By now you should have received our 2014 annual report which describes the audited financial results for one of our best years ever. Our bottom-line measure of financial success is policyholder surplus growth, and we grew surplus by $66 million, to $1.222 billion, a new high for AEGIS. Since the 2008 financial crisis, we have grown surplus by $464 million, thanks to strong support from our members and brokers at renewals and a contribution of $262 million from our successful AEGIS London operations. The theme of this year’s annual report is “renewed, refreshed and ready” which will become clear when you read about our better balanced excess liability business, new underwriting products, strong financial results, the positive A.M. Best report, and new members of our Board, RMAC, Task Forces and AEGIS staff. The 2014 annual report is posted to our website and you can request printed copies at email@example.com.
Our unaudited first quarter 2015 results continued these favorable trends with surplus growing by an additional $20 million. Gross written premiums of $197 million were below expectations as the result of some renewals that were delayed until the second quarter as well as ongoing soft market conditions. Our overall losses for the first quarter were $5 million below expectations as loss activity remained quiet. Finally, the 0.6% total investment return before expenses was 20 basis points behind plan but, in a development that’s typical of this challenging investment market, the shortfall was more than made up by the end of April with a preliminary year-to-date total investment return of 1.35%.
We use our continuity credit programs to help maintain a balance between the lowest long-term cost of risk for members and the financial strength of the mutual. We work closely with our members and brokers to collect enough premium to fund the losses of the membership, promote measured surplus growth and maintain our financial strength ratings. With a long-term history of solid financial results, we've been able to maintain this balance and return more than $1.1 billion to our eligible members in credits of one kind or another.
Our overall financial results were positive in 2014 and our flagship excess liability business is better balanced than it has been in many years thanks to member and broker support of the premium adjustments needed to align premium with losses. However, the five-year combined ratio for excess liability remains relatively high at 125%, and the five-year combined ratio for our property business is 119%. Based on these ratios, and the relatively modest level of income generated by our investment portfolio in a period of low interest rates, the Board of Directors believes it will be prudent to manage the continuity credit programs for the 2015 − 2016 year as follows:
Our D&O underwriting results have remained steady in recent years, and the contribution to surplus continues to be positive. Based on these positive trends, the D&O credit will be raised from its current level of 2% to 3% for the 2015 − 2016 year.
The continuity credit for excess liability will remain suspended for the time being. While underwriting results have improved of late, we will continue to monitor the trend for another year before reassessing the reinstatement of a credit.
The property credit will remain at $2 million based on another year of unfavorable property underwriting results, the persistently high five-year combined ratio mentioned above and large losses incurred in 2014.
The AEGIS London credit will remain unchanged at $1.0 million.
In addition to the decisions made regarding the property and AEGIS London lines, the Board approved a change in methodology for calculating property and London credits to align them with the same method of calculation for D&O and excess liability continuity credits by basing the credits on life-to-date premiums. This will increase the level of credits distributed to eligible members by removing the previously applied loss experience limitations.
We are pleased to provide an ongoing level of credits and we know you recognize and appreciate the need to manage the credits in the context of the mutual’s overall financial results. The specific details that describe the individual credit amounts and how they can be applied to future renewals for your D&O and AEGIS London renewals will be mailed within the next few weeks. Those eligible for the member property credits will receive their notices later this summer. If you have any questions about the credit programs, or the new calculation methodology for property and AEGIS London, please contact George Keefe, Senior Vice President – Member Relations, by e-mail or at 201.508.2797.
We're hard at work on the conference agenda, which will include the annual management report, as well as sessions covering cyber risk management, results of the ERM survey we’re conducting with St. John’s University among AEGIS members, an insider’s look at AEGIS London, the use of drones by energy companies, recovery from catastrophic events, renewables, construction, and contractual risk transfer. Bob Hartwig, President of The Insurance Information Institute, will join us again to present his popular overview of current economic and insurance market conditions, which always provides a useful context for other conference presentations and discussions.
We will also host an AEGIS 101 Lunch and Learn for members and brokers who are new to AEGIS on Tuesday, July 21. There will be an open-mic period during which newcomers can ask any questions about AEGIS, and the informal lunch setting will encourage valuable networking.
