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HomeMy WebLinkAbout2005-25906 Reso RESOLUTION NO. 2005-25906 A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, APPROVING THE PURCHASE OF FLOOD INSURANCE, ALL RISK PROPERTY INSURANCE (INCLUDING WINDSTORM), AND BOILER/MACHINERY INSURANCE FOR CITY BUILDINGS AND CONTENTS (INCLUDING NEW CONSTRUCTION), FOR A COMBINED ESTIMATED ANNUAL PREMIUM NOT TO EXCEED $2,406,377.00 (NET OF BROKER COMMISSIONS), FOR A ONE-YEAR PERIOD AS PROPOSED BY ARTHUR J. GALLAGHER & CO., THE CITY'S BROKER OF RECORD. WHEREAS, as proposed by Arthur J. Gallagher and Co., the City's broker of record, the Administration has recommended the purchase of Flood Insurance with the National Flood Insurance Program, for a total annual premium of $215,894,000; All Risk property Insurance (including a Windstorm sub-limit of $50 million) with Lexington Insurance Company, for a total annual premium of $2,137,243.00; Boiler/Machinery Insurance with Travelers Property Casualty Company of America, for a total annual premium of $23,240.00; and an additional estimated insurance premium for new construction of $40,000.00, all for a combined estimated annual premium not to exceed $2,406,377.00; and WHEREAS, funding is available from the Self Insurance Fund Number 540.1792.000378; and NOW, THEREFORE, BE IT DULY RESOLVED BY THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that the Mayor and City Commission hereby approve the purchase of Flood Insurance, All Risk Property Insurance (including a Windstorm sub-limit of $50 million), and Boiler/Machinery Insurance for all City-owned buildings and contents (including new construction), for a combined estimated annual premium not to exceed $2,406,377.00, for a one-year period, as proposed by Arthur J. Gallagher & Co., the City's broker of record. PASSED AND ADOPTED this J..8.th day of ,2005. JW~r GttcltA City Clerk. P David Dermer Robert Parcher APPROVED AS TO FORM & LANGUAGE & FOR CUTION CllY OF MIAMI BEACH COM\llISSION ITEM SUMMARY m Condensed Title: Resolution authorizing the purchase of Flood, All Risk Property Insurance (including windstorm) and Boiler Machinery Insurance for an estimated annual premium not to exceed $2,406,377.00 as proposed by Arthur J. Gallaqher and Co., the City's Broker of Record. Issue: Property insurance is necessary to protect the financial interest of the City. To qualify for FEMA aid, the City is required to purchase maximum reasonable insurance available. Item Summary/Recommendation: Approve the purchase of Flood Insurance, All Risk Property Insurance (including windstorm) and Boiler Machinery Insurance. Advisory Board Recommendation: I Not Applicable Financial Information: Amount to be expended: Finance Dept. 540.1792.000378 Property Insurance Self-Insurance Fund Source of Funds: D AGENDA ITEM DATE RII -- S:-I~-O) CITY OF MIAMI BEACH CITY HALL 1700 CONVENTION CENTER DRIVE MIAMI BEACH, FLORIDA 33139 http:\\ci.miami-beach.f1.us COMMISSION MEMORANDUM FROM: Mayor David Dermer and Members of the City Commission Jorge M. Gonzalez ~ ~ ~ City Manager () 0 DATE: May 18, 2005 TO: SUBJECT: A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, APPROVING THE PURCHASE OF FLOOD INSURANCE, ALL RISK PROPERTY INSURANCE (INCLUDING WINDSTORM) AND BOILER/MACHINERY INSURANCE FOR CITY BUILDINGS AND CONTENTS (INCLUDING NEW CONSTRUCTION), FOR A COMBINED ESTIMATED ANNUAL PREMIUM NOT TO EXCEED $2,406,377.00 (NET OF BROKER COMMISSIONS), FOR A ONE-YEAR PERIOD AS PROPOSED BY ARTHUR J. GALLAGHER & CO., THE CITY'S BROKER OF RECORD. ADMINISTRATION RECOMMENDATION: Adopt the resolution. FUNDING: Funds are available from the Self-Insurance Fund Number 540.1792.000378. ANALYSIS: The City's property insurance needs are covered primarily by three policies: Flood, All Risk (fire, explosion, lightning) and Boiler/Machinery (equipment breakdown). The predominant peril to City-owned facilities is storm related loss due to flood and/or windstorm damage. The City relies on FEMA to provide financial assistance for expenses and damages related to flood and/or windstorm that are not covered by insurance. Eligibility for FEMA reimbursement is Federally governed by the Stafford Act. The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) authorizes the President (FEMA per Executive Order) to provide financial and other forms of assistance to State and local