03-13-2013 Council Agenda - Laserfiche WebLink

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LMCIT's current schedule for the retro close -out currently begins at year 5 with a charge of 23 percent of the city's incurred charges for the retro year and decreases by year until year sixteen when the charge is $0. In other words, after 16 years a city can close a retro year at no charge. The current practice is that even when the retro close -out is free -of- charge, the city still has to specifically elect to do so. Unfortunately, although retro close -out options and charges are communicated to cities, over time and with changing staff it's pretty easy for a city to let the option for no- charge close -out to slip through the cracks. More than one city has been caught by surprise with a retro adjustment after year 16. New LMCIT policy — automatic closure after 16 years To make administration of retro years and retro close -outs easier for cities, LMCIT has changed its policy and will now automatically close -out retros after 16 years. The automatic closure will still be done free -of- charge. Cities will still have the option to keep a retro open beyond 16 years, but will have to specifically elect to do so as part of the retro adjustment process. The time to do that is when the final adjustment statement is sent on a retro year — which is 16 years after the first retro adjustment is made. Retro close -oast charges change in 2011 Charges for closing retro years were developed in ] 996 and have not been updated. LMCIT's retro close -out charge is not intended to exactly replicate the projected development factor on old claims — if it was, we'd be charging close -out costs for 24 years to reflect the actual life of a claim. Rather, the goal has been to reflect approximate claim development costs so that close -out costs are somewhat indicative of anticipated development. To Netter reflect current analysis of claim development costs, LMCIT has revised rates to close -out retro years between year five and 16. The new rates will take effect January 1, 2011. The delay in timing should allow current retro cities to fully evaluate and understand their close -out options, to make an informed decision about how to proceed. Existing and new rates are illustrated below. Policy Maturity (in Years) Retro Close -out Charges Current Retro Close -out Charges Starting 2011 5 23% 29% 6 18% 27% 7 16% 25% 8 15% 22% 9 13% 20% 10 11% 17% 11 9% 14% 12 7% 10% 13 5% 9% 14 3% 7% 15 1% 5% 16 0 0 2 4