2014 Annual Report

2014 Annual Report

Please feel free to contact us for additional information.

Public Agency Risk Sharing Authority of California1525 Response Road, Suite 1Sacramento, California 95815

(800) 400-2642 • www.parsac.org

Accredited with ExcellenceSince 1996

Public Agency Risk Sharing Authority of California

2

Our guiding values include a committment to build and

maintain positive relationships through open communication,

mutual respect, and trust.

To the Board of Directors,

Once again, it has been a privilege to serve as the President of PARSAC. This was made possible by the contributions of so many people who are intentional about ensuring that public service remains a pleasure and not a burden. Indeed, working alongside such a tremendous staff, dedicated and supportive officers, and the entire Board of Directors from throughout the State of California, it remains clear that PARSAC is well positioned to proceed into the next fiscal year with great success.

I want to use this opportunity to share my appreciation to each of the members who took an active role in committee assignments. The committees provide a valuable venue to learn about the details of the operations; dig deeper into the heart and character of the organization; and develop strong working relationships that benefit the pool and member agencies alike.

It appears that PARSAC has weathered the fiscal storm faced by our nation, state and individual communities over the past five years. This was accomplished by reducing expenses and closely evaluating actuarial assumptions to minimize exposure to the pool, while not crippling our members financially. This was painful at times, but necessary, as we continue to be committed to fiscal responsibility.

It used to be that employers could defend highly questionable claims and prevail. As we all know, laws have been passed over the years, sometimes favorable to the employer, but most often resulted in cyclical increases in costs. As workers’ compensation costs continue to rise, we must be intentional about mitigation efforts. As a result, employers must dust off and reconsider their Illness and Injury Prevention Programs and safety training. The benefit delivery system, which used to be fairly straight forward, has become increasingly complex. Fortunately, PARSAC members have been able to adapt and benefit from these changes simply by sharing their experiences and information amongst the organization.

What we do here matters and it takes the collective interaction of all to ensure we remain the JPA of choice. Thank you and we look forward to another great year.

Greg Franklin, PresidentCity of Yucaipa

Engaged Members

Public Agency Risk Sharing Authority of California 3

Board of Directors2013-2014

ALTURAS Heather MacDonnellModoc Kenneth Barnes

AMADOR CITY Aaron BrusatoriAmador Janet Spencer

AVALON Betty Jo Garcia *Los Angeles Michael Krug

BLUE LAKE Adrienne NielsenHumboldt John Berchtold *

CALIFORNIA CITY William “Tom” WeilKern

CALIMESA Randy AnstineRiverside Darlene Gerdes

COALINGA Richard SpitlerNapa Gloria Leon

CITRUS HEIGHTS Ronda Rivera †*Sacramento Amy Van

CLEARLAKE Melissa Swanson †*Lake Joan Phillipe

COALINGA Rene RamirezFresno Mercedes Garcia

FERNDALE Jay ParrishHumboldt Deb Austrus

GRASS VALLEY Tim KiserNevada Jeffrey Foltz

HIGHLAND Sam Racadio †San Bernardino Chuck Dantuono *

MENIFEE Terri Willoughby *Riverside Robert Johnson

NEVADA CITY Catrina Olson *Nevada Corey Shaver

PACIFIC GROVE Thomas FrutcheyMonterey Cathy Krysyna

PLACENTIA Troy ButzlaffOrange Eddie De La Torre

PLACERVILLE Cleve Morris †El Dorado Dave Warren *

PLYMOUTH Gloria StoddardAmador Jeff Gardner

POINT ARENA Hunter Alexander *Mendocino

RANCHO CUCAMONGA John Gillison †*San Bernardino Chris Paxton

RANCHO SANTA MARGARITA Mark Taylor*Orange

RIALTO George Harris *San Bernardino Paula Mohan

SAN JUAN BAUTISTA Trish PaetzSan Benito Roger Grimsley

SOUTH LAKE TAHOE Janet Emmett *El Dorado

TEHAMA Carolyn Steffan †*Tehama Betty Celano

TRINIDAD Gabriel AdamsHumboldt Karen Suiker

TRUCKEE Kim SzczurekNevada Chrissy Earnhardt

TWENTYNINE PALMS Ron Peck †*San Bernardino Joe Guzzetta

WATSONVILLE Nathalie ManningSanta Cruz Tamara Vides

WHEATLAND Stephen Wright †*Yuba Rex Miller

WILDOMAR Debbie LeeRiverside Marsha Swanson

YOUNTVILLE Steve Rogers †*Napa Kathleen Bradbury

YUCAIPA Greg Franklin †*San Bernardino Raymond Casey

YUCCA VALLEY Debra Breidenbach-Sterling San Bernardino Curtis Yakimow

† Executive Committee* Subcommittee Volunteer

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A year ago we started on a journey to distill the ‘essential’ PARSAC. While the specific task began over the last year, the journey started twenty-eight years ago with a small group of visionary leaders faced with a crisis that needed remedy. PARSAC emerged over a quarter of a century later as one of the industry’s most successful ventures. Our success is not just due to fiscal stability, but also because of an engaged membership. PARSAC provides opportunities for engagement in governance, finance, service development, and coverage. It is the members’ willingness to take time out of their busy lives to volunteer and contribute in these areas that make this organization great.

For nearly three decades, PARSAC has responded to the evolving needs of our members. Whether those needs arose from cyclical market swings, social and economic environment, or legislative reforms, we successfully adapted in that dynamic environment and it compeled us to constantly improve programs and services. Rather than viewing difficult times as problematic, we see them as opportunities to reflect on a better way to respond and address issues, in an efficient, more focused approach.

With the support of a progressive Board of Directors and a dedicated team, we accomplished the following this past year:

• Developed new guidelines for underwriting and rating non-municipal agencies.• Developed a state of the industry Lifeguard guide policy manual.• Developed a Global Harmonized System template for classification of hazardous

chemicals.• Began development of a bicycle pathway design and management guide. • Initiated a redesign of the PARSAC website.• Introduced a subrogation recovery program to recover member funds for third party

damage to public property.• Introduced a Pharmacy Benefit Management program to provide easier, more cost

effective delivery of medication in the workers’ compensation program.• Amended the investment policy to achieve better diversification of our portfolio and

increase investment earnings.• Declared over $2 million in dividends to members.• Received “Accreditation with Excellence” standard from CAJPA continuously since 1996.

We have achieved a great deal together, and I am proud of our accomplishments. We have never been, and will not be, content with maintaining the status quo. Rather, we will continue to actively pursue innovative solutions to accomplish our mission and ensure long term growth and stability. In closing, I want acknowledge the hard work and commitment of the Executive Committee and Board of Directors without whose support we would not have made such progress. They have placed incredible faith in staff that will act as a catalyst for future success.

Joanne G. Rennie, ARM SPHR

General Manager’s Message


Unique IndividualsDiverse Needs

Common Purpose

Broad Coverage

Fiscal Stewardship

Engaged Members

EssentialPARSAC

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Self-Insured Liability Program

PARSAC provides members with a fiscally stable Liability Program funded at the 85% confidence level. The Program is self-funded for the first $1 million and an additional $34 million of excess coverage is provided through a combination of pooling, excess insurance, and reinsurance. Employment Practices Liability (EPL) coverage limit is $35 million through the liability program’s excess coverage with the first $1 million provided by the Employment Risk Management Association (ERMA).

The pool funding rate for 2013-14 decreased slightly from $1.18 to $1.16 due to favorable loss development. The Program remained well funded above the 90% confidence level; surplus was $11.5 million at expected.

PARSAC believes in proactive claims management. Members are encouraged to contact PARSAC for assistance with incidents before they become claims, which can reduce the cost of the claim. Cases are assigned to defense panel counsel according to specialty to produce the best outcome while ensuring cost control.

Self-Insured Workers’ Compensation Program

PARSAC’s Workers’ Compensation Program began in 1990. The Program delivers timely medical care and benefits to employees while providing members with affordable, financially stable coverage. PARSAC provides quality care through a dedicated claims unit, nurse advocate, expedited specialist referral, and access to selected Centers of Excellence facilities. Our proactive approach helps members to preserve positive relationships with their employees.

PARSAC self-funds the first $500,000 with statutory limits provided through a combination of pooling, reinsurance, and excess insurance. The philosophy of fiscal stability continues in this Program, which is funded at the 75% confidence level.

The pool loss funding rate for 2013-14 increased from $3.85 to $4.26 due to a combination increasing claims costs and a reduction in the discount factor from 3% to 2.5% to better reflect investment earnings. The Program remained well funded above the 90% confidence level; surplus of $11.9 million at expected.

$150

k

$200

k

$250

k

$350

k

$500

k

$750

k

PARSAC Liability$1 Million

less Member Retention

CSAC-EIA$4 Million

excess $1 Million

REINSURANCEStarr Indemnity & Liability

$10 Million excess $15 Million

Catastrosphic Liability Insurance Plan (CLIP)Great American Excess & Surplus


ERMA EPL$1 Million


$50k

$100

k

PARSAC Member Retentions

$50k

$75k

$100k

$250k

PARSAC EPL

$5k

$10k

$25k

$25k

ERMA Member Retentions

REINSURANCEIronshore Indemnity


$150

k

$250

k

$350

k

$50k

$100

k

$5k

$10k

$25k

EXCESS INSURANCENational Union Fire Insurance Company (AIG)

Statutory Limits excess $50 Million

REINSURANCE Ace American Insurance Co.


