APPENDIX B
SAMPLE CONTRACT
Local Government Property Insurance Fund
Actuarial Services Contract
THIS AGREEMENT dated _________________________ __________, __________ and effective this
__________ day of ____________________ __________ by and between the Office of the Commissioner of
Insurance (the “Agency” or “State of Wisconsin”) and _________________________, hereinafter referred to as
"Contractor"
The purpose of this Agreement for actuarial services is to assist the Agency to accurately assess rate and
premium levels and establish loss reserves (incurred but not reported, IBNR) for the Local Government Property
Insurance Fund (Fund) on an annual basis to ensure the financial stability of the Fund.
I.
Term. The term of this Agreement shall be for one (1) year, from the __________ day of
_________________________
__________,
and
expiring
on
the
__________
day
of
_________________________ __________. The contract may be renewed for four (4) successive one-year
periods upon mutual written agreement of the parties. Contractor will notify the Agency six months prior to the
annual expiration if it wishes to renew this Agreement and shall specify any amendments the Contractor wishes
to propose.
II.
Contact Persons. For purposes of administering this Agreement, the following representatives of each
party are hereby designated as appropriate contact persons:
(a) For the Agency:
Brynn Bruijn-Hansen, Insurance Program Manager
Local Government Property Insurance Fund
125 South Webster Street, Madison, Wisconsin 53702
(b) For the Contractor:
_________________________ _________________________, _________________________
__________ _________________________ _________________________
_________________________ _________________________ __________
III.
Actuarial Services Required
A. Assist the Fund in annually establishing rates, premium levels, and adequate incurred but not
reported claims reserves for the Fund.
1. Assisting the Fund to assess the premium adequacy of the current rate structure by reviewing the
loss experience of the Fund including:
(a.)
Documentation of underlying assumptions
(b.)
Testing the accuracy of the assumptions underlying the current rates
(c.)
Analyzing loss and expense factors, and
(d.)
Analyzing entity and territorial differentials for possible modification
2. Assisting the Fund to assess the adequacy of the reserving methodology for incurred but not
reported claim reserves by:
(a.)
Documentation of underlying assumptions
(b.)
Reviewing the loss experience of the Fund
(c.)
Testing the accuracy of the assumptions underlying the reserving technique
B. Prepare and Present Reports Outlining Analysis and Recommendations:
1.
Prepare annual written report containing recommendations relating to any proposed modifications
to the rate structure and reserve changes.
(a.)
Develop recommendations based on the analysis conducted under A., above and
prepare a written report.
(b.)
Present the written report addressing any rate and reserving change recommendations
for the Fund to the Rate Analysis Sub-Committee, Advisory and Oversight Committees. That report
shall address long-term financial stability of the Fund.
(c.)
Attend all Rate Analysis Sub-Committee, Advisory and Oversight Committee meetings
and present actuarial report and related findings if applicable.
(d.)
Assist the manager of the Fund in the preparation of the actuarial-related elements of
the annual financial report to the Commissioner of Insurance.
(e.)
Work closely with the Fund’s manager to develop additional statistical information to
be used in review of and support for rate filings.
C.
Miscellaneous services that may be reasonably requested and agreed to in writing by the Contractor:
1.
Assist the Fund in other special projects of an actuarial nature, if requested, including but not
limited to:
(a.)
Analysis of any proposed legislative changes, which could affect the financial status of
the Fund.
(b.)
Special projects selected by the Advisory Committee, Oversight Committee, or OCI
including analysis of information provided by commercial property insurers and/or by other governmental
property insurance associations.
(c.)
Provision of statistical information and analysis requested or required by the legislature
or judiciary.
D: Provide all required actuarial documentation needed for rate filings per the OCI requirements
(oci.wi.gov/ociforms/pcfiling.pdf)
and
WI
Administrative
Code
(docs.legis.wisconsin.gov/code/admin_code/ins/6/06) The policy administrator performs the actual
rate filing after receiving adequate documentation from the actuary.
IV.
Performance Standards
A. Perform actuarial services in accordance with the Standards of Practice as promulgated by the Actuarial
Standards Board of the American Academy of Actuaries. Perform services in accordance with established
timelines.
V.
Work Plan
The following summarizes how the Contractor proposes to perform services under the Agreement:
Step 1 – Developing Classes and Rates
a. Obtain Program Documentation and Conduct Interviews
During this phase the Contractor will gather information and background data regarding the Fund. It will
obtain facts and ask questions regarding the history as well as any significant changes concerning the Fund.
