year at its Spring Conference & Board Meeting, Fall Conference & Board Meeting,

and its Summer Annual Conference & Board Meeting. The WCRP’s Executive Committee,

consisting of 11 members of the Board of Directors, meet four to six times each year for general

Pool administration and oversight.

Through the Executive Director, the Pool’s 12-member staff carries out of the mission and

directives of the Board of Directors. The Administrative and Finance Department handles day-to-

day operations and administration of the Pool, the six-member Claims Department manages all

liability claims brought against member counties, and the Member Services Department,

consisting of both Loss Control/Risk and Member Programs, provide the various training,

consulting and other risk management and risk-reducing resources to participating members.

Annual deposit assessments are adjusted to incorporate actuarial projections and operational

needs, and then approved by the (WCRP) Board of Directors at their Annual Meeting. If the

Pool’s assets were depleted, members would be responsible for outstanding liabilities of the

WCRP.

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 ,while its operating

expenses include both claims paid from current year’s allowances and adjustments to prior year’s

reserves, premiums for reinsurances and excess, property and cyber risk insurances, and the

Pool’s administrative expenses.

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Washington State Auditor's Office Page 18

October 1, 2015 Thru September 30, 2016

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 6

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 2.

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. 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 and 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 actuary uses 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.

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Washington State Auditor's Office Page 19

October 1, 2015 Thru September 30, 2016

i.

Reinsurance

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

liability losses and to indirectly reduce 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.

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

2016, and 2015 as being reinsured were $100,403,423 and $100,647,246 respectively. Premiums

ceded to reinsurers during 2016 and 2015 were $3,399,350 and $3,320,056 respectively. The

independent actuary’s estimate for the ceded reinsured amount of gross loss reserves as of

September 30, 2016, was $42,624,820.

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, upon the values of the real and

personal properties scheduled by the participating counties for property coverage and simply

equal shares for cyber risk coverage. Investment income is not presently considered for the

determination of member assessments.

k.

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.

l.

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.

n.

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.

Pensions

For purposes of measuring the net pension liability, deferred outflows of resources and deferred

inflows of resources related to pensions, and pension expense, information about the fiduciary net

position of all state sponsored pension plans and additions to/deductions from those plans’

fiduciary net position have been determined on the same basis as they are reported by the

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Washington State Auditor's Office Page 20

October 1, 2015 Thru September 30, 2016

Washington State Department of Retirement Systems. For this purpose, benefit payments

(including refunds of employee contributions) are recognized when due and payable in

accordance with the benefit terms.

NOTE 2 - 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); a US Bank custodial account; 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, 2016 and September 30, 2015 were as follows:

9/30/2016

9/30/2015

Wells Fargo (checking)

$ 4,896,133

665,899

17,154,310

16,145,925

$ 38,862,267

$ 3,536,451

663,289

36,092,533

4,009,409

Washington State Investment Pool (LGIP)

Spokane County Investment Pool (SCIP)

US Bank Custodial Account

Total deposits and investments

$ 43,301,682

b.

Investments:

Investments Measured at Amortized Cost

Market

Ratings

Average

Value

Maturities

WA State Investment Pool (LGIP)

Money Market Fund

1 day average

$

665,899

534,775

Aaa AAA

Concentration of Credit:,

Issuer Name:

Market

Value

Average

Duration

Average

Maturity

Rating

Moody/Sp

% of

Portfolio

Cost

Government of United States

Federal National Mortgage Assoc.

Federal Home Loan Bank

Federal Home Loan Mortgage Corp

First American Govt Oblig Fund

$ 7,466,878

2,536,503

2,522,486

3,025,198

534,775

$7,502,127

2,543,408

2,528,245

3,037,370

534,775

1.23

1.97

1.93

2.24

0.00

1.25

2.01

1.97

2.29

0.00

Aaa/AA+

Aaa/AAA+

46.46%

15.75%

15.66%

18.81%

3.31%

Investments Measured at Fair Value

WCRP’s measures and reports investments at fair value using the valuation input hierarchy established by

generally accepted accounting principles, as follows:



Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: These are quoted market prices for similar assets or liabilities, quoted prices for identical

or similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets

that are not active, or other than quoted prices that are not observable;



Level 3: Unobservable inputs for an asset or liability.