LAWCX$4.5 Million

excess $500,000

PARSAC Workers’ Compensation$500,000


$0

PARSAC Member Retentions

Programs and Services


Added Value Services

Consultation:

Litigation ManagementProactive Incident and Claim ResolutionRepresentation at Mediation and Settlement ConferencesPreserving Governmental ImmunitiesSpecialist and Resource ReferralsLegislative and Regulatory ComplianceContractual Risk Transfer

Risk Management:

Safety & Loss Control Grant ProgramOn-Site Risk AssessmentsPost-incident Assistance and MitigationOperational Best Practices Policy TemplatesLexipol Policies and Daily Training for Law Enforcement & Fire

Training:

Video and Print Resource LibrariesRegional and On-Site Training ProgramsPersonalized Risk Management TrainingWeb-based OSHA compliant Safety CoursesWeb-based Employment Practices Courses

Group Purchased Programs

PEPIP Property Coverage: All-risk, replacement cost coverage with limits up to $1 billion for all insurable property and autos. Additional benefits include boiler and machinery up to $100 million; new property acquisitions up to $25 million; and new autos up to $10 million. Optional coverages include course of construction, earthquake, and flood damage.

Special Events: Protects the member from liability by providing facility users with cost-effective insurance up to a $5 million limit per occurrence. Participating members receive up to a $1,000 credit toward their Liability premium.

Bond Program: Up to $1 million per occurrence with a $2,500 deductible for Public Employee Dishonesty; Forgery or Alteration; Theft, Disappearance and Destruction; and Computer Fraud.

Ancillary Benefits: Optional employee health benefits such as dental, vision, life, accidental death & dismemberment, and disability coverage at competitive prices.

Broad Coverage

We exist to serve our Members and strive to do so by enhancing programs to meet their changing needs.

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The U.S. economy grew steadily over the past year, fueled by strength in the labor and housing markets and consumer spending, the largest contributor to Gross Domestic Product (GDP). As a result, intermediate-term interest rates trended higher; the yield on the two-year U.S. Treasury Note rose 0.10% to end Fiscal Year 2013/14 at 0.46%, and the 3-year yield rose 0.22% to 0.87%. Yields on short-term investments remained anchored by the Federal Funds Rate, which has been between 0 – 0.25% since December 2008.

PARSAC’s investment program performed well during the year in the wake of the slow economic recovery and the increasing global turmoil, maintaining a conservative investment approach that focuses on safety first, liquidity and then yield. With the expected continued decline in the supply of Federal Agency bonds and notes over the next several years, PARSAC recently added two new asset classes to the investment policy: high quality municipal securities and medium-term corporate notes. These categories now represent 4% and 14% of the portfolio, respectively. The charts below illustrate the change in portfolio composition from the prior year.

The portfolio has been actively managed by PFM Asset Management LLC, in compliance with PARSAC’s investment policy objectives. PFM seeks to add value in a variety of ways: duration management; adjusting maturities along the yield curve; emphasizing sectors that offer the best value; and careful issue-level analysis and security selection. The portfolio of almost $35 million recorded a total return of 1.26% during the year, compared with 0.15% for the prior year. Short-term funds are held by the California State Treasurer’s Office in the Local Agency Investment Fund (LAIF) and earned an average of 0.24% during the year. PARSAC earned $410,000 in investment income during Fiscal Year 2013/14, before factoring gains on sales and unrealized market value losses.

While the next year will present many new challenges for PARSAC -- higher interest rates triggered by widely anticipated Fed action -- we can be confident that our strong financial base will allow us to continue turning challenges into opportunities. PARSAC’s investments will continue to provide quality risk protection at a reasonable cost.

Ronda Rivera, TreasurerCity of Citrus Heights

Treasurer’s Report

June 2013

US Treasuries Federal Agencies California Municipal Obligations Medium Term Corporate Notes Money Market Fund LAIF

June 2014

US Treasuries Federal Agencies California Municipal Obligations Medium Term Corporate Notes Money Market Fund LAIF

US Treasuries

Federal Agencies

California Municipal Obligations

Medium Term Corporate Notes

Money Market Fund

LAIF


Financial Statementswith Supplementary Information

for the years ended

JUNE 30, 2014 AND 2013

including Independent Auditor’s Report

Fiscal Stewardship

Our conservative approach ensures long term stability, competitive rates, and continued protection of members’ interests.

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Board of DirectorsPublic Agency Risk Sharing Authority of CaliforniaSacramento, California

We have audited the accompanying financial statements of the Public Agency Risk Sharing Authority of California (PARSAC) as of and for the year ended June 30, 2014 and 2013, and the related notes to the financial statements, which collectively comprise PARSAC’s basic financial statements as listed in the table of contents.

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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and the State Controller’s Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to PARSAC’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of PARSAC’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 respective financial position of PARSAC as of June 30, 2014 and 2013, and the respective changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America, as well as accounting systems prescribed by the State Controller’s office and state regulations governing special districts.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and claims development information on pages 12 through 16 and 35 through 37 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

INDEPENDENT AUDITOR’S REPORT


management about the methods of preparing the information and comparing the information for consistency with management’s response 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.

Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise PARSAC’s basic financial statements. The combining statements are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements are fairly stated in all material respects in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 23, 2014 on our consideration of PARSAC’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations and contracts 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 PARSAC’s internal control over financial reporting and compliance.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The management of the Public Agency Risk Sharing Authority of California (PARSAC) is pleased to present the following discussion and analysis of the financial performance for the fiscal year ended June 30, 2014 to enhance the information included in the following financial report.

Formed in May 1986, the Public Agency Risk Sharing Authority of California, formerly the California Municipal Insurance Authority (CMIA), is a state-wide joint powers authority. It provides both self-insured and group purchase coverage to 35 municipalities throughout California. PARSAC operates self-insured programs for liability and workers’ compensation, and offers insured programs for property, boiler and machinery, fidelity bonds, special events and employee benefits. Additionally, PARSAC provides claims administration, loss control and training for members. PARSAC has invested in a building in Sacramento that houses its administrative office and a conference center that is available for meetings and training.

The Authority is governed by a Board of Directors comprised of representatives from each member agency. The Board of Directors elects its officers: President, Vice President, Treasurer, and Auditor/Controller. The daily operations are administered by the General Manager who serves as the chief executive officer. The General Manager is responsible for the administration of the policies as set forth by the Authority’s organizational documents and the Board of Directors.

FINANCIAL HIGHLIGHTS

• Retrospective Premium Adjustments (RPA) of $ 1 million were declared in both programs, applicable to Liability Program members participating in the 2003/04 to 2008/09 program years and Workers’ Compensation Program members participating in the 1990/91 to 2005/06 program years.

• The Grant Program concluded its third year, reimbursing members up to $8,151 annually for loss control services, equipment and training. The Board approved continuing the program for another three years.

• The Board approved funding at the 85% and 75% confidence levels, maintaining discount factors of 1.5% and 2.5% in the Liability and Workers’ Compensation Programs, respectively.

• Two dividends were received from excess providers, CARMA and ERMA; $1.289 million from CARMA for 2001/02 to 2005/06 program years; $932,000 from ERMA for 2004/05 to 2008/09 years.

OVERVIEW OF THE FINANCIAL STATEMENTS

The Authority operates as an enterprise fund applying the accrual basis of accounting. Individual program accounting is maintained in-house and is provided as supplemental information to the financial statements. The Statement of Net Position provides information about the combined financial position of PARSAC as of the fiscal years noted. The Statement of Revenues, Expenses, and Changes in Net Position reports the results of operations. The Statement of Cash Flows is presented to reflect the operations of PARSAC based strictly on the inflow and outflow of cash. The Notes to the Financial Statements provide information on accounting policies of the Authority, such as development of claim liabilities, and retrospective premium adjustment.


June 30, 2014 % June 30, 2013 % June 30, 2012 %

Current Assets $ 3,219,416 8% $ 7,161,607 19% $ 6,637,002 17%

Non-Current Assets 34,799,571 90% 29,665,931 79% 30,950,372 80%

Capital Assets 796,811 2% 854,704 2% 910,707 3%

Total Assets $ 38,815,798 100% $ 37,682,242 100% $ 38,498,081 100%

Current Liabilities $ 6,946,443 40% $ 6,058,818 39% $ 7,872,733 44%

Non-Current Liabilities 10,533,015 60% 9,613,780 61% 9,895,043 56%

Total Liabilities 17,479,458 100% 15,672,598 100% 17,767,776 100%

Net Position:

Invested in Capital Assets 796,811 4% 854,704 4% 910,707 4%

Unrestricted 20,539,529 96% 21,154,940 96% 19,819,598 96%

Total Net Position 21,336,340 100% 22,009,644 100% 20,730,305 100%

Total Liabilities and Net Position $ 38,815,798 100% $ 37,682,242 100% $ 38,498,081 100%

CONDENSED FINANCIAL INFORMATION

Statement of Net Position

Statement of Revenues,

Expenses, and Changes in Net

Position

Year EndedJune 30, 2014



Operating Revenues:

Member Contributions $11,400,010 10,974,682 $10,370,943

Retro Premium Adjust. (RPA) (2,000,000) (1,596,727) 0

Other 2,231,991 617,193 11,564

11,632,001 9,995,148 10,382,507

Operating Expenses:

Claims Expense 6,286,816 2,747,997 5,339,189

Excess Insurance Expense 3,780,577 3,792,563 3,553,110

Program Services Expense 976,571 752,420 589,130

Excess Insurance Refund 382,087 0 0

General Administrative Expense 1,300,834 1,242,911 1,202,806

Total Operating Expenses 12,726,885 8,535,891 10,684,235

Operating Income (Loss) (1,094,884) 1,459,257 (301,728)

Non-Operating Income and (Expense):

Investment Income 451,404 47,272 409,857

Facility Expense (29,824) (49,848) (51,695)

Total Non-Operating Income (Expense)

421,580 (2,576) 358,162

Income (Loss) Before Equity Distribution (673,304) 1,456,681 56,434

Equity Distribution 0 (177,342) (224,956)

Change in Net Position (673,304) 1,279,339 (168,522)

Net Position, Beginning of Year 22,009,644 20,730,305 20,898,827

Net Position, End of Year $21,336,340 $22,009,644 $20,730,305

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ANALYSIS OF OVERALL FINANCIAL POSITION

PARSAC continues to be financially stable, meeting Board approved equity targets and exceeding the actuary’s 90% confidence level for funding overall. Total assets increased by 3% while net position decreased by 3%. The net position of the Liability Program increased by $306,000 due to the receipt of $2.2 million in excess provider dividends offset by increasing claim costs and $1 million return of funds to members in the form of a Retrospective Premium Adjustment (RPA) and return of a portion of excess dividends. The Workers’ Compensation Program’s net position decreased by $949,000 due to increasing claim reserves and the issuance of a $1 million RPA.

