Washington State Auditor’s Office

Financial Statements Audit Report

Washington Counties Risk Pool

Thurston County

Audit Period

October 1, 2012 through September 30, 2013

Report No. 1011488

Issue Date

March 27, 2014

Washington State Auditor

Troy Kelley

March 27, 2014

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,

TROY KELLEY

STATE AUDITOR

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

Table of Contents

Washington Counties Risk Pool

Thurston County

October 1, 2012 through September 30, 2013

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 ..................................................................... 1

Independent Auditor’s Report on Financial Statements.............................................................. 3

Financial Section........................................................................................................................ 6

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, 2012 through September 30, 2013

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, 2013 and 2012 and the related notes to the financial statements, which

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

dated March 17, 2014. Our report includes information about the Pool’s pending litigations. This

information is more fully described in Note 11 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

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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

1

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.

TROY KELLEY

STATE AUDITOR

March 17, 2014

_________________________________________________________________________________________________________

Washington State Auditor's Office

2

Independent Auditor’s Report on Financial

Statements

Washington Counties Risk Pool

Thurston County

October 1, 2012 through September 30, 2013

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, 2013 and

2012 and the related notes to the financial statements, which collectively comprise the Pool’s

basic financial statements as listed on page 6.

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. The procedures selected depend on the auditor’s

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

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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

3

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, 2013 and

2012, and the changes in financial position and, where applicable, cash flows thereof for the

year 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 11 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 7 through 12 and claims development

information on pages 34 through 35 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.

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 Office of Financial Management 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

March 17, 2014 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

_________________________________________________________________________________________________________

Washington State Auditor's Office

4

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.

TROY KELLEY

STATE AUDITOR

March 17, 2014

_________________________________________________________________________________________________________

Washington State Auditor's Office

5

Financial Section

Washington Counties Risk Pool

Thurston County

October 1, 2012 through September 30, 2013

REQUIRED SUPPLEMENTARY INFORMATION

Management’s Discussion and Analysis – 2013

BASIC FINANCIAL STATEMENTS

Statement of Net Position – 2013 and 2012

Statement of Revenues, Expenses and Changes in Fund Net Position – 2013 and 2012

Statement of Cash Flows – 2013 and 2012

Notes to Financial Statements – 2013

REQUIRED SUPPLEMENTARY INFORMATION

Ten-Year Claims Development Information – 2013

SUPPLEMENTAL INFORMATION

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

Department of Enterprise Services (DES) Schedule of Expenses (Schedule T-2) – 2013

and 2012

_________________________________________________________________________________________________________

Washington State Auditor's Office

6

WCRP… Management’s Discussion and Analysis

The management of the Washington Counties Risk Pool (“WCRP” or “Pool”) presents the Pool’s Silver

Anniversary edition narrative overview and analysis (“MD&A”) of the Risk Pool’s financial activities for the

fiscal year ended September 30, 2013. To more fully understand the entity’s financial position, this

MD&A should be considered in conjunction with the information in the companion financial statements

and the accompanying notes.

The WCRP was established August 18, 1988 to administer a jointly funded, (third-party liability) self-

insurance program for its member counties and to provide associated services. Noteworthy is fact that

the definition of “insurer” in RCW 48.01.050 for the purposes of applying the Washington Insurance Code

contains the following:

Two or more local government entities, under any provision of law, that join together and organize

to form an organization for the purpose of jointly self-insuring or self-funding are not an “insurer”

under this code.

Thus, under Washington law, the WCRP is not an insurance company and is therefore not necessarily

subject to the rules governing insurance policy interpretation.

Most of the Pool’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 reinsurance, excess insurance and property insurance carriers.

The WCRP 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.

During fiscal 2013 WCRP assets grew 11% (+$4.8 million) and liabilities by 3% (+$1.0 million). The net

(financial) position, which is commonly referred to as “net assets” and sometimes as “owners’ equity”,

improved 30% (+$3.9 million) during the Pool’s Silver Anniversary to $16.7 million as of September 30,

2013. Much of the net position is ‘restricted’ ($12.5 million) to address the Board of Directors’ recently

revised requirements in section D of the WCRP Underwriting Policy. NOTES: The Board’s policy revision

resulted in the Pool’s own restriction increasing $7.5 million (+187%) and the unrestricted declining $3.8

million (-53%). The (State Risk Manager’s) solvency provisions in WAC 200.100.03001(3) now requires

$0.9 million for satisfaction, a year-over-year increase of $0.1 million (+15%). Another $0.9 million is

invested in capital assets (net of debt). The remaining $3.3 million is unrestricted.

$3.75 million in operating income was experienced during FY-2013, an increase of 111% from FY-2012.

Operating revenues were ‘flat’, but operating expenses declined nearly $2.0 million (-15%).

This

reduction was due in part to even more favorable adjustments by the independent actuary,

PricewaterhouseCoopers LLP (“PwC”), to the Pool’s claims-related reserves, and to the reduction (-26%)

in the premiums for the reinsurance, excess insurance and property insurance policies acquired.

616 third-party liability claims (and lawsuits) were reported to the Pool by its member counties during FY-

2013 and added to the WCRP administrative database. This represented a 3% reduction in year-over-

year filings and a continuation of the decline in annual filings. The new filings raised the to-date total (Oct

1988 – Sep 2013) to 19,232. Only 326 claims remained classified as ‘open’ at year-end. With 307

additional claims projected by the actuary from all years as incurred but not yet reported (“IBNR”), the

Pool’s estimated ultimate claims totaled 19,539 as of September 30, 2013.

The actuary’s projection of total reserves for claims that are expected to be the WCRP’s responsibility

decreased slightly (-1%) from FY-2012 to $14.6 million. This amount includes $3.4 million (-21% from

FY-2012) for losses within the Pool’s self-insured retention, $10.0 million (+7%) for losses subject to the

“corridor” programs with the Pool’s reinsurers, $0.2 million for losses within the new quota-shared (10%)

upper reinsured layer, and $1.0 million (+3%) for estimated unallocated loss adjustment expenses.

