I’m pleased to report that the AEGIS Board of Directors has approved the issuance of continuity credits to our general liability and directors and officers liability members totaling $40.6 million. This amounts to 5% of the surplus allocated to these coverages.
For a number of years our underwriting results were adequately supplemented by investment returns that were much higher than historical averages. During that period our surplus grew steadily and we paid continuity credits at a rate of 8%. As you know, our surplus dipped in 2001 because of extraordinary losses and depressed investment results and the rate of continuity credit was reduced to 6.5%. In 2002, our losses moderated but our investment returns continued well below long-term trends. Faced with these realities, the Board agreed that it was prudent to further reduce the rate for continuity credits to 5%.
As you can see, we believe that corrections to the rate should be made from time to time to reflect current conditions. Issuing a continuity credit of this magnitude in a year when our surplus did not grow is indicative of our confidence in the company’s healthy long-term business outlook. The actions we’re taking today will enable AEGIS to continue to provide you with superior risk financing products and services for many years to come. And continued growth at AEGIS may allow us to increase the rate of continuity credit in the future.
This is the 16th consecutive year we’ve returned a continuity credit to our members. Since 1987 we’ve refunded $639.5 million to the membership in general liability and directors and officers liability continuity credits (in addition to $119.8 million returned under the Premium Refund Program). The continuity credit is just one of the ways we help you achieve the lowest overall cost of risk and it highlights the fact that you are a member/owner of this company and not merely a customer.
The details regarding your company’s specific credits will be sent to you via U.S. mail in the next few weeks along with materials that describe how they can be applied to your future premiums. Please contact your AEGIS underwriter if you have any questions or comments.