Financial Statements Audit Report

Washington Counties Risk Pool

Thurston County

For the period October 1, 2013 through September 30, 2015

Published May 9, 2016

Report No. 1016542

Washington State Auditor’s Office

May 9, 2016

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

OLYMPIA, WA

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

TABLE OF CONTENTS

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

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

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

Independent Auditor’s Report On Financial Statements ................................................................ 7

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

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

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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING AND ON COMPLIANCE AND

OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

Washington Counties Risk Pool

Thurston County

October 1, 2013 through September 30, 2015

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, 2015 and 2014, 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 14, 2016. As discussed in Note 1 to the financial statements, during the year ended

September 30, 2015, the Pool implemented Governmental Accounting Standards Board

Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB

Statement No. 27.

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,

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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.

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

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

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

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

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

COMPLIANCE AND OTHER MATTERS

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

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

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

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

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

accordingly, we do not express such an opinion.

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

required to be reported under Government Auditing Standards.

PURPOSE OF THIS REPORT

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

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

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

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

and compliance.

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

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

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

operations.

TROY KELLEY

STATE AUDITOR

OLYMPIA, WA

March 14, 2016

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INDEPENDENT AUDITOR’S REPORT ON

FINANCIAL STATEMENTS

Washington Counties Risk Pool

Thurston County

October 1, 2013 through September 30, 2015

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, 2015 and 2014, and

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

financial statements as listed on page 10.

Management’s Responsibility for the Financial Statements

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

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

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

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

whether due to fraud or error.

Auditor’s Responsibility

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

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

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

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

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

financial statements are free from material misstatement.

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

disclosures in the financial statements.

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

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

The procedures selected depend on the auditor’s

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

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

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

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

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

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

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

basis for our audit opinion.

Opinion

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

the financial position of the Washington Counties Risk Pool, as of September 30, 2015 and 2014,

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

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

Matters of Emphasis

As discussed in Note 1 to the financial statements, in 2015, the Pool adopted new accounting

guidance, Governmental Accounting Standards Board Statement No. 68, Accounting and

Financial Reporting for Pensions – an amendment of GASB Statement No. 27. Our opinion is

not modified with respect to this matter.

Other Matters

Required Supplementary Information

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

management’s discussion and analysis on pages 11 through 15, pension data on pages 36 through

37 and claims development information on pages 38 through 39 be presented to supplement the

basic financial statements.

Such information, although not a part of the basic financial

statements, is required by the Governmental Accounting Standards Board who considers it to be

an essential part of financial reporting for placing the basic financial statements in an appropriate

operational, economic or historical context. We have applied certain limited procedures to the

required supplementary information in accordance with auditing standards generally accepted in

the United States of America, which consisted of inquiries of management about the methods of

preparing the information and comparing the information for consistency with management’s

responses to our inquiries, the basic financial statements, and other knowledge we obtained

during our audit of the basic financial statements. We do not express an opinion or provide any

assurance on the information because the limited procedures do not provide us with sufficient

evidence to express an opinion or provide any assurance.

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Supplementary and Other Information

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

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

Members and Department of Enterprise Services (DES) Schedule of Expenses are presented for

purposes of additional analysis and are not a required part of the basic financial statements. Such

information has not been subjected to the auditing procedures applied in the audit of the basic

financial statements and, accordingly, we do not express an opinion or provide any assurance on

it.

OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING

STANDARDS

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

March 14, 2016 on our consideration of the Pool’s internal control over financial reporting and

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

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

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

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

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

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

TROY KELLEY

STATE AUDITOR

OLYMPIA, WA

March 14, 2016

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FINANCIAL SECTION

Washington Counties Risk Pool

Thurston County

October 1, 2013 through September 30, 2015

REQUIRED SUPPLEMENTARY INFORMATION

Management’s Discussion and Analysis – 2015 and 2014

BASIC FINANCIAL STATEMENTS

Statement of Net Position – 2015 and 2014

Statement of Revenues, Expenses and Changes in Net Position – 2015 and 2014

Statement of Cash Flows – 2015 and 2014

Notes to Financial Statements – 2015 and 2014

REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Proportionate Share of the Net Pension Liability – 2015

Schedule of Employer Contributions – 2015

Ten-Year Claims Development Information – 2015

SUPPLEMENTARY AND OTHER INFORMATION

List of Participating Members – 2015 and 2014

DES Schedule of Expenses – 2015 and 2014

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Management’s Discussion and Analysis

The management of the Washington Counties Risk Pool¹(“WCRP” or “Pool”) presents this narrative

overview and analysis (“MD&A”) for the Pool’s financial activities from its 27^thfiscal year (“FY”) ending

September 30, 2015. The information in this compilation should be considered in conjunction with that in

the companion financial statements and accompanying notes to understand WCRP’s financial position.

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

(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.

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

counties. Its operating expenses consist primarily of payments made to resolve liability claims, including

allocated loss adjustment expenses, and for premiums for reinsurances and excess liability, property and

cyber risk/security insurance policies acquired from superior-rated commercial carriers.

Discussion of the Basic Financial Statements: The basic financial statements are comprised of two

components: the financial statements and the notes to those financial statements.

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

with the difference between them reported as Net Position. Changes over time in net position may serve

useful as an indicator of whether the entity’s financial position is improving or deteriorating.

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

revenues and expenses during a fiscal year that resulted in the reported Change in Net Position — Income

results from revenues exceeding expenses while a Loss results when revenues are less than expenses.

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 leaves).

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.

1

Washington State’s joint self-insurance programs operate under its “pooling” laws and regulations, i.e. Revised Code

of Washington (“RCW”) Chapters 48.62 and 39.34 and Washington Administrative Code (“WAC”) 200-100. These risk-

sharing programs must be first approved by and are then overseen by and report to the State Risk Manager. They do

not report to nor are they regulated by the Office of the Insurance Commissioner. As public entities, pools must annually

report to and be audited by the State Auditor’s Office. They are neither “insurers” (RCW 48.010.050) nor insurance

companies, and they are not subject to the special laws and rules governing insurers and insurance companies.

WCRP was “Created by Counties for Counties” as an association of member counties independent of all other

associations of which the counties are members in 1987-88 and approved by the State Risk Manager in January 1989.

Its (foundation) interlocal agreement authorized the Pool’s creation to provide member counties programs of joint self-

insurance, joint purchasing of insurance, and joint contracting for or hiring of personnel to provide risk management,

claims handling, and administrative services.

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The Notes to the Financial Statements provide additional details and information essential to fully

understanding the data provided in an entity’s financial statements.

Condensed Comparative Financial Data: WCRP’s three financial statements for FY-2015 and FY-2014

in a condensed format are presented hereafter with comparative data.

Assets continued to grow during the past two fiscal years to $48.8 million, increasing 3% in FY-2015 after

a 1% rise in FY-2014. Only 2% are capital assets. Very modest deferred outflows and inflows of resources

resulted from GASB 68 and the mandate for public entities with defined benefit pensions to begin

recognizing that pension liability. Even with the GASB 68 accountings, liabilities declined slightly during

the two-year period to $29.9 million. Unfavorable claims estimates elevated current liabilities, and GASB

68 accountings increased FY-2015’s non-current liabilities. Total liabilities increased 6% in FY-2015 after

falling 7% in FY-2014. When compared (assets to liabilities), they produced a ratio of 1.63:1.²

Net position (aka net assets or owners’ equity) improved 13% since FY-2013 to $18.9 million. Yet the 2%

decline experienced in FY-2015 (after the 16% increase in FY-2014) broke a series of positive annual

changes that spanned more than a decade and raised the Pool’s net position from its low-water mark of

“negative” $1.8 million. With $1.1 million (net) invested in capital assets, the $17.8 million net position

remaining “unrestricted” more than satisfies the State Risk Manager’s solvency provisions (WAC

200.100.03001(3)). It also is within the target range ($12.7 to $23.5 million) desired by Pool’s Board of

Directors and specified in section D.2 of its Underwriting Policy.