The Authority’s investment portfolio increased from $30.8 to $34.7 million during the year, and is managed by investment advisor, PFM Asset Management, LLC with securities held in a custodial account at Union Bank. The actively managed portfolio consists of fixed income, municipal and medium term corporate securities in accordance with the Authority’s investment policy and the California Government Code. Short term funds not immediately needed for the payment of claims and administrative expenses are maintained in the State of California Local Agency Investment Fund (LAIF), which is administered by the State Treasurer’s Office. At June 30, 2014, the LAIF balance was approximately $391,000.

Figure 2 above, illustrates the portfolio’s change in maturity distribution from the prior year. The portfolio duration was concentrated in the two to four year range to maximize yield. Future investment earnings directly impacts program rates, as this projected income is a part of the funding and future liability calculation. When investments fall short of projections, additional funding may be required to meet actuarial revenue estimates. The Authority takes interest rate conditions into consideration when developing annual premiums.


Liability Program

43%

Workers' Compensation

Program54%

Property/Bond Program

0%Building Fund

3%

Figure 1 – Total Assets by Program

0%

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10%

15%

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25%

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45%

% o

f Tot

al P

ortf

olio

June 30,2013 June 30, 2014

Figure 2 – Portfolio Maturity Distribution at June 30, 2014 and June 30, 2013


ANALYSIS OF OVERALL RESULTS OF OPERATIONS

All members participate in the Liability Program, which generated the largest portion of revenue at $6.2 million or 51%. That percentage drops to 33% when the reimbursements from two excess providers of $2.2 million are not included in the program revenue. The Workers’ Compensation Program follows at $3.9 million, representing 33% of revenue. Investment income, including coupon earnings of $409,900 and gains on the sale of investments of $61,500, was offset by market value losses for total investment income of $451,400.

Overall, operating expenses increased by $4.2 million. This was mainly due to an increase in the expenses for claims paid and change in claim liabilities. Additionally, $382,000 of excess reimbursements were returned to members. Claims expense and excess insurance make up about 80% of expenses as shown in the Figure 4. Claims administration and loss control programs represent 7% of expenses and general administration is 9% of expenses.

Retrospective Premium Adjustments and Rate Stabilization Fund

Retrospective Premium Adjustment (RPA) is the original term for equity distributions and assessments. The calculation of the RPA is based on policies requiring a minimum overall funding level as well as Target Equity goal equal to five times the pool self-insured retention before funds can be released. Both programs met the respective equity goals. The Board approved an RPA of $1,000,000 in each self-insured program. The Liability Program RPA applies to members participating in program years 2003/04 to 2008/09. The Workers’ Compensation Program RPA applies to program years 1990/91 to 2005/06.

Rate Stabilization Funds were established in both the Liability and Workers’ Compensation programs to help cushion the impact of pool or excess rate increases. This year, the Board approved replenishment of the Liability Program Rate Stabilization Fund using a portion of an excess reimbursement. In the Workers’ Compensation Program, members received a premium reduction totaling $177,342 from the Board approved use of Rate Stabilization funds.

Claims Expense

The Authority contracts with Bickmore Risk Services for annual funding and year-end actuarial valuations of the self-insured Liability and Workers’ Compensation Programs.

On the following page, Figure 5 illustrates the Liability Program Ultimate Loss by Program Year as determined by the actuary. The ultimate loss represents the total cost of claims expected in a given program year. Components of ultimate loss are paid and reserved claims, and incurred but not reported (IBNR) reserves. The Liability Program claim history has been unpredictable, with claim costs ranging from a high of $5.4 million to a low of $50,000. The actuary set the ultimate cost of claims at an average of $1.7 million over the past five years, a reduction from $2.5 million reported last year.

Figure 3 – Revenue by Program

Liability Program

51%Work Comp

Program32%

Prop/Bond Program

13%

Investment Income

4%Building Income

0%

Claims Expense49%Excess

Insurance30%

Claims Admin.

4%

Loss Control Expense

3%

Consultants1%

Excess Ins.Refund

3%

General Admin.9%

Figure 4 –Total Expense by Category

16

Figure 6 illustrates the Workers’ Compensation Program Ultimate Loss by Program Year as determined by the actuary. The Program’s history indicates a more consistent pattern than the Liability Program with program year claims costs in the early years averaging $1 million. Claims costs began increasing six years ago, nearly tripling the prior annual cost expectations. In the past three years, claims have trended down and the actuary’s average ultimate cost of claims is $2.1 million per year.

CAPITAL ASSETS

The majority of the Authority’s capital assets are invested in a building located in Sacramento. The building houses PARSAC’s administrative office and the remaining 3,600 square feet, formerly tenant space, has been converted into a conference facility for meetings and training. The Authority will endeavor to lease the space when economic circumstances in the market improve.


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Figure 5 – Liability Program Ultimate Loss by Program Year

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Paid (less recovery) Reserves for Reported Discounted IBNR & ULAE

Figure 6 – Workers’ Compensation Program Ultimate Loss by Program Year

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Paid (less recovery) Reserves for Reported Claims Discounted IBNR & ULAE


2014 2013

ASSETS

Current Assets:

Cash and Cash Equivalents $1,065,383 $5,218,396

Interest Receivable 85,947 89,652

Member Receivable 494,587 207,138

Excess Receivable 606,449 254,993

ERMA Dividend Receivable 932,190 0

Prepaid Expenses 34,860 36,290

Net Pension Asset 0 43,606

Investments 0 1,311,532

Total Current Assets 3,219,416 7,161,607

Non-Current Assets:

Member Receivable 60,550 121,102

Investments 34,739,021 29,544,829

Capital Assets 1,691,732 1,702,400

Accumulated Depreciation (894,921) (847,696)

Total Non-Current Assets 35,596,382 30,520,635

Total Assets $38,815,798 $37,682,242

LIABILITIES & NET POSITION

Current Liabilities:

Accounts Payable $ 81,788 $56,424

Accrued Expenses 138,702 120,701

Committee Training Stipend Payable 15,260 17,628

Unearned Contributions 0 184,816

Equity Distribution Payable 0 177,342

Excess Premium Assessments 24,469 48,938

Retrospective Premium Adjustment Payable 2,513,075 1,375,308

Unpaid Claims and Adjustment Expenses 4,173,149 4,077,661

Total Current Liabilities 6,946,443 6,058,818

Non-Current Liabilities:

Excess Premium Assessments 24,469 48,938

Unpaid Claims and Claims Adjustment Expenses 10,508,546 9,613,780

Total Non-Current Liabilities 10,533,015 9,662,718

Total Liabilities 17,479,458 15,672,598

Net Position:

Invested In Capital Assets 796,811 854,704

Unrestricted 20,539,529 21,154,940

Total Net Position $21,336,340 $22,009,644

STATEMENT OF NET POSITION

June 30, 2014 and 2013

18

2014 2013

Operating Revenues:

Premium Contributions $11,400,010 $10,974,682

Retrospective Adjustment (2,000,000) (1,596,727)

CARMA Dividend 1,289,022 0

ERMA Dividend 932,190 612,305

Other 10,779 4,888

Total Operating Revenues 11,632,001 9,995,148

Operating Expenses:

Claims Paid 5,296,562 3,692,284

Change In Claims Liabilities 990,254 (944,287)

Excess Insurance 3,780,577 3,792,563

Program Administration 576,370 553,668

Risk Management 400,201 198,752

Professional Fees 144,508 183,115

Salaries 933,905 849,783

Travel and Meetings 73,612 75,769

CARMA Dividend Refunds 382,087 0

Facility Expense 63,791 49,848

Other General and Administrative Expenses 85,018 84,396

Total Operating Expenses 12,726,885 8,535,891

Operating Income (Loss) (1,094,884) 1,459,257

Non-Operating Revenues (Expenses):

Investment Income 451,404 47,272

Facility Expense, Net (29,824) (49,848)

Total Non-Operating Revenues (Expenses) 421,580 (2,576)

Income Before Equity Distribution (673,304) 1,456,681

Equity Distribution 0 (177,342)

Change in Net Position (673,304) 1,279,339

Net Position, Beginning of Year 22,009,644 20,730,305

Net Position, End of Year $21,336,340 $22,009,644

STATEMENT OF REVENUES, EXPENSES AND

CHANGES IN NET POSITION

For the Years Ended June 30, 2014 and 2013


2014 2013

Cash Flows from Operating Activities:

Contributions Received $10,123,696 $8,337,047

ERMA Dividend 0 612,305

CARMA Dividend 1,289,022 0

Other Revenues 10,779 0

Salaries and Benefits Paid (872,298) (796,348)

Claims Expense Paid (5,648,018) (3,892,450)

Premiums Paid (3,803,616) (1,710,631)

General and Administrative Expenses Paid (1,257,152) (1,086,577)

