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.