NOTE: The corridor programs involving the WCRP’s first (and now second) layer reinsurers began seven

years ago. These programs included an occurrence coverage maximum of $0.5 million during the first

_________________________________________________________________________________________________________

Washington State Auditor's Office

7

three years, $1.0 million during the next three years, and of both $1.0 million and $2.0 million beginning

with FY-2013. The occurrence coverage minimums have remained since the corridor program began the

greater of the applicable member deductible or $100,000.

Overview of the Financial Statements

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

to the 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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

8

COMPARATIVE FINANCIAL INFORMATION

Washington Counties Risk Pool

NET POSITION

09/30/2013

$46,017,808

919,442

09/30/2012

$41,159,087

950,134

09/30/2011

$39,993,492

1,133,848

Current Assets

Non-Current Assets

Total Assets

$46,937,250

$42,109,221

$41,127,340

Current Liabilities

Non-Current Liabilities

Total Liabilities

$17,888,932

12,325,473

$30,214,405

$28,165,704

1,080,500

$29,246,204

$29,167,816

929,473

$30,097,289

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

$5,614,009

983,848

4,432,194

$11,030,051

Invested (Net) in Capital Assets

Non-Restricted Net Position

Total Net Position

_________________________________________________________________________________________________________

Washington State Auditor's Office

9

REVENUES, EXPENSES and CHANGES IN NET POSITION

FY-2013

FY-2012

FY-2011

Operating Revenues

Member Assessments

$11,487,536

2,927,485

150,000

$11,648,053

2,799,807

107,627

$11,354,006

2,606,107

106,930

Member WCPP Assessments

Operating Revenues – Miscellaneous

Total Operating Revenues

Non-Operating Revenues (and Expenses)

Interest Income

Other Non-Operating Revenues

Total Non-Operating Revenues

Total Revenues

$14,565,021

$14,555,487

$14,067,043

$150,638

(39,007)

$111,631

$47,004

12,950

$59,954

$55,930

0

$55,930

$14,122,973

$14,676,652

$14,615,441

Operating Expenses

Adjustments to (All WCRP) Claims Reserves

Adjustment to ULAE Reserve

$1,580,840

28,568

$2,067,166

142,510

$3,094,203

(45,092)

Premiums for JSILP Insuring Policies

Premiums for Property Insurance Policies

Depreciation, Bad Debt & Administrative Expenses

Rate Stabilization Accounts (JSILP / WCPP)

Total Operating Expenses

3,745,615

2,798,095

1,931,616

732,090

6,113,108

2,726,208

1,733,484

6,005,054

2,535,007

1,713,120

$10,816,824

$12,782,476

$13,302,291

CHANGES IN NET POSITION

$3,859,828

$12,863,017

$16,722,845

$1,832,965

$11,030,052

$12,863,017

$820,682

$10,209,369

$11,030,052

Beginning Net Position (October 1^st)

Ending Net Position (September 30^th)

_________________________________________________________________________________________________________

Washington State Auditor's Office

10

CASH FLOWS

FY-2013

$7,549,576

(59,989)

150,638

$7,640,225

FY-2012

$315,298

140,833

47,004

FY-2011

$2,654,816

Net Cash Provided (Used) For Operating Activities

Net Cash Provided (Used) For Capital Activities

Net Cash Provided (Used) For Investing Activities

Increase (Decrease) in Cash & Cash Equivalent

55,930

$2,710,747

$503,135

Cash & Cash Equivalents (Beginning of the Year)

$36,240,373

$35,737,238

$33,026,490

Cash & Cash Equivalents (End of the Year)

$43,880,599

$36,240,373

$35,737,238

BUDGET VARIATIONS

Fiscal 2013

Operating Revenues:

Actual

Amended Budget

Variance

Member C/A – Liability Coverage

Member C/A – Property Insurance

Member Services Revenues

Total Operating Revenues

$11,487,536

2,927,485

150,000

$11,481,242

2,857,829

150,000

$6,294

69,656

0

$14,565,021

$14,489,071

$75,950

Operating Expenses:

Current Year “SIR” Claims Reserves

$1,531,606

2,950,000

650,000

$1,531,606

2,950,000

650,000

$0

0

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

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

Current Year’s “10% Quota-Shared” Claims Reserve

Adjustment for Prior Year’s “SIR” Reserves

Adjustment for Prior Year’s “Corridor” Reserves

Reserve for Unallocated Loss Adjustment Expenses

Rate Stabilization Account (JSILP)

150,000

202,000

52,000

1,905,071

1,795,695

(28,568)

(730,000)

(2,090)

0

(1,905,071)

(1,795,695)

28,568

730,000

2,090

3,199,125

546,490

2,798,095

51,673

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

3,199,125

546,490

2,798,095

58,300

2,078,056

$14,013,671

0

6,627

198,113

$3,196,848

1,879,943

$10,816,824

Total Operating Expenses

Operating Income / (Loss)

$3,748,197

$475,400

$3,272,797

Non-Operating Revenues / (Expenses):

Interest Income

$150,638

25,516

$160,000

19,500

($9,362)

6,016

Rental Income (Net)

Property Fraud /Restitution

Miscellaneous Income

(66,010)

1,487

(66,010)

1,487

Total Non-Operating Revenues / (Expenses)

$111,631

$179,500

$654,900

($67,869)

Changes in Net Position

$3,859,828

$3,204,928

Net Position, Beginning of Fiscal Period

$12,863,017

$0

NET POSITION, End of Fiscal Period

$16,722,845

$13,517,917

$3,204,928

Capital Assets and Long-Term Debt

Capital Assets acquired by the Pool during FY-2013 included the replacement of another fleet automobile

used by the claims division staff ($20,981). (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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

11

Request for Information

Again, this MD&A is provided for those interested in the Pool’s finances as a general overview of the

financial operations of the Washington Counties Risk Pool. Questions concerning the information

provided and the Pool’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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

12

MCAG NO. 0774

Page 2 of 6

WASHINGTON COUNTIES RISK POOL

STATEMENT OF NET POSITION

As of September 30, 2013 and 2012

ASSETS:

As of

9/30/2013

As Restated

9/30/2012

As Published

9/30/2012

CURRENT ASSETS:

Cash and Cash Equivalents

Cash and Cash Equivalents - Restricted

Investments

Members' JSILP Deductibles Receivable

Excess Insurance/Reinsurance Recoverable

Members' JSILP Assessments Receivable

Members' WCPP Assessments Receivable

Prepaid Expenses

$

17,745,096

$

36,240,373

$

21,544,798

14,695,575

-

904,039

115,339

897,477

2,857,829

3,500

26,135,502

467,448

57,273

892,124

702,421

4,375

-

904,039

115,339

897,477

2,857,829

3,500

Other Accounts Receivables

13,569

140,530

TOTAL CURRENT ASSETS

$

46,017,808

$

41,159,087

$

41,159,087

NONCURRENT ASSETS:

Capital Assets (Net of Accumulated Depreciation)

$

919,442

$

950,134

$

950,134

TOTAL NON CURRENT ASSETS

$

TOTAL ASSETS

$

46,937,250

$

42,109,221

$

42,109,221

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 - Cooridor

Accounts Payable

$

1,029,553

$

2,486,685

1,814,161

-

4,853,147

4,554,868

117,772

14,339,071

$

2,486,685

1,814,161

-

4,853,147

4,554,868

117,772

14,339,071

-

2,017,431

-

44,729

14,797,219

Unearned Revenue - Members Assessments

TOTAL CURRENT LIABILITIES

$

17,888,932

$

28,165,704

$

28,165,704

NON CURRENT LIABILITIES

Claims Reserves:

"SIR" Reserves

Open Claims - SIR Reserves

IBNR Reserve - SIR

1,973,957

410,985

-

2,545,642

5,472,852

150,000

1,015,285

93,662

-

"1st/2nd Layers' Corridor" Reserves

Open Claims - Corridor Reserves

IBNR Reserve - Cooridor

"8x2 10% Quota Share" Reserve

Reserve for ULAE

Compensated Absences

JSILP Rate Stabilization Account

WCPP Rate Stabilization Account

$

986,717

93,783

$

986,717

93,783

661,000

2,090

-

TOTAL NON CURRENT LIABILITIES

$

12,325,473

30,214,405

$

1,080,500

$

1,080,500

TOTAL LIABILITIES

29,246,204

NET POSITION:

Restricted Net Position - WAC 200.100.03001

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

Non-Restricted Net Position

$

920,000

11,580,000

3,303,403

919,442

$

797,841

4,036,935

7,078,107

950,134

$

797,841

4,036,935

7,078,107

950,134

Net Investment in Capital Assets

TOTAL NET POSITION

$

16,722,845

$

12,863,017

$

12,863,017

TOTAL NET POSTION AND LIABILITIES

$

46,937,250

$

42,109,221

$

42,109,221

The accompanying notes are an integral part of this financial statements

_________________________________________________________________________________________________________

Washington State Auditor's Office

13

MCAG NO 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET POSITION

Page 1 of 6

For the Fiscal Years Ended September 30, 2013 and 2012

Year Ended

9/30/2013

Year Ended

9/30/2012

OPERATING REVENUES:

Members' Assessments -- JSILP Coverage

Members' Assessments -- WCPP Insurance

Member Services - Revenues

$

11,487,536

2,927,485

150,000

$

11,648,053

2,799,807

107,627

Total Operating Revenues

14,565,021

14,555,487

OPERATING EXPENSES:

Current Year's "SIR" Reserves

$

1,531,606

3,600,000

(1,905,071)

(1,795,695)

28,568

$

1,605,472

2,375,000

(1,913,306)

-

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

142,510

-

WCPP Rate Stabilization Account

2,090

JSLIP Rate Stabilitzation Account

730,000

-

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

JSILP Reinsurance Premiums

Excess Liability Insurance Policies Premiums

WCPP Insurance Premiums

Depreciation Expense

Operating Expenditures

150,000

3,199,125

546,490

2,798,095

51,673

1,879,943

-

5,602,250

510,858

2,726,208

55,831

1,677,653

Total Operating Expenses

$

10,816,824

$

12,782,476

OPERATING INCOME (LOSS)

$

3,748,197

$

1,773,011

NON OPERATING REVENUES (EXPENSES)

Interest Income

Rental Income

Rental Expense

Bad Debt Expense - Franjo Beach Property Recovery

Miscellaenous Income

Gain on Sale of Asset

$

150,638

30,731

(5,215)

(66,010)

1,487

-

$

47,004

17,269

(6,319)

-

2,000

Total Nonoperating Revenues (Expenses)

CHANGES IN NET POSITION

$

111,631

3,859,828

12,863,017

16,722,845

$

59,954

1,832,965

11,030,052

12,863,017

TOTAL NET POSITION, Beginning of Year

TOTAL NET POSTION, End of Year

The accompanying notes are an integral part of this financial statements

_________________________________________________________________________________________________________

Washington State Auditor's Office

14

MCAG NO. 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF CASH FLOWS

Page 3 of 6

For the Fiscal Years Ended September 30, 2013 and 2012

Year Ended

9/30/2013

Year Ended

9/30/2012

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash received from Members & Insurers

Cash payments for goods and services

Cash payments to employees for services

$

17,085,548 $ 13,709,915

(8,639,520)

(896,452)

(12,527,516)

(867,101)

Net Cash Provided (Used) by Operating Activities

7,549,576

$

315,298

CASH FLOW FROM CAPITAL 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

(20,981) $

25,516

1,485

(22,117)

10,950

-

(66,010)

-

2,000

150,000

Sale of Property Held for Resale

Net Cash Provided (Used) by Investing Activities

CASH FLOW FROM INVESTING ACTIVITIES:

Interest Income

$

(59,989) $

140,833

$

150,638

$

47,004

Net Cash Provided (Used) by Investing Activities

Increase (Decrease) in Cash and Cash Equivalents

$

7,640,225

$

503,135

Cash and Cash Equivalents - Beginning of the Year

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

36,240,373 $ 35,737,238

$36,240,373

$ 43,880,599

The accompanying notes are an integral part of this financial statements

_________________________________________________________________________________________________________

Washington State Auditor's Office

15

MCAG NO. 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF CASH FLOWS

Page 4 of 6

Year Ended

9/30/2013

Year Ended

9/30/2012

RECONCILIATION OF OPERATING INCOME TO NET CASH

PROVIDED (USED) BY OPERATING ACTIVITIES

OPERATING INCOME

$

3,748,197 $ 1,773,011

Adjustments to Reconcile Net Operating Income to Net

Cash provided (used) by Operating Activities:

Depreciation Expense

51,672

2,782,378

(886,350)

150,000

627,910

28,568

661,000

2,090

458,148

(73,043)

(121)

55,831

(660,959)

(1,272,133)

-

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 Stabilitzation 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

833,079

142,510

-

(184,613)

(378,447)

8,516

(1,500)

315,298

(876)

7,549,577

$

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES

Investment Held for Resale - Franjo Beach Property

$

-

$

150,000

The accompanying notes are an integral part of this financial statements

_________________________________________________________________________________________________________

Washington State Auditor's Office

16

October 1, 2012 Thru September 30, 2013

The 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 conform to generally accepted accounting

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

a.