Fiscal Years Ending

COMPARATIVE STATEMENT OF NET POSITION

09/30/2013

$46,017,808

919,442

09/30/2014

$46,343,850

1,069,560

09/30/2015

$47,703,622

1,089,480

Current Assets

Capital Assets (Net)

Total Assets

$46,937,250

$47,413,410

$48,793,102

Total Deferred Outflows of Resources

$63,610

Current Liabilities

Non-Current Liabilities

Total Liabilities

$17,888,932

12,325,473

$30,214,405

$16,165,932

11,878,307

$28,044,239

$17,455,251

12,401,409

$29,856,660

Total Deferred Inflows of Resources

$83,946

Net Investment in Capital Assets

Internally Restricted Net Position

Unrestricted Net Position

Total Net Position

$919,442

12,500,000

3,303,403

$1,069,560

$1,089,480

18,299,611

$19,369,171

17,826,625

$18,916,105

$16,722,845

²As a comparison, the ratio from ten years ago (FY-2005) was 1.04:1. Also, that ratio would have been 0.96:1

except for members’ reassessments receivables (“retroactive assessments”) recognized as an asset that year.

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Reductions in members’ assessments for both liability and property coverages drove revenues down 7%

since FY-2013, even with cyber coverage and its assessments being added in FY-2015. Expenses

increased 24% due substantially to the independent actuary’s adjustments to liability claims-related

reserves³and premiums for the reinsurance and excess liability insurance policies acquired. Net position

as earlier communicated improved 13% during the most recent two years.

COMPARATIVE STATEMENT OF REVENUES,

EXPENSES AND CHANGES IN NET POSITION

FY-2013

FY-2014

FY-2015

Operating Revenues

Member JSILP Assessments

Member Cyber Assessments

Member WCPP Assessments

Operating Revenues – Miscellaneous

Total Operating Revenues

Non-Operating Revenues (and Expenses)

Interest Income

Other (Net) Non-Operating Revenues

Total Non-Operating Revenues

Total Revenues

$11,487,536

$11,727,035

$10,276,349

93,697

2,782,175

150,000

2,927,485

150,000

$14,565,021

3,072,645

150,000

$14,949,680

$13,302,221

$150,638

(39,007)

$111,631

$219,858

48,320

$268,177

$257,362

26,857

$284,219

$13,586,440

$14,676,652

$15,217,857

Operating Expenses

Adjustments to (JSILP) Claims/ULAE Reserves

Premiums for JSILP Insuring Policies

Premium for Cyber Insurance Policy

Premiums for Property Insurance Policies

Depreciation, Bad Debt & Administrative Expenses

Rate Stabilization Accounts (JSILP / WCPP)

Total Operating Expenses

$1,609,408

3,745,615

$4,149,664

4,169,152

$4,539,223

3,821,325

93,697

2,681,290

2,252,141

2,798,095

1,931,616

732,090

2,959,396

1,954,321

$10,816,824

$13,232,533

$13,387,676

Changes in Net Position

$3,859,828

$12,863,017

$2,646,325

$16,722,846

661,000

$198,765

$19,369,170

(651,830)

Beginning Net Position (October 1^st)

Prior Period Adjustment

Ending Net Position (September 30^th)

$16,722,845

$19,369,171

$18,916,105

3

Claims reserves are estimated annually by the Pool’s independent actuary. 456 third-party claims (and lawsuits)

were reported by member counties for coverage from the Joint Self-Insurance Liability Program (JSILP), a 22%

reduction in filings Y-O-Y and continuing the decline experienced the past several years. They raised the to-date (Oct

1988 – Sep 2015) total to 20,276. Only 322 cases remained ‘open’ at year-end; however, the actuary projects another

241 cases as incurred but not yet reported (“IBNR”) from all years, raising the estimated ultimate case count (through

FY-2015) to 20,517.

Net reserves (estimated as of September 30, 2015) were $15.4 million, a 5% Y-O-Y increase, with those for the Pool’s

self-insured retention increasing 3%, the corridor deductibles by 5%, and the 10% quota-shared layer by 85%. $2.8

million is estimated for the SIR, $11.4 million for the “corridor program” deductibles and $0.2 million for the quota-

shared losses, plus $1.0 million for unallocated loss adjustment expenses (ULAE). Gross estimates increased 61% to

$53.7 million with $38.3 million ceded to reinsurers and excess insurers. NOTE: The corridor programs (from and

involving the reinsurers for lower layers of liability coverage) began nine years ago with “occurrence” coverage

maximums of $0.5 million for FYs 2007-2009, $1.0 million for FYs 2010-2012, both $1.0 million and $2.0 million for FYs

2013-2014, and $2.0 million for FY-2015. Occurrence minimums have remained the greater of the applicable member’s

deductible or $100,000 from the beginning.

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Cash and cash equivalents increased 5% during FY-2015 to $44.3 million and benefitted significantly from

net cash provided by operating activities ($2.73 million) and from that provided by investing activities ($0.25

million). $0.68 million was used during FY-2015 for capital and related financing activities, primarily to

recognize pension liability (implementation of GASB 68) and for minor facility renovations.

Fiscal Years Ending

COMPARATIVE STATEMENT OF CASH FLOW

09/30/2013

$7,549,576

09/30/2014

($1,929,388)

09/30/2015

$2,749,926

Net Cash Provided (Used) by Operating Activities

Net Cash Provided (Used) from Capital and Related

Financing Activities

($59,989)

$150,638

($171,797)

$219,858

($697,200)

$249,685

Net Cash Provided (Used) by Investing Activities

Increase (Decrease) in Cash and Cash Equivalents

$7,640,225

($1,881,327)

$2,302,412

Cash and Cash Equivalents – Beginning of the Year

Cash and Cash Equivalents (including restricted) –

End of Year

$36,240,373

$43,880,599

$41,999,271

$44,301,683

Overall Analysis of Financial Position and Result of Operations: WCRP’s finances are referred to by

some as exceptional. Assets continued to grow a modest 3% in FY-2015, but liabilities increased 6% due

to increased claims estimates and pension liability (GASB 68 accounting). Yet the assets-to-liabilities ratio

remains in excess of 1.6:1. FY-2015’s 2% decline in net position broke a trend of positive annual changes

that spanned more than a decade and raised the Pool’s net position from its low-water mark of “negative”

$1.8 million to $18.9 million, midway in the $12.7 – $23.5 million target range desired by Board of Directors

and specified within section D.2 of its Underwriting Policy. Also, the $17.8 million “unrestricted” net position

is considerably more than that necessary to satisfy the State’s solvency rules.

Budget Variances: WCRP’s budget for FY-2015 was amended March 27, 2015 by the Board of Directors

to include supplementations in response to both the final coverage selections of and properties scheduled

by its member counties, and for modified investment activities with a professional investment advisor. Also,

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appropriations were again provided (via funding directly from Net Position) for a minor facility renovation

which was not completed as planned before the FY-2014 appropriations lapsed.