CARMA Dividend Refunds (382,087) 0

Net Cash Provided By (Used) Operating Activities (539,674) 1,463,346

Cash Flows from Investing Activities:

Investment Income 344,175 74,039

Investments Purchased (23,002,998) (14,046,863)

Proceeds from Sales and Maturities of Investments 19,231,272 14,097,268

Facilities Expenses Paid (8,446) (25,688)

Net Cash Provided (Used) By Investing Activities (3,435,997) 98,756

Cash Flows from Capital and Related Financing Activities:

Member Equity Distributions (177,342) (224,956)

Purchase of Capital Assets 0 (8,483)

Net Cash Used In Capital and Related Financing Activities (177,342) (233,439)

Net Increase (Decrease) in Cash and Cash Equivalents (4,153,013) 1,328,663

Cash and Cash Equivalents, Beginning of Year 5,218,396 3,889,733

Cash and Cash Equivalents, End of Year $ 1,065,383 $5,218,396

Reconciliation of Net Operating Income (Loss) To Net Cash Provided By Operating Activities:

Operating Income (Loss) $(1,094,884) $1,459,257

Adjustments To Reconcile Operating Income (Loss) To Net Cash Provided By Operating Activities:

Depreciation Expense 36,515 40,326

(Increase) Decrease In:

Member Receivable (226,897) 134,894

Excess Receivable (351,456) (200,166)

ERMA Dividend Receivable (932,190)

Prepaid Expenses 1,430 2,032,994

Net Pension Asset 43,606 43,605

Increase (Decrease) In:

Accounts Payable 49,833 18,644

Accrued Expenses 18,001 9,831

Committee Training Stipend Payable (2,368) 1,021

Unearned Contributions (184,816) (2,291,015)

Excess Premium Assessments (24,469) 48,938

Retrospective Premium Adjustment Payable 1,137,767 1,109,304

Claims Liabilities 990,254 (944,287)

Net Cash Provided (Used) By Operating Activities $(539,674) $1,463,346

Supplementary Non-Cash Flow Information

Investing Activities

Decrease in Fair Value of Investments $20,045 $427,470

STATEMENT OF CASH FLOWS


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1. ORGANIZATION

General. The Public Agency Risk Sharing Authority of California (PARSAC) is a governmental joint powers authority pursuant to the Government Code of the State of California, commencing with Section 6500. PARSAC is a statewide agency providing California municipalities with risk management services including loss control, risk sharing and joint purchase coverage programs.

PARSAC offers self-funded Liability and Workers’ Compensation programs. In addition, PARSAC offers members access to group purchase insurance programs covering Property, Fidelity Bonds, Special Events and Employee Benefits.

Liability Program: The Liability Program, implemented in 1986, provides comprehensive general and automobile liability coverage. PARSAC is self-insured to $1 million and purchases excess coverage through the California State Association of Counties Excess Insurance Authority (CSAC-EIA). PARSAC also offers members Employment Practices Liability coverage through the Employment Risk Management Authority (ERMA).

Workers’ Compensation Program: The Workers’ Compensation Program, implemented in 1990, provides coverage for employee injuries arising out of and in the course of employment. From 1990 to 2007, PARSAC was self-insured to $250,000. In 2008, PARSAC increased the self-insured retention from $250,000 to $500,000. Losses in excess of PARSAC’s limit are covered through the Local Agency Workers’ Compensation Excess Pool (LAWCX) up to statutory limits.

PARSAC is a California public entity as provided in Internal Revenue Section 115; thus, it is tax-exempt. The California Office of the Controller, Division of Local Governmental Fiscal Affairs, for the purpose of filing an Annual Report of Financial Transactions of Special Districts considers PARSAC to be a “Special District.”

Reporting Entity. The reporting entity includes all activities considered to be part of PARSAC. This includes financial activity relating to all of the membership years of PARSAC. In determining its reporting entity, PARSAC considered all governmental units that were members of PARSAC since inception. The criteria did not require the inclusion of these entities in their financial statements principally because PARSAC does not exercise oversight responsibility over any members.

Basis of Accounting. The accompanying financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Under the accrual basis, revenues and the related assets are recognized when earned, and expenses are recognized when the obligation is incurred. PARSAC applies all applicable FASB pronouncements in accounting and reporting for its proprietary operations, except where superseded by GASB pronouncements. Liabilities for reserves for open claims and claims incurred but not reported have been recorded in PARSAC’s financial statements.

PARSAC maintains separate program accounting for each program’s revenues, expenses and related reserves. The program funds are considered a Proprietary/Enterprise Fund type.

Fund Accounting. The accounts of PARSAC are organized on the basis of funds, each of which is considered to be a separate accounting entity. PARSAC’s funds have been combined for the presentation of the basic financial statements. The operations of each fund are accounted for by providing a separate set of self- balancing accounts which comprise its assets, liabilities, net position, revenues and expenses. The general and administrative expenses of PARSAC are allocated 55% to the Liability Program, 40% to the Workers’ Compensation Program and 5% to the Property Program.

NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2014 AND 2013


Cash and Cash Equivalents. For purposes of the statement of cash flows, PARSAC considers all highly liquid assets with a maturity of three months or less, when purchased, to be cash and cash equivalents.

Receivables. All receivables are reported at their gross value, and where appropriate, are reduced by the estimated portion that is expected to be uncollectible. As of June 30, 2014 and 2013, the total accounts receivable portfolio was considered collectible. Interest on investments is recorded in the year the interest is earned.

Investments and Investment Pools. PARSAC records its investment in Local Agency Investment Fund (LAIF) and its other investments at fair value. Changes in fair value are reported as non-operating revenue in the statement of revenues, expenses and changes in net position.

Fair value of investments and LAIF has been determined by the sponsoring government based on quoted market prices. PARSAC’s investment in LAIF has been valued based on the relative fair value of the entire external pool to the external pool’s respective amortized cost.

Capital Assets. Capital assets are carried at cost. Assets with an original purchase price over $10,000 are capitalized at cost. Depreciation and amortization is computed on the straight-line method. The estimated useful lives used for buildings and improvements is thirty years. The estimated useful life for furniture and equipment range from three to five years. Software is depreciated over five years.

Accrued Vacation. In accordance with PARSAC’s employee policies, compensated absences for vacation are accrued at various numbers of hours per month depending on each employee’s years of service. The liability for compensated absences at June 30, 2014 and 2013 was $102,158 and $84,045, respectively, and is included in accrued expenses on the statement of net position.

Provision for Unpaid Claims and Claims Adjustment Expenses. PARSAC’s policy is to establish claims liabilities based on estimates of the ultimate cost of claims that have been reported but not settled, and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Estimated amounts of salvage, subrogation and insurance recoverable on unpaid claims are deducted from the liability for unpaid claims. PARSAC increases the liability for allocated and unallocated claims adjustment expenses. Because actual claims costs depend on such complex factors as inflation, changes in doctrine of legal liability and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount. Claims liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency and other economic and social factors. 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 reflect 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 period in which they are made. The portion of claims considered currently payable has been actuarially determined.

Net Position. PARSAC adopted a Target Equity policy to ensure adequate overall funding of the pooled programs. The policy designates that equity may be returned to members when (1) the overall confidence level exceeds 90%, (2) an additional amount equal to five times the self-insured retention has been set aside and (3) equity is available to return in eligible years.

The three methods approved for returning equity to members are, (1) the Retrospective Premium Adjustment (RPA) process; (2) the Liability and Workers’ Compensation Program Rate Stabilization Fund, and (3) an alternate use of equity approach.

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• The RPA process reconciles program year revenue and expenses. Claims in the Liability Program become eligible for an RPA in the fifth year; thus, allowing the claims sufficient time for development. Workers’ Compensation Program claims first become eligible for an RPA in the eighth year.

• The Liability Program Rate Stabilization Fund was established in 2009/10 from the savings realized when PARSAC changed excess programs. The policy limits the fund balance to $500,000 and allows these funds to be used to offset pool or excess premium rate increases. In May 2012, the Board approved use of $125,000 to reduce the premium contribution for the 2012/13 year.

• The Workers’ Compensation Program established a Rate Stabilization Fund. The policy limits the fund balance to $500,000 and allows funds to be used to offset pool or excess premium rate increases. The Board approved use of $177,342 to apply against the 2013/14 premium increase.

• The Board approved a one-time alternate use of equity allowing members to reduce their Workers’ Compensation Program premium contribution by $99,956 for the 2012/13 year.

Excess Insurance. PARSAC enters into agreements whereby it obtains excess coverage from other joint powers authorities or insurance companies. PARSAC does not report excess insured risk as a liability unless it is probable that a risk will not be covered by excess insurers. Settlements have not exceeded insurance coverage in each of the past three years.

Revenue Recognition. Premium contributions are recognized as revenue when earned based upon the coverage period of the related insurance. To the extent that allocated losses exceed premium contributions previously paid, interest and other income, PARSAC can assess its member’s additional contributions. Supplemental assessments are recognized as income in the period assessed. Operating revenues and expenses include all activities necessary to achieve the objectives of PARSAC. Non-operating revenues and expenses include investment activities, rental income and other non-essential activity.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Income Taxes. As a governmental agency PARSAC is exempt from both federal income and California state franchise taxes.

Reclassifications. Certain reclassifications have been made to the prior year balances to conform with the

current year presentation.

New Pronouncements. In June 2012, the GASB approved Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement requires governments providing defined benefit pension plans to recognize their long-term obligation for pension benefits as a liability on the statement of net position and to more comprehensively and comparably measure the annual costs of pension benefits. This Statement also requires revised and new note disclosures and required supplementary information (RSI) to be reported by employers. The implementation of this GASB Statement will have a significant impact on the Authority’s financial statements and is effective for the Authority’s June 30, 2015 financial statements.