Reporting Entity

The Washington Counties Risk Pool (“WCRP”) was organized August 18, 1988 to provide its

members with joint programs pursuant to Chapter 48.62, RCW, including self-insurance, purchase

of insurance, and contracting for or hiring personnel to provide administrative, claims handling

and risk management services. It was established via agreement amongst several Washington

counties under the Interlocal Cooperation Act (Chapter 39.34, RCW).

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

member may withdraw at the end of any WCRP fiscal year provided the county has given the

WCRP written notice of its intent to withdraw at least twelve months in advance. New members

must be approved by a majority vote of the (WCRP) Board, provided that a majority of the

(WCRP) 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 475,600.

Underwriting and rate-setting policies are modified after consultation 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 its assets

were depleted, members would be responsible for outstanding liabilities of the WCRP as pooling

members are subject under present regulations to supplemental assessment(s) in the event of

deficiencies.

Twenty million dollars (member option for additional five million dollars) in third-party “per

occurrence” liability coverage was provided via the WCRP to its member counties during Policy

Year 2013 for bodily injury, personal injury, property damage, errors and omissions, and

advertising injury. That included jointly self-insured coverage from the WCRP of ten million

dollars, subject to the applicable member’s selected deductible, along with “following form”

excess insurance coverage of ten (or fifteen) million dollars. The WCRP is reinsured for losses

within its layer(s) of coverage exceeding the greater of one hundred thousand dollars or the

member’s deductible. Members annually select their “per occurrence” deductible amounts of ten,

twenty five, fifty, one hundred, two hundred fifty, or five hundred thousand dollars. There are no

annual aggregate limits to the payments the WCRP might make for any one member county or for

all member counties combined.

The WCRP also offers a jointly-purchased program with extraordinary limits for insuring

participating counties’ scheduled real and personal properties. This includes five hundred million

dollars “all other perils” coverage with two hundred million dollars per occurrence/annual

aggregate catastrophe limits each for earthquake and for flood coverage. During the 2013 policy

year, there were twenty six counties participating.

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

_________________________________________________________________________________________________________

Washington State Auditor's Office

17

October 1, 2012 Thru September 30, 2013

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 (also referred to as

premiums or contributions), while operating expenses include claims paid from current year

allowances and adjustments to prior year’s reserves, insurance (reinsurance, excess and property)

premiums, and administrative expenses.

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.

The SAO mandated that some cash and cash equivalents be reported as restricted in the 2012

filing. After those reports were issued, the mandate was removed by the SAO.

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 unpaid 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 ½ the amounts earned.

h.

Unpaid Claim Liabilities

The WCRP establishes claim 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

_________________________________________________________________________________________________________

Washington State Auditor's Office

18

October 1, 2012 Thru September 30, 2013

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 damage awards, the

process used in computing claim liabilities does not necessarily result in an exact amount,

particularly general liability coverage.

Claim liabilities are actuarially recomputed periodically to incorporate the Jury Verdict Value

process and 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 uses reinsurance agreements to reduce by risk transfer its exposure to large third-party

liability losses. 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) 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,

2013 and 2012 as being reinsured were $78,487,120 and $76,260,874 respectively. Premiums

ceded to reinsurers during 2013 and 2012 were $3,199,125 and $5,602,250 respectively. The

independent actuary’s cumulative to-date ceded reinsured amount of total loss reserves deducted

from claims liabilities as of September 30, 2013 was $19,155,507.

j.

Member Assessments and Unearned Member Assessments

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

coverage is 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 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.

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 to

incorporate the Jury Verdict Value process, and 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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

19

October 1, 2012 Thru September 30, 2013

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). Chapter 48.62 RCW 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

This shall serve as still another follow up to the now aged fraud involving the Washington

Counties Risk Pool which was committed by a former WCRP employee. This matter was

investigated by the SAO and initially reported upon in Report No. 1001789 (issued July 20, 2009)

with the Mason County Prosecuting Attorney pursing the former employee with criminal charges

of First Degree Theft, and the former employee pleading guilty and awaiting sentencing.

Superior Court Judge Toni A. Sheldon sentenced the former employee August 3, 2009 to 60

months’ confinement in the custody of the state Department of Corrections. The former employee

was released from custody after serving the DOC-managed sentence. Judge Sheldon also included

restitution in favor of the Pool in the sentencing order 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 for potential civil litigation to set aside a fraudulent conveyance and/or for civil litigation

for failure of the property owner to disclose engineering issues to a buyer, and/or for significant

depreciation or diminution in value of property based upon prevailing market conditions and/or a

reasonable rental value, if sought. Any funds from the sale of the property by the WCRP were to

offset the restitution amount.

The Pool commenced civil legal actions to obtain reconveyance of the real property. The court

later issued a Quiet Title order in favor of the Risk Pool. Disposal of the reacquired real property

occurred via a public auction process in 2011. The Executive Committee reviewed the auction

results October 13, 2011, and agreed to accept the highest bid of $85,000. Closing documents

were signed October 27, 2011.