governments, certain private nonprofit organizations and individuals to support response, recovery and mitigation efforts following Presidentially declared major disasters and emergencies. The Stafford Act describes generally the declaration process, the types and extent of assistance that provided and fundamental eligibility requirements. To qualify for aid in case of loss due to flood, the Act requires that we purchase the maximum insurance available. The City has complied with that mandate in the past by purchasing coverage from the only available source, i.e., the National Flood Insurance Program. Limits are $500,000 for buildings and $500,000 for building contents. There is a $5,000 deductible per location. The City purchases a separate Flood policy for each location within the City. The individual policies renew from July 2005 through December 2006 for one year. The total annual premium for 2004-05 was $215,894 (includes new construction and purchases). We do not anticipate any premium increase for 2005- 06. The second coverage, All Risk, can be purchased with or without Windstorm coverage. With regard to FEMA's eligibility requirements to qualify for reimbursement for losses due to windstorm, insurance need not have been purchased if the City has not been the recipient of past FEMA monies in excess of $5,000 for damage to buildings. Miami Beach meets that criterion. Hence, the City can choose how much risk assumption it wants to take on, i.e., self-insure and rely on FEMA aid or purchase Windstorm coverage. The City currently purchases All Risk property insurance (this is a Primary/Excess layered program) with a Windstorm sublimit of $25,000,000 for an annual premium of $1,410,441. Lexington Insurance is the Primary carrier in this program with Excess layers provided by Zurich Insurance Co., Nutmeg Insurance Co., Arch Specialty Ins. Co., Lloyd's of London/Glencoe, and Allianz Insurance Co. The City's broker, Arthur J. Gallagher Co. (Gallagher), following our directions, has identified a replacement program which is All Risk including Windstorm protection for both named and non-named storms. Lexington Insurance Company is the primary carrier with excess layers provided by Nutmeg Insurance, Arch specialty Insurance, James River Insurance, Axis Surplus Lines and Landmark American Insurance Company. The new program, which would be effective on June 1, 2005, provides for identical coverage with the only change being increased coverage to certain sub-limits. The total renewal premium has increased from $1,410,441 to $1,512,243. The premium increase is the direct result of an 18% increase in property values (new construction, improvements, and purchases). The actual premium rate decreased by 9.3%. The third coverage, Boiler/Machinery provides coverage for property built to operate under a vacuum or pressure, or used for the generation, transmission or utilization of energy (water pumps, A.C. units, generators). The City purchases this insurance due to the many locations that house this type of machinery/equipment. Damage sustained by machinery/equipment for breakdown is not currently reimbursable under any type of State or Federal program. The premium for 2004-05 was $23,368. with coverage provided by Hartford Steam Boiler Inspection and Insurance Company. We have received renewal terms from Hartford and an alternate quote from Travelers Property Casualty Company of America. Hartford has presented a renewal with an increase in premium. The premium for the new policy is $28,745. Travelers has provided a very competitive proposal. The Travelers program offers several enhancements over the Hartford. The Travelers premium is $23,240. The structure of the City's current and renewal program follows: June 2004 Coverage June 2005 Coverage 1. National Flood Insurance Program (NFIP) 1. National Flood Insurance Program (NFIP) Limits: $ 500,000 Building Limits: $ 500,000 Building $ 500,000 Contents $ 500,000 Contents Deductible: $ 5,000 Per Location Deductible: $ 5,000 Per Location Premium $215,894.00 Premium $215,894.00 2. Lexington Insurance Company (Best's Rating A VIII) (Primary Coverage) 2. Lexington Insurance Company (Best's Rating A VIII) (Primary Coverage) Limits: $ 170,000,000 All Risk Peril Limits: $ 170,000,000 All Risk Peril Sublimits: $ 25,000,000 Named-Wind Sublimits: $ 25,000,000 Named-Wind Deductibles: $ 