Fiscal 2015 Budget

Operating Revenues:

Original

Amended

Variance

Member C/A – Liability Coverage

Member C/A – Property Insurance

Member C/A – Cyber Insurance

$10,128,586

2,578,804

96,995

$10,276,345

2,787,732⁴

96,995

$147,759

208,928

0

Member Services Revenues

150,000

0

Total Operating Revenues

$12,954,385

$13,311,072

$356,687

Operating Expenses:

Current Year “SIR” Claims Reserves

Current Year’s “Corridor” Claims Reserves

Premiums for Reinsurances Purchased

Premiums for Excess Insurances Purchased

Premiums for Property Insurance Purchased

Premiums for Cyber Insurance Purchased

Depreciation (of Capital Assets) Expense

Administrative (OH) Expenses

$1,099,213

3,250,000

3,270,056

503,700

2,482,299

96,995

70,650

2,325,342

$13,098,255

$1,099,403

3,350,000

3,320,056

501,269

2,681,290

96,995

70,650

2,463,572

$13,583,235

$190

100,000

50,000

(2,431)

198,991

0

138,230

$484,980

Total Operating Expenses

Operating Income / (Loss)

($143,870)

($272,163)

($128,293)

Non-Operating Revenues / (Expenses):

Interest Income

$235,200

28,400

$275,200

23,050

700

$40,000

5,350

Rental Income (Net)

Miscellaneous Income

700

Total Non-Operating Revenues / (Expenses)

$263,600

$119,730

$298,950

$35,350

Changes in Net Position

$26,787

($92,943)

Net Position, Beginning of Fiscal Period

$16,665,904

$19,369,170

$2,703,266

NET POSITION, End of Fiscal Period

$16,785,634

$19,395,957

$2,610,323

Capital Asset and Long-Term Debt Activity: Capital asset activities during FY-2015 consisted of

completing minor renovations ($46,809) within Suite G (aka Suite 104) of the Pool’s headquarters facility

and the acquisition of several fire/impact-resistant file cabinets ($45,754). (NOTE: Readers should view

Note 7 in the ‘Notes to the Financial Statements’ for an expanded Capital Assets discussion.) No long-

term debt has been pursued by the Washington Counties Risk Pool.

Infrastructure: There is no infrastructure to account for by WCRP.

Other Potentially Significant Matters: A few matters with potential significance to WCRP are presently

before Washington’s appellate courts, either the Supreme Court or the Court of Appeals. And while

favorable outcomes are anticipated, there always is the possibility for an adverse ruling. Appropriate

reserve estimates were included within the Pool’s FY-2015 financials for any such matter stemming from

liability claim against a member county. However, a matter presently before the Supreme Court involving

the entity, its reinsurers and excess insurers is quite complex, making the determination of a reasonable

exposure value, if any, nearly impossible.

Request for Information: Recall that this MD&A is provided for those interested in a general overview of

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

provided and WCRP’s financial report, or requests for additional information, should be addressed to:

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

Tumwater, WA, 98512-6103; or telephone 360/292-4500.

⁴The WCPP assessments collected totaled $2,787,732, but $3,722 was actually set aside by Board directive as an

Advance Expenditure for application against the participating members’ WCPP assessments for 2015-16.

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MCAG NO. 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF NET POSITION

As of September 30, 2015 and 2014

ASSETS

As of

9/30/2015

9/30/2014

CURRENT ASSETS:

Cash and Cash Equivalents

Investments

$

3,536,452

40,765,231

$

8,733,724

33,265,546

Receivables:

Members' JSILP Deductibles Receivable

Excess Insurance/Reinsurance Recoverable

Members' JSILP Assessments Receivable

Members' WCPP Assessments Receivable

Other Accounts Receivables

571,772

541,618

1,491,720

759,650

26,843

1,010,395

1,686,629

1,263,222

369,702

11,672

-

Accured Interest

7,676

Prepaid Expenses

2,660

2,960

TOTAL CURRENT ASSETS

$

47,703,622

$

46,343,850

NONCURRENT ASSETS:

Capital Assets (Net of Accumulated Depreciation)

$

1,089,480

48,793,102

63,610

$

1,069,560

47,413,410

-

TOTAL NON CURRENT ASSETS

TOTAL ASSETS

TOTAL DEFERRRED OUTFLOWS OF RESOURCES

LIABILITIES

CURRENT LIABILITES:

Claims Reserves:

"SIR" Reserves

Open Claims - SIR Reserves

IBNR Reserve - SIR

"1st/2nd Layers' Corridor" Reserves

Open Claims - Corridor Reserves

IBNR Reserve - Corridor

Accounts Payable

$

1,038,133

$

807,091

-

2,750,093

-

240,493

13,426,532

2,106,958

-

103,385

13,148,498

Unearned Revenue - Members Assessments

TOTAL CURRENT LIABILITIES

$

17,455,251

$

16,165,932

NON CURRENT LIABILITIES

Claims Reserves:

"SIR" Reserves

Open Claims - SIR Reserves

IBNR Reserve - SIR

Open Claims - Corridor Reserves

IBNR Reserve - Corridor

"8x2 10% Quota Share" Reserve

Reserve for ULAE

$

1,988,116

(246,342)

8,304,275

366,969

240,000

986,452

122,464

639,475

$

1,611,469

274,425

4,501,089

4,232,871

130,000

1,015,858

112,595

Compensated Absences

Net Penison Liability -- GASB 68

TOTAL NON CURRENT LIABILITIES

TOTAL LIABILITIES

$

12,401,409

29,856,660

83,946

$

11,878,307

28,044,239

-

TOTAL DEFERRED INFLOWS OF RESOURCES

NET POSITION:

Net Investment in Capital Assets

$

1,089,480

$

1,069,560

Unrestricted Net Position

17,826,625

18,299,611

TOTAL NET POSITION

$

18,916,105

$

19,369,171

The accompanying notes are an integral part of this financial statements

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 16

MCAG NO 0774

WASHINGTON COUNTIES RISK POOL

STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET POSITION

For the Fiscal Years Ended September 30, 2015 and 2014

Year Ended

9/30/2015

Year Ended

9/30/2014

OPERATING REVENUES:

Members' Assessments -- JSILP Coverage

Cyber Coverage

Members' Assessments -- WCPP Insurance

Member Services - Revenues

$

10,276,349

93,697

2,782,175

150,000

$

11,727,035

3,072,645

150,000

Total Operating Revenues

$

13,302,221

14,949,680

OPERATING EXPENSES:

Current Year's "SIR" Reserves

$

1,099,403

3,350,000

(4,642)

1,259,129

3,625,000

(1,075,806)

360,768

573

(20,000)

3,593,317

575,835

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

Adjustment in Prior Years' "SIR" Reserves

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

Adjustment in Reserve for ULAE

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

JSILP Reinsurance Premiums

13,868

(29,406)

110,000

3,320,056

501,269

93,697

Excess Liability Insurance Policies Premiums

Cyber Premiums

WCPP Insurance Premiums

Depreciation Expense

2,681,290

72,644

2,959,396

70,000

Operating Expenditures

2,179,497

1,884,321

Total Operating Expenses

$

13,387,676

$

13,232,533

OPERATING INCOME (LOSS)

$

(85,455)

$

1,717,147

NON OPERATING REVENUES (EXPENSES)

Interest and Investment Income

Rental Income

Rental Expense

Miscellaneous Income

Gain (Losses) on Capital Assets Disposition

$

257,362

35,956

(9,098)

$

219,858

34,996

(8,587)

2,133

0

-

19,778

Total Nonoperating Revenues (Expenses)

CHANGES IN NET POSITION

$

284,220

198,765

$

268,178

1,985,325

16,722,845

TOTAL NET POSITION, Beginning of Year

19,369,170

(651,830)

Change in Accounting Principles -- GASB 68

PRIOR PERIOD ADJUSTMENT

$

661,000

TOTAL NET POSTION, End of Year

$

18,916,105

$

19,369,170

The accompanying notes are an integral part of this financial statements

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 17

WASHINGTON COUNTIES RISK POOL

STATEMENT OF CASH FLOWS

MCAG NO. 0774

For the Fiscal Years Ended September 30, 2015 and 2014

Year Ended

9/30/2015

Year Ended

9/30/2014

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash received from Members & Insurers