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October 1, 2015 Thru September 30, 2016

At September 30, 2016, WCRP had the following investments measured at fair value:

Investment by Fair Value

Level 1

Level 2

Level 3

Total

Spokane County Investment Pool

U.S. Agencies

U.S. Treasuries

$17,154,310

$ 8,109,023

$ 7,502,127

$32,765,460

$17,154,310

$ 8,109,023

$ 7,502,127

$32,765,460

Total Investments at Fair Value Level

Disclosure of Custodial Credit Risk

WCRP’s investment policy states that all security transactions shall be conducted on a delivery-versus-

payment (DVP) basis. Securities purchased by the Pool will be delivered against payment and held in a

custodial safekeeping account with the trust department of a bank. A third party custodian will be

designated by the Executive Director and all transactions will be evidenced by safekeeping receipts.

Concentration of Credit Risk

Concentration Risk disclosure is required for all investments in any one issuer that represents 5% or more

of the Pool’s total investments, excluding investment pools and investments issued by the U.S.

government. No disclosure of concentration risk currently meets this requirement.

Interest Rate Risk

Interest rate risk is the risk that the portfolio value will fluctuate due to changes in the general level of

interest rates. The Pool recognizes that, over time, longer-term portfolios have higher volatility of return.

The Pool mitigates interest rate risk by providing adequate liquidity for short-term cash needs, and by

making longer-term investments only with funds that are not needed for current cash flow purposes. The

Pool has deposits of $17,154,310 with the Spokane County Investment Pool and $665,899 with the

Washington State Investment Pool that are available immediately. The Pool further recognizes that certain

types of securities will affect the interest rate risk profile of the portfolio differently in different interest rate

environments. The Pool restricts callable securities to a maximum of 20% of the portfolio, restricts

maximum maturity to 5 years, and constrains duration to plus or minus 20% of a market benchmark index

selected by the Investment Committee based on the Pool’s investment objectives, constrains and risk

tolerances.

NOTE 3 - JOINT SELF-INSURED RETENTION

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 fiscal years 2016 and 2015, 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,

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

limited to $20,000,000; and for those between $2,000,000 and $5,000,000, the Pool’s annual aggregate

reinsurance was limited to $30,000,000. Also, Reinsurer’s liability for ultimate net loss arising from

claims between $5,000,000 and $10,000,000, the Pool’s annual aggregate reinsurance was limited to

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Washington State Auditor's Office

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October 1, 2015 Thru September 30, 2016

$50,000,000. Furthermore, with regard to ultimate net loss subject to the $8 million excess of $2 million

reinsurance layer for Fiscal Year 2013, the Pool agreed to accept a 10% quota-share.

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

beginning of each pool fiscal year, WCRP committed assets for the years ended September 30, 2016 and

2015 of $1,008,468 and $1,099,403 respectively, and is committing for PY-2017 $1,083,493, specifically

for funding its self-insured retentions for those years. Additional member assessments were collected as

WCRP assets and are/were committed in support of the Pool’s “corridor deductible” exposures totaling

$3,450,000 (PY-2016) and $3,350,000 (PY-2015).

NOTE 4 – 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, WCRP partners with multiple superior-rated commercial insurers by acquiring

reinsurance agreements and “following form” excess, property, and cyber risk insurances. The limits

provided by these insuring agreements, contracts and policies for PY-2016 follow:

a. Memorandum of Liability Coverage (“MLC”): Since October 1, 1988, the Pool has provided its

member counties with risk-shared (jointly purchased and/or self-insured), occurrence-based

coverage under a MLC Coverage Form for 3^rd-party liability claims against members due to bodily

injury, personal injury, property damage, errors and omissions, and advertising injury.

The total “occurrence” coverage grew 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 MLC years

including PYs 2016 and 2015. 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 MLC 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 $3,399,350, while the independent actuary’s estimate of the amounts

recoverable from reinsurers (and excess insurers) which reduced the liabilities of gross loss reserves

on the balance sheet (as of September 30, 2016,), totaled $42,624,820.

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

jointly-purchased “following form” excess insurance.

b. Washington Counties Property Program (“WCPP”): Beginning with PY-2006,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-2016, all 26

WCRP counties 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). Other coverages

included Green Construction Upgrades, Reproduction for Historic Structures, and Terrorism ($20

million).

AOP occurrence deductibles between $5,000 and $25,000 were/are selected by the participating

counties which they are solely responsible for paying. Higher deductibles amounts apply to

catastrophe losses.

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Washington State Auditor's Office

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October 1, 2015 Thru September 30, 2016

c. Cyber Risk and Other Coverage: Beginning with fiscal year 2014-15, the Pool added jointly

purchased cyber risk and security coverage which includes (1^stparty) business interruption, data

recovery, cyber extortion, breach response and management (regulatory compliance) protections

associated with date breaches.

NOTE 5 - 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 Fiscal Year 2016, there was no deficiency, and no

additional retroactive assessments were levied or collected.

