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CITY OF ROSEVILLE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 5 -OTHER INFORMATION (Continued) A. Risk management (Continued) The Risk Management Fund provides comprehensive general liability and comprehensive automotive liability up to the statutory maximum of $1,000,000. The City retains the risk of the first $100,000 of each occurrence with an annual maximum exposure of $300,000. Liabilities of the fund are reported when it is probable that a loss has occurred and amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards. Accordingly, claims are reevaluated periodically to consider the effects of inflation, recent claim settlement trends (including frequency and amount of pay- outs), and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether allocated to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. The City purchased commercial insurance for claims in excess of coverage provided by the Risk Management Fund and for all other risks of loss. Settled claims have not exceeded this coverage in any of the past three fiscal years. There were no significant reductions in the City's insurance coverage in 2005. Enterprise fund charges and the property tax levy are based on a management estimate of claims history and the amount necessary to maintain catastrophic reserves. The reserves as of December 31, 2005, were $ 1,953,927 and $ 653,440 for the Workers' Compensation Fund and Risk Management Fund, respectively. The claims liability of $ 141,671 and $ 232,450, respectively, reported in both funds at December 31, 2005 are based on the requirements of Governmental Accounting Standards Board Statement No. 10. This statement requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated (IBNR). Changes in the funds' claims liability amount in fiscal 2004 and 2005 were: 65 Workers' Compensation Fund Beginning of Current Year Ending of Fiscal Year Claims and Changes Claims Fiscal Year Liability in Estimates Payments Liability 2004 $ 82,386 $ 205,425 $ 164,061 $ 123,750 2005 123,750 129,614 111,693 141,671 65