Cash payments for goods and services

Cash payments to employees for services

$

14,530,272

(10,750,360) (12,089,617)

(1,029,985)

$

11,092,175

(931,946)

Net Cash Provided (Used) by Operating Activities

2,749,927

$

(1,929,388)

CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Purchase of Equipment & Building

Cash from Rental of Office (net)

GASB 68 -- Pension Liability (net)

Non Operating Miscellaneous Income

Gain on Sale of Assets

(92,564)

26,858

(631,494)

(234,811)

26,409

-

2,133

34,472

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

CASH FLOW FROM INVESTING ACTIVITIES:

$

(697,200)

$

(171,797)

Interest/Accrued Income

$

249,685

$

219,858

Net Cash Provided (Used) by Investing Activities

Increase (Decrease) in Cash and Cash Equivalents

$

2,302,412

41,999,271

44,301,683

$

(1,881,327)

43,880,599

41,999,271

Cash and Cash Equivalents - Beginning of the Year

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

$

The accompanying notes are an integral part of this financial statements

Year Ended

9/30/2015

Year Ended

9/30/2014

RECONCILIATION OF OPERATING INCOME TO NET CASH

PROVIDED (USED) BY OPERATING ACTIVITIES

OPERATING INCOME

$

(85,455)

$

1,717,147

Adjustments to Reconcile Net Operating Income to Net

Cash provided (used) by Operating Activities:

Depreciation Expense

72,644

950,017

86,922

110,000

580,418

(29,407)

0

278,034

137,109

649,345

300

70,000

(2,208,784)

(721,509)

(20,000)

804,992

573

(2,090)

(1,648,721)

58,656

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 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

18,932

1,415

(1,929,388)

$

2,749,927

$

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES

The accompanying notes are an integral part of this financial statements

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 18

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

policies:

a.

Reporting Entity

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

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

foundational agreement authorized its creation pursuant to Chapters 48.62 and 39.34, Revised

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

joint purchasing of insurance, and joint contracting for or hiring of personnel to provide risk

management, claims handling, and administrative services.”

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

to the special laws and rules that govern insurers and insurance companies. Washington’s pools

operate under the State’s “pooling” laws and regulations, specifically RCW 48.62 and

Washington Administrative Code (“WAC”) 200-100. Pools are risk-sharing programs that must

first be approved by and are thereafter overseen by and report to the State Risk Manager. They

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

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

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

alternate director) representing each member county and appointed by the county’s legislative

authority. The Board of Directors, which includes both elected and appointed officials, normally

meets three times each year with the Pool’s Annual Meeting being conducted in the summer. The

Board is responsible for a) determining the risk-sharing extent of the 3^rd-party self-insured liability

coverage to be provided by approving each year’s Memorandum of Liability Coverage (MLC), b)

selecting the reinsurance(s) to acquire and the excess insurance(s) being jointly-purchased or

offered for “member option” purchase, c) approving the Pool’s annual operating budget(s) and

work program(s), and d) approving the members’ deposit assessments and, when necessary,

reassessments.

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

by and from the Pool’s directors and alternate directors to staggered, 3-year terms. The committee

meets throughout each year to: a) approve all disbursements and review the Pool’s financial

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

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

Pool’s operations and program deliverables, as well as the Executive Director’s performance.

Committee members are also expected to participate in the Board’s standing committees (finance,

personnel, risk management, and underwriting) which develop or review/revise proposals for

and/or recommendations to the association’s policies and its coverages for the Board’s formal

consideration.

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

annually filed upon and submitted by the member counties for risk-shared consideration under the

MLC. This includes determining coverage and establishing reserves for covered events by

estimating future payments for the losses and their related claims adjustment expenses. The

claims personnel have more than one hundred years of combined claims handling experience.

The remaining staff supports the Pool’s administrative needs or provides services that include

assessing members’/potential members’ risks, coordinating trainings, compliance auditing,

coverage development and marketing.

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

the Board to address specific needs of the Pool – PricewaterhouseCoopers, LLP furnishes

independent actuarial services; Strategic Claims Direction, LLC conducts independent claims

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 19

auditing; Arthur J. Gallagher Risk Management Services, Inc. provides insurance producer

(broker-of-record) and advanced loss control services; and J. William Ashbaugh of Hackett

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

insurers.

A new member county must make a 60-month commitment when joining the Pool. After that, a

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

Pool written notice of its intent to withdraw at least twelve months in advance of the fiscal year’s

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

majority of the Executive Committee may approve the admission, fees and initial deposit

assessments/contributions for any new member county with a population of less than 125,000.

The membership of the WCRP during this reporting period included 26 counties with population

estimates ranging from 2,260 to 488,310.

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

independent insurance producer and/or actuary. Annual deposit assessments are adjusted to

incorporate actuarial projections and operational needs, and then approved by the (WCRP) Board.

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

WCRP as pooling members are subject under contingent liabilities regulations to supplemental

assessment(s) in the event of deficiencies.

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

purchased and/or jointly self-insured) occurrence-based coverage for 3^rd-party liability claims

against members since October 1, 1988. $20 million (with member option for additional $5

million) in coverage was provided via the WCRP to its member counties during Policy Year 2015

for bodily injury, personal injury, property damage, errors and omissions, and advertising injury

covered by the JSILP. That included jointly self-insured coverage from the WCRP of $10

million, subject to the applicable member’s selected deductible, with the remainder as “following

form” excess insurance coverage. The WCRP acquired reinsurance for losses within its layer(s)

of coverage exceeding the greater of one hundred thousand dollars or the member’s deductible as

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

might result otherwise. Members selected their occurrence deductible amounts from the options

available (in thousands of dollars — 10, 25, 50, 100, 250 or 500), which was/will be applied

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

WCRP might make for any one member county or for all member counties combined.

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

coverage with extraordinary limits from a consortium of higher-rated commercial carriers for

insuring the participating counties’ scheduled real and personal properties as a jointly-purchased

membership option. This included $500 million for typical “all other perils” coverage with $200

million per occurrence/annual aggregate catastrophe limits each for earthquake and for flood

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

Machinery ($100 million) and Special Flood Hazard Areas ($25 million). Other coverages

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

million). AOP occurrence deductibles, which the participant is responsible for, were selected by

the participating counties from the options that ranged between $5,000 and $50,000. Higher

deductibles applied to catastrophe losses. During the 2015 policy year, all 26 WCRP counties

participated.

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

purchased cyber risk and security coverage from a higher-rated commercial carrier.

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Washington State Auditor's Office

Page 20

b.

Basis of Accounting and Presentation

The accounting records of the WCRP are maintained in accordance with methods prescribed by

the State Auditor’s Office under the authority of Chapter 43.09, RCW. The WCRP also follows

the accounting standards established by the Governmental Accounting Standards Board (GASB)

Statement 10, Accounting And Financial Reporting For Risk Financing And Related Insurance

Issues, as amended by GASB Statement 30, Risk Financing Omnibus, and GASB Statement 31,

Accounting and Financial Reporting for Certain Investments and for External Investment Funds.

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

and expenses are recognized when incurred. Capital asset purchases are capitalized, and long-

term liabilities are accounted for within the financial statements.

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

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

year allowances and adjustments to prior year’s reserves, premiums for reinsurances and excess,

property and cyber risk insurances, and the Pool’s administrative expenses.

c.

d.

e.

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.

Capital Assets and Depreciation

See Note 6

Receivables

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

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

deemed uncollectible.

f.

Investments

See Note 2.

g.

Compensated Absences

Compensated absences are absences for which the employees will be paid such as vacation and

sick leave. The WCRP records accrued leave for compensated absences as an expense and

liability when incurred.