NOTE 6 – 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, 2016 were as follows:

Beginning

Balance

10/01/15

Ending

Balance

9/30/16

Increase

(Decrease)

Capital Assets Being Depreciated:

Building

Office Furnishings and Equipment

Total Capital Assets being Depreciated

$ 1,320,950

212,753

$ 1,533,703

1,320,950

212,753

1,533,703

Less Accumulated Depreciation for:

Building

Office Furnishings and Equipment

Total Accumulated Depreciation

$

345,089

99,134

444,223

47,549

30,840

78,389

392,638

129,974

522,612

TOTAL CAPITAL ASSETS NET

1,089,480

78,389

1.011.091

Capital assets activities for the fiscal year ended September 30, 2015 were as follows:

Beginning

Balance

10/01/14

Ending

Balance

9/30/15

Increase

(Decrease)

Capital Assets Being Depreciated:

Building

Office Furnishings and Equipment

Total Capital Assets being Depreciated

$ 1,274,140

169,100

$ 1,443,240

46,810

45,755

92,565

1,320,950

212,753

1,533,703

(2,102)

Less Accumulated Depreciation for:

Building

Office Furnishings and Equipment

$

299,769

73,912

45,320

27,323

345,089

99,134

(2,102)

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Washington State Auditor's Office Page 24

October 1, 2015 Thru September 30, 2016

Total Accumulated Depreciation

TOTAL CAPITAL ASSETS NET

$

373,681

72,643

19,922

(2,102)

(0)

444,223

1,069,558

1,089,480

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

NOTE 7: SOLVENCY

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 80% confidence level estimate of unpaid

claims (70% before 2015). 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

Primary Asset Test 1

Cash and cash equivalents

Investments

2016

2015

$ 4,896,133

33,966,134

$38,862,267

$ 304,965

14,144,409

$24,412,893

$13,709,893

PASS

$ 3,536,452

40,765,231

$ 44,301,683

Total

Non-claims Liabilities

Unearned Revenues

Total Primary Assets

Claims Liability – Expected Level

Test 1 Result – Primary Asset Test

$

362,957

13,426,532

$30,512,194

$15,427,697

PASS

Secondary Asset Test

Cash and cash equivalents

Investments

Receivables

Prepaid Expenses

Accrued Interest

$ 4,896,133

33,966,134

4,349,504

2,582,677

44,351

$ 3,536,452

40,765,231

3,391,603

2,660

7,679

Capital Assets

1,011,091

1,089,480

Less:

Non-Claims Liabilities

Unearned Revenues

Total Secondary Assets

Total Primary plus Secondary Assets

$

304,965

14,144,409

$ 7,987,623

$32,400,516

$

362,957

13,426,532

$ 4,491,419

$ 35,003,613

Claims Liabilities at 80%

$14,760,000

$16,727,000

Test 2 Results – Secondary Asset Test

PASS

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Washington State Auditor's Office Page 25

October 1, 2015 Thru September 30, 2016

NOTE 8: RESTRICTED AND UNRESTRICTED NET POSITION

In 2016, WCRP’s statement of net position reflects no restricted amounts.

NOTE 9 – Changes in Accounting Principles

WCRP’s Statement of Net Position reflects no change in accounting principles in PY16 and a change of

$651,830 in PY15. The change in PY15 was due to the implementation of GASB 68.

NOTE 10 – Pension Plans

The following table represents the aggregate pension amounts for all plans subject to the requirements

of GASB 68 for the years 2016 and 2015:

Aggregate Pension Amounts – All Plans

2016

$839,691

$

2015

$639,474

$

Pension liabilities

Pension assets

Deferred outflows of resources

Deferred inflows of resources

Pension expense/expenditures

$134,538

$ 12,069

$ 145,341

$ 63,610

$ 83,946

$

7,981

State Sponsored Pension Plans

Substantially all Washington Counties Risk Pool (WCRP) 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 and defined contribution retirement plans. The state Legislature establishes, and amends, laws

pertaining to the creation and administration of all public retirement systems.

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 98540-8380

Or the DRS CAFR may be downloaded from the DRS website at www.drs.wa.gov.

Public Employees’ Retirement System (PERS)

PERS members include elected officials; state employees; employees of the Supreme, Appeals and

Superior Courts; employees of the legislature; employees of district and municipal courts; employees of

local governments; and higher education employees not participating in higher education retirement

programs. PERS is comprised of three separate pension plans for membership purposes. PERS plans

1 and 2 are defined benefit plans, and PERS plan 3 is a defined benefit plan with a defined contribution

component.

