MICA financial statements for year ended April 30, 2016Municipal Insurance Cooperative Agency
November 1, 2016
Dear MICA Members,
Enclosed you will find MICA's audit report for the period ended April 30, 2016 and 2015.
If you have any questions, please contact me by phone at 309 -454 -9742 or by e-mail at
ahuhn@normai.org, or contact Felicia Rice by phone at 309 -433 -3407 or by e-mail at
friceCcr�.normal.ora.
Sincerely,
Andrew Huhn
MICA Treasurer
Enclosure
n UPTOWN CIRCLE, 3RD FLOOR, NORMAL, IL 6176,.
(309)433 -3407
Cliftonl-arsonAllen LLP
wnw .cliftonlaroonalIBn.corn
clfftonLarsonAllen
Board of Directors
and Management of Municipal Insurance Cooperative Agency
Normal, Illinois
In planning and performing our audit of the financial statements of Municipal Insurance Cooperative Agency as
of and for the year ended April 30, 2016, in accordance with auditing standards generally accepted in the United
States of America, we considered the entity's internal control over financial reporting (internal control) as a
basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our
opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. Accordingly, we do not express an opinion on the effectiveness of the entity's internal
control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant
deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified.
However, as discussed below, we identified a certain deficiency in internal control that we consider to be a
material weakness.
A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial
statements will not be prevented, or detected and corrected, on a timely basis.
Material weakness
We consider the following deficiency in the entity's internal control to be a material weakness.
* During the audit process, we noted that certain reinsurance receivables were not recorded at April 30,
2016. We proposed an adjustment to correct this and reviewed it with MICA. Lack of adequate controls
over year end accrual adjustments can result in misstated account balances. We recommend a review
of reinsurance due at year end to strengthen the review process over year end journal entries when
adjusting the cash basis records to accrual basis.
Significant deficiency
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe
than a material weakness, yet important enough to merit attention by those charged with governance. We
consider the following deficiency in the entity's internal control to be a significant deficiency:
We noted an error in the calculation of the IBNR by the actuary due to an incorrect period loss fund
for one year. This resulted in an understatement of the IBNR and related claims expense. We
recommend a close review of the information used in the actuary report to ensure it matches your
claims information.
We will review the status of these comments during our next audit engagement. We have already discussed the
comments and suggestions with various entity personnel, and we will be pleased to discuss them in further
detail at your convenience, to perform any additional study of these matters, or to assist you in implementing
the recommendations.
This communication is intended solely for the information and use of management, Board of Directors, and
others within the entity, and is not intended to be, and should not be, used by anyone other than these
specified parties.
CliftonLarsonAllen LLP
Normal, Illinois
October 24, 2016
FINANCIAL STATEMENTS AND AUDITORS' REPORT
MUNICIPAL INSURANCE COOPERATIVE AGENCY
April 30, 2016 and 2015
-I -
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS
STATEMENTS OF NET POSITION
STATEMENTS OF REVENUES AND EXPENSES 10
STATEMENTS OF CHANGES IN NET POSITION 11
STATEMENTS OF CASH FLOWS 12
NOTES TO FINANCIAL STATEMENTS 13
REQUIRED SUPPLEMENTARY INFORMATION
RECONCILIATION OF CLAIMS LIABILITIES BY TYPE OF CONTRACT
Year Ended April 30, 2016 21
Year Ended April 30, 2015 22
CLAIMS DEVELOPMENT INFORMATION
2-
23
CliftonLwDr Aliern LLP
www.cliftonlarsonallen.com
Clifton LarsonAllen
INDEPENDENT AUDITORS` REPORT
Board of Directors
Municipal Insurance Cooperative Agency
Normal, Illinois
Report on the Financial Statements
We have audited the accompanying financial statements of the Municipal Insurance Cooperative
Agency, as of and for the year ended April 30, 2016, and the related notes to the financial statements,
which collectively comprise the entity's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity's internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
3-
Opinion
In our opinion, the 1015 tnancial statements referred to above present fairly, in all material respects, the
financial position of the Municipal Insurance Cooperative Agency as of April 30, 2016, and the changes
in its financial position and its cash flows for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Other Matters
2015 Financial Statements
The 2015 financial statements were audited by Guthoff Mehall Alien & Company, P.C., whose practice
became part of CliftonLarsonAllen LLP as of January 1, 2016, and whose report dated September 4,
2015, expressed an unmodified opinion on those statements.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's
Discussion and Analysis, the Reconciliation of Claims Liabilities by Type of Contract and Claims
Development Information on pages 5 through 8 and 21 through 23 be presented to supplement the
basic financial statements. Such information, although not a part of the basic financial statements, is
required by the Governmental Accounting Standards Board who considers it to be an essential part of
financial reporting for placing the basic financial statements in an appropriate operational, economic, or
historical context. We have applied certain limited procedures to the 2016 required supplementary
information in accordance with auditing standards generally accepted in the United States of America,
which consisted of inquiries of management about the methods of preparing the information and
comparing the information for consistency with management's responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial
statements, We do not express an opinion or provide any assurance on the information because the
limited procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance. The 2015 and prior years information was subjected to the same limited procedures in the
previous audits by Guthoff Mehall Allen & Company, P.C. and no opinion was expressed on it. As noted
on page 23, the Claims Development Information for 2007 to 2013 does not include the required IBNR
calculations. Our opinion on the basic financial statements is not affected by this material departure
from accounting principles generally accepted in the United States of America.