2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of June 30, 2014 and 2013 consisted of the following:

2014 2013Cash and Cash Equivalents:

Cash on Hand $ 34 $ 99Cash in Bank 557,859 1,132,612LAIF 391,327 3,930,766Money Market Accounts 116,163 154,919

Total Cash and Cash Equivalents $1,065,383 $ 5,218,396

Custodial Credit Risk. Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. None of PARSAC’s investments were subject to custodial credit risk. Custodial credit risk does not apply to a local government’s indirect investment in securities through the use of mutual funds or government investment pools (such as LAIF). The California Government Code and PARSAC’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision of deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure public entity deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.

As of June 30, 2014 and 2013, none of PARSAC’s deposits with financial institutions in excess of federal depository insurance limits were held in uncollateralized accounts.

Local Agency Investment Fund. PARSAC places certain funds with the State of California’s Local Agency Investment Fund (LAIF). PARSAC is a voluntary participant in LAIF, which is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California and the Pooled Money Investment Board. The State Treasurer’s Office pools these funds with those of other governmental agencies in the State and invests the cash. The fair value of PARSAC’s investment in this pool is reported in the accompanying financial statements based upon PARSAC’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized costs of that portfolio). The monies held in the pooled investment funds are not subject to categorization by risk category. The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis.

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3. INVESTMENTS

At June 30, 2014 and 2013, investments are reported at fair value and consisted of the following:

2014 2013

Federal Agency Bonds and Notes $11,490,995 $15,479,463

U.S. Treasury Notes 17,060,285 14,117,812

Municipal Obligations 1,267,748 1,259,086

Corporate Notes 4,919,993 0

Total Investments 34,739,021 30,856,361

Investments maturing within one year 0 1,311,532

Long-term investments $34,739,021 $29,544,829

Disclosures Relating to Interest Risk Rate. Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that PARSAC manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.

Information about the sensitivity of the fair values of PARSAC’s investments to market interest rate fluctuations is provided by the following table that shows the distribution of PARSAC’s investments by maturity at June 30, 2014 and 2013:

June 30, 2014 Remaining Maturity (in Months)

Investment Type Amount 12 Months Or Less

13 to 24 Months

25 to 60 Months

Federal Agency Bonds and Notes:

FHLMC $ 4,849,920 $ $ 1,815,118 $ 3,034,802 FNMA 5,258,899 901,530 4,357,369FHLB 1,382,165 700,091 682,074

U.S. Treasury Notes 17,060,302 8,114,594 8,945,708Municipal Obligations 1,267,748 1,267,748Corporate Notes 4,919,987 4,919,987Total $ 34,739,021 $ $ 11,531,333 $ 23,207,688



June 30, 2013 Remaining Maturity (in Months)

Investment Type Amount 12 Months Or Less

13 to 24 Months

25 to 60 Months


FHLMC $ 5,187,794 $ $ 1,453,989 $ 3,733,805 FNMA 8,980,137 746,214 8,233,923FHLB 1,311,532 1,311,532

U.S. Treasury Notes 14,117,812 6,210,649 7,907,163Municipal Obligations 1,259,086 1,259,086Total $ 30,856,361 $ 1,311,532 $ 8,410,852 $ 21,133,977

Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations. PARSAC’s portfolio includes the following investments that are highly sensitive to interest rate fluctuations (to a greater degree than already indicated in the information provided above).

Highly Sensitive Investments Fair Value at Year End

Federal Agency Securities $1,382,165

These securities are subject to early payment in a period of declining interest rates. The resultant reduction in expected total cash flows affects the fair value of these securities and makes the fair value of these securities highly sensitive to changes in interest rates.

Disclosures Relating to Credit Risk. Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual Standard and Poor’s rating as of June 30, 2014 and 2013 for each investment type:

June 30, 2014 Rating as of Year-End

Investment Type Amount A AA AAA


FHLMC $ 4,849,920 $ $ 4,849,920 $FNMA 5,258,899 5,258,899FHLB 1,382,165 1,382,165

U.S. Treasury Notes 17,060,302 17,060,302Municipal Obligations 1,267,748 1,267,748Corporate Notes 4,919,987 873,458 3,120,562 925,967Total $ 34,739,021 $ 873,458 $ 31,671,848 $ 2,193,715

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June 30, 2013 Rating as of Year-End

Investment Type Amount AA AAA


FHLMC $ 5,187,794 5,187,794 FNMA 8,980,137 8,980,137FHLB 1,311,532 1,311,532

U.S. Treasury Notes 14,117,812 14,117,812Municipal Obligations 1,259,086 1,259,086Total $ 30,856,361 $ 29,597,275 $ 1,259,086

Concentration of Credit Risk. At June 30, 2014 and 2013, PARSAC had the following investments that represent more than five percent of PARSAC’s net investments:

2014 2013U.S. Treasury Notes 49% 46%FHLMC 14% 17%FNMA 15% 29%

4. CAPITAL ASSETS

PARSAC’s capital asset activity for the year ended June 30, 2014 is as follows:

Beginning Balance Additions

Retirements/Adjustments

EndingBalance

Capital Assets Not Being DepreciatedLand $ 515,861 $ $ $ 515,861Total Capital Assets Not Being Depreciated 515,861 515,861

Capital Assets Being DepreciatedBuilding 807,042 807,042Building Improvements 203,585 203,585Equipment 135,412 (10,675) 124,737Vehicles 40,500 40,500Total Capital Assets Being Depreciated 1,186,539 (10,675) 1,175,864

Less Accumulated Depreciation ForBuilding 519,910 40,488 560,398Building Improvements 187,880 2,267 190,147Equipment 117,631 7,039 (10,675) 113,995Vehicles 22,275 8,099 30,374Total Accumulated Depreciation 847,696 57,893 (10,675) 894,914

Total Capital Assets Being Depreciated Net 338,843 (57,893) 280,950Total Capital Assets, Net $ 854,704 $ (57,893) $ 0 $ 796,811



Depreciation expense was charged to the various programs as follows:

Liability $ $20,083 Workers’ Compensation 14,606Building 21,379Property 1,825

$ $57,893

PARSAC’s capital asset activity for the year ended June 30, 2013 is as follows:

Beginning Balance Additions

Retirements/Adjustments

EndingBalance

Capital Assets Not Being DepreciatedLand $ 515,861 $ $ 515,861Total Capital Assets Not Being Depreciated 515,861 515,861

Capital Assets Being DepreciatedBuilding 805,562 1,480 807,042Building Improvements 203,585 203,585Equipment 128,409 7,003 135,412Vehicles 40,500 40,500Total Capital Assets Being Depreciated 1,178,056 8,483 1,186,539

Less Accumulated Depreciation ForBuilding 473,859 46,051 519,910Building Improvements 185,612 2,268 187,880Equipment 109,564 8,067 117,631Vehicles

14,175 8,100

22,275Total Accumulated Depreciation 783,210 64,486 847,696

Total Capital Assets Being Depreciated Net 394,846 (56,003) 338,843Total Capital Assets, Net $ 910,707 $ (56,003) $ 854,704

Depreciation expense was charged to the various programs as follows:

Liability $ 22,179Workers’ Compensation 16,131Building 24,160Property 2,016

$ 64,486

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5. FACILITY EXPENSES

PARSAC purchased an 8,700 square foot building in Sacramento in 1995. Of the 7,200 useable square feet, PARSAC occupies approximately 3,576 square feet and historically leased out the balance. Due to the continued downward trend in the Sacramento commercial leasing market, approximately 3,639 square feet of unoccupied tenant space was converted to a conference facility. The space is available for training and committee meetings. PARSAC will endeavor to lease the space when economic circumstances improve. The tenant space was vacant during the fiscal years 2014 and 2013. For the periods ended June 30, 2014 and 2013, the facility expenses were $93,615 and $99,696, respectively. For the 2013/2014 year, 50% of budgeted facility expenses totaling $63,791 were allocated to the programs in the same proportion as general and administrative expenses. For the 2012/2013 year, 50% of facility expenses were allocated to the programs in the same proportion as general and administrative expenses.

6. RETROSPECTIVE PREMIUM ADJUSTMENTS

PARSAC’s Joint Powers Agreement requires periodic evaluation of each programs’ equity. The process is referred to as a Retrospective Premium Adjustment (RPA). For the year ended June 30, 2014, the Board approved RPA’s of $1,000,000 in both the Liability and Workers’ Compensation programs.

For the year ended June 30, 2013, the Board approved RPA’s in the Liability and Workers’ Compensation programs of $1,029,144 and $567,583, respectively.

7. NET POSITION

Net Position is the excess of all the Authority’s assets and deferred outflows over all its liabilities, and deferred inflows. Net Position is divided into three categories as follows:

Investment in Capital Assets describes the portion of net position which is represented by the current net book value of the Authority’s capital assets, less the outstanding balance of any debt issue to finance these assets, if any.

Restricted describes the portion of net position which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the Authority cannot unilaterally alter. These principally include facility capacity fees received for use on capital projects, fees charged for the provision of future water resources and debt service reserve funds. Unrestricted describes the portion of net position which is not restricted as to use. PARSAC’s net position as of June 30, 2014 and 2013 consists of the following:

2014 2013Invested in Capital Assets $ 796,811 $ 854,704 Unrestricted, Designated for:

Errors and Omission 100,000 100,000Capital Replacement 168,839 144,589Grant Program 105,572 282,624Rate Stabilization 822,658 873,225Target Equity 7,500,000 7,500,000Undesignated Balance 11,742,460 12,254,502Contingency Fund 100,000 0Unrestricted Total 20,539,529 21,154,940

Net Position $ 21,336,340 $ 22,009,644



8. UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES

As discussed in Note 1, PARSAC establishes a liability for both reported and unreported insured events, which includes estimates of both future payments of losses and related claim adjustment expenses, both allocated and unallocated. The following represents changes in those aggregate liabilities during the years ended June 30, 2014 and 2013.

