Harvey and Irma

Harvey and Irma continue to be front page news. Headlines in the paper “Insurance Premiums could Climb beyond Disaster Areas” and “Companies Look to Recoup Billions Paid in Hurricane Harvey and Irma”. This may be a good time for an insurance executive class 101. Reinsurance is insurance bought by insurance companies. A primary purpose of reinsurance is to cover catastrophic events not anticipated in day-to-day insurance operations. At MTM, we know that bad things can happen in our shops. A serious employee injury is something we deal with on a daily basis. But what if there was a shop explosion that seriously injured 10 or 20 employees or a vehicle accident with 5 employees affected. This could dramatically change our loss ratio for the year and the surplus cushion of the company for years to come. So, like most other insurance companies, MTM buys reinsurance.

Reinsurance is a “commodity” on the world market. The price is not only dictated by individual account experience, but also by 1changes in the world market. Hurricanes Harvey and Irma will likely impact the world reinsurance market. And, it’s safe to say that there will be some price pressure to increase reinsurance costs. The good news for MTM is that our individual loss experience remains outstanding. This experience is a joint outcome from our MTM members and vigorous claims handling by the MTM claims staff. Will MTM be affected by the changes in the reinsurance market? And, the answer is probably yes. However, because of our good loss experience, I expect the impact to be minor. MTM’s reinsurance cost is less than 5% of our revenue. Over the last three years, we have decreased our reinsurance cost by over half. Our expectation before these hurricanes was that we would also see a decrease for 2018. My best prediction at this point is that it will be harder getting a decrease this year, and in fact, our best negotiation may be to retain a flat expense. Our reinsurance is effective on January 1, and we are just starting the negotiations for next year. During the negotiations process, we invite the reinsurers to come to our office, meet our claim staff and management team, while also checking our finances. This approach has given us nice decreases in each of the last three years. We will use that same approach for this fall to be effective January 1, 2018, and as you would expect we will bargain hard with our MTM members’ dollars.

So, the short answer is yes, MTM is affected by large losses in the world market. However, the impact is small. As soon as we learn more, I will share that information with you. In July our actuary completed a mid-year loss review. This review gave us an early look at 2017 dividend potential. We do not see Harvey and Irma as impacting our members’ dividend. In the next few months, we will have a clearer picture, and we will be sure to share that updated picture with you. In the meantime, the best we can do in controlling our reinsurance is what we have been doing – have MTM members who care about loss control, implement loss control recommendations, and have MTM claims staff who watch every dollar paid. At the end of the day, our own experience weighs the most in our reinsurance renewal pricing.

There will be updates on this topic, our MTM finances, and members’ dividend at the annual members meeting. Please mark on your calendar for Thursday, October 19th, 11:00 A.M. at Inn of St. John’s in Plymouth. You will be joined by over 100 other MTM members, Board of Directors, Board committee members, and staff in getting the latest update on these important topics. We hope you can join us.