100,000 All Risk Peril 5% Named-Wind Deductibles: $ 100,000 All Risk Peril 5% Named-Wind Premium: $1,410,441.00 Premium: $1,512,243.00 3. Hartford Steam Boiler Inspection & Insurance Co. (Best's Rating A+X) 3. Travelers Property Casualty Company of America (Best's Rating A+XV) Limits: $ 100,000,000 Limits: $ 100,000,000 Deductibles $ 5,000 Deductibles: $ 5,000 Premium $ 23,368,00 Premium: $ 23,240.00 TOTAL PREMIUM $1.649.703.00 TOTAL PREMIUM $1.751.377.00 In addition to the above, the renewal offers the following options: · Terrorism Coverage (subject to the Terrorism Risk Insurance Act 2002) Motivated by the events of September 11,2001 the Terrorism Risk Insurance Act of 2002 (TRIA) was enacted by the U.S. Congress in November 2002. The TRIA provides a Federal backstop for terrorism losses through a program whereby the Federal Government assumes most of the risk of terrorism attack while the insurance industry provides mandated coverage through a retention and co-payment. The TRIA further nullifies all conflicting terrorism exclusions and requires insurers to offer terrorism coverage under similar terms as other property and casualty coverage as an option. An "Act of Terrorism" is defined as: A violent act that is dangerous to human life, property, or infrastructure; o To have resulted in damage within the United States, or damage to a U.S. air carrier, U.S. flagged vessel, certain U.S. based vessels, or a U.S. Mission; and o To have been committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population of the U.S. or to influence the policy or affect the conduct of the U.S. Government through coercion. o An Act of Terrorism does not include an act committed in the course of war declared by Congress or an act resulting in losses that do not exceed $5,000,000. The following concerns/problems have been expressed regarding the definition: o The definition does not appear to encompass purely domestic terrorism (e.g. Oklahoma). It is unclear how coverage would apply if an "Act of Terrorism" were to be carried out by a U.S. cell of a foreign network. o Losses resulting from an act of War are not covered. o It is unclear whether a cyber attack would be covered. o The Federal government solely decides on interpretation. It should be noted the Terrorism Risk Insurance Act (TRIA) is set to expire on December 31,2005. There is no certainty of extension, thus the coverage provided by insurers mayor may not extend beyond December 321,2005. The policy deductible of $1 00,000 would apply per occurrence. Coverage is capped at the policy limit of $170,000,000. The annual additional premium for this coverage is $141,888. . Coverage of City Parking Garages-The primary exposure/peril to City property is Windstorm and Flood. Secondary to Windstorm and Flood would be Fire. Due to the Construction and Design of the City's Parking Garages, it is likely that in the event of a loss, damages would be minimal and fall under any applicable policy deductible. The premium to add the garages to the policy is $74,258. . Additional Windstorm Limits-Industry models indicate that the Probable Maximum Loss (PML) would be in excess of $96,000,000 in the event of a direct strike by a category 3 or stronger hurricane to the City. Gallagher has indicated the Market may be willing to provide an additional $25,000,000 to $50,000,000 in coverage. The premium to purchase additional coverage is estimated to be $625,000 for $25,000,000 and as much as a $1,000,000.00 for $50,000,000. · Change to Windstorm Deductible (named storm flat deductible)-This option would simplify and speed up the claim adjustment process in the event of a loss. The full benefit of the Windstorm Sublimit would apply at a lower attachment level. Gallagher is currently checking with the markets to see if this can be accomplished with no premium change. While the All Risk policy premium is a considerable sum of money, we must recognize that aid from FEMA is not "contractual" and that the amount of assistance varies depending upon the extent of a declared disaster. It is important to understand that FEMA is not an insurance company. Its policies, procedures, and administration are effected by political and bureaucratic factors that can retard responsiveness and/or reduce anticipated financial aid. Insurance companies, presumably, respond to claims pursuant to the contractual