To obtain the cooperation needed on the Quit Claim deed and on the lawsuit, the Pool’s counsel

agreed that no damages in the quiet title action would be sought as to anyone other than the former

employee. And while the restitution order against the former employee to our knowledge still

stands as it was issued by the Court at the sentencing hearing, the Executive Committee asked the

Prosecuting Attorney for support in requesting that the Court reduce the restitution order to only

reflect the added costs the Pool incurred a) addressing the fraud investigation and criminal

proceedings, b) to recover ownership and O&M costs incurred, c) arranging for and conducting

the public auction and for the final disposal/transfer of the property’s ownership, and d) to secure

the amended restitution order. Those added costs totaled $21,737.25, with $1,440.00 in restitution

payments from the former employee having been forwarded by the Court through September 30,

2013. At this time, the Pool is waiting to learn the Court’s updated restitution response.

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), the Clark County Treasurer’s Clark County Investment Pool (CCIP), or the Spokane

_________________________________________________________________________________________________________

Washington State Auditor's Office

20

October 1, 2012 Thru September 30, 2013

County Treasurer’s Spokane County Investment Pool (SCIP). There are no credit ratings for

positions in external investment pools.

Due to the decline in investment earning from the LGIP over the past several years, the WCRP’s

board determined it was necessary to add other investment opportunities to the portfolio. To meet

the recommendations from the WCRP board, Spokane County Investment Pool and Clark County

Investment Pool were added to the investment portfolio during FY-2013.

WCRP funds on deposit as of September 30, 2013 and September 30, 2012 were as follows:

9/30/2013

9/30/2012

Wells Fargo (checking)

$ 2,984,910

14,760,186

15,104,136

11,031,366

$43,880,598

$ 4,438,322

31,802,051

Washington State Investment Pool (LGIP)

Spokane County Investment Pool (SCIP)

Clark County Investment Pool (CCIP)

Total deposits and investments

_________

$ 36,240,373

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.

All investments are reported at fair market 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 the three fiscal year, Pool has not approved a settlement that exceeded the

insurance coverage noted herein and more specifically outline in Note 5.

For fiscal years 2013 and 2012, WCRP’s per-occurrence retention limit for liability claims was $100,000

or the applicable member’s deductible, whichever was greater. For Public Officials, Employment Practices

and Employee Benefits Liabilities claims exceeding the retention limit but less than $1,000,000, the Pool’s

annual aggregate reinsurance was limited to $20,000,000, and for those same claims between $1,000,000

and $2,000,000, the Pool’s annual aggregate reinsurance was limited to $10,000,000.

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, 2013 and

2012 of $1,531,606 and $1,605,472 respectively, and is committing $1,259,129 for PY-2014, specifically

for the purpose of funding its self-insured retentions for those years.

NOTE 5 – REINSURANCE/EXCESS INSURANCE CONTRACTS

The WCRP, on behalf of and in conjunction with its members, maintains both reinsurance and “following

form” excess insurance contracts with several superior-rated commercial insurance carriers which provide

various limits of coverage over the WCRP third-party liability self-insured retention limits. The limits

provided by these reinsurance/excess insurance contracts for both PY-2012 and PY-2011 were as follows:

I.

An “occurrence-based” Comprehensive Joint Self-Insurance Liability Policy with no aggregates that

included auto, employment, general, professional, and public officials’ coverage.

_________________________________________________________________________________________________________

Washington State Auditor's Office

21

October 1, 2012 Thru September 30, 2013

WCRP/Member

SIR (*)

Excess

Insurance (***)

$10,000,000

Reinsurance (**)

$9,900,000

Total (***)

$20,000,000

$100,000

*

Counties annually select individual deductible amounts of $10,000, $25,000, $50,000,

$100,000, $250,000 or $500,000.

**

WCRP provides joint, self-insurance for the balance between the member selected

deductibles and $10,000,000, with reinsurance purchased to protect the WCRP from losses

exceeding its Self-Insured Retention.

***

An additional $5,000,000 “following form” excess insurance policy is available as a

county-by-county option and purchased by a majority of the member counties to raise their

“per occurrence” limits to $25,000,000.

II. The Washington Counties Property Program (WCPP) was established as a WCRP-sponsored

insuring product October 1, 2005. The coverage was initially purchased by seventeen counties. Five

counties were added during the first policy year that ended September 30, 2006; three more counties

joined in the 2006-07 policy year; another county joined at the beginning of Py2008; a 27^th

participated March through September 2008; and one more county joined but one also withdrew in

Py2010 leaving the count of participating counties for PY-2013 and PY-2013 at 26. WCPP general

coverage specifications and limits are as follows:

LIMITS OF INSURANCE:

PERILS:

$500,000,000; All Indicated Limits are per Occurrence;

Subject to Sub-Limits [below].

All Risks of Direct Physical Loss or Damage Including

Equipment Breakdown, Earthquake and Flood.

PROPERTY COVERED:

Real & Personal Property, Business Interruption, Extra

Expense, Rental Value, Demolition and Increased Cost of

Construction, Valuable Papers, Accounts Receivable, Transit,

EDP (Equipment,/Media /Extra Expense), Newly Acquired

Property, Course of Construction, Contractors Equipment,

Errors and Omissions, Offsite Storage and Personal Property

of the Insured’s officers and employees while on the premises

of the Insured.

SUBLIMITS:

$200,000,000

$ 25,000,000

Are within, and do not increase, the limits stated in the Limits of Insurance.

Earthquake and Volcanic Eruption – Per Occurrence and Annual Aggregate

Flood – Per Occurrence and Annual Aggregate, except:

Flood for locations wholly or partially within a SFHA – Per Occurrence and

Annual Aggregate

$ 20,000,000

$100,000,000

Terrorism, certified and non-certified

Equipment Breakdown

VALUATION:

A. Real and Personal Property and Mobile Equipment – Replacement Cost

B. Vehicles on Premises – Actual Cash Value

C. Business Interruption and Extra Expense – Actual Loss Sustained

_________________________________________________________________________________________________________

Washington State Auditor's Office

22

October 1, 2012 Thru September 30, 2013

DEDUCTIBLES

A.

All loss, damage, and/or expense arising out of any one occurrence shall be adjusted as

one loss, and from the amount of each such adjusted loss shall be deducted the sum of

$5,000 (to $50,000 as individual county selection) except;

B.

Earthquake: $100,000, except Puget Sound Earthquake (ISO Zone 2) shall be 2% of the

total values at the time of loss at each location involved in the loss subject to a minimum

of $ 100,000, for any one occurrence shall be deducted from any adjusted Earthquake

loss; or

C.