PERS Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined as

two percent of the member’s average final compensation (AFC) times the member’s years of service.

The AFC is the average of the member’s 24 highest consecutive service months. Members are eligible

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October 1, 2015 Thru September 30, 2016

for retirement from active status at any age with at least 30 years of service, at age 55 with at least 25

years of service, or at age 60 with at least five years of service. Members retiring from active status

prior to the age of 65 may receive actuarially reduced benefits. Retirement benefits are actuarially

reduced to reflect the choice of a survivor benefit. Other benefits include duty and non-duty disability

payments, an optional cost-of-living adjustment (COLA), and a one-time duty-related death benefit, if

found eligible by the Department of Labor and Industries. PERS 1 members were vested after the

completion of five years of eligible service. The plan was closed to new entrants on September 30,

1977.

Contributions - The PERS Plan 1 member contribution rate is established by State statute at 6 percent.

The employer contribution rate is developed by the Office of the State Actuary and includes an

administrative expense component that is currently set at 0.18 percent. Each biennium, the state

Pension Funding Council adopts Plan 1 employer contribution rates. The PERS Plan 1 required

contribution rates (expressed as a percentage of covered payroll) for 2016 were as follows:

PERS Plan 1

Actual Contribution Rates:

PERS Plan 1

Employer

6.23%

Employee

6.00%

PERS Plan 1 UAAL

Administrative Fee

4.77%

0.18%

6.00%

Total 11.18%

6.00%

The WCRP’s actual contributions to the plan for fiscal years ended September 30, 2016 and 2015 were

$14,233 and $13,951 respectively.

PERS Plan 2/3 provides retirement, disability and death benefits. Retirement benefits are determined

as two percent of the member’s average final compensation (AFC) times the member’s years of service

for Plan 2 and 1 percent of AFC for Plan 3. The AFC is the average of the member’s 60 highest-paid

consecutive service months. There is no cap on years of service credit. Members are eligible for

retirement with a full benefit at 65 with at least five years of service credit. Retirement before age 65 is

considered an early retirement. PERS Plan 2/3 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 benefit that is reduced by a factor

that varies according to age for each year before age 65. PERS Plan 2/3 members who have 30 or

more years of service credit and are at least 55 years old can retire under one of two provisions:



With a benefit that is reduced by three 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 2/3 members hired on or after May 1, 2013 have the option to retire early by accepting a

reduction of five 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 credit. PERS Plan 2/3 retirement benefits

are also actuarially reduced to reflect the choice of a survivor benefit. Other PERS Plan 2/3 benefits

include duty and non-duty disability payments, a cost-of-living allowance (based on the CPI), capped at

three percent annually and a one-time duty related death benefit, if found eligible by the Department of

Labor and Industries. PERS 2 members are vested after completing five years of eligible service. 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 12 months of that service are earned after age 44.

PERS Plan 3 defined contribution benefits are totally dependent on employee contributions and

investment earnings on those contributions. PERS Plan 3 members choose their contribution rate upon

joining membership and have a chance to change rates upon changing employers. As established by

statute, Plan 3 required defined contribution rates are set at a minimum of 5 percent and escalate to 15

percent with a choice of six options. Employers do not contribute to the defined contribution benefits.

PERS Plan 3 members are immediately vested in the defined contribution portion of their plan.

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October 1, 2015 Thru September 30, 2016

Contributions - The PERS Plan 2/3 employer and employee contribution rates are developed by the

Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. The Plan 2/3

employer rates include a component to address the PERS Plan 1 UAAL and an administrative expense

that is currently set at 0.18 percent. Each biennium, the state Pension Funding Council adopts Plan 2

employer and employee contribution rates and Plan 3 contribution rates. The PERS Plan 2/3 required

contribution rates (expressed as a percentage of covered payroll) for 2016 were as follows:

PERS Plan 2/3

Actual Contribution Rates:

Employer 2/3

Employee 2

PERS Plan 2/3

6.23%

6.12%

PERS Plan 1 UAAL

Administrative Fee

Employee PERS Plan 3

4.77%

0.18%

varies

Total 11.18%

6.12%

The WCRP’s actual contributions to the plan for years ended September 30, 2016 and 2015 were

$78,240 and $56,580 respectively.

Actuarial Assumptions

The total pension liability (TPL) for each of the DRS plans was determined using the most recent

actuarial valuation completed in 2016 with a valuation date of June 30, 2015. The actuarial assumptions

used in the valuation were based on the results of the Office of the State Actuary’s (OSA) 2007-2012

Experience Study.

