HomeMy WebLinkAboutResolution - 2010-R0005 - Purchase Property Insurance For John T. Montford Dam - 01/14/2010Resolution No. 2010-R0005
January 14, 2010
Item No. 5.5
RESOLUTION
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK:
THAT the Mayor of the City of Lubbock or his designee BE and is hereby authorized
and directed to purchase for and on behalf of the City of Lubbock, property insurance by and
between the City of Lubbock and ACE Fire Underwriters Insurance Company in the amount of
$50,000,000 insurance coverage for Montford Dam. pursuant to the terms and conditions
attached hereto as Exhibit "A," and in a final form acceptable to the City Manager and City
Attorney for a total premium in an amount not to exceed $130.870: and
THAT the City Manager or designee may execute any routine documents and forms
associated with said insurance coverage.
Passed by the City Council this 14th day of January . 2010.
� �'� ,, W'; 0 —
TOM MARTIN, MAYOR
ATTEST:
Qa. -'r, e- 4, — - —a
Rebecc arza, City Secretary
APPROVED AS TO CONTENT:
Leisa'Hut on. Human Resources and
Risk Management
gsiccdocsiRes.Agrmnt-COL & ACE Fire Underwriters Ins Co
January 6, 2010
Resolution No. 2010—R0005
JOHN T. MONTFORD DAM / CITY OF
LUBBOCK, TX / LAKE ALAN HENRY
PROPERTY INSURANCE RENEWAL PROPOSAL
JANUARY 18, 2010 TO JANUARY 18, 2011
CARRIER: ACE FIRE UNDERWRITERS INSURANCE COMPANY
PARTICIPATION: 100% ($50,000,000)
PREMIUM: $118,973 plus $11,897 Terrorism
RATE: 0.1565
BEST'S RATING: A+ XV
X- 1 e I �0 -k k ". 9 1
Executive Summary
INTRODUCTION
NAPCO LLC is pleased to partner with Wells Fargo Insurance Services of Texas, Inc. and the
John T. Montford Dam/City of Lubbock, and we are grateful to have been given the opportunity
to provide our Property Insurance Renewal Proposal.
NAPCO prides itself on providing our clients with the highest level of professional program
design, marketing and service delivery. Our goal is to continue our long-term business
partnership with Wells Fargo Insurance Services of Texas, Inc. and John T. Montford Dam/City
of Lubbock. We recognize that in order to achieve this goal, we must continue to establish trust
and commitment to positively impact our mutual relationship.
BRIEF MARKET UPDATE
As we reach the end of the 2009 hurricane season, the property catastrophe insurance market
continues to stabilize and show increasing flexibility. A much anticipated hard market did not
emerge due to both the benign wind season and improving carrier investment returns creating an
abundance of capacity for insurers to deploy. With 2008's 16 named storms, including seven
hurricanes, coupled with the ongoing global financial upheaval, 2009 was perceived to possess
the characteristics to turn the market. However, those expectations fortunately evaporated when
2009's wind season generated only 10 named Atlantic storms (two hurricanes), causing minimal
damage, generating minimal penetration to surplus, and thus failing to generate significant
market response.
Insurance carriers' dreadful financial performance in 2008 continued into the first half of
2009, but surging third quarter profits offered relief.
• Driven by investment losses, net income for private propertyrcasualty insurers fell 59.31/6 to
$5.8 billion in the first half of 2009 from $14.1 billion a year earlier, including a $1.3 billion
after-tax net loss in the first quarter. The industry's worst first quarter on record was fueled
by a combination of poor underwriting results and a 700,'6 decrease in net investment gains,
according to ISO.
• Improved investment gains in the second quarter drove down the combined ratio to 99.5 from
100.9 in the first quarter of 2009 and 104.1 in the second quarter of 2008.
• Policyholders' surplus- --a measure of underwriting capacity --is creeping upward after a
steep decline. Surplus rose 1.6° o in the first half of 2009 to $463 billion.
• Carriers' third-quarter profits surged on sharply lower catastrophe losses and improved
investment returns, though sluggish economic activity suppressed premium growth and put
pressure on rates.
