We are pleased to report that despite a challenging investment environment and the continuation of a soft underwriting market, AEGIS has continued to enjoy a strong financial year. The unaudited results for the period ending October 31 show continued progress toward our goal of restoring the surplus lost as a result of 2008’s financial crisis and an unusually tough underwriting year. Total surplus has grown from $862 million to $975 million, an increase of $113 million or 13% since year-end 2009. We have now recovered more than two-thirds of the surplus lost in 2008. Our all lines combined ratio for the year-to-date remains ahead of plan at 92% which is a substantial improvement over last year’s 115%. Our investment return is 4.62% which is 160 basis points ahead of the year-to-date plan. Hopefully, this strong performance will continue through the remainder of the year.
Fitch recently reaffirmed its A- (Strong) rating for AEGIS with a Negative Outlook. However, they have removed the Negative Watch that was placed on our rating in June 2009. In this latest rating action, Fitch acknowledged AEGIS' significantly improved performance and capital levels over the previous 18 months, but they feel the competitive insurance market in which we operate remains a negative. We have also held recent conversations with Fitch, where we agreed that the agency’s rating efforts were not a significantly relevant measure of our mutual model and its ability to provide coverage to members, and accordingly we have asked them to discontinue their rating coverage of the Company. As our members and brokers continue to place significant reliance on our A.M. Best rating results, we will continue to work with their analysts to provide you with regularly updated rating reports.
As you know, we have planned to place our Professional Liability coverage under our Excess Liability policy at the same time as the imposition of the new policy aggregate. A number of you have expressed concern about the way this will impact the higher layers in this traditionally independent line of coverage. After much consideration and analysis we are pleased to tell you that even though this coverage will still be offered only as part of our Excess Liability program, we will set the Professional Liability coverage apart with a separate aggregate—similar to our treatment of the EPLI and Pollution coverages. We hope this will help you maintain seamless coverage through your excess layers. As previously discussed, the general aggregate limit will go into effect on policies renewing on and after January 1, 2011.
After seven years of providing the Follow Form Excess Liability product together with consortium partners, AEGIS London has agreed with its partners not to continue this coverage for 2011. Many U.S. utility members have been able to find very low-priced alternatives to this coverage, particularly in the Bermuda market and, as a result, the consortium can no longer provide these limits at sustainable levels. AEGIS London will continue to provide leadership for members’ casualty in the market on an individual basis in the subscription market. If member needs and market conditions change in the future, we will consider reinstating the program.
The RMAC's Evolving Utility Risk Task Force worked throughout 2009 and 2010 to identify more than 20 evolving risks and organize them into four categories: climate and environment, digital connectivity, operations and infrastructure, and financial. During the past year, many member companies have turned to this study to help validate their ERM programs, and our colleagues at AGA, EEI and EIM have found it to be a valuable resource for industry-wide ERM efforts as well.
In an effort to further enhance the value of this work for members, we plan to solicit the input of a larger group of policyholders via an online survey similar to the surveys we have conducted in recent years on the subjects of limits and loss control services. We hope the membership-wide responses will help validate the task force conclusions and increase the breadth, depth and value of the current study.
Please watch your e-mail for details in the coming weeks. We will announce the results as soon as they are available and we will present them formally at the Policyholders’ Conference in July. Thank you in advance for contributing to this valuable and ongoing work.
The Dodd-Frank Act contained two particularly positive benefits for AEGIS. It eliminated regulatory inefficiencies associated with surplus lines insurance which now makes it possible for AEGIS to conduct business as a surplus lines insurer in all 50 states. This relieves the burden on risk managers to search for coverage in the admitted market before placing coverage with AEGIS. The bill also greatly simplifies the collection of premium taxes on non-admitted insurance. Please contact your underwriter or our Counsel if you have any questions about the potential impact on your relationship with AEGIS.
Most risk managers and brokers know the best practices and state-of-the-art language when it comes to contractual risk transfer, however the execution of these best practices is sometimes challenging. The problem is two-fold: 1) there is very little competition among certain suppliers and hence no leverage to negotiate favorable terms and 2) supply chain managers, business development executives, in-house counsel and others who negotiate contracts with vendors tend to compromise best practices in order to get the deal done. Risk managers at recent member and broker meetings and members of the RMAC suggested that AEGIS consider the development of a best practices webinar targeted to these other internal audiences at member companies. We will explore this idea further among a larger group of risk managers and identify members who might participate in the webinar as content experts.
Recently, AEGIS Loss Control performed a comprehensive assessment of a member company’s operating and safety practices, including training, internal communications, occupational incident reporting, and the process of investigating incidents. The extensive report identified strong current practices as well as areas for improvement. Based on the report, the company will refine its safety strategy and promote continuous improvement. For more information about our capabilities to do similar work for your company, please contact Tony Calega by e-mail or by phone at 201.508.2731.
Brokers at the recent regional meetings suggested we remind everyone that AEGIS continues to provide Financial Products to help members manage and retain risk more efficiently. Risks that are traditionally difficult to insure or are subject to wide pricing swings are often better managed using AEGIS Financial Products. For more information, please contact Kirk Salogiannis by e-mail or by phone at 201.508.2622.
We are pleased to report strong member support for our new Side A facility through Endurance Risk Solutions-US. In the few months since the coverage has been available, eight member companies have purchased coverage and 12 others are actively considering it. We are encouraged by this level of active collaboration with Endurance and we believe it reflects their financial strength and overall reputation in the industry.
Endurance offers Side A DIC coverage to AEGIS members on a stand-alone basis. Endurance independently underwrites, prices and administers the claims, and they offer significant capacity, up to $30 million. D&O members are eligible for continuity credits when purchasing this Side A coverage from Endurance. AEGIS participates in the program as a reinsurer so credits are calculated based on the reinsurance premium flowing to AEGIS.
Coverage details are posted on our website. For more information about Endurance Side A coverage, please contact Ray O'Byrne, Senior Vice President-Management Liability by e-mail or at 212.209.6533. If you have other D&O questions, please contact Karen Larson by e-mail or at 201.508.2804.
It is with great sadness that we announce the death of our friend and co-worker, Jim Peterson, who passed away suddenly on November 16. Jim joined AEGIS in 2006 and served as a Senior Boiler Machinery Engineer in our Loss Control Division. Prior to AEGIS, he worked for 23 years at Hartford Steam Boiler and then as a loss control engineering consultant. Jim was a respected colleague and friend. He will be deeply missed by all who worked with him.
Please mark your calendars now for the 2011 AEGIS Policyholders' Conference which will be held July 25 to July 28 at the Sheraton Chicago Hotel and Towers in Chicago, IL. Our annual conference is an important opportunity to share your thoughts with us, network with your peers, and learn about new developments in the industry and at AEGIS. More information will be posted on our website as it becomes available and registration will open in May.