Additional assumptions for subsequent events and law changes are current as of the 2015 actuarial

valuation report. The TPL was calculated as of the valuation date and rolled forward to the measurement

date of June 30, 2016. Plan liabilities were rolled forward from June 30, 2015, to June 30, 2016,

reflecting each plan’s normal cost (using the entry-age cost method), assumed interest and actual

benefit payments.



Inflation: 3% total economic inflation; 3.00% salary inflation

Salary increases: In addition to the base 3.75% salary inflation assumption, salaries are also

expected to grow by promotions and longevity.



Investment rate of return: 7.5%

Mortality rates were based on the RP-2000 report’s Combined Healthy Table and Combined Disabled

Table, published by the Society of Actuaries. OSA applied offsets to the base table and recognized

future improvements in mortality by projecting the mortality rates using 100% Scale BB. Mortality rates

are applied on a generational basis; meaning, each member is assumed to receive additional mortality

improvements in each future year throughout his or her lifetime.

There were minor changes in methods and assumptions since the last valuation.



For all systems, except LEOFF Plan 2, the assumed valuation interest rate was lowered from 7.8%

to 7.7%. Assumed administrative factors were updated.

Valuation software was corrected on how the nonduty disability benefits for LEOFF Plan 2 active

members is calculated.

New LEOFF Plan 2 benefit definitions were added within the OSA valuation software to model

legislation signed into law during the 2015 legislative session.

Discount Rate

The discount rate used to measure the total pension liability for all DRS plans was 7.5%.

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October 1, 2015 Thru September 30, 2016

To determine that rate, an asset sufficiency test included an assumed 7.7% long-term discount rate to

determine funding liabilities for calculating future contribution rate requirements. (All plans use 7.7%

except LEOFF 2, which has assumed 7.5%). Consistent with the long-term expected rate of return, a

7.5% future investment rate of return on invested assets was assumed for the test. Contributions from

plan members and employers are assumed to continue being made at contractually required rates

(including PERS 2/3, PSERS 2, SERS 2/3, and TRS 2/3 employers, whose rates include a component

for the PERS 1, and TRS 1 plan liabilities). Based on these assumptions, the pension plans’ fiduciary

net position was projected to be available to make all projected future benefit payments of current plan

members. Therefore, the long-term expected rate of return of 7.5% was used to determine the total

liability.

Long-Term Expected Rate of Return

The long-term expected rate of return on DRS pension plan investments of 7.5% was determined using

a building-block-method. The Washington State Investment Board (WSIB) used a best estimate of

expected future rates of return (expected returns, net of pension plan investment expense, including

inflation) to develop each major asset class. Those expected returns make up one component of WSIB’s

capital market assumptions. WSIB uses the capital market assumptions and their target asset allocation

to simulate future investment returns at various future times. The long-term expected rate of return of

7.5% approximately equals the median of the simulated investment returns over a 50-year time horizon.

Estimated Rates of Return by Asset Class

Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s

target asset allocation as of June 30, 2016, are summarized in the table below. The inflation component

used to create the table is 2.2% and represents WSIB’s most recent long-term estimate of broad

economic inflation.

Asset Class

Target Allocation % Long-term

Expected Real Rate

of Return Arithmetic

Fixed Income

Tangible Assets

Real Estate

Global Equity

Private Equity

20%

5%

15%

37%

23%

100%

1.70%

4.40%

5.80%

6.60%

9.60%

Sensitivity of NPL

The table below presents the Washington Counties Risk Pool’s proportionate share* of the net pension

liability calculated using the discount rate of 7.5%, as well as what the Washington Counties Risk Pool’s

proportionate share of the net pension liability would be if it were calculated using a discount rate that

is 1-percentage point lower (6.5%) or 1-percentage point higher (8.5%) than the current rate.

1% Decrease

(6.5%)

Current Rate

(7.5%)

1% Increase

(8.5%)

2016

PERS 1

PERS 2/3

$ 571,723

673,109

$ 474,105

365,586

$ 390,099

(190,308)

1% Decrease

(6.5%)

Current Rate

(7.5%)

1% Increase

(8.5%)

2015

PERS 1

PERS 2/3

$ 497,712

674,510

$ 408,797

230,677

$ 332,337

(109,150)

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Washington State Auditor's Office Page 29

October 1, 2015 Thru September 30, 2016

Pension Plan Fiduciary Net Position

Detailed information about the State’s pension plans’ fiduciary net position is available in the separately

issued DRS financial report.

Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and

Deferred Inflows of Resources Related to Pensions.