Flood: The following sum(s) shall be deducted from any adjusted loss due to Flood;

(1) With respect to locations wholly or partially within Special Flood Hazard Areas

(SFHA), areas of 100-year flooding, as defined by the Federal Emergency

Management Agency (if these locations are not excluded elsewhere in this policy

with respect to the peril of flood), the deductible shall be 5% of the total values at

the time of loss at each location involved in the loss, subject to a minimum of

$1,000,000 for any one occurrence;

(2) With respect to Named Storms (a storm that has been declared by the National

Weather Service to be a Hurricane, Typhoon, Tropical Cyclone or Tropical Storm),

the deductible shall be 5% of the total values at the time of loss at each location

involved in the loss, subject to a minimum of $100,000 for any one occurrence;

(3) With respect to any other flood loss, the deductible shall be $100,000 any one

occurrence.

D.

Windstorm and Hail: All loss, damage, and/or expense arising out of any one occurrence

shall be adjusted as one loss, and from the amount of each such adjusted loss shall be

deducted the sum of $5,000 (to $50,000 as individual county selection);

NOTE: If two or more deductible amounts in this policy apply to a single occurrence, the total

to be deducted shall not exceed the largest deductible applicable.

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 period(s) with the deficiencies. During policy year 2013, there was no deficiency and no

additional retroactive assessments were levied or collected.

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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

23

October 1, 2012 Thru September 30, 2013

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

NOTE 8 – SOLVENCY & RESTRICTED COMPONENT OF NET POSITION:

The State Risk Manager requires authorized pools to maintain adequate primary and secondary assets to

satisfy the (minimal) solvency requirements in WAC 200-100-03001. A pool’s 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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

24

October 1, 2012 Thru September 30, 2013

Actuary Solvency Test Results

As of September 30, 2013 and September 30, 2012

2013

2012

Primary Asset Test 1

Primary Assets

Unpaid Claims – Expected Level

Test 1 Result

$28,944,988

$14,615,706

PASS

$21,689,747

$14,695,575

PASS

Primary and Secondary Test

Secondary Assets

Primary + Secondary Assets

Unpaid Claims – 70% Confidence Level

Test 2 Result

$3,056,652

$32,001,642

$15,536,000

PASS

$5,868,849

$27,558,596

$15,493,416

PASS

WCRP’s statement of net position includes $12,500,000 of restricted net position, $920,000 of which is 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 is restricted to satisfy the WCRP Board’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.

NOTE 9 - 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.

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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

25

October 1, 2012 Thru September 30, 2013

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. An employee is reported in Plan 2 until a choice is made.

Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and

Plan 3 members may opt out of plan membership if terminally ill, with less than five years to live.

PERS Plan 1 and Plan 2 defined benefit retirement benefits are financed from a combination of investment

earnings and employer and employee contributions.

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

eligible for retirement after 30 years of service, or at the age of 60 with five years of service, or at the age

of 55 with 25 years of service. The monthly benefit is 2 percent of the average final compensation (AFC)

per year of service. (AFC is the monthly average of the 24 consecutive highest-paid service credit months.)

The retirement benefit may not exceed 60 percent of AFC. The monthly benefit is subject to a minimum

for PERS Plan 1 retirees who have 25 years of service and have been retired 20 years, or who have 20 years

of service and have been retired 25 years. Plan 1 members retiring from inactive status prior to the age of

65 may receive actuarially reduced benefits. If a survivor option is chosen, the benefit is further reduced.

A cost-of living allowance (COLA) was granted at age 66 based upon years of service times the COLA

amount. This benefit was eliminated by the Legislature, effective July 1, 2011. Plan 1 members may also

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 payable to the age of 60. The

allowance 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. A member with five years of covered employment is eligible for

non-duty disability retirement. Prior to the age of 55, the allowance 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

option. A cost-of living allowance was granted at age 66 based upon years of service times the COLA

amount. This benefit was eliminated by the Legislature, effective July 1, 2011. 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 members can receive credit for military service. Members can also purchase up to 24 months

of service credit lost because of an on-the-job injury.

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. (AFC is the monthly average of the 60 consecutive highest-paid service

months.)

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.

_________________________________________________________________________________________________________

Washington State Auditor's Office

26

October 1, 2012 Thru September 30, 2013

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:

•

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

With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter

return-to-work rules.

PERS Plan 2 retirement benefits are also actuarially reduced to reflect the choice, if made, 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.

The surviving spouse or eligible child or children of a PERS Plan 2 member who dies after leaving eligible

employment having earned ten years of service credit may request a refund of the member’s accumulated

contributions.

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

member contributions finance a defined contribution component. The defined benefit portion provides a

benefit that is one percent of the AFC per year of service. (AFC is the monthly average of the 60

consecutive highest paid service months.)

Effective June 7, 2006, 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 prior to June 1, 2003. Plan 3 members are immediately

vested in the defined contribution portion of their plan.

Vested Plan 3 members are eligible for a 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, 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.

PERS Plan 3 defined retirement benefits are also actuarially reduced to reflect the choice, if made, of a

survivor option. There is no cap on years of service credit and Plan 3 provides the same cost-of-living

allowance as Plan 2.

PERS Plan 3 defined contribution retirement benefits are solely dependent upon contributions and the

results of investment activities.

The defined contribution portion can be distributed in accordance with an option selected by the member,

either as a lump sum or pursuant to other options authorized by the Director of the Department of

Retirement Systems.

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 Plan 2 and Plan 3 members may have up to ten years of interruptive military service credit; five years

at no cost and five years that may be purchased by paying the required contributions. Effective July 24,

_________________________________________________________________________________________________________

Washington State Auditor's Office

27

October 1, 2012 Thru September 30, 2013

2005, a member who becomes totally incapacitated for continued employment while serving the uniformed

services, or a surviving spouse or eligible children, may apply for interruptive military service credit.

Additionally, PERS Plan 2 and Plan 3 members can also purchase up to 24 months of service credit lost

because of an on-the-job injury.

PERS members may also purchase up to five years of additional service credit once eligible for retirement.

This credit can only be purchased at the time of retirement and can be used only to provide the member

with a monthly annuity that is paid in addition to the member’s retirement benefit.