CliftonLarsonAllen LLP
Normal, Illinois
October 24, 2016
4
Municipal Insurance Cooperative Agency
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended April 30, 2016 and 2015
As the management of the Municipal Insurance Cooperative Agency (MICA), we offer readers of MI-
CA's financial statements this narrative overview and analysis of the financial activities of MICA for the
fiscal years ended April 30, 2016 and 2015. We encourage readers to consider the information presented
here in conjunction with MICA's financial statements, which begin on page 9.
Financial Hishliehts
■ Net position increased by $2,015,635 to $4,241,069 in 2016 and decreased by $99,216 to $2,225,434
in 2015.
• Cash and investments increased by $1,108,944 to $21,777,340 in 2016 and increased by $851,364 to
$20,668,396 in 2015.
« MICA had net gain of $2,015,635 in 2016 and net loss of $99,216 in 2015. The net gain in 2016 is
due to an increase in refunds and subrogation. The net loss in 2015 is due to an increase in IBNR re-
serves and a decrease in the fair value of investments.
« Member rebates were not issued in 2016 and 2015.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to MICA's basic financial statements.
MICA is a public entity risk pool in which funds are used to account for the financing of risks, exposures
or liabilities of other units of government or other governments. MICA operates as a single proprietary
fund, more specifically as an enterprise fund, in accounting for members' participation in the public entity
self - insurance pool. Revenue and expenses are recognized on an accrual basis.
MICA's basic financial statements are comprised of two components, the financial statements and notes
to the financial statements. This report also contains other supplementary information in addition to the
basic financial statements.
Financial Statements
The financial statements are designed to provide readers with a broad overview of MICA's finances, in a
manner similar to a private- sector business.
■ The statement of net position presents information on all of MICA's assets and liabilities with the
difference reported as net position. Net position represents accumulated earnings and is summa-
rized by program year.
■ The statement of revenues and expenses presents operating revenues, operating expenses and in-
vestment income or losses for the fiscal year.
■ The statement of changes in net position presents the beginning and ending net position as adjust-
ed by net income or loss.
5-
Municipal Insurance Cooperative Agency
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended April 30, 2016 and 2015
Financial Statements — continued:
■ The statement of cash flows presents information on cash flows provided by and used in activi-
ties. The activities are classified into operating activities or investing activities.
Notes to the financial statements
The notes provide additional information that is essential to a full understanding of the data provided in
the financial statements. The notes to the financial statements begin on page 13.
Other information
In addition to the financial statements and accompanying notes, this report also presents certain required
supplementary information concerning reconciliation of claim liabilities by type of contract and claim de-
velopment. Required supplementary information begins on page 21 of this report.
Financial Analysis
The largest portion of MICA's assets as of April 30, 2016, is cash, cash equivalents, and investments.
MICA uses these assets to pay claim liabilities and provide surplus for its claim operations.
MICA's Net Position:
Change
Change
2016
2015
2015 -2016
2014
2014 -2015
Assets:
Cash and cash equivalents $
13,820,901
$ 20,668,396
$ (6,847,495)
$ 19,817,032
$ 851,364
Investments
7,956,439
-
7,956,439
-
Prepaid expenses
97,222
76,644
20,578
1,721
74,923
Receivables
2,612,919
2,566,311
46,608
1,694,438
871,873
Total assets $
24,487,481
$ 23,311,351
$ 1,176,130
$ 21,513,191
$ 1,798,160
Liabilities:
Accounts payable $
29,519
$ 27,388
$ 2,131
$ 23,016
$ 4,372
Reported and estimated losses
and claim adjustment ex-
penses net of reinsurance re-
coverable (all program years)
7,958,736
10,643,329
(2,684,593)
10,309,700
333,629
Claims incurred but not
reported
12,258,157
10,415,200
1,842,957
8,855,825
1,559,375
Total liabilities
20,246,412
21,085,917
(839,505)
19,188,541
1,897,376
Net position (all program years)
4,241,069
2,225,434
2,015,635
2,324.650
(99,216)
Total liabilities and net assets $
24,487,481
$ 23,311,351
$ 1,176,130
$ 21,513,191
$ 1,798,160
Municipal Insurance Cooperative Agency
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended April 30, 2016 and 2015
NIICA's Net Position - continued:
Cash and cash equivalents decreased in 2016 by $6,847,495 due to the purchase of investment se-
curities.