Annual Leave may be accumulated up to 30 days and is payable upon resignation, retirement, or

death. Note: The executive director may accumulate up to 60 days, but will only be compensated

at termination of employment for up to 30 days. An employee with more than sixty days sick

leave accrued may convert the days earned in the previous year (less any sick leave days used in

that year) to annual leave days at the rate of four days of sick leave for one day of annual leave.

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

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

h.

Unpaid Claim Liabilities

The WCRP establishes claims liabilities based upon independent actuarial estimates of the

ultimate losses (costs of claims), including future claims adjustment expenses for claims/lawsuits

that have been reported but are not settled, and for claims that have been incurred but are not yet

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 21

reported. The length of time for which such costs must be estimated varies depending on the

coverage type involved. Estimated amounts of salvage and subrogation and reinsurance

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

claims costs depend on such complex factors as inflation and changes in doctrines of legal liability

and in damage awards, the process used in computing claims liabilities does not necessarily result

in an exact amount, particularly general liability coverage.

Claims liabilities are actuarially recomputed and incorporate the Jury Verdict Value processes.

The actuary uses a variety of techniques and formulas that reflect recent settlements, claims

frequencies, and other economic and social factors to produce current estimates. A provision for

inflation in the calculation of estimated future claims costs is implicit in the calculation because

reliance is placed both on actual historical data that reflects past inflation and on other factors that

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

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

i.

Reinsurance

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

liability losses and to indirectly reduce its (present and past) member counties’ exposures to

contingent liabilities. Reinsurance permits recovery of substantial portions of the losses from

commercial reinsurers, although it does not discharge the primary liability of the WCRP (and its

member counties by contingent liabilities) as the direct insurer of the risks reinsured. The WCRP

does not report reinsured risks as liabilities unless it is probable that those risks will not be

covered by reinsurers.

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

2015 and 2014 as being reinsured were $100,647,246 and $81,874,290 respectively. Premiums

ceded to reinsurers during 2015 and 2014 were $3,320,056 and $3,593,317 respectively. The

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

September 30, 2015 was $38,296,766.

j.

Member Assessments and Unearned Member Assessments

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

the coverage is to be provided. On the balance sheet, member assessments receivables were billed

on or about September 1^stwith up to the amount equivalent to 105% of the prior year’s assessment

being due by September 30^th, and any remaining assessments balance(s) due by the following

January 31^st. The assessments calculated for liability coverage were based in substantial part upon

the members’ prior year’s worker hours and licensed units, upon the values of the real and

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

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

determination of member assessments.

k.

Unpaid Claims

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

accumulation of estimates for reported, unpaid liability claims plus a provision for liability claims

incurred but not reported (IBNR). These estimates are continually reviewed and updated by

WCRP’s consulting actuary and incorporate the Jury Verdict Value processes. Any resulting

adjustments are reflected in current earnings.

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 22

l.

Reserve for Unallocated Loss Adjustment Expense

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

incurred with respect to the settlement of both liability claims in process and those liability claims

recognized as incurred but not reported (IBNR). WCRP’s independent actuary estimates these

liabilities at the end of each fiscal year. The changes in these liabilities each year are reflected in

current earnings.

m.

n.

Exemption From Federal And State Taxes

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

income under IRC Section 115(1). RCW 48.62.151 exempts the WCRP from state insurance

premium taxes and from business and occupation taxes imposed pursuant to Chapter 82.04 RCW.

Pensions

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

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

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

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

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

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

accordance with the benefit terms. Investments are reported at fair value.

NOTE 2 - DEPOSITS AND INVESTMENTS

a.

Deposits

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

held in a multiple financial institution collateral pool administered by the Washington Public

Deposit Protection Commission (PDPC). Funds are transferred between the WCRP’s public

depository (depositories) and either the State Treasurer’s Local Government Investment Pool

(LGIP); a US Bank custodial account; or the Spokane County Treasurer’s Spokane County

Investment Pool (SCIP). There are no credit ratings for positions in external investment pools.

WCRP funds on deposit as of September 30, 2015 and September 30, 2014 were as follows:

9/30/2015

9/30/2014

Wells Fargo (checking)

$ 3,536,451

663,289

36,092,533

4,009,409

$44,301,682

$ 8,733,724

662,376

32,603,170

-----

Washington State Investment Pool (LGIP)

Spokane County Investment Pool (SCIP)

US Bank Custodial Account

Total deposits and investments

$ 41,999,270

___________________________________________________________________________________________________________________

Washington State Auditor's Office Page 23

b.

Investments:

Market

Ratings

Average

Value

Average

Duration

Percent of

Maturity

Maturities

Portfolio

WA State Investment Pool (LGIP)

Spokane County Investment Pool (SCIP)

U.S. Agencies

U.S. Treasuries

Money Market Fund

1 day average

1-3 years

1 day average

$

663,289

36,092,533

2,002,252

2,000,127

7,030

AA+

AAA

2.19

2.17

0.00

2.22

2.20

0.00

49.94%

49.89%

.18%

Concentration of Credit:

Issuer Name:

Market

Value

Average

Duration

Average

Maturity

Rating

Moody/Sp

% of

Portfolio

Cost

Government of United States

Federal National Mortgage Assoc.

Federal Home Loan Bank

Federal Home Loan Mortgage Corp

First American Govt Oblig Fund

$1,994,470

996,169

500,096

498,556

7,030

$2,000,127

999,985

501,917

500,350

7,030

2.17

2.27

2.21

2.01

0.00

2.20

2.30

2.24

2.04

0.00

Aaa/AA+

49.89%

24.94%

12.52%

12.48%

.18%

Disclosure of Custodial Credit Risk

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

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

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

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

Concentration of Credit Risk

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

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

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

Interest Rate Risk

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

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

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

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

Pool has deposits of $36,092,533 with the Spokane County Investment Pool and $663,289 with the

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

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

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

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

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

tolerances.

NOTE 3 - JOINT SELF-INSURED RETENTION

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

self-insured retention limits and that provided under its reinsurance contracts. The coverage provided

under applicable excess insurance contracts is separately administered with assistance only from the

WCRP. During the past three fiscal years, the Pool has not approved a settlement that exceeded the

insurance coverage noted herein that is more specifically outlined in Note 5.

For policy years 2015 and 2014, WCRP’s per-occurrence retention limits for liability claims were

$100,000 or the applicable member’s deductible, whichever was greater. In addition, the first and second

reinsurance layers’ Reinsurer’s liability for ultimate net loss arising from General Liability including

claims arising out of sexual abuse, Products Liability, Law Enforcement Liability, Public Officials

Liability, Employment Practices Liability, Employee Benefits Liability business lines exceeding the

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

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

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Washington State Auditor's Office

Page 24

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

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

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

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

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

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

beginning of each policy year, WCRP committed assets for the years ended September 30, 2015 and 2014

of $1,099,403 and $1,259,129 respectively, and is committing $1,088,468 for PY-2016, specifically for the

purpose of funding its self-insured retentions for those years. Additional member assessments were

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

totaling $3,350,000 (PY-2015) and $3,625,000 (PY-2014).

NOTE 4 – REINSURANCE/EXCESS INSURANCE CONTRACTS

Through Arthur J. Gallagher Risk Management Services, Inc., the Producer (Broker-of Record) retained by

the Pool’s Board of Directors, WCRP partners with multiple superior-rated commercial insurers by acquiring

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

provided by these insuring agreements, contracts and policies for PY-2015 follow:

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

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

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

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

The total “occurrence” coverage grew over time to the $20 million limit that has existed since

October 1, 2003. Note: An additional “occurrence” limit of $5 million was available for member

counties to acquire as an individual (county-by-county) option during many of the JSILP years

including PYs 2015 and 2014. Each member annually selected a deductible amount from the

options available, i.e. $10,000, $25,000, $50,000, $100,000, $250,000, $500,000, which was/will be

applied to each of the member’s occurrences from that year. There were/are no aggregate limits for

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

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

insured retention (“SIR”) equal to the greater of the applicable member deductible or $100,000, was

acquired from multiple higher-rated carriers as protection for the Pool from unexpected losses and

for the membership from contingent liabilities that might result otherwise. Reinsurance premiums

ceded during the year totaled $3,320,056, while the independent actuary’s estimate of the amounts

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

on the balance sheet (as of September 30, 2015) totaled $38,296,766.

