In a memorandum to Committee, Director of Risk Management/Safety William Stafford, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a status report on the District’s Marine Insurance Program, including the current market conditions, as well as the efforts made in the Ferry Division to reduce its loss experience. This program renews on February 28, 2007.

The report stated that the Marine Insurance Program is comprised of Hull and Machinery/Protection and Indemnity Insurance, Vessel Pollution Insurance and Marine Liability Insurance (including Terminal Operator’s Legal Liability and Excess Protection and Indemnity Insurance). The premium cost for Hull and Machinery/Protection and Indemnity policy of insurance was higher prior to 2004, but has begun to decline and become more stable in recent years for Marine accounts with a favorable loss history due to an increased level of competition in the Marine insurance market. As a result, staff has requested that Marsh Risk & Insurance Services (Marsh), the District’s insurance broker, expand their marketing efforts this year after limited marketing in 2006.

The report also stated that, over the past three years, the Ferry Division has developed a favorable loss history by instituting proactive risk management practices for the reduction of loss and claims, including a hazard analysis program and scheduling maintenance activity at non-peak times.

The report further stated that the District purchases Hull and Machinery/Protection and Indemnity Insurance in amounts equal to the approximate replacement costs of its Ferry vessels, along with primary Protection & Indemnity limits of $1,000,000. The limits of liability for the excess Protection & Indemnity and Marine liabilities were raised from $75,000,000 to $100,000,000 in 2006, given the scope of potential loss from Marine operations. Staff anticipates that the FY 07/08 premium quotations will be in the range of plus or minus five percent of the expiring premium of $542,700. A copy of the staff report is available in the Office of the District Secretary and on the District’s web site.

At the meeting, William Stafford provided a brief overview of the District’s Marine Insurance Program and stated that, over the past few years, Ferry operations have improved significantly from a risk management perspective. He stated that the improvements can be attributed to the actions taken by the Ferry Division management, including placing a high priority on correcting unsafe conditions and establishing better follow-through on accident investigation.

Discussion ensued, including the following:

• Director Middlebrook requested an update on the status of the pending litigation against Marsh and McLennan Companies, Inc., et al initiated by the District as it may bear on the contractual relationship with Marsh. In response, Mr. Wire stated that in 2003, the Board authorized a Professional Services Agreement with Marsh for a three-year term, with two one-year extensions, and that currently the District has exercised the first one-year extension, and plans on exercising its option for the second and final one-year extension. Mr. Miller stated that, after discussion with the special counsel involved in the litigation, it was determined that it would not be prejudicial to the District to continue the insurance broker services with Marsh, as a business decision, without implications to the litigation.

• Chair Pahre commented that if the percent of change of the expiring premium is plus or minus five percent, as expected, there could be a significant financial savings of $25,000. In response, Mr. Wire stated that staff developed the budget based on projections made by Marsh last year, which show the projected premiums as a three to five percent increase over the previous year’s premiums. He concurred that if the premiums decrease or remain the same, the difference will be a significant savings to the District and, with future financial projections, can cause considerable savings to the overall deficit. Mr. Wire noted that the District is benefiting from the measures that were implemented by Ferry Division management to reduce loss, making the District more marketable. He also noted that the insurance market is cyclical and that the current market is soft, which promotes lower rates.

Action by the Board – None Required

There was no public comment.

All business having been concluded, the meeting was adjourned at 10:25 a.m.