What does this mean? We can expect, going forward, that rates will continue to stabilize as long
as investment income and underwriting profits are achieved by the carriers. Competition is still
flourishing within the market place, demanding the marketing broker to be proactive on carrier
changes to guidelines, appetites, and capacity. A key driver of stable pricing for catastrophe -
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driven risks is the ability to generate competition among carriers by proposing to utilize the right
capacity in just the right way.
• Rate reduction availability would seem to increase through both program design and if the
insured's loss experience and loss prevention techniques are favorable.
• Incumbent carriers will become more competitive to retain their renewals.
• Reinsurance rates have stabilized and some treaty rate reductions are anticipated in January.
• Coupled with increasing capacity, avenues for more competitive pricing will broaden.
Although carriers are replenishing surplus, due to their positive underwriting and investment
income, the catastrophe market is not yet ready to be labeled as completely soft as the recovery
process is still sensitive from two severely punishing loss years.
The economic struggles of buyers will continue to influence rating bases (assets./payrolls), loss
retention (deductibles), peril/coverage retention (limits), and carrier pricing. The volatile stock
market will continue to pressure carriers to produce true underwriting profit. Today's fluctuating
capital (due to investment volatility + underwriting loss/gain) and policyholder's surplus have
caused the rating agencies to more strongly dictate the degree of writings a carrier can take on
affecting both premium and catastrophe capacity that can be allocated. Absent a major
catastrophe though, or series of catastrophes, the prospects of a hardening market becomes more
remote as carriers' financial results improve and competition intensifies. The current reinsurance
market seems also to be experiencing stability between supply and demand—further leading to
increasing competition. These realities place an ever growing importance on program design and
specific market targeting.
THE MARKETING EFFORT
The price of "insurance" has historically fluctuated depending on the state of the market coupled
with how the market perceives John T. Montford Dam/City of Lubbock's particular exposures
and excellent individual loss history. Our primary objective remains constant -- to assist you
using a controlled marketing approach in order to manage these fluctuations. By focusing on
market additions and exploring alternative programs, our goal is to design and implement a
property insurance program which protects John T. Montford Dam/City of Lubbock's physical
assets and earnings while optimizing John T. Montford Dam/City of Lubbock's total cost of risk
(retention + risk transfer costs).
The key element in our approach to John T. Montford Dam/City of Lubbock's program was to
maintain the optimal balance of pricing and coverage - in a changing marketplace – through
negotiations with incumbent carriers. This strategy takes advantage of today's favorable pricing
and coverage environment due, in large part, to the past two years of minor industry catastrophe
losses. In keeping pace with the changing market conditions, our overall objectives included:
• Working closely with Wells Fargo Insurance Services of Texas, Inc. to secure
accurate and up-to-date information.
• Containing John T. Montford Dam/City of Lubbock's risk transfer and risk
retention costs through effective program design.
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Providing John T. Montford Dam/City of Lubbock's with aggressive, yet professional
representation in the insurance market, by accessing the allocated standard, surplus lines
and reinsurance capacity assigned to NAPCO.
Designing an efficient and effective program through capturing underwriter's (comfort
zone) capacity enhancing John T. Montford Dam/City of Lubbock's flexibility to react
to market swings.
Maximizing carriers' net and treaty capacity, minimizing the need for facultative
reinsurance, further insulating the program from market swings.
TERRORISM
Terrorism Risk Insurance Act of 2002 (TRIA) / TRIA Extension Act of 2005 / Terrorism
Risk Insurance Program Reauthorization Act of 2007 (TRIPRA)
The tragic events of September 11, 2001 caused Congress to pass the Terrorism Risk Insurance
Act of 2002 (TRIA). The Act provide; that all property and casualty insurers must offer their
policyholders the opportunity to purchase coverage for acts of terrorism, while providing a
temporary program that, in the event of major terrorist attack, allows the insurance industry and
federal government to share losses according to a specific formula. TRIA was signed into law
on November 26, 2002 and renewed again for two years in December 2005. Passage of TRIA
enabled a market for terrorism insurance to begin to develop because the federal backstop
effectively limits insurers' losses, greatly simplifying the underwriting process. TRIA was
extended for another seven years to 2014 in December 2007.