• Total liabilities decreased in 2016 by $839,505 due to the decrease in estimated losses and claim
adjustment expenses. Total liabilities increased in 2015 by $1,897,376 due to the increase in
claims incurred but not reported and estimated losses and claim adjustment expenses.
MICA's operating revenues are generated primarily through member assessments. Operating expenses
consists of reinsurance premiums, insurance claims and professional and administrative fees. The loss
fund levels for payment of loss and loss adjustment expenses were established based upon historical claim
data. Member assessments are allocated to members based upon each jurisdiction's historical claim expe-
rience and exposures,
MICA'S Revenues and Expenses:
3,571,299
3,244,069
327,230
2,988,262
255,807
Insurance claims
12,391,630
Change
930,514
Change
(5,110,142)
2016
2015
2015 -2016
2014
2014 -2015
Operating Revenue:
Professional fees
1,925,274
2,337,250
(411,976)
2,152,077
Member assessments
$ 16,651,308
$ 16,259,748
$ 391,563
$ 15,476,620
$ 783,128
Reimbursements
140,958
145,788
(4,830)
180,454
(34,666)
Settlement reimbursement
594,002
298,637
295,365
560,137
(261,500)
Refunds and subrogation
3,219,266
1,418,777
1,800,489
647,963
770,814
Total operating revenue
20,605,534
18,122,950
2,482,584
16,865,174
1,257,776
Operating Expenses:
Reinsurance premiums
3,571,299
3,244,069
327,230
2,988,262
255,807
Insurance claims
12,391,630
11,461,116
930,514
16,571,258
(5,110,142)
Administrative fees
728,745
1,029,398
(300,653)
885,848
143,550
Professional fees
1,925,274
2,337,250
(411,976)
2,152,077
185,173
Miscellaneous
13,246
10,740
2,506
13,839
(3,099)
Total operating expenses
18,630,194
18,082,573
547,621
22,611,284
(4,528,711)
Operating (Loss) Income
1,975,340
40,377
1,934,963
(5,746,110)
5,786,487
Investment (Loss) Income
40,295
(139,593)
179,888
(185,937)
Net (Loss) Income
S 2,015,635
$ (99,216)
$ 2,114,851
$ (5,699,766)
$ 5,600,550
-7-
Municipal Insurance Cooperative Agency
MANAGEMENT'S DISCUSSION AND ANALYSIS
Years Ended April 30, 20I6 and 2015
MICA'S Revenues and Expenses - continued:
• Member assessments increased over 2016 due to a 2.4% increase in existing member premiums.
4 Insurance claims increased by $930,514 in 2016 and decreased by $5,110,142 in 2015. These
changes reflect the volatile nature of both claim frequency and severity.
• Administrative and professional fees decreased by $712,629 in 2016 due to a decrease in legal
and claims administration fees and increased by $328,723 in 2015 due to an increase in legal. and
claims administration fees.
• Investment income consists of interest income, net realized gains or losses on the sale of invest-
ments and changes in the fair value of investments. Interest income increased in 2016 due to the
purchase of interest securities and decreased in 2015 due to the IMET fraud.
Economic Factors and Next Year's Results
Assessments charged to members will increase by 2.3% in 2017.
• Reinsurance premiums will increase by 1% in 2016 with identical member deductibles as in
2015, but an increase in excess liability coverage.
Requests for Information
This financial report is designed to provide a general overview of MICA's finances for all those with an
interest. Questions concerning any of the information provided in this report or requests for additional
financial information should be addressed to Andrew Huhn, Treasurer, Municipal Insurance Cooperative
Agency, I 1 Uptown Circle, Normal, IL 61761.
