2016 annual report - lmick.com€¦ · 2016 annual report by kentucky lawyers. for kentucky...
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2 0 1 6 A N N U A L R E P O R T
b y k e n t u c k y l aw y e r s .
F o r k e n t u c k y l aw y e r s .
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I N C L U D E D in the items of business are the election of a class of the Board of Directors and a report on company operations.
Proxy materials have been mailed to policyholders prior to the meeting. We urge all policyholders to return their proxies and to attend the meeting.
W E D N E S D AY, J U N E 2 1 , 2 0 1 78:00 AM • EXECUTIVE MEETING ROOM
HOLIDAY INN OWENSBORO • 701 WEST 1ST ST. • OWENSBORO, KY
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CONTENTSLETTER TO OUR POLICYHOLDERS ................................................. 3
COVERAGE THAT’S ROOTED IN KENTUCKY .................................. 4
2016 MANAGEMENT AND STAFF ...................................................... 5
2016 EXECUTIVE COMMITTEE ........................................................ 6
2016 BOARD OF DIRECTORS ............................................................ 6
COMMITTEES, ADVISORS AND CONSULTANTS .............................. 7
CLAIMS FREQUENCY BY AREAS OF PRACTICE IN 2016................... 8
CLAIMS FREQUENCY BY AREAS OF PRACTICE SINCE 1987 ........... 8
CLAIMS REPORTED .......................................................................... 9
STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND POLICYHOLDERS’ SURPLUS – STATUTORY BASIS......................... 10
STATEMENTS OF INCOME – STATUTORY BASIS ........................... 11
STATEMENTS OF CHANGES IN POLICYHOLDERS’ SURPLUS – STATUTORY BASIS .......................................................................... 12
STATEMENTS OF CASH FLOWS – STATUTORY BASIS .................... 13
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To our Policyholders,
It has been 30 years since we planted the sapling that has grown into today’s Lawyers Mutual, the only professional liability insurance company in Kentucky governed by a board of directors comprised solely of Kentucky attorneys. After three decades, it stands as a towering hardwood demonstrating strength and
stability even as it sends out new growth.
We look with pride on this our tenth consecutive profitable year, testament to the premise upon which our founding rested, that a home-grown, attorney-owned entity providing professional liability coverage can better serve the attorneys of Kentucky.
Our strong board membership continues with the addition of William R. “Bill” Garmer, new President-Elect of the Kentucky Bar Association from Lexington, and J. Tanner Watkins, the KBA Young Lawyers Division representative from Louisville.
We have grown to a staff of nine, with over 140 years of collective experience and exceptional qualifications in their areas of expertise. Our renewal rates of 94% for firms and 95% for attorneys are a clear indicator that our mutual company continues to serve those it protects. Our staff of extensively experienced and talented individuals in claims, underwriting, finance, sales and marketing are unmatched in the business. They are the hardwood trunk in the operation of Lawyers Mutual. Together they not only manage the day-to-day operations of Lawyers Mutual in providing coverage for our insureds, but also help to educate our lawyer clients to avert loss in the first place. We stress communication and a commitment to help avoid claims, perform claims repair and protect our insureds from financial loss when claims inevitably arise and cannot be repaired – all through personal and responsive service. We are convinced this is a reason for our high renewal rates and proof that Lawyers Mutual remains committed to Kentucky attorneys.
For Lawyers Mutual, critical to our mission is maintaining loyal ties to the Kentucky Bar Association and the legal community as well. In 2016, we sponsored 85 meetings and events for state-wide bar groups; offered 35 hours of Continuing Legal Education; and distributed our newsletter, The Risk Manager, quarterly to over 13,500 Kentucky attorneys. In those newsletters we addressed issues that are of vital importance in today’s legal environment: cyber security and risk management, recent Supreme Court rulings, and scams which may threaten attorneys and their clients.
Lawyers Mutual continues to be true to its mission and purpose, enjoying the support of our policyholders, and remaining committed to our deep Kentucky roots.
ASA P. “PETE” GULLETT, IIIChief Operating Officer
JOHN G. PRATHER, JR.Board Chair
RUTH H. BAXTERPresident
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C O V E RAG E T HAT ’ S R O O T E D I N T H E B L U E G RASSOur focus has always been providing exceptional professional liability insurance, along with a powerful commitment to lawyer’s risk management, exclusively for Kentucky lawyers. An experienced group of practicing attorneys throughout Kentucky, our Board of Directors is intimately familiar with what Kentucky lawyers face, and volunteers their time, energy and legal expertise to assure our insureds receive the most outstanding coverage provided in the Bluegrass State.