At June 30, 2016 and 2015, the Washington Counties Risk Pool reported a total pension liability of

$839,691 and $639,474 respectively for its proportionate share of the net pension liabilities as follows:

Liability (or Asset)

2016

2015

PERS 1

PERS 2/3

$474,105

$365,586

$408,797

$230,677

At June 30 2016 and 2015, the Washington Counties Risk Pool’s proportionate share of the collective

net pension liabilities was as follows:

Proportionate

Share 6/30/15

Proportionate

Share 6/30/16

Change in

Proportion

PERS 1

PERS 2/3

.007815%

.006456%

.008828%

.007261%

.0000657%

.000805%

Proportionate

Share 6/30/14

Proportionate

Share 6/30/15

Change in

Proportion

PERS 1

PERS 2/3

.007457%

.005880%

.007815%

.006456%

.000358%

.000576%

Employer contribution transmittals received and processed by DRS for the fiscal year ended June 30

are used as the basis for determining each employer’s proportionate share of the collective pension

amounts reported by DRS in the Schedules of Employer and Nonemployer Allocations for all plans

except LEOFF 1.

The collective net pension liability (asset) was measured as of June 30, 2016, and the actuarial valuation

date on which the total pension liability (asset) is based was as of June 30, 2015, with update procedures

used to roll forward the total pension liability to the measurement date.

Pension Expense

For the year ended September 30, 2016 and 2015, the Washington Counties Risk Pool recognized

pension expense as follows:

Pension Expense

2016

Pension Expense

2015

PERS 1

$ 81,069

$6,281

PERS 2/3

TOTAL

$ 64,272

$ 145,341

$1,700

$7,981

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Washington State Auditor's Office Page 30

October 1, 2015 Thru September 30, 2016

Deferred Outflows of Resources and Deferred Inflows of Resources

At September 30, 2016, the Washington Counties Risk Pool reported deferred outflows of resources

and deferred inflows of resources related to pensions from the following sources:

PERS 1

Deferred Outflows of

Deferred Inflows of

Resources

Differences between expected

and actual experience

$

Net difference between

projected and actual investment

earnings on pension plan

investments

$ 11,937

$

Changes of assumptions

$

Changes in proportion and

differences between

contributions and proportionate

share of contributions

Contributions subsequent to the

measurement date

$ 6,997

TOTAL

$ 18,934

$

PERS 2/3

Deferred Outflows of

Resources

Deferred Inflows of

Resources

Differences between expected

and actual experience

$ 19,467

$ (12,069)

Net difference between

projected and actual investment

earnings on pension plan

investments

$ 44,737

$

Changes of assumptions

$ 3,779

$38,482

$

Changes in proportion and

differences between

contributions and proportionate

share of contributions

Contributions subsequent to the

measurement date

$

9,138

TOTAL

$115,604

$ (12,069)

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Washington State Auditor's Office Page 31

October 1, 2015 Thru September 30, 2016

At September 30, 2015, the Washington Counties Risk Pool reported deferred outflows of resources

and deferred inflows of resources related to pensions from the following sources:

PERS 1

Deferred Outflows of

Resources

Deferred Inflows of

Resources

Differences between expected

and actual experience

$

$ 22,366

Net difference between

projected and actual investment

earnings on pension plan

investments

$

Changes of assumptions

$

Changes in proportion and

differences between

contributions and proportionate

share of contributions

Contributions subsequent to the

measurement date

$ 11,000

TOTAL

$ 22,366

PERS 2/3

Deferred Outflows of

Resources

Deferred Inflows of

Resources

Differences between expected

and actual experience

$ 24,521

$ 61,580

Net difference between

projected and actual investment

earnings on pension plan

investments

$

Changes of assumptions

$

372

$

Changes in proportion and

differences between

$18,534

contributions and proportionate

share of contributions

Contributions subsequent to the

measurement date

$

9,183

TOTAL

$ 52,610

$ 61,580

Deferred outflows of resources related to pensions resulting from the Washington Counties Risk Pool’s

contributions subsequent to the measurement date will be recognized as a reduction of the net pension

liability in the year ended September 30, 2017. Other amounts reported as deferred outflows and

deferred inflows of resources related to pensions will be recognized in pension expense as follows:

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Washington State Auditor's Office

Page 32

October 1, 2015 Thru September 30, 2016

Year ended

September:

2017

2018

2019

PERS 1

PERS 2/3

$ (2,939)

$ 10,963

$ 13,641

$ 44,324

$ 22,790

2020

Thereafter

$

6,853

TOTAL $11,937

$ 94,396

NOTE 11: 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, 2016

and 2015 were $52,079 and $45,964, respectively. There are no employee contributions to this plan.

