Financial Statement - RAM Mutual Insurance Company

RAM Mutual
Insurance
Company
Policyholder Statements
December 31, 2013
Presented at the
RAM Annual Meeting
April 9, 2014
Holiday Inn, St. Cloud, MN
RAM Mutual Insurance Company Board of Directors Tom Mrosla ................................................... Chairman Bricker Johnsen .............................................. Vice Chairman Steve Knutson ................................................ President Jim Svir ........................................................... Secretary Tim Iverson .................................................... Director Linda Jaskowiak ............................................ Director Al Muehlhausen ............................................ Director Doug Oachs ................................................... Director David Pederson.............................................. Director Other Officers Wayne Johnston ............................................ Treasurer/CFO Kevin Burkholder ........................................... Vice President Steve Hinnenkamp ........................................ Vice President Wes Mattsfield .............................................. Vice President Joleen Podvin ................................................. Vice President Dan Rupp ....................................................... Vice President Bert Tellers ..................................................... Vice President ‐ 1 ‐
The Year in Review The year 2013 was an excellent year for RAM. We did not incur any catastrophe loss events, which allowed for excellent profitability. We did incur two smaller weather‐related loss events, but they did not exceed our catastrophe reinsurance retention. Both the frequency and severity of losses decreased. RAM posted a pre‐tax profit of $8,026,000 and net income of $5,272,000. After statutory adjustments, our surplus increased by $5,790,000 to $39,571,000, which is an all‐time high for RAM. This represents a 17.14% increase compared to year‐end 2012. Our gross and net written premiums‐to‐surplus ratios improved to 1.5:1 and 1.1:1, respectively. RAM’s combined ratio was an excellent 82.2%, which is a combination of 53.3% in loss and loss adjusting expense and 28.9% in operating expense. Our A.M. Best rating was confirmed in January of 2014 at A‐ with a stable outlook. Our member company results were also acceptable. We incurred 40 reinsurance claims in 2013, up from 34 in 2012. While incurred losses increased, our member company results were profitable and allowed us to maintain stable assumed reinsurance rates. This was reflected in the fact that we renewed all 51 member companies for 2014. The guaranty fund certificates held by our member companies continue to bolster RAM’s financial position and now represent approximately 12% of our surplus. With profitable operations in 2013 and with permission from the Minnesota Department of Commerce, we paid our 2013 interest in March of 2014. We sincerely appreciate the extra financial support that these funds provide to RAM. RAM experienced 3.2% direct lines written premium growth in 2013. This growth is largely attributable to rate increases that continued to flow through our book of business. Our member company reinsurance written premium also increased by 3.4% as several member companies increased their capacity limits in 2013. While our overall gross written premium increased by 3.2%, our policy count decreased by 4,950 policies. The primary reasons for this decrease were the non‐renewal of non‐member company package business, moratoriums placed on some lines of business, and the cancellation of some policies due to competition in the marketplace. We made relatively few rate adjustments during 2013. We plan to evaluate the first half of 2014, including our weather‐related loss activity, and then decide on the need for additional rate increases. We would anticipate more modest rate adjustments moving forward. Our goal is to provide our policyholders and our agents with a more stable rating structure. We are extremely grateful for our strong operating results and healthy increase to surplus. This has allowed RAM to improve our financial position and maintain our excellent A.M. Best rating. I would like to extend my sincere appreciation to our policyholders, agents, and member companies for your loyalty and support of RAM. We look forward to working with you in the coming year! Steve Knutson President/CEO
