A meeting of the Audit and Enterprise Risk Committee of the Board of Trustees convened at 9:17 a.m. Friday, December 8, 2023, in Room 326 of Stewart Center on the campus of Purdue University in West Lafayette, Indiana.

All members of the Committee were present: Vanessa Castagna, chair; JoAnn Brouillette; and Theresa Carter. Other trustees in attendance were: Sonny Beck; Michael Berghoff; Kevin Boes; Malcolm DeKryger; and Michael Klipsch; Gary Lehman and Shawn Taylor.

Officers and administrators in attendance were: Mung Chiang, president; Patrick Wolfe, provost and executive vice president for academic affairs and diversity; Chris Ruhl, chief financial officer and treasurer; Eva Nodine, senior vice president, assistant treasurer, and assistant secretary; Steve Schultz, senior vice president and general counsel; Cindy Ream, corporate secretary and senior executive assistant to the Board; Ron Elsenbaumer, chancellor, Purdue University Fort Wayne; and Tom Keon, chancellor, Purdue University Northwest.

I. Review of FY23 Audited Financial Statements

Eva Nodine, senior vice president, assistant treasurer, and assistant secretary provided an overview of the audited financial statements for the fiscal year ended June 30, 2023. She began by stating there are two types of entities included in the financial statements; components blended in the Purdue position which include Purdue West Lafayette and Regionals (approximately 85%), Purdue Global, Purdue Applied Research Institute (PARI) and Purdue International (PII). She noted components not blended but discreetly presented in report are Purdue Research Foundation, Ross Ade Foundation and Purdue Fort Wayne Foundation. Ms. Nodine confirmed a $292M increase in net position driven by a strong increase in operating revenues. She commented that operating expenses increased at a slower rate than revenue.

Ms. Nodine shared the “balance sheet” showing current assets, including cash and receivables are up due to some shifting of investments from non-current to current. She noted other assets decreased again, primarily due to the shifting of some non-current assets to the current asset category. Total liabilities increased around $111M, with the issuance of additional institutional debt and increased payables, retirement, and other employee benefit liabilities. She reported results in total net position of $6.54B, made up of $6.25B beginning plus the current increase of $292M for FY23. A copy of the presentation and supporting material was filed with the minutes. No Committee action was required.

II. Office of Risk Management Annual Report

Mark Kebert, director of domestic and global risk, presented the Office of Risk Management Annual Report which he noted will include fund financial health, current insurance market conditions, and insurance renewal highlights for 2023-24. He noted that the viability ratio is used to assess the health of the fund. The viability ratio are the assets in the special fund divided by the obligations. He defined the obligations, as claims that have accrued and are reserved in the risk management system, outgoing insurance premiums, incurred losses that have not been reported yet (an actuary formula is used for estimate), and the operating cost for the office of risk management. Mr. Kebert stated that the preferred ratio is 1½ times the obligations and that currently we stand at 2½ times the obligations. He shared the improved viability ratio for the current year was largely due to an increase in revenue, resulting from an increase in departmental recharge rate, as well as a large insurance recovery.

Mr. Kebert indicated that property insurance rates continue an upward trajectory, and noted they are getting better but anticipates a few more years of increases. Casualty risk market shows more moderate increases tracking in the region of 5-10% across the board. He stated that third party litigation funding continues to fuel a rise in legal action with increased harassment and discrimination claims by students and employees. He noted that cyber risk pricing continues to stabilize, benefiting from cybersecurity controls put in place. The aviation insurance market is still relatively unstable with increased rates in the 15%-25% range. He shared this is due to supply chain issues, rising repair costs and increased reinsurance treaty costs.

Mr. Kebert shared the results of the 2023-24 renewal process. He noted property insurance rate increased by 4% but no material coverage changes. The liability premium increased 8.6% and the program structure remains with United Education, Ironshore and Lexington with no material changes in coverage. Cyber coverage is through Beazley and Starr with a premium decrease of 10% primary layer and decrease of 23% on excess layer, with these notable coverage enhancements: crypto jacking, computer hardware replacement, and reputational harm. He stated there was no rate increase year over year for aviation, coverage with Starr and no material coverage changes.

A copy of the 2023 Office of Risk Management Annual report and the presentation were filed with the minutes. No Committee action was required.

By consent, the meeting adjourned at 9:36 a.m.