obligations imposed by the Policy. That distinction has increased relevance when disasters occur, recoveries are sought, and speed is important. While the Administration would prefer the City purchase all offered insurance, sound fiscal responsibility dictates that recommendations be based on "cost versus risk". Since storm related loss is the predominant peril to City-owned facilities, the Administration does not recommend the purchase of Terrorism coverage or coverage for the Parking Garages (which have minimal damage exposure). The Administration recommends changing the Windstorm deductible to a flat deductible if available with no premium increase. With regard to the purchase of additional Wind limits, the Administration recommends the City purchase the additional $25,000,000 coverage limit, which increases the total coverage limit to $50,000,000. In the event of a major disaster or multiple disasters (such as the Hurricane Season of 2004) it has become apparent that FEMA is unable to respond quickly and efficiently to the financial and overall recovery needs of both the Public and City Governments. The purchase of additional coverage limits will help minimize the City's dependence on FEMA, provide additional funds for damage repair, and speed recovery in the event of damage sustained from a major storm. The Administration recognizes that during the upcoming policy year, certain CIP projects will reach completion. At the time of completion, the City will need to add/increase insurance coverage for the projects involved. We have reviewed the various projects with CIP and the City's Broker and estimate the additional premium should not exceed $30,000. We have added the estimated premium of $30,000 to the renewal premium for a total of $2,406,377 to reflect anticipated expenditures. In summary, the Administration recommends purchase of the following coverage: Policy Coverage Limits Annual Premium National Flood Insurance $500,000 Bldg/$500,000 Contents $ 215,894 Program (maximum coverage offered) All Risk Property /Wind $170,000,000 All Risk (Named $2,137,243 (Includes $5,000,000 additional Windstorm sublimit of coverage) 4- so, OIJ?C?I o<!>O $50,000,000) Boiler /Machinery $100,000 - lCD, oeD, cOO $ 23,240 Additional Premium For New $20,000,000 $ 30,000 Constructionllmprovements Total Annual Premium $2,406,377 Attachment: Broker Summary F:\$all\risk\cliff\P-INS05.doc Leonard. Clifton From: Sent: To: Cc: Subject: JorL Van_der_ Voort@ajg.com Monday, May 09, 2005 10:48 AM Leonard, Clifton Luann_ Sanandres@ajg.com Additional Limits Cliff- Further to our conversation on Friday, 5/6 we are working on obtaining additional limits of coverage for the City's Property Program. As you know, this will take some time to generate interest and ability from the marketplace. You indicated you needed some estimates of premium to include in your agenda. Please note the premium indicated is an estimate provided by the market. The actual premium and acceptance of the coverage requested will be determined by the market after a thorough review of the completed application. $25,000,000 Excess $25,000,000 = Estimated Premium $600,000 - $625,000 $25,000,000 Excess $50,000,000 = Estimated Premium $275,000 - $300,000 Currently we are trying to generate interest at much less premium. Our initial submission to the marketplace has us looking for the premium for the $25MM Excess $25MM at $400,000. The key here is getting enough markets to offer their capacity at the lowest possible premium (to fill a $25MM limit will take numerous participating carriers). Of course, some carriers may have capacity, but will only offer it at a higher price. We feel though that starting out with a low price is the best way to start the negotiation. We are also looking at resistance on the Flat current program. They reinsurance treaties. option to you. options to reduced the maximum wind deductible. We ran into some Wind Deductible from some of the upper excess markets in the apparently must show a % wind deductible to satisfy their Therefore, we are trying to get the 15MM Maximum reduced as an I am working out of my home today and can discuss this further with you. My phone number here is 305-294-1735. Luann is in the office today and is also available. Thank you for your patience. Regards, Jori L. Van der Voort, ARM ********************************************************** Area