-8-
Municipal Insurance Cooperative Agency
STATEMENTS OF NET POSITION
April 30,
Assets
Cash and cash equivalents (Notes A4 and C)
Investments (Notes A5 and C)
Prepaid expenses
Receivables
Reinsurance (Note A6)
Gallagher (Note F)
Members
Interest
Total assets
Liabilities
Unearned revenue (Note A8)
Accounts payable
2016 2015
$ 13,820,901 $ 20,668,396
7,956,439 -
97,222 76,644
2,486,200 2,440,369
89,826 106,578
27,600 19,364
9,293 -
2,612,919 2,566,311
24,487,481: L23,311,351
29,519 27,388
29,519 27,388
Reported and estimated losses and claim adjustment
expenses net of reinsurance recoverable (Notes A3 and E) 7,958,736 10,643,329
Claims incurred but not reported (Note A3) 12,258,157 10,415,200
Total liabilities 20,246,412 21,085,917
Net position
Total liabilities and net position
4,241,069 2,225,434
L-24,48-7 $ 23,311,351
The accompanying notes are an integral part of these statements.
D
Municipal Insurance Cooperative Agency
STATEMENTS OF REVENUES AND EXPENSES
Years Ended April 30,
2016 2015
Operating Revenues
Member assessments $ 16,651,308 $ 16,259,748
Reimbursements 140,958 145,788
Settlement reimbursement (Note F) 594,002 298,637
Miscellaneous refunds and subrogation receipts _ 3,219,266 1,418,777
Total operating revenues 20,605,534 18,122,950
Operating Expenses
Reinsurance premiums
3,571,299
3,244,069
Insurance claims
12,391,630
11,461,116
Administrative fees
728,745
1,029,398
Professional fees
1,925,274
2,337,250
Miscellaneous
13,246
10,740
Total operating expenses
18,630,194
18,082,573
Operating income
1,975,340
40,377
Investment income (loss)
Interest 47,295 47,828
Net decrease in the fair value of
investments (Notes A5) (7,000) (187,421,)
Total investment income (loss) 40,295 (139,593)
Net income (loss) $ 2,015,635 (99,216)
The accompanying notes are an integral part of these statements.
10-
Municipal Insurance Cooperative Agency
STATEMENTS OF CHANGES IN NET POSITION
Years Ended April 30,
Net position, beginning balance
Member rebates
Net income (loss)
Net position, ending balance
2016
2015
$ 2,225,434 $ 2,324,650
2,015,635
4,24I ,Q69
The accompanying notes are an integral part of these statements.
- 11 -
(99,216)
$ 2,225,434
Municipal Insurance Cooperative Agency
STATEMENTS OF CASH FLOWS
Years Ended April 30,
Cash flows from operating activities:
Receipts from members
Payments to vendors
Other receipts
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of securities
Interest received
Net cash provided by (used for) investing activities
Net (decrease) increase in cash and cash equivalents:
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Reconciliation of operating income to net cash provided by
operating activities
Operating income
Change in assets and liabilities
Increase in reinsurance receivable
Decrease in Gal lagher receivable
(Increase) Decrease in accounts receivable - members
(Increase) in interest receivable
(Increase) in prepaid expenses
Increase in accounts payable
(Increase) Decrease in estimated losses and claim
adjustment expenses
Increase in claims incurred but not reported
Net cash provided by operating activities
The accompanying notes are an integral part of these statements.
- 12-
2016
2015
$ 16,604,700 $ 15,387,875
(19,490,279) (16,187,464)
3,954,227 1,790,546
1,068,648 990,957
(7,974,146) (167,421)
38,003 47,828
(7,936,143) (119,593)
(6,867,495) 871,364
20,688,396 19,817,032
$ 13,820,901 $ 20,688,396
$ 1 ,975,340 $
40,377
(45,831)
(949,255)
16,752
63,705
(8,236)
13,677
(9,293)
-
(20,578)
(74,923)
2,131
4,372
(2,684,593) 333,629
1,842,957 1,559,375
$ 1,068,648 $ 990,957
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS
Years Ended April 30, 2016 and 2015
NOTE A — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
The Municipal Insurance Cooperative Agency (MICA) was established in 1984 pursuant to Article VII,
Section 10, of the 1970 Constitution and 5 ILCS 22016 of the Illinois Compiled Statutes for the purpose
of seeking the prevention or lessening of casualty losses to member governmental properties and inju-
ries to persons or property. The intent of the members is to create an entity which will administer a loss
fund and utilize such funds contributed to defend and protect, in accordance with by -laws, any member
against stated liability or loss.
MICA's current membership consists of twenty -five Illinois governmental entities. An intergovem-
mental agreement between the members extended the 12 -year term of the organization through 2026.
At the end of the current term, the existence can be extended by majority action of the Board.