WELL-G R OUND E D K ENTU CKY C O UNS E L We are committed to being with our insureds every step of the way, whether it be answering questions, handling actual claims or doing claims repair. Potential claims are reviewed by our staff, keeping your best interests in mind. Asa P. “Pete” Gullett, III and Jane Broadwater Long offer a combined 30 years’ experience with Lawyers Mutual in addition to 70 years’ experience practicing law. You’ll receive personal service and if necessary, representation by a carefully chosen Kentucky attorney.
S E E I N G T H E F O R E S T F O R T H E T R E E SWhile we respect that the devil is in the details, we never lose sight of the bigger picture, which is why we offer such a broad range of expertise. Whether you are calling on our underwriting, claims or financial departments, you’ll be working with experienced professionals who have spent much of their careers with Lawyers Mutual. This means you’ll always receive personal, reliable and dependable service from someone familiar, someone you know and trust, and most importantly, someone who knows you and understands your unique circumstances.
A T R E E I S K N OWN BY I T S F R U I TBecause we’re committed to helping Kentucky lawyers avoid legal malpractice claims
and bar complaints, we extend our branches to provide educational resources, such as CLE events, a quarterly newsletter and an online resource center to help minimize risks. Since 1996, we have published The Risk Manager newsletter quarterly, which is mailed to all attorneys in Kentucky and features in-depth articles about current legal malpractice issues.
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Unlike other insurers, at Lawyers Mutual, you’ll always work with a team you’re familiar with and who knows you like family. Many of our dedicated management and staff have been with us practically from the very first day we opened our doors. Their collective experience offers a virtual
canopy of service to cover the many needs of our policyholders and the very specialized and vital protection they seek.
LAWYERS MUTUAL INSURANCE COMPANY OF KENTUCKYMANAGEMENT AND STAFF
CLAIMS
Asa P. “Pete” Gullett, IIIExecutive Vice President &
Chief Operating [email protected]
Jane Broadwater LongVice President &
Claims Counsel [email protected]
Piper BurnettClaims [email protected]
Lois A. SmithVice President, [email protected]
Connie S. HarperUnderwriting [email protected]
Dulaney L. “Del” O’Roark, Jr.
Newsletter Editor; Claims, and Loss Prevention Consultant
UNDERWRITING
MARKETING & SALES
Nancy L. MeyersMarketing [email protected]
John F. Reesor, J.D., CPAVice President &
Chief Financial [email protected]
Sarah B. KessingerAccounting [email protected]
FINANCIAL
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I n 1987, in response to an unstable insurance market, our founders envisioned an insurance company owned totally by Kentucky lawyers, that was committed to providing reliable malpractice insurance and dedicated to exceptional personal service. Our Kentucky Roots Run Deep, and we have been
exclusively serving Kentucky lawyers ever since.
Every member of our Board of Directors is a practicing Kentucky attorney who volunteers their time. Hailing from all regions of the Commonwealth, our Board members average over 20 years of experience practicing law and include plaintiff’s counsel, members of the defense bar, rural practitioners, and partners in small, medium-sized and large law firms. The board includes at least two directors from each Supreme Court district; the president, president-elect and past president of the Kentucky Bar Association; and a representative of the KBA Young Lawyers Division.
LAWYERS MUTUAL INSURANCE COMPANY OF KENTUCKY BOARD OF DIRECTORS
2016 EXECUTIVE COMMITTEE
2016 BOARD OF DIRECTORS
PRESIDENTRuth H. BaxterCarrollton – 6th [email protected]
BOARD CHAIRJohn G. Prather, Jr.Somerset – 3rd [email protected]
Escum L. “Trey” Moore, III
Lexington – 5th district [email protected]
TREASURERGlenn D. DentonPaducah – 1st [email protected]
SECRETARYDaniel P. Stratton Pikeville – 7th district [email protected]
Anne Milton McMillinLouisville – 4th [email protected]
Charles E. “Buzz” English, Jr.
Bowling Green – 2nd [email protected]
Douglass C. E. FarnsleyLouisville – 4th [email protected]
John G. McNeillLexington – 5th districtjmcneill@landrumshouse.
com
Dustin E. MeekLouisville – 4th [email protected]
Ralph Carmen “Chip” Pickard, Jr.