The AEGIS reception on Wednesday evening at the iconic and historic Grand Ole Opry will feature Southern BBQ favorites, amazing music, and entertainment that you can only find in this vibrant and creative city. The tours will take full advantage of Nashville and include visits to the Ryman Auditorium, Country Music Hall of Fame, Johnny Cash Museum, an authentic Southern mansion, and the Frist Center for the Visual Arts, as well as tours that will let you sample the city’s famous food and drink.
We look forward to seeing you, your families and guests at this exciting new PHC venue in Nashville for PHC 2015!
Please save the date for the AEGIS Loss Control Physical Security Seminar which will be held Tuesday, October 6 to Thursday, October 8, at the Omni La Mansion del Rio in San Antonio, Texas. The seminar will address physical security issues pertaining to surveillance and notification systems, and will focus on insider threats; obstacles that could help prevent facility damage; measures to help prevent unauthorized entry and apprehend potential attackers; and the psychological effect of terrorism.
Additional topics will include AGA (American Gas Association) and NERC (North American Electric Reliability Corporation) threat information, business continuity, the potential cost of a loss following an attack, and homeland security. We will also have an area for exhibitors who support the electric and natural gas industries to discuss how their products and services can assist utilities in maintaining secure operating systems.
AEGIS member company personnel from risk management, legal operations, maintenance, engineering and claims, as well as AEGIS brokers, are encouraged to attend. The registration fee for the AEGIS Physical Security Seminar is $495.
Registration and hotel reservations will open in August. If you have any questions about the program, please contact Scot Macomber, Vice President – Loss Control Utility Operations, by e-mail or by phone at 201.508.2739. For questions regarding the hotel or other logistics, please contact Leah Convery by e-mail or by phone at 201.508.2872.
Please register now for the next in the series of monthly webinars conducted by AEGIS Loss Control – CIP-014-1 Standards – which will be held on Wednesday, June 3, from 1:00 pm to 2:00 pm, Eastern Daylight Time.
Last year, in response to a directive from FERC (Federal Energy Regulatory Commission), NERC (North American Electric Reliability Corporation) developed and issued Reliability Standard CIP-014-1. The purpose of the physical security standard is to identify and protect transmission substations and their associated control centers that, if rendered inoperable or damaged as a result of a physical attack, could result in widespread instability, uncontrolled separation, or cascading within an interconnection. This webinar will help participants understand the CIP-014-1 Standard from a physical security, compliance, cybersecurity and regulatory perspective.
This webinar will be presented by Joseph Bonventre, Senior Security Specialist in Compliance & Critical Infrastructure Protection with Burns & McDonnell, a full-service engineering, architecture, construction, environmental and consulting solutions firm based in Kansas City, Missouri, which has served the power industry for more than 100 years.
On the morning of the webinar, you will receive a reminder and instructions for participating. If you have any questions in the meantime, please contact Michelle Battagliese by e-mail or by phone at 201.508.2855 or Hatice Aci by e-mail or by phone at 201.508.2737.
The remaining monthly webinar topics in 2015 include:
Using Drones To Patrol Electric Transmission Lines
First Responder Accountabilities and Concerns
Call Center Emergency Call Handling
Natural Gas System – Leak Survey Technology
Utility Contractor Pre-Qualifications
If you have any questions about the monthly AEGIS Loss Control webinars, please contact Scot Macomber, Vice President – Loss Control Utility Operations, by e-mail or by phone at 201.508.2739.
Please register now for the next AEGIS Claims Roundtable seminar – Evaluating and Managing Litigation – which will be held on Thursday, June 4, in East Rutherford, NJ and offered as a concurrent, real-time webinar on June 4.
A panel of staff counsel, claims professionals and outside defense attorneys will explore the various aspects of effectively evaluating and managing litigation. By recognizing dangerous and high-stakes lawsuits early in the process, litigation can be managed more effectively and the potential exposure can be mitigated. The discussion will also explore how pursuing settlement in the early stages of some cases can reduce the ultimate loss, and how effective and timely communication between the utility, insurer and counsel can result in successful coordination of the litigation.
As always, Continuing Legal Education (CLE) credits are offered.
If you register for the webinar, you will receive instructions for participating one week prior. If you have any questions about the webinar in the meantime, please contact Sharon Sarch by e-mail or by phone at 201.508.2654. For more information about the AEGIS Claims Roundtable program, please contact Jeff Schupack, Senior Vice President – Claims, by e-mail or by phone at 201.508.2658.