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

jointly-purchased “following form” excess insurance.

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

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

coverage was acquired from a consortium of higher-rated commercial carriers. During PY-2015, all 26

WCRP counties participated in the WCPP with covered properties (in composite) exceeding $2.6 billion.

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

catastrophe (earthquake or flood), and many sub-limited coverages including Equipment Breakdown

/ Boiler & Machinery ($100 million) and Special Flood Hazard Areas ($25 million). Other coverages

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

million).

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

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

catastrophe losses.

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

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

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

associated with date breaches.

NOTE 5 - MEMBER'S SUPPLEMENTAL ASSESSMENTS AND CREDITS

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

the program if assets of the program are insufficient to cover the program's liabilities. Deficits of the

WCRP are financed through supplemental (retroactive) assessments against those counties that were

WCRP members for the deficient period(s). During policy year 2015, there was no deficiency, and no

additional retroactive assessments were levied or collected.

NOTE 6 – CAPITAL ASSETS

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

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

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

Beginning

Balance

10/01/14

Ending

Balance

9/30/15

Increase

(Decrease)

Capital Assets Being Depreciated:

Building

Office Furnishings and Equipment

Total Capital Assets being Depreciated

$ 1,274,140

169,100

$ 1,443,240

46,810

45,755

92,565

1,320,950

212,753

1,533,703

(2,102)

Less Accumulated Depreciation for:

Building

Office Furnishings and Equipment

Total Accumulated Depreciation

$

299,769

73,912

373,681

45,320

27,323

72,643

345,089

99,134

444,223

(2,102)

TOTAL CAPITAL ASSETS NET

1,069,558

19,922

(0)

1,089,480

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

Beginning

Balance

10/01/13

Ending

Balance

9/30/14

Increase

(Decrease)

Capital Assets Being Depreciated:

Building

Office Furnishings and Equipment

Total Capital Assets being Depreciated

$ 1,125,659

159,697

$ 1,285,356

148,481

86,330

234,811

1,274,140

169,100

1,443,240

(76,927)

Less Accumulated Depreciation for:

Building

Office Furnishings and Equipment

Total Accumulated Depreciation

$

252,058

113,857

365,915

47,712

22,288

70,000

299,770

73,912

373,682

(62,233)

$

TOTAL CAPITAL ASSETS NET

919,441

164, 811

(14,694)

1,069,558

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Washington State Auditor's Office Page 26

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

assets accounts, and the net gain or loss on disposition is credited to or charged against income.

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

Asset

Years

Building

30

Building Improvements

Vehicles

30

5

Equipment

5

NOTE 7: SOLVENCY

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

certain levels of primary and secondary assets to meet solvency standards. As defined in WAC 200-100-

03001 total primary assets, i.e. cash and cash equivalents less non-claims liabilities, must at least equal the

independent actuary’s expected estimate of unpaid claims. Furthermore, a pool’s total primary and

secondary assets must at least equal the independent actuary’s 80% confidence level estimate of unpaid

claims (70% before 2015). Secondary assets include insurance receivables, real estate or other assets less

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

Actuary Solvency Test Results

As of September 30, 2015 and September 30, 2014

Primary Asset Test 1

Cash and cash equivalents

Investments

Total

$ 3,536,452

40,765,231

$44,301,683

$ 8,733,724

33,265,546

$ 41,999,270

Less:

Non-claims Liabilities

Unearned Revenues

Total Primary Assets

Claims Liability – Expected Level

Test 1 Result – Primary Asset Test

$ 362,957

13,426,532

$30,512,194

$15,427,697

MET

$

215,980

13,148,498

$28,634,792

$14,680,000

MET

Secondary Asset Test

Cash and cash equivalents

Investments

Receivables

Prepaid Expenses

$ 3,536,452

40,765,231

3,391,603

2,660

$ 8,733,724

33,265,546

4,341,620

2,960

Accrued Interest

7,676

-

Capital Assets

1,089,480

1,069,560

Less:

Non-Claims Liabilities

Unearned Revenues

Total Secondary Assets

Total Primary plus Secondary Assets

$

362,957

13,426,532

$ 4,491,419

$35,003,613

$

215,980

13,148,498

$ 5,414,140

$ 34,048,932

Claims Liabilities at 80% (70% 2014)

$16,727,000

$15,752,000

Test 2 Results – Secondary Asset Test

MET

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Washington State Auditor's Office Page 27

NOTE 8: RESTRICTED AND UNRESTRICTED NET POSITION

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

This change was to conform to GASB, which only allows for the reporting of “external” restrictions on net

position. Yet the $18,916,105 (ending) Net Position certainly lies within the actuary’s estimated range ($12.7

– $23.5 million) for the Pool’s target fund balance and would therefore satisfy its internal restriction

(specified in Section 2 of its Board’s Underwriting Policy).

NOTE 9 – Changes in Accounting Principles

In PY2015, WCRP’s Statement of Net Position reflects change in accounting principles of $651,830 which

resulted due to the implementation of GASB 68.

NOTE 10 – Pension Plans

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

of GASB 68 for the year 2015:

Aggregate Pension Amounts – All Plans

Pension liabilities

Pension assets

$639,474

$

Deferred outflows of resources

Deferred inflows of resources

Pension expense/expenditures

$63,610

$83,946

$ 7,981

State Sponsored Pension Plans

Substantially all Washington Counties Risk Pool (WCRP) full-time and qualifying part-time employees

participate in one of the following statewide retirement systems administered by the Washington State

Department of Retirement Systems, under cost-sharing, multiple-employer public employee defined

benefit and defined contribution retirement plans. The state Legislature establishes, and amends, laws

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

The Department of Retirement Systems (DRS), a department within the primary government of the State

of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes

financial statements and required supplementary information for each plan. The DRS CAFR may be

obtained by writing to:

Department of Retirement Systems

Communications Unit

P.O. Box 48380

Olympia, WA 98540-8380

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

Public Employees’ Retirement System (PERS)

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

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

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

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

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

component.

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

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

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

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

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

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

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

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

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

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

1977.

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

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

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

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

contribution rates (expressed as a percentage of covered payroll) for 2015 were as follows:

PERS Plan 1

Actual Contribution Rates:

January through June 2015

July through December 2015

Employer

9.21%

11.18%

Employee*

6.00%

* For employees participating in JBM, the contribution rate was 12.26%

The WCRP’s actual contributions to the plan were $13,951 for the fiscal year ended September 30,

2015.

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

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

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

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

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

considered an early retirement. PERS Plan 2/3 members who have at least 20 years of service credit

and are 55 years of age or older, are eligible for early retirement with a benefit that is reduced by a factor

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

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



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

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

return-to-work rules.

PERS Plan 2/3 members hired on or after May 1, 2013 have the option to retire early by accepting a

reduction of five percent for each year of retirement before age 65. This option is available only to those

who are age 55 or older and have at least 30 years of service credit. PERS Plan 2/3 retirement benefits

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

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

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

Labor and Industries. PERS 2 members are vested after completing five years of eligible service. Plan

3 members are vested in the defined benefit portion of their plan after ten years of service; or after five

years of service if 12 months of that service are earned after age 44.