Mayfield – 1st [email protected]
Marcia Milby RidingsLondon – 3rd [email protected]
Christopher L. RhoadsOwensboro – 2nd [email protected]
Beverly R. StormCovington – 6th [email protected]
Marcia L. WiremanJackson – 7th [email protected]
Joe B. CampbellBowling Green – 2nd district
Charles E. EnglishBowling Green – 2nd district
R. Michael SullivanOwensboro – 2nd district [email protected]
DIRECTORS EMERITI
Robert G. BreetzLouisville – 4th District
William R. GarmerLexington – 5th [email protected]
J. Tanner WatkinsLouisville – 4th districttanner.watkins@dinsmore.
com
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COMMITTEES
EXECUTIVE COMMITTEEJohn G. Prather, Jr., Chair
Ruth H. BaxterGlenn D. Denton
Anne Milton McMillinEscum L. “Trey” Moore, III
Daniel P. Stratton
AUDIT & FINANCE COMMITTEEGlenn D. Denton, Chair
Charles E. “Buzz” English, Jr.John G. Prather, Jr.Daniel P. Stratton
Marcia L. Wireman
CLAIMS COMMITTEEDustin E. Meek, Chair
Ruth H. BaxterGlenn D. Denton
Charles E. “Buzz” English, Jr.Anne Milton McMillin
John G. McNeillRalph C. “Chip” Pickard, Jr.
Christopher L. RhoadsMarcia Milby Ridings
Beverly R. Storm
MARKETING COMMITTEEEscum L. “Trey” Moore, III, Chair
Ruth H. BaxterCharles E. “Buzz” English, Jr.
John G. McNeillDustin E. Meek
J. Tanner Watkins
UNDERWRITING COMMITTEEMarcia Milby Ridings – Chair
Douglass C.E. FarnsleyWilliam R. “Bill” Garmer
Ralph C. “Chip” Pickard, Jr.John G. Prather, Jr.
Christopher L. RhoadsBeverly R. Storm
Marcia L. Wireman
ACTUARYPinnacle Actuarial Resources, Inc.
Bloomington, IL
AUDITORDean Dorton Allen Ford, PLLC
Louisville, KY
INVESTMENT BROKERPNC Investments, LLC
Louisville, KY
REINSURANCE BROKERLockton Re, LPNew York, NY
ADVISORS & CONSULTANTS
S T R E NG T H R O O T E D I N O U R C ON N E C T I ONSAs Aspen trees thrive and grow as a community by sharing a common root system, so
do the members of our committees, board and staff. Their “roots” spread far beneath the surface, offering their life experience, expertise and resources to nurture each other and
create an interconnectedness with unparalleled strength, durability and resilience.
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n Personal Injury, Plaintiff 24%n Real Estate 22%n Other 11%n Collection & Bankruptcy 10%n Family Law 8%n Estate, Trust & Probate 8%n Workers’ Compensation 6%n Criminal Law 3%n Corporate & Business Organization 3%n Labor & Unemployment Law 3%n Personal Injury Defendant 2%
*Since 2005
CLAIMS FREQUENCY BY AREAS OF PRACTICE IN 2016
CLAIMS FREQUENCY BY AREAS OF PRACTICE SINCE 1987
n Personal Injury, Plaintiff 34%n Real Estate 22%n Other 11%n Collection & Bankruptcy 8%n Family Law 8%n Estate, Trust & Probate 6%n Criminal Law 3%n Corporate & Business Organization 2%n Labor & Unemployment Law 2%n Personal Injury Defendant 2%n Workers’ Compensation 2%
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FREQUENCY OF CLAIMS
(NUMBER PER 100 LAWYERS INSURED)
CLAIMS REPORTED
2012 2013 2014 2015
3.363.04
2.282.02
2016
2.67
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0
30
60
90
120
150
2012 2013 2014 2015 2016
INCIDENTS CLAIMS TOTAL
148
63
85
131
52
79
122
6458 56
106
50 53
119
66
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STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND POLICYHOLDERS’ SURPLUS –
STATUTORY BASIS
December 31, 2016 and 2015
2016 2015
Admitted AssetsCash and invested assets:
Bonds $ 19,286,570 $ 19,539,112Common stocks 1,673,358 1,468,680Cash, cash equivalents and short-term investments 1,392,134 1,077,451
Total cash and invested assets 22,352,062 22,085,243Accrued investment income 181,640 193,412Uncollected premiums 1,201,025 1,290,490Reinsurance balances receivable 287,608 198,083Deferred income tax asset 292,348 343,318Other admitted assets – 4,012
Total admitted assets $ 24,314,683 $ 24,114,558
Liabilities and Policyholders’ SurplusReserves:
Losses $ 5,159,428 $ 4,667,732Loss adjustment expenses 3,982,026 4,269,621Unearned premiums 2,656,134 2,651,834Advance premiums 402,475 379,104
Total reserves 12,200,063 11,968,291
Reinsurance balances payable 1,232,683 1,285,932Accrued expenses and other liabilities 251,067 286,487Federal income taxes payable 4,557 378,902
Total liabilities 13,688,370 13,919,612
Policyholders’ surplus:Paid-in surplus 4,288,985 4,297,685Unassigned surplus 6,337,328 5,897,261
Total policyholders’ surplus 10,626,313 10,194,946Total liabilities and policyholders’ surplus $ 24,314,683 $ 24,114,558
D E A N D OR T ON A L L E N F O R D , P L L C , performed an independent audit of the company’s 2016 financial statements. A complete copy of the audited statements with all
explanatory notes and the Independent Auditors’ Report is available upon request.
