Finance-Auditing Committee/Committee of the Whole Meeting of February 27, 2014

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1 Agenda Item No. (7) To: From: Subject: Finance-Auditing Committee/Committee of the Whole Meeting of February 27, 2014 William Stafford, Director of Risk Management and Safety Kellee Hopper, Deputy General Manager, Administration Joseph M. Wire, Auditor-Controller Denis J. Mulligan, General Manager APPROVE RENEWAL OF THE MARINE INSURANCE PROGRAM Recommendation The Finance-Auditing Committee recommends that the Board of Directors approve renewal of the Marine Insurance Program, as follows: a. Renew the Hull & Machinery/Protection and Indemnity Insurance policy with AGCS Marine Insurance Company (50%), National Union (25%), and Starr Indemnity (25%), with an annual aggregate deductible of $350,000 and a limit of liability of $1,000,000, including Terrorism Risk Insurance Act (TRIA) endorsements for the 2014 Policy Year, at an annual premium of $300,621, for a one-year term, effective February 28, 2014; b. Renew the Excess Marine Liability Insurance policy (including Terminal Operator s Legal Liability and Excess Protection and Indemnity Insurance) with Starr Indemnity, National Union, AGCS Marine, Liberty Mutual, United States Fire, Atlantic Specialty and Great American, with a limit of liability of $100 million, including TRIA endorsements for the 2014 Policy Year, at an annual premium of $154,002 for a one-year term, effective February 28, 2014; and, c. Renew the Vessel Pollution Liability Insurance policy with Great American at an annual premium of $6,081, for a one-year term, effective February 28, 2014; with the understanding that requisite funds in the amount of $460,704 are available in the FY 13/14 Ferry Transit Division Operating Budget and will be budgeted in the FY 14/15 Ferry Transit Division Operating Budget. Summary Overview of Marine Insurance Program The District s Marine Insurance Program, which renews on February 28, 2014, is comprised of the Hull and Machinery/Protection and Indemnity Insurance, Vessel Pollution Insurance, and BOX 9000, PRESIDIO STATION SAN FRANCISCO, CA

2 Finance-Auditing Committee/Committee of the Whole Agenda Item No. (7) Meeting of February 27, 2014 Page 2 Excess Marine Liability Insurance (including Terminal Operator s Legal Liability and Excess Protection and Indemnity Insurance). Currently, the District purchases Hull and Machinery/Protection and Indemnity Insurance in amounts equal to the approximate replacement costs of the ferry vessels along with primary Protection and Indemnity limit of $1 million per occurrence. The current limit of liability for the Excess Protection and Indemnity Insurance and the Marine Liability Insurance is $100,000,000. The current Annual Aggregate of $350,000 remains unchanged. However, there were several changes to the terms and conditions for 2014 renewal. - The Insurers increased the District s Protection and Indemnity Self-Insured Retention (SIR) from $10,000 to $20,000, per claim. After application of the above self-insured retentions all claims amounts shall be subject to a $350,000 Annual Aggregate SIR. The machinery damage claim SIR remains at $50,000 for each accident occurrence. - Underwriters (AGCS) will approve a panel of Marine Attorneys to represent the District in the event legal representation is required. - Underwriters (AGCS) and the District will agree mutually on the appointment of all defense Council. - Quarterly reports are to be provided to Underwriters (AGCS) on all open claims files, by Adjusters and/or Attorneys. - Loss Control review will be conducted by underwriters (AGCS) during the 2014 policy year. This year s Marine Insurance Program renewal represents the 6th renewal by Alliant Insurance Services (Alliant), with which the District executed a professional services agreement for Marine and Property Insurance brokerage services in November, In the Marine Insurance marketplace, premiums are rising, even for risks with minimal or no reported losses. The premium increases after many years of premium decreases are due 3 major factors: The marine market has been hit hard by major losses. The grounding of the Costa Concordia and Hurricane Sandy made a significant impact on the reinsurance market; The London market, which takes a lot of risk in the international marine passenger market, has announced a 125% rate increase for all passenger vessels; and, The U.S. domestic market is seeing increased premium demand from reinsurers with associated rate increases. The District continued to work aggressively over the last several years to reduce its loss experience and claims frequency, and has succeeded in large part. Workplace claims by employees on District vessels, however, are not covered by the statutory no-fault California workers compensation system. Instead, they are governed by the Jones Act. These Jones Act claims can be costly given the generous statutory framework governing such claims.