The following describes various aspects of the Act, including amendments incorporated by the
recent TRIPRA:
♦ Under the Act, Insurers are obliged to offer coverage for certified acts of terrorism through
December 31, 2014. We have shown these premiums separately as required under the Act.
♦ An act of terrorism is defined as any act that is certified by the Secretary of the Treasury, in
concurrence with the Secretary of State and the Attorney General of the United States:
1. To be an act of terrorism;
2. To be a violent act or an act that is dangerous to human life, property or infrastructure;
3. To have resulted in damage within the United States or outside the United States in the
case of certain aircraft or vessels, or on the premises of a United States mission; and
4. To have been committed by an individual or individuals as part of an effort to
coerce the civilian populations of the United States or to influence the policy or
affect the conduct of the United States Government by coercion.
♦ No act will be certified as an act of terrorism if:
It does not meet the above criteria;
The act is committed as part of the course of war declared by Congress;
Losses resulting from the act, in the aggregate for insurance subject to TRIA, do
not exceed $5,000,000.
♦ The following are some of the more significant changes in the recent extension of the Act:
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• The definition of a certified act of terrorism was revised to eliminate the requirement
that the individual(s) are acting on behalf of any foreign person or foreign interest.
For policies in effect prior to December 26, 2007 with terms ending after
January 1, 2008, insurers are not required to offer the expanded coverage of
"domestic" acts of terrorism.
• Requires clear and conspicuous notice to policyholders of the existence of the $100
billion aggregate cap to policyholders.
• The insurer's deductible remains at 20 percent of an insurer's direct earned premium.
and the federal share of compensation is 85 percent of insured losses that exceed
insurer deductibles.
• The program trigger is at $100 million for all additional program years.
• The industry as a whole must cover a certain amount of the losses through deductibles
and copayments. This amount is $27.5 billion in 2007. If this retention is found to be
below this amount, the federal government can recoup the difference between the
actual amount it paid and the required retention by applying surcharges not to exceed
3 percent of premium.
Insurers do have to comply on policies with an inception date of December 26, 2007 and
forward. The Department does recognize that with the late date of passing the Act, insurance
companies may not have the necessary wordings to address this change and have given them
until March 31, 2008 in order to reach the compliance demanded to meet the Act.
This may result in some late documentation, although all insurance companies are striving to
comply as soon as possible.
Non- Certified Acts of Terrorism
This coverage is available from many carriers now, though usually only if TRIPRA is purchased.
As with TRIPRA, pricing and forms vary considerably from company to company. Some
merely do not attach a terrorism exclusion; some have a special endorsement attached to the
policy form. Additional information is available upon request.
CONCLUSION
Once again, your NAPCO team extends its thanks for the privilege of partnering with Wells
Fargo Insurance Services of Texas. Inc. and John T. Montford Dam/City of Lubbock on this
program. We appreciate all the help and information supplied to us by both Wells Fargo
Insurance Services of Texas, Inc. and John T. Montford Dam/City of Lubbock.
Beyond taking great pride in the program we have negotiated on your behalf, we truly value our
business relationship with Wells Fargo Insurance Services of Texas, Inc. and John T. Montford
Dam/City of Lubbock and look forward in continuing to add value in your Property Insurance
Renewal Program.
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NAPCOLLC
AUTHORIZATION OF PROPERTY INSURANCE
This authorization of insurance may not comply with the specifications submitted for consideration. Please read this
authorization carefully and review the policy forms for the actual coverages provided. Please provide written instructions
to NAPCO in order to effect such coverage with the insurance companies outlined herein. This insurance quotation will
be terminated and superseded upon delivery of the formal Confirmation of Insurance issued to replace it.
Named Insured:
Mailing Address:
Policy Period:
John T. Montford Dam / City of Lubbock, TX / Lake Alan Henry
P.O. Box 2000
Lubbock, TX 79457
I
1 January 18, 2010 to January
address.
18, 2011 at 12:01 AM local time of the insured
Coverages: Property Damage, Newly Acquired Property, Debris Removal, Pollutant Clean-
up, including Terrorism, and as more fully defined in the expiring ACE
Engineered Risk Manuscript policy form.