Vice President Arthur J. Gallagher & Co. - Miami/Boca Raton A Division of Arthur J. Gallagher & Co. (Florida) 8200 N.W. 41 Street - Suite 200; Miami, FL 33166 305.639.3116 Direct Phone 305.592.4049 Fax 305.298.7494 Cell jori van der voort@ajg.com http://www.aJg.com 1 . City of Mia.mi Beach EXECUTIVE SUMMARY MARKET SUMMARY Insurance carriers on a national basis continue to report positive overall results for 2004 and overall insurance rates have been softening in 2005. Overall the insurance industry's financial results are improved as compared to 2003 despite $21.6 billion in direct losses caused during the 2004 hurricane season. Congress has not yet finalized the issue of TRIA, which is currently set to expire on 12/31/05. It is generally thought that TRIA will be extended, however, not all carriers quoting this renewal have finalized their approach to TRIA for policies that expire in 2006. We will continue to pursue each carriers position and specific quotation terms accordingly. Pricing for casualty and professional liability lines are stable to softening. This is consistent with national trends. In the State of Florida, these national trends are positively affecting renewal costs for all lines of coverage except property. As a result of this past year's unprecedented four-storm hurricane season, property carriers are increasing percentage windstorm deductibles and increasing rates while simultaneously reducing their participation in Florida property schedules. How THE INSURANCE MARKET VIEWS YOUR EXPOSURES: 1. 100% Hiahlv Concentrated Property: Large Property Schedule,100% South Florida coastal risk. NO inland spread of risk, 100% of property is exposed to wind and considered coastal, almost waterfront property. Loss Limit - Wind Limit is absolutelv within the 100% loss limit. In a direct hit storm, the $25,000,000 limit is a 100% LOSS. Markets expect to payout the entire $25,000,000 limit in a medium to large size wind storm. Therefore, their pricing must reflect the exposure. Probable Maximum Loss - Your Probable Maximum Loss (PML) will range from $96,000,000 to $233,000,000 (or 20% to 50% of your Total Insurable Values $464,804,782). Your renewal of $25,000,000 (or 5% of your TIV) is not enough coverage. We stronqlv urqe the City to consider purchasing higher limits of wind coverage. . City of Miami Beach Hurricane Andrew -The $1,500,000 damage the City incurred from Hurricane Andrew is considered peripheral damage and is NOT a benchmark for considering the expected loss from a medium to large windstorm. Hurricane Andrew directly hit areas approximately 20 miles south of Miami Beach. All carriers expect the City to sustain substantial damage within your PML in a medium to large windstorm. Exposure to Fire: The City must also consider their exposure to loss by a fire. There are several buildings that have significant values that could be affected in the event of a fire. The top 4 Valued Buildings in the City are as follows: # BUILDING NAME ADDRESS VALUE 1. Convention Center 1900 Convention Center Drive $198,494,159 2. Theater 1700 Washington Avenue $66,223,802 3. Police Station 1100 Washington Avenue $26,136,275 4. City Hall 1700 Convention Center Drive $16,695,392 The City's All other Perils Limit is $170,000,000. Based on the locations above, we also believe you should be purchasing a higher limit as your convention center is valued at $198,494,159. PROPERTY VALUATION: One of Arthur J. Gallagher & Co.'s and the City of Miami Beach's major concerns this year is the accurate reporting of your property values. The City is being proactive in this regard and has carefully reviewed the property schedule to ensure the properties listed and the values reported are accurate. In doing so, the City has increased their Total Insured Values(TIV) by 18%. While this is a good faith representation to the carriers, Arthur J. Gallagher & Co. recommends the City have replacement cost appraisals performed on all City properties. RENEWAL NEGOTIATIONS: Obtaining a comprehensive and competitively priced program of insurance in today's marketplace requires more than access to the market. Past experience and credibility with markets are the foundation of a successful campaign for the City of Miami Beach. Complete and accurate underwriting submissions, with detailed specifications, are essential. Arthur