UNIVERSITY OF KENTUCKY'
                           LEXINGTON. KENTUCKY 40536-0223

ALBERT B. CHANDLER
  MEDICAL CENTER
O"ICE1 THEL CHNCELLO                                                      2    th
   TELEPHONELLOR
   I606) 233-5126                                                       euxhvirse





      July 16, 1986

      Dr. Otis A. Singletary
      President
      101 Administration Building
      University of Kentucky
      Campus

      Dear President Singletary:

      I am writing to provide you with a status report on the medical malpractice
      insurance program in the Medical Center. After a careful examination of the
      various options we have determined that a program of total self-insurance is
      the best option for 1986-87. Of course we can alter our approach in future
      years depending on the circumstances in the insurance industry.

      The statutes(KRS 164.939 to 164.944) under which our self-insurance fund was
      established in 1976 have provisions for us to operate with or without
      purchasing excess insurance. They also provide for access to a State fund
      with an appropriation of up to $5.5 million per year for judgments against all
      State agencies. We have purchased the excess insurance each year since the
      fund was established, but our self-insurance fund has grown each year and
      currently has in excess of $3.7 million.

      We have had actuarial studies done by Coopers and Lybrand in the Spring of
      1985 and in 1986. The amount of money placed in the fund each year has been
      determined by the actuarial study. In other words, the fund is actuarially
      sound. The 1986 study indicates that a fund of $5,350,000 would be required
      for the fund to be actuarially sound on a total self-insurance basis for
      1986-87, and we plan to establish our fund in that amount.

      Important factors of consideration and details about the three options
      available for 1986-87 have been carefully reviewed by the Medical Malpractice
      Claims Committee. Upon their recommendation these options and the
      recommendation to totally self-insure was presented to KMSF's Finance
      Committee and Board of Directors, the Clinical Chiefs of the University
      Hospital and finally to the faculty by Dr. David Cowen. There has been
      consistent agreement and approval from all interested parties.



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