2014 2013Unpaid claims and claims adjustment expenses, beginning of fiscal year $ 13,691,441 $ 14,635,728 Incurred claims and claims adjustment expenses:

Provision for covered events of the current fiscal year 3,882,102 3,900,101Change in provision for covered events of prior fiscal years 2,404,714 (1,152,104)Total incurred claims and claims adjustment expense 6,286,816 2,747,997

Payments:Claims and claims adjustment expenses attributable to covered events of the current fiscal year 512,691 508,897Claims and claims adjustment expenses attributable to covered events of prior fiscal years 4,783,871 3,183,387Total Payments 5,296,562 3,692,284

Total unpaid claims and claims adjustment expenses, end of fiscal year $ 14,681,695 $ 13,691,441

The components of the unpaid claims and claim adjustment expenses as of June 30, 2014 and 2013 were as follows:

2014 2013Claims Reserves $ 7,935,598 $ 7,501,573 Claims incurred but not reported (IBNR) 5,590,835 5,331,292Unallocated loss adjustment expenses (ULAE) 1,155,262 858,576

$ 14,681,695 $ 13,691,441

The current and long-term portions of claims liabilities were $4,173,149 and $10,508,546, respectively, as of June 30, 2014 and were $4,077,661 and $9,613,780, as of June 30, 2013. At June 30, 2014 and 2013, the liability was reported at the present value using an expected future investment yield assumption of 2.5% for both years presented, for the Workers’ Compensation Program and 1.5% for both years presented, for the Liability Program. The total undiscounted liability as of June 30, 2014 and 2013 was $16,305,147 and $15,115,603, respectively.

9. EMPLOYEE RETIREMENT SYSTEM

Qualified employees are covered under an agent multi-employer defined benefit pension plan maintained by an agency of the State of California. PARSAC’s employees are members of the California Public Employees’ Retirement System (CalPERS).

30

Plan Description. PARSAC’s defined benefit pension plan (the “Plan”) provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to Plan members and beneficiaries. The Plan is part of the Public Agency portion of the California Public Employees Retirement System (CalPERS), an agent multiple-employer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees’ Retirement Law. The Plan selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through Board approval. CalPERS issues a separate comprehensive annual financial report. Copies of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office at 400 P Street; Sacramento, California 95814.

Funding Policy. PARSAC contributes 6% of the required 8% of the active plan members’ annual salary, for the employees’ portion of retirement contributions. The employees contribute the remaining 2%. PARSAC is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for the year ended June 30, 2014 was 16.541%. The contribution requirements of the plan are established by state statute and may be amended by CalPERS.

Annual Pension Costs. For the year ended June 30, 2014, PARSAC’s annual pension cost was $167,804 and PARSAC contributed $124,198. The required contribution was determined as part of the June 30, 2012 actuarial valuation. A summary of the principle assumptions and methods used to determine the annual required contribution is shown below.

Valuation Date June 30, 2012

Actual cost method Entry age normal cost methodAmortization method Level percent of payrollAverage remaining period 19 years as of the valuation dateAsset Valuation Method 15 Year Smoothed MarketActuarial Assumptions:

Investment Rate of Return 7.50% (net of administrative expenses)Projected Salary Increases 3.30% to 14.20% depending on Age,

Service and Type of EmploymentInflation 2.75%Payroll Growth 3.00%Individual Salary Growth A merit scaled varying by duration of

employment coupled with an assumed annual inflation growth of 2.75% and an annual production growth of 0.25%

PARSAC’s plan had less than 100 active members as of the June 30, 2012 actuarial valuation. As a result, PARSAC’s members are required to participate in a larger risk pool Miscellaneous 2.5% at 55 Risk Pool.



The excess of the total actuarial accrued liability over the actuarial value of plan assets is called the unfunded actuarial accrued liability. Funding requirements are determined by adding the normal cost and an amortization of the unfunded liability as a level percentage of assumed future payrolls. All changes in liability due to changes in actuarial assumptions, or changes in actuarial methodology are amortized separately over a 20-year period. All new gains or losses are tracked and amortized over a rolling 30-year period. If a pool’s accrued liability exceeds the actuarial value of assets, the annual contribution with respect to the total unfunded liability may not be less than the amount produced by a 30-year amortization of the unfunded liability.

Trend Information for CalPERS Miscellaneous2.5% at 55 Pool

Fiscal Year Ending June 30

Annual Pension Cost

(APC)

Percentage of APC

Contributed

Net Pension Obligation

(Asset)2012 $160,777 73% $(87,211)2013 $165,116 74% $(43,606)2014 $167,804 74% 0

10. OTHER POSTEMPLOYMENT BENEFITS

PARSAC provides post-retirement health care benefits for employees who satisfy the requirements for retirement under CalPERS (attained age 50 with 5 years of service). PARSAC currently pays 100% of the medical premium and 80% of the dependent’s premium for active and retired employees.

PARSAC’s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Cod. Sec. P50.108.109. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.

The following table shows the components of PARSAC’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in PARSAC’s net OPEB obligation:

Annual required contribution $ 60,492Adjustment to annual required contribution -Annual OPEB costContributions made 60,492Change in net OPEB obligation 0Net OPEB obligation – beginning of year 0Net OPEB obligation – end of year $ 0

32

PARSAC’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the three years ended June 30, 2014 was as follows:

Fiscal Year Ended

AnnualOPEB Cost

Percentage of Annual OPEB Cost

ContributedNet OPEB

AssetJune 30, 2012 $57,469 100% $ -June 30, 2013 $59,716 100% $ -June 30, 2014 $60,492 100% $ -

As of July 1, 2011, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $631,136, and the actuarial value of assets was $328,764, resulting in an unfunded actuarial accrued liability (UAAL) of $302,372. The covered payroll (annual payroll of active employees covered by the Plan) was $546,384, and the ratio of the UAAL to the covered payroll was 55.3%.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, shown above, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing the benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the July 1, 2011 actuarial valuation, the entry age normal cost method was used. The actuarial assumptions include a 7.50 percent investment rate (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer’s own investments calculated based on the funded level of the plan on the valuation date, and an annual healthcare cost trend rate of 9 percent initially, reduced by decrements to an ultimate rate of 4.5 percent after 8 years. Both rates include a 3.25 percent inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 2014, was 26 years.

11. JOINT POWERS AGREEMENT

PARSAC participates in joint ventures under several Joint Powers Agreements (JPA) with Local Agency Workers’ Compensation Excess JPA (LAWCX), Employment Risk Management Authority (ERMA) and California State Association of Counties Excess Insurance Authority (CSAC-EIA). The relationship is such that LAWCX, ERMA and CSAC-EIA are not component units of PARSAC for financial reporting purposes.



ERMA arranges for and provides up to $975,000 employment practices liability coverage in excess of the self-insured retention while CSAC-EIA provides $34 million excess liability insurance coverage (including employment practices) above PARSAC’s $1 million retention. LAWCX provides excess workers’ compensation insurance coverage for losses in excess of $500,000 up to statutory limits.

ERMA, CSAC-EIA and LAWCX are governed by Boards with member agency representation. Their respective Boards control the operations, including selection of management and approval of operating budgets, independent of any influence by the member agencies beyond their representation on the board. Each member agency pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation. Complete financial statements of ERMA, CSAC-EIA and LAWCX may be obtained from each agency, respectively.

LAWCX CSAC-EIA ERMAPurpose To self-insure and

pool excess workers’ compensation losses

To provide coverage relating to workers' compensation, general

liability, medical malpractice, property and employee medical plans

To provide employment liability

coverage to California public entities

Participants 22 municipalities, 10 joint powers authorities, and

one special district

54 counties and 238 public entities including cities, school districts, special districts and other joint

powers authorities

10 joint powers authorities

Governing Board

Consisting of one member from each participating agency

Consisting of one member from each participating member county and

seven members elected by the public entity membership.

Consisting of one member from each participating agency

Payments for the Current Year

$587,538 $702,196 $990,825

Condensed Financial InformationLAWCX

June 30, 2013*CSAC-EIA

June 30, 2013*ERMA

June 30, 2013*

Total Assets $ 71,812,040 $ 588,152,525 $ 29,267,797

Total Liabilities $ 45,119,273 $ 469,537,129 $ 9,521,772 Net Assets 26,692,767 118,615,396 19,746,025

Total Liabilities and Net Assets $ 71,812,040 $ 588,152,525 $ 29,267,797

Revenues $ 10,541,824 $ 538,870,150 $ 6,404,961Expenses 9,999,089 525,806,574 3,883,681

Change in Net Assets $ 542,735 $ 13,063,576 $ 2,521,280

* Most recent information available.

12. CONTINGENCIES

PARSAC is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of PARSAC.

34

PUBLIC EMPLOYEES RETIREMENT SYSTEMSCHEDULE OF FUNDING PROGRESS

Valuation Date

Entry AgeNormal Accrued

LiabilityActuarial Value

of Assets

Unfunded Actuarial Accrued Liability (UAAL)

Funded Status

Annual Covered Payroll

UAAL as a

Percentage of Payroll

2010 $1,972,910,641 $1,603,482,152 $369,428,489 81.3% $352,637,380 104.8%2011 $2,135,350,204 $1,724,200,585 $411,149,619 80.8% $350,121,750 117.4%2012 $2,254,622,362 $1,837,489,422 $417,132,940 81.5% $339,228,272 123.0%

PERS information presented above was the most current available at the time of publication.