2. Basis of Accounting
The financial statements have been prepared in accordance with generally accepted accounting prin-
ciples appropriate for public entity risk pools, which are funds used to account for the financing of
risks, exposures or liabilities of other units of government or other governments. Revenue and expens-
es are recognized on an accrual basis. Under this method, revenue is recognized when earned and be-
comes measurable, and expenses are recognized when incurred. Operating revenues and expenses re-
sult from providing services and related expenses. Non - operating revenues /expenses include invest-
ment income (loss).
Reported and Estimated Losses and Claim Adjustment Expenses
The estimated liability for reported and estimated losses and claim adjustment expenses is based upon:
1) claim adjusters evaluations and other estimates; 2) estimates received from other companies on rein-
surance; and 3) an estimate for unreported losses and claim adjustment expenses developed on the basis
of past experience. The methods of making such estimates and for establishing the resulting reserves
are continually reviewed and updated by the administrative company, and any adjustments resulting
therefrom are reflected in income. The estimate of the liabilities is based on the ultimate cost of settling
the claims and includes the effects of inflation and other societal and economic factors.
4. Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with an initial maturity of three months
or less.
5. Investments
Investments in marketable securities with readily determinable fair values, investments in debt securi-
ties, and money market mutual funds are valued at their fair values (quoted market prices) on the state-
ment of net position. Unrealized gains and losses are included in investment income.
-13-
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended April 30, 2016 and 2015
NOTE A — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
— CONTINUED
6. Reinsurance Receivable
A reinsurance receivable is recorded when MICA can recover amounts from reinsurers (or excess in-
surers) based on paid claims and claim adjustment expenses. When amounts due from reinsurers are re-
lated to unpaid claims, the estimated amount due is netted against the estimated claims cost liability
(see Note B).
7. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect cer-
tain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Unearned Revenue
MICA recognizes revenue as earned. Premiums collected in advance of the period in which services
are rendered is recorded as a liability.
9. Reclassifications
Certain 2015 amounts were reclassified to be comparable to 2016 classifications.
NOTE B — REINSURANCE CONTRACTS
MICA participates in reinsurance through contractual agreements. Such reinsurance permits recovery
of a portion of losses from reinsurers, although it does not discharge the primary liability of MICA as a
direct insurer of the risks reinsured. MICA evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers.
During the program years 2016 and 2015 reinsurance was provided per occurrence as follows:
I4-
2016
2015
Reinsurance Provided
Property claims
$400,000,000
$400,000,000
Liability claims
15,000,000
15,000,000
Crime claims
500,000
500,000
Worker's compensation claims
150,000
150,000
Self- Insured Retention Limits
Property claims
150,000
150,000
Liability claims
200,000
200,000
Crime claims
50,000
50,000
Worker's compensation claims
600,000
600,000
I4-
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended April 30, 2016 and 2015
NOTE B — REINSURANCE CONTRACTS - CONTINUED
Property, liability and crime claims have a $1,000 deductible per occurrence. In addition, liability and
worker's compensation claims had a $150,000 corridor deductible for program years 2003/2004 and
2004/2005. Total loss aggregates were $12,450,000 for 2016 and $12,200,000 for 2015. Claim pay-
ments in excess of the per occurrence retention limit and corridor deductible, if applicable, or total loss
aggregates are recovered from reinsurers and recorded as a receivable, net of allowance for uncoilecti-
ble amounts. Estimated amounts in excess of the per - occurrence retention limit or total loss aggregate
that relate to unpaid claims are deducted from the liability for unpaid claims.
NOTE C — DEPOSITS AND INVESTMENTS
MICA is authorized by the board of directors to invest in the following types of securities: (a) Stocks
listed on a recognized exchange or market and convertible debt investments, or investment grade corpo-
rate bonds, (b) Straight preferred stocks or convertible preferred stocks and convertible debt securities
issued or guaranteed by a corporation whose common stock is listed on a recognized exchange or mar-
ket (c) Mutual funds, (d) U.S. Treasury obligations which carry the full faith and credit guarantee of the
United States government, (e) U.S. government agency and instrumentality obligations that have a liq-
uid market with a readily determinable market value, (f) Certificates of deposit (g) Commercial paper,
(h) Investment -grade obligations of state, provincial and local governments and public authorities, (i)
Money market mutual funds regulated by the Securities and Exchange Commission, and 0) Local gov-
ernment investment pools either state - administered or developed through joint powers statutes and other
intergovernmental agreement legislation.