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

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

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

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

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

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

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

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

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

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

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

contribution rates (expressed as a percentage of covered payroll) for 2015 were as follows:

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Page 29

PERS Plan 2/3

Actual Contribution Rates:

January through June 2015

July through December 2015

Employee PERS Plan 3

Employer 2/3

9.21%

11.18%

Employee 2*

4.92%

6.12%

varies

* For employees participating in JBM, the contribution rate was 15.30%

The WCRP’s actual contributions to the plan were $56,580 for the year ended September 30, 2015.

Actuarial Assumptions

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

actuarial valuation completed in 2015 with a valuation date of June 30, 2014. The actuarial assumptions

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

Experience Study.

Additional assumptions for subsequent events and law changes are current as of the 2014 actuarial

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

date of June 30, 2015. Plan liabilities were rolled forward from June 30, 2014, to June 30, 2015,

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

benefit payments.



Inflation: 3% total economic inflation; 3.75% salary inflation

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

expected to grow by promotions and longevity.



Investment rate of return: 7.5%

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

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

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

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

improvements in each future year throughout his or her lifetime.

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



OSA updated demographic assumptions, consistent with the changes from the 2007-2012

Experience Study Report, used when valuing the PERS 1 and TERS 1 Basic Minimum COLA.

OSA corrected how valuation software calculates a member’s entry age under the entry age normal

actuarial cost method. Previously, the funding age was rounded, resulting in an entry age one year

higher in some cases.



For purposes of calculating the Plan 2/3 Entry Age Normal Cost contribution rates, OSA now uses

the current blend of Plan 2 and Plan 3 salaries rather than using a long-term membership

assumption of two-thirds Plan 2 members and one-third Plan 3 members.

OSA changed the way it applies salary limits, as described in the 2007-2012 Experience Study Re

Discount Rate

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

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

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

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

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

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

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

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

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

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

liability.

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Long-Term Expected Rate of Return

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

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

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

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

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

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

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

Estimated Rates of Return by Asset Class

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

target asset allocation as of June 30, 2015, are summarized in the table below. The inflation component

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

economic inflation.

Asset Class

Target Allocation

% Long-term

Expected Real Rate

of Return Arithmetic

1.70%

4.40%

5.80%

Fixed Income

Tangible Assets

Real Estate

Global Equity

Private Equity

20%

5%

15%

37%

23%

100%

6.60%

9.60%

Sensitivity of NPL

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

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

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

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

1% Decrease

(6.5%)

Current

Rate

Discount 1% Increase

(8.5%)

(7.5%)

PERS 1

PERS 2/3

$ 497,712

674,510

$ 408,797

230,677

$ 332,337

(109,150)

Pension Plan Fiduciary Net Position

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

issued DRS financial report.

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

Deferred Inflows of Resources Related to Pensions.

At June 30, 2015, the Washington Counties Risk Pool reported a total pension liability of $639,474 for

its proportionate share of the net pension liabilities as follows:

Liability (or Asset)

PERS 1

PERS 2/3

$408,797

$230,677

At June 30, the Washington Counties Risk Pool’s proportionate share of the collective net pension

liabilities was as follows:

Proportionate

Share 6/30/14

Proportionate

Share 6/30/15

Change in

Proportion

PERS 1

PERS 2/3

.007457%

.005880%

.007815%

.006456%

.000358%

.000576%

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Washington State Auditor's Office Page 31

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

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

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

except LEOFF 1.

The collective net pension liability (asset) was measured as of June 30, 2015, and the actuarial valuation

date on which the total pension liability (asset) is based was as of June 30, 2014, with update procedures

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

Pension Expense

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

expense as follows:

Pension Expense

PERS 1

PERS 2/3

TOTAL

$ 6,281

$ 1,700

$ 7,981

Deferred Outflows of Resources and Deferred Inflows of Resources

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

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

PERS 1

Deferred Outflows of

Resources

Deferred Inflows of

Resources

Differences between expected

and actual experience

$

$ 22,366

Net difference between

projected and actual investment

earnings on pension plan

investments

$

Changes of assumptions

$

Changes in proportion and

differences between

contributions and proportionate

share of contributions

Contributions subsequent to the

measurement date

TOTAL

$ 11,000

$ 22,366

PERS 2/3

Deferred Outflows of

Resources

Deferred Inflows of

Resources

Differences between expected

and actual experience

$ 24,521

$ 61,580

Net difference between

projected and actual investment

earnings on pension plan

investments

$

Changes of assumptions

$

372

$

Changes in proportion and

differences between

$18,534

contributions and proportionate

share of contributions

Contributions subsequent to the

measurement date

$ 9,183

$ 52,610

TOTAL

$ 61,580

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Washington State Auditor's Office Page 32

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

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

liability in the year ended September 30, 2015. Other amounts reported as deferred outflows and

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

Year ended

September:

PERS 2/3

2016

$ 5,451

$ 2,180

$

2017

2018

2019

2020

Thereafter

$

NOTE 11: Qualified Pension Plan

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

Revenue Code Section 401(a). This plan is with the International City/County Management Association

(ICMA). Employer contributions to the Qualified Pension Plan for the years ended September 30, 2015

and 2014 were $45,964 and $41,843, respectively. There are no employee contributions to this plan.

NOTE 12 - DEFERRED COMPENSATION PLANS

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

Section 457 of the Internal Revenue Code. The plans are with the International City/County Management

Association (ICMA), the Washington State Department of Retirement, and Nationwide Retirement

Solutions (NRS). The plans, available to all eligible employees, permit them to defer a portion of their

wages until future years. The deferred compensation is not available to contributing employees until their

termination, retirement, death, or unforeseeable emergency.

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

exclusive benefit of participants and their beneficiaries. Pursuant to Governmental Accounting Standards

Board (GASB) Statement 32, and since the WCRP is no longer the owner of these assets, these plans’

assets and liabilities are no longer reported in the WCRP financial statements.

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NOTE 13 – SUBSEQUENT EVENTS

a.

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

Refer to the prior discussion (Note 13 – Subsequent Events) within the SAO Annual Report for

FY-2014 as there have been no subsequent events of significance since then.

b.

WCRP v. Northrop, Davis, Clark County, and Donald Slagle – Cowlitz County Action:

Refer to the prior discussion (Note 13 – Subsequent Events) within the SAO Annual Report for

FY-2014 for background and previous details. The trial court granted certification for appellate

review on December 12, 2014. The Washington Supreme Court then accepted direct appellate

review on June 1, 2015. Appellants (defendants in the trial court) filed their Opening Briefs on

October 13, 2015. Respondents (WCRP and Lexington Insurance Company) filed their Response

Briefs on January 15, 2016. Appellants’ Reply Briefs are currently due on February 14, 2016, but

that deadline is subject to extension. Oral argument before the Washington Supreme Court will

then take [lave, but it is unlikely to occur before summer 2016. The Supreme Court’s decision on

appeal is not expected before late 2016 or early 2017.

c.

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

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

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

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

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

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

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

Superior Court. In August 2014, the trial court granted Summary Judgment in favor of WCRP

and Douglas County. Corter and Groseclose appealed the decision to Division III of the

Washington Court of Appeals. Oral argument before the Court of Appeals was held on June 11,

2015. A favorable decision from the Court of Appeals is expected shortly.

d.

e.

Changes to Ceded Losses: The cumulative to-date incurred amount deducted from claims

liabilities increased nearly $18.8 million during FY-2015. However, three-quarters of the increase

stems from an adverse outcome for one case. Appellant review was sought of the trial court’s

actions and the jury award. This appeal is being addressed by Division II of Washington’s Court

of Appeals. Briefs have been (are being) filed and oral arguments are expected to occur later

(May, June or July) this year.