Beneficiaries of a PERS Plan 2 or Plan 3 member with ten years of service who is killed in the course of

employment receive retirement benefits without actuarial reduction, if the member was not at normal

retirement age at death. This provision applies to any member killed in the course of employment, on or

after June 10, 2004, if found eligible by the Department of Labor and Industries.

A one-time duty- related death benefit is provided to the estate (or duly designated nominee) of a

PERS member who dies in the line of service 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

said member’s covered employment, if found eligible by the Department of Labor and Industries.

Judicial Benefit Multiplier

During January 1, 2007 through December 31, 2007, judicial members of PERS were given the choice to

participate in the Judicial Benefit Multiplier Program (JBM) enacted in 2006. Justices and judges in PERS

Plan 1 and Plan 2 were able to make a one-time irrevocable election to pay increased contributions that

would fund a retirement benefit with a 3.5 multiplier. The benefit would be capped at 75 percent of AFC.

Judges in PERS Plan 3 could elect a 1.6 percent of pay per year of service benefit, capped at 37.5 percent

of AFC.

Members who chose to participate in JBM would: accrue service credit at the higher multiplier beginning

with the date of their election; be subject to the benefit cap of 75 percent of AFC, pay higher contributions;

stop contributing to the Judicial Retirement Account (JRA); and be given the option to increase the

multiplier on past judicial service. Members who did not choose to participate would: continue to accrue

service credit at the regular multiplier; continue to participate in JRA, if applicable; never be a participant

in the JBM Program; and continue to pay contributions at the regular PERS rate.

Newly elected or appointed justices and judges who chose to become PERS members on or after January 1,

2007, or who had not previously opted into PERS membership, were required to participate in the JBM

Program. Members required into the JBM Program would: return to prior PERS Plan if membership had

previously been established; be mandated into Plan 2 and not have a Plan 3 transfer choice, if a new PERS

member; accrue the higher multiplier for all judicial service; not contribute to JRA; and not have the option

to increase the multiplier for the past judicial service.

There are 1,197 participating employers in PERS. Membership in PERS consisted of the following as of

the latest actuarial valuation date for the plans of June 30, 2010:

Retirees and Beneficiaries Receiving Benefits

Terminated Plan Members Entitled to But Not Yet Receiving Benefits

Active Plan Members Vested

Active Plan Members Noninvested

Total

76,899

28,860

105,521

51,005

262,285

_________________________________________________________________________________________________________

Washington State Auditor's Office

28

October 1, 2012 Thru September 30, 2013

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 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. All employers are required

to contribute at the level established by the Legislature. 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, based on member

choice. Two of the options are graduated rates dependent on the employee’s age. 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 the current-year covered payroll as of

December 31, 2012, were as follows:

Members not participating in JBM:

PERS Plan 1

7.21%**

PERS Plan 2

7.21%**

PERS Plan 3

7.21%***

*****

Employer*

Employee

6.00%****

4.64%****

* The employer rates include the employer administrative expense fee currently set at 0.16%.

**The employer rate for state elected officials is 10.80% for Plan 1 and 7.25% for Plan 2 and Plan 3.

*** Plan 3 defined benefit portion only.

**** The employee rate for state elected officials is 7.5% for Plan 1 and 4.64% for Plan 2

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

Members participating in JBM:

PERS Plan 1

PERS Plan 2

PERS Plan 3

Employer State Agency*

9.75%

7.25%

9.75%

7.25%

9.75%**

7.25%**

Employer Local Government*

Employee State Agency

9.76%

9.10%

7.50%***

Employee Local Government

12.26%

11.60%

*The employer rates include the employer administrative expense fee currently set at 0.16%

**Plan 3 defined benefit portion only.

***Minimum rate.

_________________________________________________________________________________________________________

Washington State Auditor's Office

29

October 1, 2012 Thru September 30, 2013

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

$ 4,072

$ 2,101

PERS Plan 2

$32,181

$31,585

PERS Plan 3

$6,577

$5,460

2013

2012

2011

$10,211

$20,671

$3,099

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, 2013

and 2012 were $41,523 and $39,122, respectively. There are no employee contributions to this plan.

NOTE 10 - 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 Nationwide Retirement Solutions (NRS). The plans, available to all eligible

employees, permit them to defer a portion of their salaries until future years. The deferred compensation is

not available to employees until termination, retirement, death, or unforeseeable emergency.

In 1998 NRS and ICMA Deferred Compensation Program plan 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, the plan assets and

liabilities are no longer reported in the WCRP financial statements.

NOTE 11 – SUBSEQUENT EVENTS

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

Clark County is a Member County of the Washington Counties Risk Pool (“WCRP” or “Pool”),

having joined effective July 10, 2002. 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, 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

_________________________________________________________________________________________________________

Washington State Auditor's Office

30

October 1, 2012 Thru September 30, 2013

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.

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 is claiming breach of contract and is seeking a declaratory judgment that the

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

litigation. Defendants are expected to request by motion that the trial court transfer the case to

King or Pierce Counties, and the Pool will counter. It is probable that the venue transfer request

will be denied, and we expect that the Court will eventually rule that the Pool had no obligation to

defend or indemnify Clark County and Slagle in the USDC action.

Northrop/Davis v. WCRP – King County Action. On November 26, 2013, Davis and Northrop

delivered a Tort Claim Notice to the WCRP offices, which among other documents, included a

complaint filed in King County Superior Court against the WCRP by Larry Davis and Alan

Northrop as the alleged assignees of Clark County. The WCRP is challenging the King County

venue due to the pending Cowlitz County lawsuit addressing identical issues and the purported

assignees’ filing entitlement. A favorable venue ruling is expected, but if needed the Pool will

seek and expects dismissal of this lawsuit based upon the assignment restriction imposed upon

Clark County and that WCRP is not an insurer.

Coverage Concern – Pacheco v. Davalos/Kitsap County: Kitsap County and Frank Davalos are

defendants in a tort action filed November 1, 2013 by Karyssa Marie Pacheco in Kitsap County Superior

Court which was removed to the U.S. District Court (“Underlying Lawsuit”). Pacheco alleges that Davalos

had unwanted sexual contact with her between January 2005 and January 2007 while working as an

employee for Kitsap County. Davalos was employed by the Kitsap County Sheriff’s Office as a Sheriff’s

Deputy during the pertinent period. Davalos requested that Kitsap County defend and indemnify him

against Pacheco’s claims.