NOTE 12 - DEFERRED COMPENSATION PLANS

The WCRP offers its employees a choice of two 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) and the Washington State Department of Retirement. 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 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

a.

WCRP v. Northrop, Davis, Clark County, and Donald Slagle: This case involves a dispute

between the WCRP and former WCRP member, Clark County and its employee, Slagle.

Following the WCRP’s declination of coverage for the defense and indemnification of Clark

County in a case filed against it by two plaintiffs, Clark County stipulated to a settlement and

assigned its rights under the WCRP interlocal agreement to the plaintiffs. The plaintiffs’ suit

against the WCRP, along with the WCRP’s suit against the plaintiffs and Clark County, were

consolidated into a single action in Cowlitz County Superior Court.

The trial court ruled in favor of the WCRP on all matters and granted certification for appellate

review. The Washington Supreme Court then accepted direct appellate review on June 1, 2015.

Oral argument before the Washington Supreme Court occurred on May 10, 2016. Prior to the

Supreme Court’s decision, the case resolved for $15.5 million. $13.5 Million was paid by

Lexington Insurance Company, or one of its subsidiaries, $1 Million was paid by ACE Insurance

Company and $1 Million by the Washington Counties Risk Pool.

b.

WCRP and Douglas County v. Corter and Groseclose: Under a reservation of rights, WCRP

paid for the defense for Douglas County sheriff’s detective Groseclose in a civil rights lawsuit

brought by his ex-wife Corter. After a verdict was entered on behalf of Corter, WCRP enforced

its reservation of rights and refused to indemnify Groseclose for the damages awarded to Corter.

Rather than administratively appealing WCRP’s decision as required under the WCRP Bylaws,

Groseclose assigned his rights against WCRP and Douglas County to Corter. WCRP and Douglas

County filed a declaratory judgment action against Corter and Groseclose in Douglas County

Superior Court. The trial court granted Summary Judgment in favor of WCRP and Douglas

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Washington State Auditor's Office Page 33

October 1, 2015 Thru September 30, 2016

County, the Court of Appeals upheld the trial court’s decision, and, on September 30, 2016, the

Washington State Supreme Court denied Corter and Groseclose’s petition for review.

c. Following the resolution of the case identified in (a) above, and as is also common in continuous

claim and litigation adjusting, the WCRP has recently focused attention on confirming dates of

occurrence for all of its liability claims. While this process is on-going, it has also resulted in

changes to the dates of occurrence applied to certain claims, and in turn, changes to coverage

years applicable.

It is currently not known if or how changes may impact the WCRP’s assets, liabilities and net

position. Additional file reviews and independent actuarial analysis will be conducted in the

weeks and months that follow, and the WCRP will promptly provide information and results when

available.

NOTE 14 - UNPAID CLAIMS LIABILITIES

As discussed somewhat in Notes 1.h and 1.k, 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

WCRP’s SIR Reserves during the past two years:

2016

2015

SIR - Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 2,779,907

$ 2,692,985

SIR - Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

1,008,468

1,099,403

575,252

(5,791)

Total Incurred Claims and Claims Adjustment Expenses

$4,363,627

3,786,597

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

$

0.00

$ 161,645

1,141,147

845,045

Total Payments

$ 1,141,147

$ 1,006,690

SIR -Total Unpaid Claims and Claims Adjustment Expenses

End of Year

$ 3,222,484

$ 2,779,907

The actuary estimated the current Unpaid Claims and Claims Adjustment liability at the end of 2016 and

2015 to be $1,177,614 and $1,038,133 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

$ 14,441,244

4,458,468

$ 13,663,903

4,449,403

Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

(51,890)

118,078

Total Incurred Claims and Claims Adjustment Expenses

$ 18,847,822

$17,750,764

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Washington State Auditor's Office Page 34

October 1, 2015 Thru September 30, 2016

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

$

0

$

198,364

6,253,921

3,591,776

Total Payments

$ 6,253,921

$ 3,790,140

SIR -Total Unpaid Claims and Claims Adjustment Expenses

$12,593,893

$ 14,441,244

The actuary estimated the current SIR – Total Unpaid Claims and Claims Adjustment Liability at the end

of 2016 and 2015 to be $5,319,280 and $3,788,266 respectively.