Deposits
Cash in banks as of April 30, 2016 and 2015 consisted of the following:
2016 2015
Cash in banks S 13.058.932
Custodial credit risk for deposits with financial institutions is the risk that, in the event of a bank failure,
MICA's deposits may not be returned to it. To guard against custodial credit risk for deposits with fi-
nancial institutions, MICA's policy requires that deposits with financial institutions in excess of FDIC
limits be collateralized with collateral held by an independent third party institution acting as the agent
of the Town. At April 30, 2016 and 2015, MICA's deposits were insured or collateralized.
15
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended April 30, 2016 and 2015
NOTE C — DEPOSITS AND INVESTMENTS - CONTINUED
Investments
As of April 30, 2016, MICA had the following investments:
As of April 30, 2015, MICA had the following investments:
Maturity (In Years)
Investment Fair Value Less Than 1 1-5 6-10 > 10 Rating
IMET
Convenience Fund $ 7,393,829 $ 7,393,829 $ - $ - $ Aaa
IMET
Liquidating Trust 215,635 215.635 - Aaa
7.609.464 $ 7.609.464
To guard against custodial credit risk related to investments, MICA has its investments at U.S. Bank
over FDIC collateralized by an irrevocable standby letter of credit issued by the Federal Home Loan
Bank of Cinncinati to the Town of Normal, held by that entity. This letter of credit extends to MICA.
This letter of credit fully collateralized uninsured deposits at U.S. Bank at April 30, 2016.
Illinois Metropolitan Investment Fund (IMET) is a nonprofit investment trust formed pursuant to the
Illinois Municipal Code and managed by a Board of Trustees elected from the participating members.
IMET is not registered with the SEC as an investment company. Investments in IMET are valued at
IMET's share price, the price for which the investments could be sold. IMET was notified on Septem-
ber 29, 2014 that certain repurchase agreements that were backed by First Farmers Financial, LLC
(FFF) securities, that were believed to be backed by the U.S. Government, were in default. FFF had
perpetrated fraudulent loans that were not actually backed by the U.S. Government. The value of the
FFF fraudulent loans in the [MET Convenience Fund was estimated by IMET to be impaired by 52.4
percent. In turn, MICA reduced the estimated fair value of its investments in the IMET Convenience
Fund by 52.4 percent.
LTm
Maturity (ln Years)
Investment
Fair Value
Less Than 1
1-5 6-10 > 10
Rating
[MET
Convenience Fund
$ 7,419,010
$ 7,419,010
$ - $ - $ -
Aaa
IMET
Liquidating Trust
191,854
191,854
- - -
Aaa
US Gov't Agencies
3,927,396
-
3,927,396 - -
AAA
Negotiable Certificates
of Deposit
4,029,043
835,232
3,193,811 -
N/A
Money Market Mutual
Fund
60,617
60.617
NIA
1.5.627.920
$ 8.506,713
7.121.207 $
As of April 30, 2015, MICA had the following investments:
Maturity (In Years)
Investment Fair Value Less Than 1 1-5 6-10 > 10 Rating
IMET
Convenience Fund $ 7,393,829 $ 7,393,829 $ - $ - $ Aaa
IMET
Liquidating Trust 215,635 215.635 - Aaa
7.609.464 $ 7.609.464
To guard against custodial credit risk related to investments, MICA has its investments at U.S. Bank
over FDIC collateralized by an irrevocable standby letter of credit issued by the Federal Home Loan
Bank of Cinncinati to the Town of Normal, held by that entity. This letter of credit extends to MICA.
This letter of credit fully collateralized uninsured deposits at U.S. Bank at April 30, 2016.
Illinois Metropolitan Investment Fund (IMET) is a nonprofit investment trust formed pursuant to the
Illinois Municipal Code and managed by a Board of Trustees elected from the participating members.
IMET is not registered with the SEC as an investment company. Investments in IMET are valued at
IMET's share price, the price for which the investments could be sold. IMET was notified on Septem-
ber 29, 2014 that certain repurchase agreements that were backed by First Farmers Financial, LLC
(FFF) securities, that were believed to be backed by the U.S. Government, were in default. FFF had
perpetrated fraudulent loans that were not actually backed by the U.S. Government. The value of the
FFF fraudulent loans in the [MET Convenience Fund was estimated by IMET to be impaired by 52.4
percent. In turn, MICA reduced the estimated fair value of its investments in the IMET Convenience
Fund by 52.4 percent.
LTm
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended April 30, 2016 and 2015
NOTE C — DEPOSITS AND INVESTMENTS - CONTINUED
The IMET Convenience Fund is comprised of bank deposits and government securities. The
bank deposits are FDIC insured, collateralized by Federal Home Loan Bank letter of credit
program, or collateralized by government securities at a margin of 110 %.
Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in
the market interest rates. In accordance with its investment policy, Municipal Insurance Cooperative
Agency limits its exposure to interest rate risk by structuring the portfolio so that securities mature to
meet cash requirements for ongoing operations and investing operating funds primarily in shorter term
securities, money market mutual funds, or similar investment pools and limiting the average maturity
of the portfolio in accordance with the policies.
In accordance with its investment policy, Municipal Insurance Cooperative Agency limits its exposure
to credit risk, the risk that the issue of a debt security will not pay its par value upon maturity, by pri-
marily investing in external investment pools, U.S. Treasury obligations rated AA or better, or certifi-
cates of deposit.
Concentration of credit risk is the risk that Municipal Insurance Cooperative Agency has a high per-
centage of its investments invested in one type of investment. Municipal Insurance Cooperative
Agency's investment policy requires diversification of investment to avoid unreasonable risk. At
April 30, 2016, Municipal Insurance Cooperative Agency's investments representing greater than five
percent of their portfolio included FHLB ($1,950,974), FNMA ($975,553), and FHLMC ($1,000,869).
There were none over five percent at April 30, 2015.
The following reconciles deposits and investments to the Statements of Net Position:
NOTE D — CONTINGENCIES
2015
$ 13,058,932
7,393,829
215,635
No provision is considered necessary for the contingency should the reinsurance companies be unable to
meet their obligations under reinsurance treaties. MICA is a defendant in several lawsuits due to the na-
ture of its operations. It is represented by various attorneys, and any estimated liability resulting from
such litigation is included in the claims payable and claims incurred but not reported account balances.
17-
2016
Deposits in bank
$ 6,149,420
IMET Convenience Fund
7,419,010
IMET Liquidating Trust
191,854
Money Market Mutual Fund
60,617
Total cash and cash equivalents
13,820,901
U.S. Government Agencies
$ 3,927,396
Negotiable Certificates of Deposit
4,029,043
Total investments
$ 7.956,439
NOTE D — CONTINGENCIES
2015
$ 13,058,932
7,393,829
215,635
No provision is considered necessary for the contingency should the reinsurance companies be unable to
meet their obligations under reinsurance treaties. MICA is a defendant in several lawsuits due to the na-
ture of its operations. It is represented by various attorneys, and any estimated liability resulting from
such litigation is included in the claims payable and claims incurred but not reported account balances.
17-
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended April 30, 2016 and 2015
NOTE E - REPORTED AND ESTIMATED LOSSES AND CLAIM ADJUSTMENT EXPENSES
MICA establishes a liability for both reported and unreported insured events (see Note A3), which in-
cludes estimates of future payments of losses and related claim adjustment expenses, both allocated and
unallocated.
The reported and estimated losses and claim adjustment expenses for the year ended April 30, 2016 were
as follows:
Program Years 1998 - 08
Program Year 2008 -
09
Program Year 2009 -
10
Program Year 2010 -
1 I
Program Year 2011 -
12
Program Year 2012 -13
Program Year 2013 -14
Program Year 2014 -15
Program Year 2015 -16
Direct
Estimated
Claims Payable
$ 1,778,057
583,548
352,600
1,061,423
739,020
2,229,738
1,411,631
1,987,023
2,618;128
$ 12,761,168
Estimated
Estimated
Estimated
Reinsurance
Gallagher
Net
Recoverable
Recoverable
Claims Payable
$ 1,733,274
555,435
152,958
562,736
10,828
1,536,437
187,553
$ 4,739,221
$ 35,098 $ 9,685
28,113 -
199,642
498,688
728,192
693,300
1,224,078
1,987,023
2,618,128
$ 63,211 $ 7,958,736
The reported and estimated losses and claim adjustment expenses for the year ended April 30, 2015
were as follows:
Program Years 1988
- 08
Program Year 2008 -
09
Program Year 2009 -
10
Program Year 2010 - 11
Program Year 2011 -12
Program Year 2012 -13
Program Year 2013 -14
Program Year 2014 -15
Direct Estimated
Estimated Reinsurance
Claims Payable Recoverable
$ 2,656,256 $
1,157,700
683,983
949,858
2,326,065
2,623,790
3,284,361
2,786,252
2,160,535
832,492
489,006
83,083
994,439
409,473
164,000
20,000
Estimated
Estimated
Gallagher
Net
Recoverable
Claims Payable