J. Gallagher & Co. made a complete presentation to each of the following companies. . City of Miami Beach MARKETING SUMMARY MARKET RESULT Lexington Insurance: Quoted Arch Specialty Insurance Quoted Underwriters at Lloyd's of Non - renewed London Nutmeg Insurance Company Quoted Landmark American Quoted Axis Surplus Lines Insurance Quoted James River Insurance Company Quoted Hartford Steam Boiler Inspection Quoted and Insurance Company Allianz Insurance Company Declined- Withdrawing capacity in the State of Florida. LMG Property (Wausau) Declined James River Insurance Quoted $2.5MM p/o $15MM xs $10MM Ace Insurance Offered Primary $2.5MM with a Flat $7.5MM Named Wind Deductible . City of Miami Beach ~ Lloyd's of London was not able to renew their participation of $5 Million in the $15 Million Excess of $10 Million layer. James River Insurance has taken of $2.5 Million of this and we are still working on the remaining $2.5 Million. ~ All other participants were able to renew their layers. PROPERTY PROGRAM STRUCTURE: As mentioned previously, the City's Probable Maximum Loss (PML) is in excess of $96,000,000. This means that in a Category 3, 4 or 5 hurricane, insurance companies expect to pay in excess of $96,000,000. The renewal program presented to the City provides for $25,000,000 of Named Windstorm Coverage. This $25,000,000 Limit is substantially less than your PML and we do not feel that this amount is adequate. In fact, we urge you to consider buying more coverage, not less. We will obtain quotations for additional limits of insurance at the City's direction. . City of Miami Beach The structure of the City's Property Renewal program follows: Limits, Structures & Subscriptions - TIV 464,804,782 $170,000,000 Limit Per Occurrence - $25,000,000 Named Windstorm Sub-limit Deductible for Named Windstorm is 5% (subject to $15,000,000 Maximum and $1,000,000 Minimum) Layers Company Limit Premium Terrorism Premium 2nd Excess Axis Surplus Lines $72,500,000 p/o $165,302 $18,184 Laver Insurance Company $145,000,000 $145,000,000 per Landmark American Ins. $72,500,000 p/o occurrence Company. $145,000,000 excess of $25,000,000 1st Excess Nutmeg Insurance $5,000,000 p/o $584,000 $75,135 Laver Company $15,000,000 $15,000,000 per Arch Specialty Insurance $5,000,000 p/o occurrence Company $15,000,000 excess of $10,000,000 James River Insurance $2,500,000 p/o Company $15,000,000 Carrier-TBD $2,500,000 p/o $15,000,000 Primary Laver Lexington Insurance 100% p/o $10,000,000 $762,921 $48,569 $10,000,000 Company per occurrence primary layer, including Wind Total Premium $1,512,223 $141,888 Plus Florida Fire Marshall and FEMA $20 $20 Total Cost $1,512,243 $1,654,131 ).- Property rate has been reduced from $.3586 per $100 of TIV to $.3253 per $100 of TIV or .t City of Miami Beach an overall rate reduction of 9.3% ~ Total Property Premium is $1,512,243 (Including FL Fire Marshall and FEMA) ~ TRIA Premium $141,888 ~ Total Insured Values - $464,804,782 ~ $25,000,000 Sub-limit for Named Windstorm ~ Deductible for Named Windstorm is 5% of TIV per location (subject to $15,000,000 Maximum and $1,000,000 Minimum) ~ Flood and Earthquake are excluded. ~ Terrorism Coverage is subject to the Terrorism Risk Insurance Act 2002. If not purchased, Waivers must be signed and provided to carrier at time of binding. PROPERTY PROGRAM ENHANCEMENTS ~ Extra Expense sub-limit increased from $1,000,000 to $10,000,000 ~ Expediting Expense sub-limit increased from $1,000,000 to $10,000,000 ~ Valuable Papers sub-limit increased from $1,000,000 to $5,000,000 ~ $2,000,000 sub-limit subject to a maximum of $1,000 anyone tree for Plants, Trees, Lawns and Shrubs ~ Business Income (Theatre, Convention Center and Golf Course only) sub-limit increased from $4,750,000 to $5,000,000 . City of Miami Beach Options: 1. An option has been offered to add the City's parking garages. Values for these garages is $58,200,000. Flood and Named Windstorm are excluded from coverage. Scheduled GaraQes excludinQ Named Windstorm Location 21 07 7th Street 1301 Collins Ave 640 17th Street 400 42nd Street 512 12th Street . The additional premium will be $74,258. . Total Property Premium (including Garages) will be $1,586,501 2. We are also exploring an option for the City to maintain a $7,500,000 Flat Named Windstorm deductible in lieu of the 5% of TIV at Affected Location subject to $1,000,000 Minimum and 15,000,000 Maximum per occurrence. We believe this deductible to be more advantageous to the City in the event of a medium to large storm. If this is of interest to you, please advise and we will provide actual terms, conditions and pricing 3. Additional Limits are available upon request. NOTES OF IMPORTANCE 1. The Terrorism Risk Insurance Act (TRIA) is set to expire on December 31,2005. There is no certainty of extension, thus the coverage provided by your insurers mayor may not extend beyond December 31,2005. In the event you have loan covenants or other contractual obligations requiring that terrorism coverage be maintained throughout the duration of your policy period, we recommend that a separate "Stand Alone" terrorism policy be purchased to satisfy those obligations. TRIA Premium shown is for coverage through 12/31/05. 2. Subject to signed Statement of Values received by the Company within 30 days of binding. Failure to provide signed SOV will result in elimination of Blanket coverage and scheduled coverage will apply. 3. Signed TRIA Acceptance/Rejection form at time of binding. . City of Mia~mi Beach 4. Additional Limits and Sub-limits may be available for an additional premium. We can request quotes on your behalf. Please let us know if you want us to approach our markets and obtain quotes for either of these options. 5. Quote(s) are valid until 12:01 a.m. June 1, 2005. 6. This Property Program presented contains a Warranty Statement/Clause. Failure to maintain Protective Safeguards to all existing systems i.e. sprinklers, alarms, watchman service etc. will void coverage. In the event of a loss there will be no coverage under this program if it is found that the Protective Systems were not operational and the carriers were not advised of the temporary suspension of these Protective Systems prior to the loss. 7. This program contains an Electronic Data Clause Endorsement which limits coverage to EDP Equipment/Media and Hardware to specified perils. A copy of this endorsement has been provided for your review in the Specimen policy book. We recommend that the City consider purchasing Cyber Liability coverage. 8. Coverage is not provided for property whose values have not been declared in the SOV/Schedule of Locations provided by the City for this renewal. BOilER AND MACHINERY RENEWAL PROGRAM ~ We have received renewal terms from your incumbent carrier Hartford Steam Boiler and have presented an alternate quote from Travelers Property Casualty Company of America. ~ Travelers has provided a very competitive proposal. Premium for this proposal is $23,240. ~ Hartford Steam Boiler has presented a renewal with an increase in premium. The premium for this proposal is $28,745. ~ A summary of the major differences in these two programs follows (Specimen policies for both of these programs have been provided for your review): Coverage Travelers HSB Business Income Included $5,000,000 Sub-limit Extra Expense Included Combined with Business . City of Miami Beach Coverage Travelers HSB Income Spoilage Included Excluded Utility Interruption Included $500,000 Utility Interruption Waiting 4 Hours 24 Hours Period Data or Media $500,000 $100,000 Expeditinq Expense Included $100,00 Hazardous Substances $2,000,000 $100,00 ~ As shown above the Travelers Boiler & Machinery program offers several enhancements over the incumbent HSB program. ~. ~ City of Miami Beach SUMMARY: We believe the renewal program presented to the City is a very competitive program given today's Florida property market. Overall, The City's Property rate has been reduced from $.3586 to $.3253 or (9.3%). This is despite an 18% increase in the property values. Total property renewal premium is $1,512,243 (excluding coverage for garages.) We continue to believe that the $25,000,000 Named Windstorm sub-limit currently purchased by the City does not provide the City with enough coverage and we recommend that the City purchase additional coverage limits. We recommend that the City purchase minimum limits equal to its Probable Maximum Loss. We estimate that an additional $50,000,000 (excess of $25,000,000) of named windstorm coverage could cost approximately $500,000 although we do not have actual quotations from the marketplace for this additional limit. If you are interested in obtaining proposals for this additional limit, please