‐ 2 ‐
RAM Mutual Insurance Company
STATUTORY BALANCE SHEETS December 31, 2013 and 2012 2013 $29,053,000 6,452,000 36,926,000 318,000 72,749,000 7,384,000 331,000 1,863,000 185,000 0 758,000 $83,270,000 ADMITTED ASSETS Bonds Preferred and common stocks Cash and cash equivalents Other invested assets Cash and invested assets Uncollected premiums Due from reinsurers Net deferred tax assets Accrued investment income Federal income taxes receivable Other non‐invested assets Total admitted assets 2012 $22,207,000
10,222,000
30,107,000
323,000
62,859,000
7,514,000
788,000
1,810,000
138,000
431,000
691,000
$74,231,000
LIABILITIES AND SURPLUS Liabilities: Unpaid losses and loss adjusting expenses, net Unearned premiums, net Advance premiums Commissions payable Ceded reinsurance premiums payable Taxes, licenses, and fees Earned but unbilled premium credits Federal income taxes Other Total liabilities Surplus: Guaranty fund certificates Unassigned surplus Total surplus Total liabilities and surplus $19,386,000 18,736,000 317,000 969,000 813,000 879,000 807,000 407,000 1,385,000 43,699,000 4,745,000 34,826,000 39,571,000 $83,270,000 ‐ 3 ‐
$17,216,000
18,233,000
342,000
620,000
1,999,000
833,000
654,000
0
553,000
40,450,000
4,745,000
29,036,000
33,781,000
$74,231,000
RAM Mutual Insurance Company
STATUTORY STATEMENTS OF INCOME Years Ended December 31, 2013 and 2012 2013 UNDERWRITING OPERATIONS Net premiums earned: Direct premiums earned Reinsurance assumed Reinsurance ceded $46,924,000
10,669,000
(12,883,000) 44,710,000
Net losses incurred: Direct losses incurred Reinsurance assumed Reinsurance recoveries Operating expenses incurred: Loss adjustment expenses Commissions Other underwriting expenses Underwriting gain (loss) 17,652,000
5,062,000
(2,429,000) 20,285,000
3,549,000
7,848,000
5,235,000
16,632,000
7,793,000 INVESTMENT AND OTHER INCOME Investment income earned Investment expenses Realized capital gain, net of tax Other income Investment and other income Net income before federal income tax expense Federal income tax expense Net income 912,000
(924,000) 29,000 201,000
218,000
8,011,000 2,739,000 $5,272,000 ‐ 4 ‐
2012 $42,730,000 10,263,000 (15,353,000) 37,640,000 31,346,000 3,360,000 (12,420,000) 22,286,000 4,055,000 7,363,000 4,522,000 15,940,000 (586,000) 1,018,000 (224,000) 670,000 228,000 1,692,000 1,106,000 292,000 $814,000 RAM Mutual Insurance Company MEMBER COMPANY EXPERIENCE Underwriting Years 2013 and 2012 As of December 31, 2013 Gross premiums earned Reinsurance ceded Net premiums earned Gross losses incurred Reinsurance recoveries Net losses incurred Loss ratio UWY 2013 $8,716,000 (3,561,000) $5,155,000 $4,687,000 (1,698,000) $2,989,000 58.0% ‐ 5 ‐
UWY 2012 $8,275,000 (3,414,000) $4,861,000 $4,249,000 (1,713,000) $2,536,000 52.2% RAM MUTUAL INSURANCE COMPANY
FINANCIAL TRENDS AND RATIOS
Premium and Surplus Trends Change in GWP and Surplus
In Millions
Premium Written
$60
19.9%
20.0%
$47.0
$50
10.0%
$33.8
$32.6
13.5%
15.0%
$39.6
$35.5
$30
17.1%
$45.2
$40.8
$40
25.0%
$58.1
$56.3
$20
5.0%
$10
0.0%
$0
‐5.0%
3.2%
3.7%
‐0.1%
2011
2012
Gross (GWP)
2011
2013
Net (NWP)
Surplus
GWP
1.6
Surplus
1.67
16.00
1.47
1.44
14.00
1.4
12.9
12.1
12.8
12.00
1.2
1.21
1.0
0.8
2013
Surplus to Authorized Control Level Risk‐Based Capital
Premium to Surplus Ratio
1.8
2012
10.00
1.14
1.00
8.00
0.6
6.00
0.4
4.00
0.2
2.00
Company Action Level
0.00
0.0
2011
2012
GWP
2011
2013
2012
2013
NWP
Analysis and Comments: The Company’s premium writings remained relatively stable during 2013 as the significant rate increases taken primarily on property lines were offset by a decrease in policy count. The increase in net premiums written is mainly due to a large decrease in catastrophe reinstatement premiums ceded. Increase in surplus for 2013 was a result of underwriting gains. The Company’s surplus level relative to premium and Risk‐Based Capital standards remains strong.