The results of this phase will provide it with a comprehensive understanding of the Fund and its current
concerns.
b. Projection of Ultimate Losses by Coverage and Entity Type
The data will be organized in a historical triangle format that is conducive for the application of traditional
actuarial methods. The Contractor plans to use the traditional actuarial methods (Loss Development and
Bornhuetter-Ferguson). However, the Contractor may utilize additional methods, such as the Frequency Severity and the Incurred Berquist Sherman methods.
c. Determination of Indicated Rate Change
The selected loss and ALAE ratio based on historical trends and ultimate loss projections will be compared
by the Contractor to the Fund’s expected loss and ALAE ratio to assist the Fund to determine the needed
rate change for the Fund. The expected loss and ALAE ratio should reflect the Fund’s cost structure,
pricing philosophy, and surplus targets.
d. Review Territorial, Class, and Deductible Relativities
The Contractor will review the Fund experience to determine whether a change in the territorial relativities
may be needed. ISO territorial relativities will be compared to Contractor’s suggested relativities as part of
this process.
e. Technical and Professional Standards Review Process
All spreadsheets and analyses prepared by the Contractor’s personnel will undergo a technical review by
peer personnel. Both the engagement manager and the engagement partner, who is a credentialed actuary,
will review all analyses and reports for quality and accuracy. In addition to these three levels of review
during the course of the engagement, a second credentialed actuary, whose responsibility is to monitor the
Contractor’s final work product with respect to the relevant standards for the actuarial profession and review
all Deliverables (as defined herein) hereunder.
Step 2 – Statistical Information
As part of its analysis, the Contractor will review the current available data and determine if additional data
should be captured going forward.
Step 3 – Report and Presentation
All of the methods and assumptions set forth in the Contractor’s analysis will be documented in a detailed
report. This report will include an executive summary that will display results in a concise format. The
Contractor will present its finding to OCI’s contact person, in person, as well as making presentations to the
Rate Analysis Sub-Committee, Advisory and Oversight Committees. The Contractor’s presentation will include,
not only the results of the analysis, but also a high level overview of the industry trends and a comparison of the
Fund to these industry trends. Participation in all Rate Analysis Sub-Committee, Advisory and Oversight
Committee meetings is mandatory.
Step 4 – Annual Financial Report
The contractor will provide support to the Fund Manager surrounding the preparation of the Annual Financial
Report.
VI.
Compensation for Services:
A. Fees and Timing
Fees will be based on the amount of time required at various levels of responsibility, plus direct engagement and
support expenses. Such support expenses include office charges in support of Contractor’s services, including
computer usage, telephone, postage, reproduction and similar expenses.
Below is the listing of fees relating to the first year of the engagement.
Lead actuary
Senior manager
Manager
Senior consultant
Clerical
Other consulting actuaries
Hourly Number Total
Rate
of
(Rate *
Hours Hours)
$
$
$
$
$
$
Total annual cost
*****
Maximum (not to exceed) cost *****
*****
*****
B.
D. Payment Terms and Invoicing
The Contractor will issue an invoice for $__________ at the outset of the engagement. The remainder of the
fees will be invoiced as steps are completed.
The Contractor shall bill for services performed hereunder in an itemized monthly invoice. The invoices shall
list the number of hours of service provided by each category of Contractor’s personnel (e.g. lead actuary,
actuarial assistants, clerical, other consulting actuaries, etc.) The invoices shall also itemize any "Other Out-ofPocket Expenses" (Section B above) claimed. The Contractor shall provide additional information or supporting
data for the purpose of verifying charges upon reasonable request.
VII.
Employment of Other Contractors
Subcontractors may be hired only with the prior approval of the Agency.
VIII.
Termination
The Agency may terminate this Agreement at any time at its sole discretion by delivering 90 days' written notice
to the Contractor. Upon termination, the Agency will be liable for the cost of the services performed as of the
date of termination plus out-of-pocket expenses incurred with the prior written approval of the Agency. In the
event that the Contractor terminates this Agreement, for any reason whatsoever, it will refund to the Agency
within 30 days of said termination, all payments made hereunder by the Agency to the Contractor for services
not completed or not performed in accordance with the terms hereof. Such termination will require written
notice to that effect to be delivered by the Contractor to the Agency not less than 180 days prior to said
termination.
Upon the termination of this Agreement, the Agency may, at its expense, upon written request, obtain copies of
all non-proprietary materials directly related to the Contractor’s services hereunder for the Agency and upon
written request, shall be given reasonable access to review such materials at any reasonable time.
IX.