let us know. We also believe the $170,000,000 Loss Limit for your All other Perils coverage is insufficient as your largest location is valued in excess of $200,000,000. If you are interested in obtaining additional limits of insurance, please advise. Travelers Property & Casualty of America has offered a very aggressive proposal for your Boiler and Machinery program which includes various enhancements in coverage. The premium is $23,240. Additionally, we recommend the City purchase coverage for Terrorism. We believe that due to the City's high profile, that you do in fact have an exposure to terrorism. The purchase of such coverage is a necessity. Options based on the Terrorism Risk Insurance Act 2002 are included with this policy. Because there are limitations with this coverage, we recommend you evaluate Stand Alone Terrorism Coverage. We thank you for allowing us to serve you over the past nine (9) years. We value the City's trust and pledge our personal and corporate commitment to servicing your needs. .,~, 'll!;V City of Miami Beach 2nd Excess Layer $145 Million Excludes Wind 1 5t Excess Layer $15 Million Primary Layer $10 Million Deductible PROGRAM STRUCTURE $72.5M p/o $145M xs $25M $72.5M p/o $145M xs $25M Axis Surplus Lines Insurance Landmark American Insurance $5m p/o $15M xs $5m p/o $15M $10M xs $1 OM $2.5m p/o $2.5m p/o $15M $15M xs $10M xs $1 OM Arch Specialty Nutmeg Insurance Insurance James River Carrier-TBD Company Company $10 Million Lexington Insurance Company $100,000 except named windstorm ell> City of Miami Beach NOTICE REGARDING POTENTIAL EXPIRATION OF THE TERRORISM RISK INSURANCE ACT OF 2002 The Terrorism Risk Insurance Act of 2003 (TRIA 2002) is scheduled to expire on December 31,2005. If Congress does not take action to extend TRIA, the ACT will expire and three things will occur: 1. Federal reinsurance for "certified acts of terrorism" ceases. 2. The definition of "certified acts of terrorism" becomes null and void. 3. Insures will no longer be required to offer terrorism coverage by federal law. Essentially, insurance carriers are now issuing Terrorism disclosure forms and coverage parts that will only provide TRIA coverage until 12/31/05, unless TRIA is renewed by Congress, even though the coverage provided by this policy will expire at a later date. If the Act is not renewed by Congress and if TRIA coverage is purchased as a part of this policy, TRIA coverage will cease as of 12/31/05. Various carriers are handling premium charges differently for this potential situation. There may be an additional premium charge from the carriers after 12/31/05 if the City opts to purchase TRIA effective 06/01/05. ~:.'.0." ~ffr City of Miami Beach PREMIUM RECAPITULATION Option 1 (Excluding Garages) Expiring Renewal 2004-2005 2005-2006 % Change Total Insured Values: $ 393,258,466 $ 464,804,782 18% Rate: $ .3586 $ .3253 -9.3% PRIMARY $ 762,921 $ 762,921 Lexington ($10,000,000) --- First Excess $ 500,000 $ 584,000 16.8% Various ($15MiI xs $10MiI) Second Excess $ 147,500 $ 165,302 12% Various ($145MiI xs $25MiI) Boiler & Machinery $ 23,368 $ 23,240 -.55% FI Fire Marshall Surcharges and FEMA $ 20 $ 20 --- Fees TOTAL PREMIUM (Including FI Fire Marshall Surcharges and FEMA Fee)) $ 1,433,809 $ 1,535,483 +7.1% TRIA (Thru 12/31/05) NIA $ 141,888 --- Total Renewal Premium including TRIA $ 1,433,809 $ 1,677,371 17% (thru 12/31/05) Notes of Importance 1. Premiums for the above policies are due and payable as billed. 2. Quote(s) are valid until 12:01 a.m. June 1, 2005. ., City of Miami Beach PREMIUM RECAPITULATION Option 2 ( Including Garages) Expiring Renewal 2004-2005 2005-2006 % Change Total Insured Values: $ 393,258,466 $ 523,004,782 +33% Rate: $ .3586 $ .3033 -15.4% PRIMARY $ 762,921 $ 809,481 6.1% Lexington ( $10,000,000) First Excess $ 500,000 $ 591,000 18.2% Various ($15MiI xs $1 OMil) Second Excess $ 147,500 $ 186,000 26% Various ($145MiI xs $25MiI) Boiler & Machinery $ 23,368 $ 23,240 -.55% FI Fire Marshall Surcharges and FEMA $ 20 $ 20 --- Fees TOTAL PREMIUM (Including FI Fire Marshall Surcharges and FEMA Fee)> $ 1,433,809 $ 1,609,741 +12.3% TRIA (Thru 12/31/05) NIA $ 144,468 Total Renewal Premium including TRIA $ 1,433,809 $ 1,754,209 +22% (thru 12/31/05) Notes of Importance 1. Premiums for the above policies are due and payable as billed. 2. Quote(s) are valid until 12:01 a.m. June 1, 2005.