Recent Changes in Members’ Loss Activities: With 96 new cases having been reported by

WCRP’s member counties, total to-date incurred loss estimates (payments plus reservations for

covered cases) increased $7.8 million during the first quarter of FY-2016. The “open” cases count

was reduced by two to 320, and total incurred loss estimates for the “open” cases increased $2.2

million during the quarter. Yet a favorable legal action issued in January 2016 will reduce the

total $3.6 million.

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Washington State Auditor's Office Page 34

NOTE 14 - UNPAID CLAIMS LIABILITIES

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

unreported insured events that include estimates of both future payments of losses and related claims

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

WCRP’s SIR Reserves during the past two years:

2015

2014

SIR - Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 2,692,985

$ 3,414,495

SIR - Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

1,099,403

1,259,129

(5,791)

$ 3,786,597

(1,074,553)

$ 3,599,071

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

$

161,645

845,045

$

-

906,086

Total Payments

$ 1,006,690

$

906,086

SIR -Total Unpaid Claims and Claims Adjustment Expenses

End of Year

$

2,779,907

$ 2,692,985

The actuary estimated the current Unpaid Claims and Claims Adjustment liability at the end of 2015 and

2014 to be $1,038,133 and $807,091 respectively.

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

unpaid claims liabilities. (SIR and reinsurances’ Corridor Deductibles and Quota–Shared Amounts) during

the past two years:

Unpaid Claims and Claims Adjustment Expenses

Beginning of Year

$ 13,663,903

4,449,403

$ 13,600,420

4,884,129

Incurred Claims and Claims Adjustment Expenses:

Provisions for Insured Events of the Current Year

Increase (Decrease) in Provision for Insured Events

Prior Years

118,078

( 733,785)

Total Incurred Claims and Claims Adjustment Expenses

$ 18,231,384

$ 17,750,764

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

$ 198,364

$

0

3,591,776

4,086,862

Total Payments

$ 3,790,140

$

4,086,862

SIR -Total Unpaid Claims and Claims Adjustment Expenses

$14,441,244

$ 13,663,903

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

of 2015 and 2014 to be $3,788,266 and $2,914,049 respectively.

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Washington State Auditor's Office

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REQUIRED SUPPLEMENTARY INFORMATION

Washington Counties Risk Pool

Schedule of Proportionate Share of the Net Pension Liability

PERS 1

As of June 30, 2015

Last 10 Fiscal Years

2015

2016

2017

2018

2019 2020 2021 2022 2023 2024

Employer's proportion of the net pension liability

(asset)

0.007815%

408,797

143,784

Employer's proportionate share of the net pension

liability

TOTAL

Employer's covered employee payroll

Employer's proportionate share of the net pension

liability as a percentage of covered employee payroll

Plan fiduciary net position as a percentage of the total

pension liability

35.17%

59.10%

Washington Counties Risk Pool

Schedule of Proportionate Share of the Net Pension Liability

PERS 2/3

As of June 30, 2015

Last 10 Fiscal Years

2015

2016

2017

2018

2019

2020 2021 2022 2023 2024

Employer's proportion of the net pension liability

(asset)

0.006456%

230,677

587,820

Employer's proportionate share of the net pension

liability

TOTAL

Employer's covered employee payroll

Employer's proportionate share of the net pension

liability as a percentage of covered employee payroll

Plan fiduciary net position as a percentage of the total

pension liability

39.24%

89.20%

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Washington State Auditor's Office Page 36

REQUIRED SUPPLEMENTARY INFORMATION

Washington Counties Risk Pool

Schedule of Employer Contributions

PERS 1

As of September 30, 2015

Last 10 Fiscal Years

2015

2016 2017 2018 2019 2020 2021 2022 2023 2024

Statutorily or contractually required contributions

13,951

Contributions in relation to the statutorily or

contractually required contributions

Contribution deficiency (excess)

13,951

0

Covered Employer Payroll

Contributions as a percentage of covered employee

payroll

143,784

9.70%

Washington Counties Risk Pool

Schedule of Employer Contributions

PERS 2/3

As of September 30, 2015

Last 10 Fiscal Years

2015

2016 2017 2018 2019 2020 2021 2022 2023 2024

Statutorily or contractually required contributions

Contributions in relation to the statutorily or

56,579

contractually required contributions

Contribution deficiency (excess)

56,579

0

Covered Employer Payroll

Contributions as a percentage of covered employee

payroll

587,820

9.63%

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Washington State Auditor's Office Page 37

REQUIRED SUPPLEMENTARY INFORMATION

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

1.

Ten-Year Claims Development Information

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

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

assumed by the WCRP as of the end of each of the last ten years. The rows of the table are

defined as follows:

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

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

contribution revenue and reported investment revenue.

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

and claims expense not allocable to individual claims.

c. This line shows the WCRP gross incurred claims and allocated claims adjustment

expenses, claims assumed by reinsurers, and net incurred claims and allocated

adjustment expenses (both paid and accrued) as originally reported at the end of the first

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

year).

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

successive years for each policy year.

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

end of the current year for each accident year.

f.

This section of ten rows show how each 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.)

g. 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 14 presents the changes in claims liabilities for the past two years

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

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Washington State Auditor's Office Page 38

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Washington State Auditor's Office Page 39

LIST OF PARTICIPATING MEMBERS

Schedule T-1

The following is a list of WCRP membership during the fiscal year 2015-2014

Adams County

Benton County

Chelan County

Clallam County

Columbia County

Cowlitz County

Douglas County

Franklin County

Garfield County

Grays Harbor County

Island County

Lewis County

Mason County

Okanogan County

Pacific County

Pend Oreille County

San Juan County

Skagit County

Skamania County

Spokane County

Thurston County

Walla Walla County

Whatcom County

Yakima County

Jefferson County

Kittitas County

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Washington State Auditor's Office Page 40

WASHINGTON COUNTIES RISK POOL

DES Schedule of Expenses

For Fiscal Years Ended September 30, 2015 and September 30, 2014

09/30/2015

09/30/2014

Insurance Premiums/Reserve Expense

$11,045,715 $12,012,677

ULAE Expense

(29,406)

13,868

(4,642)

110,000

573

(1,075,806)

360,768

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

Adjustment to Prior Years' "SIR" Reserves

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

(20,000)

Contracted Services:

Actuarial

State Audit Expense

State Risk Manager Expenses

Legal Fees

68,300

7,965

11,734

329,449

25,737

32,022

73,800

9,477

11,734

149,743

30,103

69,332

IT Consultants

Property Appraiser

Investment Advisor

3,000

-

Consulting Member Services Manager

27,500

-

Leadership Search Consultant

Other Consulting Fees

68,634

8,984

25,150

General Administrative Expenses

Employee Salaries and Benefits

Communication

Supplies

Dues and Memberships

Travel - Employee

Committee and Board Meetings

Depreciation

Building and Auto Insurance

Operating Leases

1,029,985

15,568

22,231

7,156

95,432

137,029

72,644

20,216

54,659

17,504

91,285

85,735

19,372

931,946

15,335

28,658

8,734

77,271

84,467

70,000

16,255

120,226

18,472

86,039

112,705

14,875

Utilities

Member Services - Training

Member Services - Grants/Scholarships

Miscellaneous Expenses

Total Operating Expenses

$13,387,676 $13,232,533

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Washington State Auditor's Office Page 41

ABOUT THE STATE AUDITOR’S OFFICE

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

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

serves four-year terms.

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

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

public trust.

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

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

operational efficiency and developing highly engaged and committed employees.

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

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

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

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

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

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

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

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

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

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

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

Contact information for the State Auditor’s Office

Adam Wilson

Deputy Director for Communications

Adam.Wilson@sao.wa.gov

(360) 902-0367

Public Records requests PublicRecords@sao.wa.gov

(360) 902-0370

(866) 902-3900

www.sao.wa.gov

Main telephone

Toll-free Citizen Hotline

Website

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Washington State Auditor's Office Page 42