HomeMy WebLinkAbout1987-04-21; City Council; 8975; Final payment to Crown LifeCIT^OF CARLSBAD — AGENDA~3ILL
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TITLE:
FINAL PAYMENT TO CROWN LIFE
DEPT. HD.J/
CITY ATTY
CITY MGR.
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accepting the final accounting from Crown Life
RECOMMENDED ACTION:
Adopt Resolution NO. / CJ~ * \ auuc(Ji/J.ny unc IJ.HOJ. av^v^u<jinw-i-"H ' *- ""• — i>~""'
and appropriating the necessary funds to pay the retrospective premium of
$33,243.38.
ITEM EXPLANATION
On December 31, 1985, the City of Carlsbad terminated the Crown Life contract
for employee health/life benefits. The contract included a retrospective
premium provision that stipulated that Crown Life could collect up to 16% of
expected claims during the accounting period if claims experience was adverse.
Claims greatly exceeded premium for the period August 1, 1985 through
December 31, 1985; therefore Crown Life is invoking this provision to reduce the
deficit. The remaining deficit of $88,200.46 will be absorbed by Crown Life.
Exhibit 2 summarizes the final accounting.
The data has been analyzed by Charles A. Bachman, an actuary with Towers,
Perrin, Forster & Crosby, the City's employee benefit consultant. Exhibit 3 is
the letter from TPFC verifying the final accounting.
Payment of the retrospective premium will finalize the termination of the City's
contract with Crown Life. Crown no longer has any remaining responsibility to
continue paying claims, and the final accounting represents the City's last
financial obligation to Crown.
FISCAL IMPACT
The appropriation of $33,243.38 from the contingency fund will reduce the
balance to $213,000.
EXHIBITS
1. Resolution No.
appropriating the necessary funds.
2. Crown Life/Final Accounting.
3. Letter from Charles Bachman.
( accepting the final accounting from Crown Life and
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RESOLUTION NO. 9031
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA, APPROPRIATING $33,2«.38
FOR THE RETROSPECTIVE PREMIUM TO CROWN LIFE
WHEREAS, the City Manager and staff have determined that the final
accounting from Crown Life is correct: and
WHEREAS, additional funds are necessary to pay the retrospective premium
provision; and
WHEREAS, the timely payment of all monies due is necessary to terminate the
City's relationship with Crown Life.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad,
California, as follows:
1. That the above recitations are true and correct.
2. That the Finance Director is authorized to pay the amount of $33,24-3.38
from the contingency fund, thus reducing the available balance in the
contingency fund to $213,000.
PASSED, APPROVED AND ADOPTED at a regular meeting of the Carlsbad City
Council held on the 28th day of April , 1987 by the following
vote, to wit:
AYES: Council Members Lewis, Kulchin, Pettine, Mamaux and Larson
NOES: None
ABSENT: None
'LAUDE A. LEWIS, Mayor
ATTEST:
ALETHA L. RAUTENKRANz City Clerk
(SEAL)
CITY OF CARLSBAD
AUGUST 1, 1985 THROUGH DECEMBER 31, 1985
1. Total Paid Premim $240,632.92
2. Claims
A) cash claims $271,314.08
B) less pooled claims - 28,037.32
C) less reserve at
beginning of period -143,561.54
D) plus reserve at end
of period (annualized) +217,016.54
Total Incurred Claims $ 316,731.76
3. Expenses (12% premium) $ 28,876.00
4. Specific S-L (4.93% med prem) 9,491.00
5. Aggregate Stop-loss 6,978.00
(2.9% premium)
6. Expected claims 195,287.92
(1-3-4-5)
7. Deficit ( 6 - 2 ) (121,443.84)
8. Maximum collectable
(16% of expected claims) 31,246.07
interest Dec 31, 1985 to Dec 1, 1986 1,997.31
9. RETRO PREMIUM DUE $ 33,243.38
CrownLife
B785
TOWERS, PERHN, FORSTER & CROSBY
1925 CENTURY PARK EAST, SUITE 1500
LOS ANGELES, CALIFORNIA 90067-2790
(213) 551-5600
March 12, 1987
Ms. Ann Sommercamp
Senior Management Analyst
City of Carlsbad
1200 Elm Avenue
Carlsbad CA 92008
Re: Crown Life/Final Accounting
Dear Ann:
This letter confirms our earlier discussions about whether the City of
Carlsbad should pay a retrospective premium of $33,243.38. We have
reviewed Crown Life's final accounting and have determined that the final
claim experience resulted in a deficit of $121,443.84 as follows:
8/1/85-12/31/85
Premiums $ 240,632.92
Total Costs 362,076.76
Deficit $(121,443.84)
Crown Life's contract included a retrospective premium provision that
stipulated that Crown Life could collect up to 16% of premiums paid during
the accounting period if claims experience was adverse. Crown Life invoked
this provision to reduce the deficit to the fullest extent possible:
Deficit $(121,443.84)
Retrospective Premium
(16% of expected claims,
or $195,287.92) 31,246.07
Of
Interest at 6.4%
(12/31/85-12/31/86) 1,997.31
Retrospective Premium Due $ 33,243.38
Final Deficit $ (88,200.46)
TOWERS, PERRIN, FORSTER & CROSBY
LETTER TO Ms. Ann Sommercamp
SHEET NO. TWO
DATE March 12, 1987
During our discussions with Crown Life, we identified two errors on the
original accounting, which produced some initial confusion—the numbers
didn't add up. Crown Life corrected these errors, and their revised
accounting is attached.
We were concerned about the level of increase in the ending claim reserve
(from $143,561 to $217,016) and believed Crown Life was being unfair in
their final accounting. They cited a contract change that increased their
formula for calculating the ending claim reserve. Practically speaking,
however, the increase had no effect on the final retrospective premium
calculation. Without the reserve increase, the deficit would have been
$47,988.84 and Crown Life would still have called the $33,000 retro-
spective premium.
We enclose Crown Life's final accounting. If you have any questions,
please call.
Sincerely,
Charles A. Bachman
Consultant
CAB/na
Enclosure
cc: J. Pieti
J. Foreman