_________________________________________________________________________________________________________

Washington State Auditor's Office

31

October 1, 2012 Thru September 30, 2013

Kitsap County is a former Member County of the Washington Counties Risk Pool (“WCRP” or

“Pool”). The County was a founding WCRP member and supported by the Pool’s insuring documents for

occurrences between October 1, 1988 and October 1, 2010, the latter being when the County’s membership

withdrawal was effective.

The Pool initially provided Davalos with counsel. However, Kitsap County later determined that

the actions alleged against Davalos were not within the scope of his official duties as a Sheriff’s Deputy as

required by County Code 4.144.080 and RCW 4.96.041 and denied Davalos’s request. As such, the Pool

terminated the coverage and returned the matter to Kitsap County pursuant to the terms of the applicable

Joint Self-Insurance Liability Policy (“JSILP”). On December 13, 2013, Kitsap County filed an action in

Kitsap County Superior Court against Davalos, Pacheco and the WCRP to obtain a declaratory judgment

with respect to the allegations raised in the Underlying Lawsuit that Davalos was not acting within the

scope of his official duties as Sheriff’s Deputy, that Kitsap County has no duty to defend Davalos against

Pacheco’s claims, and that Kitsap County be awarded costs and disbursements.

NOTE 12 - 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, which includes estimates of both future payments of losses and related claims

adjustment expenses. The following represents comparative changes in those aggregate liabilities for only

the WCRP’s SIR Reserves during the past two years:

2013

2012

SIR - Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 4,300,846

$ 5,572,978

SIR - Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

1,531,606

1,605,472

(1,905,071)

$ 3,927,381

(1,913,306)

$ 5,265,144

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

$

106,569

493,376

857,729

Total Payments

$ 512,886

3,414,495

$ 964,298

SIR -Total Unpaid Claims and Claims Adjustment Expenses

End of Year

$

$ 4,300,846

_________________________________________________________________________________________________________

Washington State Auditor's Office

32

October 1, 2012 Thru September 30, 2013

The following represents comparative changes in those aggregate liabilities for all unpaid claims liabilities.

(SIR, 1^st/2^ndLayer Corridor, and Quota Share) during the past two years:

2013

2012

Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 13,708,861

$ 14,147,914

Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

5,281,606

3,980,472

(3,700,766)

(1,913,306)

Total Incurred Claims and Claims Adjustment Expenses

$ 15,289,701

$ 16,215,080

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

$

193,679

1,669,771

2,312,540

2,506,219

Total Payments

$1,689,281

SIR -Total Unpaid Claims and Claims Adjustment Expenses

$13,600,420

$ 13,708,861

_________________________________________________________________________________________________________

Washington State Auditor's Office

33

October 1, 2012 Thru September 30, 2013

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:

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 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 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 11 presents the changes in claims liabilities for the past two years

for the WCRP’s one type of contract, liability insurance.

_________________________________________________________________________________________________________

Washington State Auditor's Office

34

_________________________________________________________________________________________________________

Washington State Auditor's Office

35

October 1, 2012 Thru September 30, 2013

LIST OF PARTICIPATING MEMBERS

Schedule T-1

The following is a list of WCRP membership for the fiscal year 2012-2013

Adams County

Benton County

Chelan County

Clallam County

Clark County

Lewis County

Mason County

Okanogan County

Pacific County

Pend Oreille County

San Juan County

Skagit County

Columbia County

Cowlitz County

Douglas County

Franklin County

Garfield County

Grays Harbor County

Island County

Skamania County

Spokane County

Thurston County

WallaWalla County

Whatcom County

Yakima County (*)

Jefferson County

Kittitas County

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

_________________________________________________________________________________________________________

Washington State Auditor's Office

36

WASHINGTON COUNTIES RISK POOL

DES Schedule of Expenses

Schedule T-2

MCAG NO. 0774

For Fiscal Years Ended September 30, 2013 and September 30, 2012

09/30/2013

$12,557,406

28,568

09/30/2012

$12,819,788

Insurance Premiums/Reserve Expense

ULAE Expense

142,510

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

Adjustment to Prior Years' "SIR" Reserves

(1,795,695)

(1,905,071)

-

(1,913,306)

Contracted Services:

Actuarial

State Audit Expense

State Risk Manager Expenses

Legal Fees

IT Consultants

Other Consulting Fees

Broker Fees

119,300

9,922

57,500

9,436

11,734

180,539

9,376

25,307

21,500

29,650

11,734

158,053

41,362

74,299

-

Consulting Member Services Manager

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

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

867,101

13,762

31,713

6,654

72,607

79,002

55,831

13,624

69,927

16,656

85,862

52,850

22,853

Utilities

Member Services - Training

Member Services - Grants/Scholarships

Miscellaneous Expenses

Total Operating Expenses

$10,816,824

$12,782,476

_________________________________________________________________________________________________________

Washington State Auditor's Office

37

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 as an advocate for government accountability. 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.

The State Auditor's Office employees are located around the state to deliver services effectively

and efficiently.

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 and fraud, whistleblower and citizen hotline investigations.

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

on our Web site and through our free, electronic subscription service.

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

assistance to governments and have an extensive quality assurance program.

State Auditor

Chief of Staff

Director of Performance and State Audit

Director of Local Audit

Deputy Director of State Audit

Deputy Director of Local Audit

Deputy Director of Performance Audit

Deputy Director of Quality Assurance

Deputy Director of Communications

Local Government Liaison

Public Records Officer

Troy Kelley

Doug Cochran

Chuck Pfeil, CPA

Kelly Collins, CPA

Jan M. Jutte, CPA, CGFM

Sadie Armijo

Mark Rapozo, CPA

Lou Adams, CPA

Barb Hinton

Thomas Shapley

Mike Murphy

Mary Leider

Main number

Toll-free Citizen Hotline

(360) 902-0370

(866) 902-3900

Website

Subscription Service

www.sao.wa.gov

portal.sao.wa.gov/saoportal/Login.aspx