Lawyers Fund for Client Compensation Committee Report including ...

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million in grant payments were made for claims received in 2001, up to a maximumof $20 million. Due to the surplus in the Fund as a result of reduced claims in 2001,insurance for 2002 was reduced to $10 million in coverage in excess of $10 million.The insurance premium for 2002 was $534,600.Issue4. The Committee considered the need to continue with a program of insurance for theFund and if so, at what level of coverage.5. Malcolm Heins and Michelle Strom spoke to the issue of insurance. Ms Stromprovided some general information about the state of the insurance industry. Withrespect to the reinsurance industry, there has been considerable consolidation bothwithin companies and within the industry as a whole, resulting in a decreasednumber of companies providing reinsurance. As a result, costs have increased asmuch as 35-45%. The expectation is that it would cost considerably more for theFund to purchase the equivalent policy of insurance for 2003 as was in place for2002, due to the increased cost of obtaining reinsurance.6. Given overall budget and levy concerns, it was proposed that a higher attachmentpoint be considered for insurance for the 2003 policy year. Ms Strom advised theCommittee that she anticipates that a premium similar to that paid for 2002 (in thearea of $500,000) would buy coverage of $10 million but with an attachment point of$15 million (i.e. $10 million in excess of $15 million for claims received in 2003).7. As the need for insurance is tied to the financial state of the Fund, the Committeethen heard from Craig Allen about the overall Fund claim situation. Mr. Allenreported that as at December 31, 2001, the Fund balance stood at $13.6 million.While the 2002 Member levy was set at a level to meet the costs of the Fund on abreak-even basis, savings have been realized in 2002 on two major budget items.Claims incurred to the end of September 2002 are $1,562,000, compared to aclaims budget for the first three quarters of $3.2 million. Payments on claimsreported before 2002 have also been lower than anticipated, yielding additionalsavings. In addition, the costs associated with the Spot Audit program have beenlower than budgeted.4
8. As a result of the foregoing, the Fund Balance is estimated, as at September 30,2002, at $15.6 million. Assuming expenses are incurred at the rate budgeted for theremainder of the year, the Fund balance would remain at $15.6 million for December31, 2002.9. In order to maintain the stability of the Fund and provide a cushion in the event of acatastrophic loss, Malcolm Heins recommended that insurance should again beobtained for the Fund. Given the anticipated Fund Balance at the end of 2002, it wasfelt that coverage for $10 million in excess of $15 million for 2003 would beappropriate.Decision of the Committee10. Having weighed the financial interests of the Fund with overall budgetconsiderations, the Committee accepted the recommendation of MalcolmHeins that insurance be purchased for $10 million in excess of $15 million.The Committee then authorized Michelle Strom to negotiate the purchase ofthis insurance.Decision for Convocation11. Convocation must decide whether to approve the Committee’s decision topurchase insurance for the Fund for 2003 at the higher attachment point.SECTION B - INFORMATIONBUDGET FORECAST AND LEVY FOR 2003Background12. The Committee was presented with the draft budget for 2003 for both the LawyersFund and the Spot Audit Program. The budget provides for a reduction in the Fundlevy from $290 to $281 per member.5
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