-6-
RAM MUTUAL INSURANCE COMPANY
FINANCIAL TRENDS AND RATIOS
Combined Ratio and Expense Trends
Net Combined Ratio
Expense Distribution
In Millions
120.0%
100.0%
$16
$14
$4.8
$12
$4.1
80.0%
58.8%
59.2%
60.0%
40.0%
$10
Losses
45.4%
LAE
10.8%
Salaries and
Benefits
$8
Underwriting
Expenses
10.6%
$4.1
Commissions
$6
$7.4
$7.8
Other
$5.9
7.9%
$4
20.0%
31.2%
29.1%
28.9%
$2
$2.0
0.0%
2011 Losses LAE Underwriting Expenses Totals $2.0
$2.3
$0
2012 2013 2011 58.8% 10.6% 31.2% 59.2% 10.8% 29.1% 45.4% 7.9% 28.9% Salaries and Benefits Commissions Other 100.6% 99.1% 82.2% Totals 2012 2013 $ 4,090,287 $ 5,895,208 $ 2,027,218 $ 4,095,006 $ 7,363,014 $ 1,998,344 $ 4,799,600 $ 7,847,989 $ 2,286,782 $ 12,012,713 $ 13,456,364 $ 14,934,371 Analysis and Comments: The Company’s combined ratio significantly improved in 2013 compared to 2012 and 2011 as a result of a decrease in both frequency and severity of claims. The largest component of underwriting expense, commissions, increased during 2013 due to an increase in premium writings as well as an increase in contingent commissions incurred. Salaries and benefits increased in 2013 due to profit sharing bonuses incurred. -7-
RAM MUTUAL INSURANCE COMPANY
FINANCIAL TRENDS AND RATIOS
Loss and LAE Reserve Trends Loss Reserves as % of Surplus
Development as % of Surplus
70.0%
22.0%
16.8%
60.0%
Adequate
65.0%
57.8%
55.0%
51.0%
49.0%
50.0%
Deficient 45.0%
40.0%
2011
2012
2013
17.0%
12.8%
12.0%
7.0%
‐3.0%
Adequate
2012
2013
Carried
$24.0
28.1%
Point
Estimate
20.0%
$22.0
22.1%
15.0%
$20.0
10.0%
2.0%
$17.2
$17.0
$16.0
2011
2012
$19.3
$18.0
0.0%
‐5.0%
$19.4
$18.8
$18.0
5.0%
Deficient 2011
Reserves Carried to
Actuary's Point Estimate
Development as % of Reserves
30.0%
25.0%
1.0%
2.0%
2013
$14.0
Carried Point Estimate 2011 $ 18,821,544 $ 18,001,106 2012 $ 17,215,992 $ 16,974,000 2013 $ 19,385,640 $ 19,277,000 Analysis and Comments: The Company’s loss and loss adjustment expense reserves continue to show adequate development. The Company made the decision to have carried reserves move closer to the actuary’s point estimate in 2013. Thus, reserve development has become less redundant. -8-
RAM MUTUAL INSURANCE COMPANY
FINANCIAL TRENDS AND RATIOS
Investment Trends Total Return
Realized Return
Unrealized Return
Surplus
Interest/Dividends
3.2%
3.0%
3.1%
2.3%
$70.0
$72.7
$60.0
$62.9
$60.2
$50.0
2.0%
1.0%
Invested
Assets
Invested Assets to Surplus
In Millions
4.0%
Avg ROR on Invested Assets
(excluding Real Estate)
1.4%
1.4%
1.4%
$39.6
1.3%
$40.0
1.2%
1.5%
1.0%
$33.8
2011 $ 60,244,339 $ 32,566,773 1.85 2012 $ 62,858,749 $ 33,781,406 1.86 $30.0
0.1%
0.0%
$20.0
0.0%
Interest/dividends 2011 1.4% 2012 1.5% 2013 1.2% Realized Return Unrealized Return
Total Return 1.4% ‐
1.4% 3.1% 0.1% 3.2% 1.3% 1.0% 2.3% Invested Assets Surplus Ratio 2012 Invested Asset Distribution
Equities
16%
$32.6
2013 $ 72,748,623 $ 39,571,406 1.84 2013 Invested Asset Distribution
Bonds
36%
Equities
9%
Cash & Equivalents
48%
Bonds
40%
Cash
51%
Analysis and Comments: The Company’s total rate of return decreased during 2013. During 2012, the Company turned over a portion of the bond portfolio to realize capital gains in order to utilize capital loss carryforwards expiring at the end of 2012, creating a higher realized return. The Company remained heavily invested in cash during 2013. Invested assets (including cash) compared to surplus have remained fairly stable over the three‐year period. -9-
RAM MUTUAL INSURANCE COMPANY
FINANCIAL TRENDS AND RATIOS
Investment Trends Long Term Bonds Book Value vs Fair Market Value
$12.0
$10.3
$11.0
Cost
FMV
In Millions
In Millions
Stocks Actual Cost vs
Fair Market Value
$10.0
$9.0
$8.4
$32.0
BV
FMV
$30.0
$29.1
$28.0
$10.2
$31.0
$30.2
$28.9
$26.0
$8.0
$7.0
$8.2
$24.0
$6.5
$6.0
$22.0
$5.9
$5.0
Cost FMV Loss $20.0
2011 $ 8,361,341 $ 8,183,831 ($ 177,510) 2012 $ 10,345,647 $ 10,228,798 ($ 116,849) $22.6
2013 $ 5,919,021 $ 6,452,273 $ 533,252 BV FMV Gain 2011 $ 30,194,001 $ 31,042,226 $ 848,225 $22.2
2012 $ 22,207,265 $ 22,638,142 $ 430,877 2013 $ 29,053,109 $ 28,869,509 ($ 183,600) Analysis and Comments: The Company has a relatively conservative stock and bond portfolio. The improvement within the stock market during 2013 has created unrealized gains on the stock portfolio. The Company’s bond portfolio experienced declines in fair market values during 2013. As bonds are recorded at amortized cost (not fair market value), this decline is not reflected in surplus. -10-

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