$ 347,700
325,208
$ 148,021
194,977
866,775
1,331,626
2,215,317
3,120,361
2,766,252
$ 16,468,265 $ 5,152,028 $ 672,908 $ 10,643,329
- 18-
Municipal Insurance Cooperative Agency
NOTES TO FINANCIAL STATEMENTS — CONTINUED
Years Ended April 30, 2016 and 2015
NOTE E - REPORTED AND ESTIMATED LOSSES AND CLAIM ADJUSTMENT EXPENSES —
CONTINUED
The following represents changes in aggregate liabilities for the years ended April 30, 2016 and 2015:
Payments
2016
2015
Unpaid losses and claim adjustment expenses
at beginning of the year
$ 21,058,529
$ 19,165,526
Incurred losses and claim adjustment expenses
Provision for insured events of current year
12,289,321
11,740,250
Increase (decrease) in provision for insured
13,233,266
9,568,113
events of prior years
102,309
(279,134)
Total incurred losses and claim
S 20,216,893
$ 21,058,529
adjustment expenses
12,391,630
11,461,116
Payments
Losses and claim adjustment expenses attributable
to insured events of current year
3,510,368
2,149,905
Losses and claim adjustment expenses attributable
to insured events of prior years
9,722,898
7,418,208
Total payments
13,233,266
9,568,113
Total unpaid losses and claim adjustment expenses
at end of the year
S 20,216,893
$ 21,058,529
Reported and estimated losses and claim adjustment
expense net of reinsurance recoverable
$ 7,958,736
$ 10,643,329
Claims incurred but not reported
12,258,157
10,415,200
$ 20,216,893
$21,058,529
NOTE F — GALLAGHER SETTLEMENT
In September, 2011, MICA negotiated a settlement with Arthur J. Gallagher (its pool administrator) and
Gallagher Bassett (its third -party claims administrator) (collectively referred to herein as "Gallagher ") in
which Gallagher has agreed to reimburse MICA for certain underfunded liabilities resulting from the
manner in which certain workers' compensation claims funded from MICA's Loss Fund were not reim-
bursable from MICA's aggregate conventional insurance coverage for certain fiscal years. As part of
the settlement, MICA has agreed it will continue to contract with Gallagher for pool administration and
claims administration services for five consecutive fiscal years commencing with fiscal year 2011 -2012,
subject to certain performance and price requirements. Gallagher's payments to MICA under the agree-
ment will be paid approximately every six months. The total received through April 30, 2016 is
$3,385,487.
-19-
Municipal Insurance Cooperative Agency
RECONCILIATION OF CLAIMS LIABILITIES
BY TYPE OF CONTRACT
Year Ended April 30, 2016
Unpaid losses and claim adjustment
expenses at the beginning of the year
Incurred losses and claim adjustment expenses
Provision for insured events of current year
Increases in provisions for insured events
of prior years
Total incurred losses and claim adjustment
expenses
Payments
Losses and claim adjustment expenses
attributable to insured events of current year
Losses and claim adjustment expenses
attributable to insured events of prior years
Total payments
Total unpaid losses and claim adjustment
expenses at the end of the year
Property,
Workmen's Liability
Compensation and Crime Total
$ 13,208,745 $ 7,849,784 $ 21,058,529
8,689,222 3,600,099 12,289,321
67,334 34,975 102,309
8,756,556 3,635,074 12,391,630
2,219,553 1,290,815 3,510,368
7,160,574 2,562,324 9,722,898
9,380,127 3,853,139 13,233,266
$ 12,585,174 $ 7,631,719 $ 20,216,893
-21-
Municipal Insurance Cooperative Agency
RECONCILIATION OF CLAIMS LIABILITIES
BY TYPE OF CONTRACT
Year Ended April 30, 2015
Unpaid losses and claim adjustment
expenses at the beginning of the year
Incurred losses and claim adjustment expenses
Provision for insured events of current year
Increases in provisions for insured events
of prior years
Total incurred losses and claim adjustment
expenses
Payments
Losses and claim adjustment expenses
attributable to insured events of current year
Losses and claim adjustment expenses
attributable to insured events of prior years
Total payments
Total unpaid losses and claim adjustment
expenses at the end of the year
Property,
Workmen's Liability
Compensation and Crime Total
$ I1,742,911 $ 7,422,615 $ 19,165,526
8,566,678 3,173,572 11,740,250
(237,357) (41,777) (279,134)
8,329,321 3,131,795 11,461,116
1,592,169 557,736 2,149,905
5,271,319 2,146,889 7,418,208
6,863,488 2,704,625 9,568,113
$ 13,208,745 $ 7,849,784 $ 21,058,529
-22-
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