OTHER POSTEMPLOYMENT BENEFITS (OPEB)SCHEDULE OF FUNDING PROGRESS

Fiscal Year

Ended

Actuarial Valuation

Date

Actuarial Value of Assets

Actuarial Accrued Liability (AAL)

Unfunded Actuarial Accrued Liability (UAAL)

Funded Ratio

Covered Payroll

UAAL as a Percentage of Covered

Payroll6/30/2012 1/1/2011 $112,739 $524,411 $411,672 21.5% $489,274 84.1%6/30/2013 1/1/2011 $231,974 $576,828 $344,854 40.2% $505,175 68.3%6/30/2014 1/1/2011 $328,764 $631,136 $302,372 52.1% $546,384 55.3%

REQUIRED SUPPLEMENTARY INFORMATION


The following tables illustrate how PARSAC’s earned revenue (net of reinsurance) and investment income compare to related costs of loss (net of loss assumed by reinsurers) and other expenses assumed by the Program for its most current ten year period. The claims development information is presented on an undiscounted basis; however, all claims liabilities reported in the basic financial statements are on a discounted basis.

The rows of the tables are defined as follows:

(1) This line shows the total of each fiscal year’s earned deposit premiums and cumulative investment income less ceded (excess insurance cost) to arrive at net earned contribution.

(2) This line shows each fiscal year’s other operating costs of the Program including overhead and loss adjustment expenses not allocable to individual claims.

(3) This line shows the cumulative Retrospective Premium Adjustment attributed to the program year.

(4) This line shows the Program’s gross incurred losses and allocated loss adjustment expense, losses assumed by reinsurers, and net incurred losses and loss adjustment expense (both paid and accrued) as originally reported at the end of the year in which the event that triggered coverage occurred (called program year).

(5) This section of rows shows the cumulative net amounts paid as of the end of successive years for each program year.

(6) This line shows the latest reestimated amount of losses assumed by reinsurers for each program year.

(7) This section of rows shows how each program year’s net amount of losses increased or decreased as of the end of successive years. (This annual reestimation results from new information received on known losses, reevaluation of existing information on known losses, and emergence of new losses not previously known.)

(8) This line compares the latest reestimated net incurred losses amount to the amount originally established (line 3) and shows whether this latest estimate of losses is greater or less than originally thought. As data for individual program years mature, the correlation between original estimates and reestimated amounts is commonly used to evaluate the accuracy of net incurred losses currently recognized in less mature program years. The columns of the table show data for successive program years.

CLAIMS DEVELOPMENT INFORMATION

June 30, 2014

SUPPLEMENTARY INFORMATION

36

2004

/200

520

05/2

006

2006

/200

720

07/2

008

2008

/200

920

09/2

010

2010

/201

120

11/2

012

2012

/201

320

13/2

014

1R

equi

red

Con

trib

utio

n,

Inte

rest

and

Ced

ed:

Earn

ed C

ontr

ibut

ion

$4,

544,

426

$5,

045,

646

$5,

626,

651

$6,

857,

856

$6,

765,

098

$6,

151,

209

$5,

611,

397

$5,

170,

965

$5,

018,

835

$5,

444,

995

Inve

stm

ent

Inco

me

292,

980

600,

230

743,

162

518,

971

266,

716

183,

236

47,2

3747

,429

12,4

6046

,006

Ced

ed2,

163,

496

2,17

8,78

72,

288,

278

2,63

9,10

72,

252,

236

2,15

0,70

12,

076,

835

1,82

6,02

9 1

,763

,653

1,69

3,02

1N

et E

arne

d$

2,67

3,91

0$

3,46

7,08

9$

4,08

1,53

5$

4,73

7,72

0$

4,77

9,57

8$

4,18

3,83

4$

3,58

1,79

9$

3,39

2,36

5$

3,26

7,64

2$

3,79

7,98

02

Una

lloca

ted

Expe

nses

$81

0,18

1$

714,

835

$68

9,30

4$

663,

185

$82

9,66

3$

823,

872

$95

1,41

2$

912,

830

$1,

032,

129

$1,

193,

577

3C

umul

ativ

e R

etro

spec

tive

Pr

emiu

m A

djus

tmen

t(2

,801

,792

)57

9,76

661

2,62

240

,725

4Es

tim

ated

Incu

rred

Cla

ims

and

Expe

nse

End

of Y

ear

$3,

103,

496

3,26

8,78

7$

3,56

1,27

8$

4,49

6,10

7$

4,01

1,92

7$

3,81

9,70

1$

4,2

06,9

04$

3,32

2,69

1$

3,05

5,55

7$

2,99

5,75

0C

eded

2,16

3,49

62,

178,

787

2,28

8,27

82,

639,

107

2,25

2,23

62,

150,

701

2,07

6,83

51,

826,

029

1,76

3,65

31,

693,

021

Net

Incu

rred

$94

0,00

0$

1,09

0,00

0$

1,27

3,00

0$

1,85

7,00

0$

1,75

9,69

1$

1,66

9,00

0$

2,

130,

069

$ 1

,496

,662

$1,

291,

904

$1,

302,

729

5C

umul

ativ

e Pa

idEn

d of

Pro

gram

Yea

r$

43,8

00$

38,8

06$

15,0

00$

75,1

61$

(3,4

66)

$10

,188

$37

6,10

0$

76,2

44$

58,3

31$

6,23

9O

ne Y

ear

Late

r$

95,2

17$

255,

562

$18

7,39

4$

195,

344

$70

,055

$10

7,20

3$

1,74

2,10

7$

113,

202

$96

8,39

3Tw

o Ye

ars

Late

r$

1,68

0,65

2$

669,

343

$36

3,10

5$

1,53

2,28

5$

381,

948

$24

3,22

8$

2,55

3,60

1$

331,

565

Thr

ee Y

ears

Lat

er$

3,51

8,93

8$

1,21

0,42

7$

390,

566

$3,

319,

428

$74

7,63

8$

420,

070

$4,

108,

727

Four

Yea

rs L

ater

$5,

406,

858

$1,

287,

936

$1,

113,

062

$3,

523,

205

$69

5,34

7$

674,

124

Five

Yea

rs L

ater

$5,

422,

657

$1,

436,

847

$1,

108,

643

$3,

708,

156

$81

4,97

6Si

x Ye

ars

Late

r$

5,42

2,65

7$

1,58

5,67

5$

1,10

8,64

3$

3,74

8,43

0Se

ven

Year

s La

ter

$5,

422,

657

$1,

584,

175

$1,

138,

643

Eigh

t Yea

rs L

ater

$5,

422,

657

$1,

677,

375

Nin

e Ye

ars

Late

r$

5,46

0,07

3

6R

eest

imat

ed C

eded

Cla

ims

and

Expe

nses

$3,

231,

113

$45

2,52

6$

253,

798

$89

5,44

7$

575,

777

$39

3,87

4$

5,53

3,96

7$

12,8

92$

367,

830

7R

eest

imat

ed N

et In

curr

ed

Cla

ims

and

Expe

nses

:En

d of

Pro

gram

Yea

r$

940,

000

$1,

090,

000

$1,

273,

000

$1,

857,

000

$1,

759,

691

$1,

669,

000

$2,

130,

069

$1,

496,

662

$1,

291,

904

$1,

302,

729

One

Yea

r La

ter

$1,

454,

000

$1,

828,

671

$1,

925,

000

$3,

579,

520

$2,

267,

000

$1,

622,

434

$4,

504,

407

$1,

010,

115

$2,

232,

323

Two

Year

s La

ter

$2,

990,

591

$1,

871,

000

$1,

426,

997

$3,

879,

000

$2,

211,

303

$1,

218,

786

$4,

355,

597

$1,

252,

773

Thr

ee Y

ears

Lat

er$

6,08

3,00

0$

1,75

2,67

1$

1,02

9,00

0$

3,83

1,19

2$

1,52

8,50

3$

970,

136

$4,

537,

713

Four

Yea

rs L

ater

$5,

995,

968

$1,

588,

000

$1,

202,

735

$3,

859,

545

$1,

105,

910

$93

2,99

7Fi

ve Y

ears

Lat

er$

5,42

3,00

0$

1,86

2,03

6$

1,14

6,81

5$

3,77

9,65

1$

776,

688

Six

Year

s La

ter

$5,

469,

477

$1,

637,

144

$1,

139,

102

$3,

773,

707

Seve

n Ye

ars

Late

r$

5,42

2,65

7$

1,61

1,50

7$

1,12

3,64

3Ei

ght Y

ears

Lat

er$

5,37

8,74

7$

1,57

4,11

1N

ine

Year

s La

ter

$5,

456,

294

8

Incr

ease

(D

ecre

ase)

in

Esti

mat

ed In

curr

ed C

laim

s Ex

pens

e fr

om E

nd o

f Pr

ogra

m Y

ear

$

4,51

6,29

4$

484,

111

$(1

49,3

57)

$1,

916,

707

$(9

83,0

03)

$(7

36,0

03)

$2,

407,

644

$(2

43,8

89)

$94

0,41

9$

-

CLAIMS DEVELOPMENT INFORMATIONLiability Program - June 30, 2014



2004

/200

520

05/2

006

2006

/200

720

07/2

008

2008

/200

920

09/2

010

2010

/201

120

11/2

012

2012

/201

320

13/2

014

1R

equi

red

Con

trib

utio

n,

Inte

rest

and

Ced

ed:

Earn

ed$

3,61

6,57

9$

4,26

2,74

8$

4,56

8,67

9$

4,44

9,45

5$

4,13

9,07

5$

4,23

6,98

0$

4,01

8,63

1 $

4,01

9,13

8$

4,37

4,29

3$

4,61

6,10

7In

vest

men

t In

com

e46

0,68

243

5,76

250

6,21

137

0,97

919

1,65

511

6,92

280

,907

35,6

7045

,513

4,81

0C

eded

665,

436

962,

808

992,

973

492,

928

585,

087

533,

133

466,

973

504,

676

5

69,3

8158

7,53

8N

et E

arne

d$

3,41

1,82

5$

3,73

5,70

2$

4,08

1,91

7$

4,3

27,5

06$

3,74

5,64

3$

3,8

20,7

69$

3,63

2,56

5$

3,55

0,13

2$

3,85

0,42

5$

4,03

3,37

92

Una

lloca

ted

Expe

nses

$42

6,33

4$

458,

326

$50

8,78

2$

637,

600

$69

6,17

0$

701,

539

$69

7,02

3$

774,

346

$86

1,26

9$

1,02

4,12

8

3C

umul

ativ

e R

etro

spec

tive

Prem

ium

Adj

ustm

ent

$47

9,30

2

4Es

timat

ed In

curr

ed C

laim

s an

d Ex

pens

esEn

d of

Yea

r$

2,63

8,43

6$

2,69

6,80

8$

2,82

4,97

3$

2,91

3,92

8$

3,10

5,08

7$

3,04

7,13

3$

3,11

6,91

3$

2,9

47,7

75$

3,17

7,57

8$

3,16

6,91

1C

eded

665,

436

962,

808

992,

973

492,

928

585,

087

533,

133

466,

973

504,

676

569,

381

587,

538

Net

Incu

rred

$1,

973,

000

$1,

734,

000

$1,

832,

000

$2,

421,

000

$2,

520,

000

$2,

514,

000

$2,

649,

940

$ 2

,443

,099

$ 2

,608

,197

$2,

579.

373

5C

umul

ativ

e Pa

idEn

d of

Pro

gram

Yea

r$

133,

146

$12

2,13

4$

209,

397

$18

8,27

6$

317,

371

$21

9,65

6$

327,

068

$25

9,02

3$

450,

566

$50

6,45

2O

ne Y

ear

Late

r$

319,

556

$41

8,87

0$

335,

394

$41

8,31

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-

CLAIMS DEVELOPMENT INFORMATIONWorkers’ Compensation Program - June 30, 2014

38

2014 2013Unpaid Claims and Claims Adjustment Expenses, Beginning of Fiscal Year $ 4,796,053 $ 6,578,887 Incurred Claims and Claims Adjustment Expenses:

Provision for Covered Events of Current Fiscal Year 1,302,729 1,291,904Change in Provision for Covered Events of Prior Fiscal Years 727,987 (1,613,526)

Total Incurred Claims and Claims Adjustment Expense 2,030,716

(321,622)

Payments:Claims and Claims Adjustment Expenses Attributable to Covered Events of Current Fiscal Year 6,239 58,331Claims and Claims Adjustment Expenses Attributable to Covered Events of Prior Fiscal Years 2,235,839 1,402,881

Total Payments 2,242,078 1,461,212

Total Unpaid Claims and Claims Adjustment Expenses, End of Fiscal Year $ 4,584,691 $ 4,796,053


2014 2013

Claims Reserves $ 2,398,873 $ 2,304,289 Claims Incurred But Not Reported (IBNR) 1,731,128 2,168,598Unallocated Loss Adjustment Expenses (ULAE) 454,690 323,166

$ 4,584,691 $ 4,796,053

RECONCILIATION OF CLAIMS

LIABILITIES BY TYPE OF CONTRACT

Liability ProgramFor the Years Ended

June 30, 2014 and 2013



2014 2013

Unpaid Claims and Claims Adjustment Expenses, Beginning of Fiscal Year $ 8,895,388 $ 8,056,841Incurred Claims and Claims Adjustment Expenses:

Provision for Covered Events ofCurrent Fiscal Year 2,579,373 2,608,197Change in Provision for Covered Events of Prior Fiscal Years

1,676,727 461,422

Total Incurred Claims and Claims Adjustment Expense 4,256,100 3,069,619

Payments:Claims and Claims Adjustment Expenses Attributable to Covered Events of Current Fiscal Year 506,452 450,566Claims and Claims Adjustment Expenses Attributable to Covered Events of Prior Fiscal Years 2,548,032 1,780,506

Total Payments 3,054,484 2,231,072Total Unpaid Claims and Claims Adjustment Expenses, End of Fiscal Year $ 10,097,004 $ 8,895,388


2014 2013

Claims Reserves $ 5,536,725 $ 5,197,284

Claims Incurred But Not Reported (IBNR) 3,859,707 3,162,694

Unallocated Loss Adjustment Expenses (ULAE) 700,572 535,410

$ 10,097,004 $ 8,895,388

RECONCILIATION OF CLAIMS

LIABILITIES BY TYPE OF CONTRACT

Workers’ Compensation Program


40

Liability Workers’ Comp.

Property/Bond Building 2014

Total

ASSETS

Current Assets:Cash and Cash Equivalents $ 383,304 $ 663,879 $ 13,148 $ 5,052 $ 1,065,383 Interest Receivable 38,676 47,271 85,947Member Receivable 328 433,708 60,551 494,587Excess Receivable 606,449 606,449ERMA Dividend Receivable 932,190 932,190Due From Other Funds 72,661 48,441 121,102Prepaid Expenses 345 251 34,264 34,860

Total Current Assets 1,427,504 1,799,999 107,963 5,052 3,340,518Non-Current Assets:

Member Receivable 60,550 60,550Investments 15,410,197 19,106,461 222,363 34,739,021Capital Assets, Net 10,436 10,436 775,939 796,811

Total Non-Current Assets

15,420,633 19,116,897 60,550 998,302 35,596,382

Total Assets 16,848,137 20,916,896 168,513 1,003,354 38,936,900LIABILITIES & NET POSITION

Current Liabilities:Accounts Payable 24,630 55,612 767 779 81,788Accrued Expenses 76,286 55,481 6,935 138,702Committee Training Stipend Payable 8,393 6,104 763 15,260

Due to Other Funds 121,102 121,102Excess Premium Assessments 24,469 24,469Retrospective Premium Adjustment Payable 1,314,915 1,198,160 2,513,075

Unpaid Claims and Adjustment Expenses

1,798,204 2,374,945 4,173,149

Total Current Liabilities

3,222,428 3,714,771 129,567 779 7,067,545

Non-Current Liabilities:Excess Premium Assessments 24,469 24,469Unpaid Claims and Claims Adjustment Expenses

2,786,487 7,722,059 10,508,546

Total Non-Current Liabilities 2,786,487 7,746,528 10,533,015

Total Liabilities 6,008,915 11,461,299 129,567 779 17,600,560Net Position:

Invested in Capital Assets 10,436 10,436 775,939 796,811Unrestricted 10,828,786 9,445,161 38,946 226,636 20,539,529

Total Net Position $10,839,222 $ 9,455,597 $ 38,946 $ 1,002,575 $ 21,336,340

COMBINING STATEMENT OF NET

POSITION

June 30, 2014



Liability Workers’ Comp.

Property/Bond Building 2014

Total

Operating Revenues:Premium Contributions $ 4,985,808 $ 4,855,533 $ 1,558,669 $ $11,400,010 Retrospective Adjustment (1,000,000) (1,000,000) (2,000,000)CARMA Dividend 1,289,022 1,289,022ERMA Dividend 932,190 932,190Other 7,948 2,820 11 10,779

Total Operating Revenues 6,214,968 3,858,353 1,558,680 11,632,001Operating Expenses:

Claims Paid 3,054,484 2,242,078 5,296,562Change in Claims Liabilities (211,362) 1,201,616 990,254Excess Insurance 1,693,021 587,538 1,500,018 3,780,577Program Administration 245,267 331,103 576,370Risk Management 233,324 166,877 400,201Professional Fees 78,999 63,635 1,874 144,508Salaries 513,648 373,562 46,695 933,905Travel and Meetings 40,502 29,421 3,689 73,612CARMA Dividend Refunds 382,087 382,087Facility Expense 35,085 25,516 3,190 63,791Other General and Administrative Expenses

46,751 34,015 4,252 85,018

Total Operating Expenses 6,111,806 5,055,361 1,559,718 12,726,885Operating Income (Loss) 103,162 (1,197,008) (1,038) (1,094,884)

Non-Operating Revenues (Expenses):Investment Income 203,132 248,272 451,404

Facility Expense, Net (29,824) (29,824)

Total Non-Operating Revenues (Expenses) 203,132 248,272 (29,824) 421,580

Change in Net Position 306,294 (948,736) (1,038) (29,824) (673,304)

Net Position, Beginning of Year 10,532,928 10,404,333 39,984 1,032,399 22,009,644

Net Position, End of Year $10,839,222 $ 9,455,597 $ 38,946 $ 1,002,575 $21,336,340

COMBINING STATEMENT

OF REVENUES, EXPENSES AND

CHANGES IN NET POSITION

For The Year Ended June 30, 2014

42

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

Board of Directors and MembersPublic Agency Risk Sharing Authority of California Sacramento, California

We have audited in accordance with the 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 Public Agency Risk Sharing Authority of California (PARSAC) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise PARSAC’s basic financial statements, and have issued our report thereon dated October 23, 2014.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered PARSAC’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 PARSAC’s internal control. Accordingly, we do not express an opinion on the effectiveness of PARSAC’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 PARSAC’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

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 PARSAC’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations and contracts, 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 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 PARSAC’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering PARSAC’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

2014 Annual Report

Please feel free to contact us for additional information.

Public Agency Risk Sharing Authority of California1525 Response Road, Suite 1Sacramento, California 95815

(800) 400-2642 • www.parsac.org

Accredited with ExcellenceSince 1996

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2014 Annual Report

Government & Nonprofit