3 Finance-Auditing Committee/Committee of the Whole Agenda Item No. (7) Meeting of February 27, 2014 Page 3 Developments in 2013 had an effect on our Marine Insurance Program renewal: There are four Jones Act claims that could be costly for the District. These losses likely will breach the aggregate of $350,000 for three out of the last five years in one of those years, losses significantly exceeded that number. Proposed Renewal Hull and Machinery/Protection and Indemnity Insurance This renewal period, the District received quota share premium quotes from the current carrier, AGCS 50% (Fireman s Fund/Allianz), as well as from National Union (25%), and Starr Indemnity (25%). The expiring premium for this program is $261,410. The renewal premium is $300,621, representing an increase of approximately 15%. The recommended option is to enter into an agreement with AGCS, AIG and Starr Indemnity for the complete $15,000,000 limit Marine Insurance package. Excess Marine Liability Insurance Starr Indemnity, National Union, AGCS, Atlantic Specialty. Great American, United States Fire and Liberty Mutual are recommended as carriers for the Marine Excess Liability program. The expiring premium for these excess layers was $136,643. The renewal premium is $154,002, representing an increase of approximately 13%. This portion of the program has limits of $100,000,000. Vessel Pollution Liability Insurance The renewal quote for the District s Vessel Pollution with Great American is $6,081. The expiring premium was $5,461. This program has limits of $5,000,000. Other Marketing Results Alliant, the District s broker, secured two alternative price quotes. The first option does not have the $350,000 aggregate, which is good, but also has a cost of $650,000 as opposed to the recommended program cost of $300,621. This option was not cost-effective. The second quote was from a London-based P & I Club was for $1,285,002. (See Appendix A & B) Conclusion The total cost of the expiring Marine Insurance Program was $403,514. The total cost for renewal of the 2014 Marine Insurance Program, including terrorism insurance, based upon the above-recommended quotes, is $460,704. This represents a 14.2% increase.

4 Finance-Auditing Committee/Committee of the Whole Agenda Item No. (7) Meeting of February 27, 2014 Page 4 Fiscal Impact Approval of the recommendation would cost the District $460,704. Requisite funds are available in the FY 13/14 Ferry Transit Division budget to cover the premium payments in FY 13/14, and will be included in the FY 14/15 Ferry Transit Division budget to cover FY 14/15 premium payments. Attachments: Appendix A: An eight year summary of the District s premium and exposure history. Appendix B: A detailed overview of the structure, limits, insurance carriers and premiums.

5 MARINE INSURANCE PROGRAM NET PREMIUM / EXPOSURE HISTORY APPENDIX A Coverage 2007 / / 2009 (1) 2009 / / / / 2013 (2) 2013 / / 2015 Number of Vessels Hull & Machinery Values $37,558,723 $43,558,723 $53,798,723 $54,663,723 $54,663,723 $62,558,723 $62,558,723 $62,558,723 Hull & Machinery / Increased Value $153, $175, $152, $136, $136, $164, $174, $200, Protection & Indemnity $89, $86, $82, $74, $74, $74, $81, $94, TRIA (H&M / P&I) $12, $9, $9, $8, $8, $9, $5, $5, Total $255, $272, $243, $219, $219, $248, $261, $300, Vessel Pollution $4, $5, $5, $5, $5, $5, $5, $6, Excess Liabilities Including TRIA $48, $48, $50, $50, $50, $50, $52, $60, $15,000,000 excess of $1,000,000 Excess Liabilities Including TRIA $10,000,000 excess of $15,000,000 Excess Liabilities Including TRIA $75,000,000 excess of $25,000,000 TOTAL $9, $55, $372, $9, $55, $390, $381, $356, $356, $386, $17, $66, $403, $19, $73, $460, (1) Includes two additional ferries added mid-term policy year. (2) Includes increase in hull values for 2012/2013 policy year. 2014/2015: 66.5% increase in hull values since % increase in premiums

6 Marine Insurance Program 2014 / 2015 APPENDIX B $100M AGCS Marine Insurance Company %; Liberty Mutual Insurance Company %; Atlantic Specialty Insurance Company %; Great American Insurance Company of NY %; National Union Fire Ins Co of Pittsburgh PA %; United States Fire Insurance Co % Net Renewal Premium: $73, Net Expiring Premium: $66, $ 25M National Union Fire Insurance Company of Pittsburgh - 50% Liberty Mutual Insurance Company 50% Net Renewal Premium: $19, Net Expiring Premium: $17, $ 15M Starr Indemnity & Liability Company - 100% (Starr Marine Agency of California) Net Renewal Premium: $60, Net Expiring Premium: $52, $ 5M $ 2M $ 1M Hull & Machinery / Protection & Indemnity Net Renewal Premium: $300, Net Expiring Premium: $261,410 AGCS Marine Ins. Co. (50%) National Union Fire Ins. Co. (25%) Starr Indemnity & Liability Co. (25%) Starr Indemnity & Liability Company Terminal Operators/ Wharfingers Liabilities Net Premium: Included The Great American Ins. Co. of New York Vessel Pollution Liability OPA/CERCLA* Net Renewal Premium: $6, Net Expiring Premium: $5, $350,000 Agg. No Deductible $100,000 Self-Insured Retention