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<br />How was the di"idend amount determined? <br /> <br />Most LMCIT members are very familiar with LMCIT"s approach to rate-setting. Briefly, <br />the premium rates incorporate a safety margin. That is, the premiums plus investment <br />income are designed to produce enough revenue to cover losses and expenses even if <br />losses turn out to be greater than projections. If losses turn out to be at projections. that <br />margin isn't needed to pay for losses and is available either to be returned to members as <br />a dividend or used to strengthen LMCIT"s fund balance. If losses turn out to be lower <br />than projections. that additional savings also becomes available to be retumed to <br />members. <br /> <br />One fact of life in any insurance operation is that it can take several years until claims are <br />finally settled and we know for sure what the actual loss costs were. For !his reason, we <br />have to work with estimates, \\'hich are continually revised and updated. The program's <br />results and the amount of dividend we can retulll in anyone year therefore don't just <br />depend on what happened during that year; the year's financial results are also affected <br />by changes in our estimates of what prior year losses will ultimately cost. <br /> <br />Here's a summary of what makes this year's dividend possible: <br /> <br />. At this point. the estimated cost oflosses incurred during the past year is in line <br />with what we'd projected when the rates were set. In other words, it doesn't <br />appear that that safety margin in the rates will be needed for losses. <br /> <br />. The current estimate of what losses from prior years will ultimately cost is less <br />than our earlier projections. The funds that we'd previously set aside for those <br />losses are therefore freed up. <br /> <br />. Both earned premiums and realized investment income for the past year have <br />been somewhat higher than projections. <br /> <br />The LMCIT Board also again used a small part of this year's net income to further <br />strengthen the program's fund balance. The Board concluded that this was appropriate in <br />light of the continued growth in the property/casualty program's premium volume, <br />especially in some higher-risk areas like liquor liability; and the increased Jimount of risk <br />LMCIT will now be retaining. <br /> <br />3 <br />