Confidentiality of Information
Contractor shall retain the confidentiality of all of the Agency’s proprietary and confidential information that the
Contractor comes into possession in connection with this Agreement and shall not make such information
accessible to persons other than the Agency without prior written consent of the Agency except (a) as may be
required by law, regulation, judicial or administrative process, or in accordance with applicable professional
standards, or in connection with litigation pertaining hereto, or (b) to the extent that such information (i) shall
have otherwise become publicly available (including, without limitation, any information filed with any
governmental agency and available to the public) other than as the result of a disclosure by the Contractor in
breach hereof, (ii) is disclosed by the Agency to a third party without substantially the same restrictions as set
forth herein, (iii) becomes available to the contractor on a nonconfidential basis from a source other than the
Agency which the Contractor believes is not prohibited form disclosing such information to the Contractor by
obligation to the Agency, (iv) is known by the Contractor prior to its receipt from the Agency without any
obligation of confidentiality with respect thereto, or (v) is developed by the Contractor independently of any
disclosures made by the Agency to the Contractor of such information.
X.
Nonappropriation of Funds
As required by Wisconsin Statutes, this Agreement must include the following provision:
Continuance of this Agreement beyond the limits of funds available shall be contingent upon appropriation of
the necessary funds, and the termination of this Agreement by lack of appropriations shall be without penalty.
The Agency shall notify the Contractor in writing of such unavailability of funds as soon as the Agency shall
reasonably know of such unavailability.
XI.
Executed Contract to Constitute Entire Agreement
This Agreement (including Exhibits A and B), the Agency’s request for proposal (RFP) dated
_________________________ __________, __________, (including all attachments, addenda and revisions)
and the Contractor’s proposal dated _________________________ __________, __________, and additional
terms agreed to, in writing, by the Agency and the Contractor shall become part of this Agreement. Failure of
the Contractor to accept these as a contractual agreement may result in a cancellation of award.
The following priority for contract documents will be used if there are conflicts or disputes.
Official Purchase Orders
Vendor's Proposal Dated _________________________ __________, __________
State Request for Proposal Dated _________________________ __________, __________
Standard Terms and Conditions
XII.
News Releases
News releases pertaining to this procurement or any part of the proposal shall not be made without the prior
approval of the Agency.
XIII.
Standard Terms and Conditions
The Contractor and the Agency will comply with the "Standard Terms and Conditions" and "Supplemental
Standard Terms and Conditions for Procurements for Services" attached hereto as Exhibits A and B.
XIV.
Services
It is understood and agreed that the Contractor’s services hereunder may include advice and recommendations,
but all decisions in connection with the implementation of such advice and recommendations shall be the
responsibility of, and made by, the Agency. In connection with its services hereunder, the Contractor shall be
entitled to rely on all decisions and approvals of the Agency.
XV.
Cooperation
The Agency shall cooperate with Contractor in the performance by Contractor of its services hereunder,
including, without limitation, providing Contractor with reasonable facilities and timely access to data,
information and personnel of the Agency. The Agency shall be responsible for the performance of its personnel
and agents and for the accuracy and completeness of all data and information provided to Contractor for
purposes of the performance by Contractor of its services hereunder.
XVI.
Independent Contractor
It is understood and agreed that each of the parties hereto is an independent contractor and that neither party is,
nor shall be considered to be, an agent, distributor, partner, fiduciary or representative of the other. Neither
party shall act or represent itself, directly or by implication, in any such capacity in respect of the other or in any
manner assume or create any obligation on behalf of, or in the name of, the other.
XVII.
Notices.
All notices hereunder shall be (i) in writing, (ii) delivered to the representatives of the parties at the addresses
first set forth above, unless changed by either party by notice to the other party, and (iii) effective upon receipt.
XVIII. Construction and Severability
This Agreement shall be construed in accordance with the laws of the state of Wisconsin. In the event any
portion of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not
affect the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement, effective February 1, 2002.
For:
_________________________
180 N. Stetson Avenue
Chicago Ill 60601-6779
For:
State of Wisconsin:
Office of the Commissioner of Insurance
125 South Webster Street
Madison Wisconsin 53703
By: ___________________________
By:
______________________________
Name: __________________________
Name: Jorge Gomez___________________
Title: ___________________________
Title: Commissioner of Insurance________
Date: ____________________________
Date: ______________________________
5.3
“Other Requirements”
5.3.1 Provide all required actuarial documentation needed for rate filings per the OCI
requirements
(oci.wi.gov/ociforms/pcfiling.pdf)
and
WI
Administrative
Code
(docs.legis.wisconsin.gov/code/admin_code/ins/6/06) The policy administrator performs the actual rate filing
after receiving adequate documentation from the actuary.
5.3.2