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NET INVESTMENT GAIN(DOLLARS IN THOUSANDS)
STATEMENTS OF INCOME – STATUTORY BASIS
Years ended December 31, 2016 and 2015
2016 2015
Premiums earned $ 4,538,501 $ 4,347,601Losses and loss adjustment expenses incurred (3,812,655) (1,699,645)Other net underwriting expenses incurred:
General expenses (1,133,948) (1,129,518)Net commissions from reinsurers 83,811 84,484
Total other net underwriting expenses incurred (1,050,137) (1,045,034)
Underwriting (loss) gain (324,291) 1,602,922
Investment gain:Investment income earned 659,377 695,016Net realized capital gains 6,763 9,252
Net investment gain 666,140 704,268Other income 76,965 75,127
Income before federal income taxes 418,814 2,382,317Federal income tax expense (63,655) (682,411)
Net income $ 355,159 $ 1,699,906
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2012 2013 2014 2015
695 668 684
2016
704666
F I N A NC I A L S TA B I L I T Y R O O T E D I N K E N T UCK YLawyers Mutual Insurance earned a Financial Stability Rating® of “A” EXCEPTIONAL from Demotech Inc.
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POLICYHOLDERS’ SURPLUS
(DOLLARS IN THOUSANDS)
STATEMENTS OF CHANGES IN POLICYHOLDERS’ SURPLUS – STATUTORY BASIS
Years ended December 31, 2016 and 2015 TOTAL PAID‑IN UNASSIGNED POLICYHOLDERS’ SURPLUS SURPLUS SURPLUS
Balance, December 31, 2014 $ 4,306,205 $ 4,049,031 $ 8,355,236Net income for the year ended – 1,699,906 1,699,906
December 31, 2015Change in surplus subscriptions (8,520) – (8,520)Change in net unrealized – (83,890) (83,890)
capital gains/losses Change in net deferred tax asset – 198,731 198,731Change in non-admitted assets – 30,483 30,483Change in provision for reinsurance – 3,000 3,000
Balance, December 31, 2015 4,297,685 5,897,261 10,194,946
Net income for the year ended – 355,159 355,159December 31, 2016 Change in surplus subscriptions (8,700) – (8,700)Change in net unrealized capital gains/losses – 141,100 141,100Change in net deferred tax asset – (50,970) (50,970)Change in non-admitted assets – (5,222) (5,222)
Balance, December 31, 2016 $ 4,288,985 $ 6,337,328 $ 10,626,313
2012 2013 2014
7,042 7,4188,355
2015 2016
10,195 10,626
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STATEMENTS OF CASH FLOWS – STATUTORY BASIS
Years ended December 31, 2016 and 2015
2016 2015
Cash flows from operating activities:Premiums collected, net of reinsurance $ 4,602,389 $ 5,113,542Net investment income 729,483 731,747Miscellaneous income 76,965 75,127Losses and loss adjustment expenses, (3,698,079) (3,974,394)
net of reinsurance Underwriting expenses (1,072,039) (1,022,541)Federal income taxes paid (438,000) (555,000)
Net cash provided by operations 200,719 368,481
Cash flows from investment activities:Proceeds from investments sold, matured or repaid:Bonds 2,108,208 1,784,918Other invested assets 69 17,025
Total investment proceeds 2,108,277 1,801,943
Cost of investments acquired:Bonds (1,907,305) (2,339,454)Common stocks (63,583) (159,370)
Total investments acquired (1,970,888) (2,498,824)
Net cash provided by (used in) 137,389 (696,881) investment activities
Cash flows from financing and miscellaneous activities:Change in surplus subscriptions (8,700) (8,520)Other cash received (14,725) 39,508
Net cash (used in) provided by (23,425) 30,988financing activities
Net increase (decrease) in cash, cash equivalents 314,683 (297,412)and short-term investments
Cash, cash equivalents and 1,077,451 1,374,863short-term investments, beginning of year
Cash, cash equivalents and $ 1,392,134 $ 1,077,451short-term investments, end of year
GROSS PREMIUMS WRITTEN(DOLLARS IN THOUSANDS)
7,187 7,301 7,443 7,368 7,419
2012 2013 2014 2015 20160
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