Perils: All risks of direct physical loss or damage including Flood, Earth Movement
and Named Windstorm, excluding Boiler & Machinery.
Territory: This policy covers within the fifty (50) states comprising the United States of
America and the District of Columbia.
Limits of Liability: $ 50,000,000 per occurrence, except:
The following sublimits do not increase the above -stated per occurrence limit
of liability:
$ 50,000,000 per occurrence as respects Property Damage;
$ 10,000,000 per occurrence and in the annual aggregate as respects Flood;
$ 10,000,000 per occurrence and in the annual aggregate as respects Earth
Movement;
501'0 of the amount of loss, subject to a maximum of $2,500,000 per
occurrence as respects Debris Removal.
$ 2,500,000 per occurrence as respects Newly Acquired (90 Days Reporting);
$ 1,000,000 per occurrence as respects Valuable Papers;
$ 1,000,000 per occurrence as respects Accounts Receivable;
$ 1,000,000 per occurrence as respects Demolition and Increased Cost of
Construction;
$ 1,000,000 per occurrence as respects Intake Tower and Outlet Works;
$ 100,000 per occurrence as respects Transit;
$ 100,000 per occurrence as respects Intake Bridge;
$ 25,000 per occurrence and in the annual aggregate as respects Pollutant
Clean-up and Removal;
And as more fully defined in the expiring ACE Engineered Risk Manuscript
policy form.
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NAPCOLLC
AUTHORIZATION OF PROPERTY INSURANCE
This authorization of insurance may not comply with the specifications submitted for consideration. Please read this
authorization carefully and review the policy forms for the actual coverages provided. Please provide written instructions
to NAPCO in order to effect such coverage with the insurance companies outlined herein. This insurance quotation will
be terminated and superseded upon delivery of the formal Confirmation of Insurance issued to replace it.
Deductibles: $2,000,000 per occurrence all covered loss.
Valuation: Real and Personal Property - Replacement Cost if replaced, otherwise Actual
Cash Value.
And as more fully defined in the expiring ACE Engineered Risk Manuscript
policy form.
Form: Per the expiring ACE Inland Marine - Engineered Risk Manuscript Policy
Form/Follow Form, including, but not limited to the following mandatory
company forms/endorsements:
• ACE USA Pollution and Contamination Exclusion
• Electronic Data/Cyber Risk Endorsement
• Asbestos Exclusion; Mold/Fungus Exclusion
• Nuclear, Chemical and Biological Exclusion
• Terrorism Exclusion -- refer to Optional Terrorism Coverage offered herein
Cancellation: Notice of Cancellation or Non -Renewal:
- 60 Days Written Notice.
- 10 Days Written Notice for Non -Payment of Premium.
Other Conditions: • Loss of Revenue Endorsement -- Not Covered
• Fire Department Service Charge -- Not Covered
• Expediting Expense - Not Covered
• Extra Expense - Not Covered
1 • Loss Adjustment Expenses -Not Covered
TIV: $76,044,754 (represents a 6.1% increase from expiring values)
Annual Premium: $ 118,973 Property Premium
$ 11,897 Premium for Optional Terrorism Coverage
$ 130,870 Total (plus any applicable taxes/surcharges/fees)
Minimum Earned: 25%
Insurer: ACE Fire Underwriters Insurance Company (Admitted)
Best's Rating: A+ XV _ ------
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Account Team
Contact Phone No. E -Mail
Marketing Broker: John M. Carlsen 732-603-2061 jcarlsen r6NAPCO11c.com
Sr. Account Manager: Jennifer Ryan
Placement Associate: Marco Perci
732-603-2083 jKyan6E4NAPC011c.com
732-603-2070 mperci@LNAPCO11c.com
NAPCO LLC
333 Thornall Street, 91h Floor, Edison, NJ 08818
Tel: 732-549-5222 Fax: 732-549-0221
www.napcollc.com
NAPCOLLC
NAPCO has used due care in the preparation of this document. Our information has been obtained from sources we
consider to be reliable, but its accuracy or completeness is not guaranteed. NAPCO shall owe no liability
whatsoever to any person for any loss or damage caused by or resulting from any error in such information.
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