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Washington State Auditor's Office

Page 35

Washington Counties Risk Pool

Schedule of Proportionate Share of the Net Pension Liability

PERS 1

As of June 30, 2016

Last 10 Fiscal Years

2015

2016

Employer's proportion of the net pension liability

(asset)

0.007815%

408,797

0.008828%

474,105

Employer's proportionate share of the net pension

liability

TOTAL

408,797

474,105

Employer's covered employee payroll

716,208

807,402

Employer's proportionate share of the net pension

liability as a percentage of covered employee payroll

Plan fiduciary net position as a percentage of the total

pension liability

175.20%

59.10%

170.30%

57.03%

Washington Counties Risk Pool

Schedule of Proportionate Share of the Net Pension Liability

PERS 2/3

As of June 30, 2016

Last 10 Fiscal Years

2015

2016

Employer's proportion of the net pension liability

(asset)

0.006456%

230,677

572,850

0.007261%

365,586

644,146

Employer's proportionate share of the net pension

liability

TOTAL

Employer's covered employee payroll

Employer's proportionate share of the net pension

liability as a percentage of covered employee payroll

Plan fiduciary net position as a percentage of the total

pension liability

40.27%

89.20%

56.76%

85.82%

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Washington State Auditor's Office Page 36

Washington Counties Risk Pool

Schedule of Employer Contributions

PERS 1

As of September 30, 2016

Last 10 Fiscal Years

2015

2016

Statutorily or contractually required contributions

Contributions in relation to the statutorily or

38,174

47,705

contractually required contributions

Contribution deficiency (excess)

38,174

0

47,705

0

Covered Employer Payroll

728,221 803,177

Contributions as a percentage of covered employee

payroll

5.24%

5.94%

Washington Counties Risk Pool

Schedule of Employer Contributions

PERS 2/3

As of September 30, 2016

Last 10 Fiscal Years

2015

2016

Statutorily or contractually required contributions

Contributions in relation to the statutorily or

31,045

44,017

contractually required contributions

Contribution deficiency (excess)

31,045

0

44,017

0

Covered Employer Payroll

Contributions as a percentage of covered employee

payroll

584,437 675,866

5.31% 6.51%

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Washington State Auditor's Office Page 37

October 1, 2015 Thru September 30, 2016

REQUIRED SUPPLEMENTARY INFORMATION

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

1.

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:

a. 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.

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

and claims expense not allocable to individual claims.

c. 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).

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

successive years for each policy year.

e. This line shows the latest estimated amount of claims assumed by reinsurers as of the end

of the current year for each accident year.

f.

This section of ten rows show how each year’s net incurred claims increased or

decreased as of the end of successive years. (This annual estimation 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.)

g. This line compares the latest estimated net incurred claims amount 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 estimated 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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Washington State Auditor's Office Page 38

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Washington State Auditor's Office

Page 39

October 1, 2015 Thru September 30, 2016

LIST OF PARTICIPATING MEMBERS

Schedule T-1

The following is a list of WCRP membership during the fiscal year 2015-2016

Adams County

Benton County

Chelan County

Clallam County

Columbia County

Cowlitz County

Douglas County

Franklin County

Garfield County

Grays Harbor County

Island County

Lewis 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

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Washington State Auditor's Office Page 40

WASHINGTON COUNTIES RISK POOL

DES Schedule of Expenses

Schedule T-2

MCAG NO. 0774

For Fiscal Years Ended September 30, 2016 and September 30, 2015

09/30/2016

09/30/2015

$11,045,715

Insurance Premiums/Reserve Expense

ULAE Expense

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

Adjustment to Prior Years' "SIR" Reserves

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

$10,976,554

129,548

(29,406)

13,868

(4,642)

110,000

(507,141)

575,252

(120,000)

Contracted Services:

Actuarial

State Audit Expense

State Risk Manager Expenses

Legal Fees

110,400

11,021

11,734

1,743,433

18,847

68,300

7,965

11,734

329,449

25,737

32,022

IT Consultants

Property Appraiser

63,163

Investment Advisor

8,808

12,000

3,547

3,000

27,500

68,634

8,984

Consulting Member Services Manager

Leadership Search Consultant

Other Consulting Fees

3,984

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

1,221,221

15,295

24,021

8,087

92,366

91,692

78,389

22,726

102,115

17,972

99,929

55,874

17,739

1,029,985

15,568

22,231

7,156

95,432

137,029

72,644

20,216

54,659

17,504

91,285

85,735

19,372

Utilities

Member Services - Training

Member Services - Grants/Scholarships

Miscellaneous Expenses

Total Operating Expenses

$14,888,576

$13,387,676

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Washington State Auditor's Office Page 41

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

PublicRecords@sao.wa.gov

(360) 902-0370

Public Records requests

Main telephone

(866) 902-3900

Toll-free Citizen Hotline

Website

www.sao.wa.gov

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Washington State Auditor's Office Page 42