Interesting Ending for 2017
On December 30th we closed the MTM financial year. The same day we sent all of our claims data and premium information to our actuary for loss reserve calculations. This review with independent peer evaluation takes about three weeks and is required by the Michigan Insurance department. When this is completed we will have a final picture of the financial results for 2017. One item different for MTM this year is that a member dividend was declared before the final results were completed. We have never done that before and have always waited until the complete financial picture is available before management’s estimates are disclosed. Our traditional method is the more precise way to handle our member’s dividend calculation.
However this year was different. Just before Christmas, President Trump signed a new tax law. Part of this law changed the company tax rate from 35% to 21%. This law affects your shops 1and MTM. Member dividends paid by MTM are a deduction from income and therefore reduce MTM taxes. On Christmas day, the MTM CFO contacted me to say he thinks we need to take advantage of the higher deduction in 2017 versus 2018 and declare the dividend early. This early dividend would reduce our taxable income for 2017. The net effect would be a 13% savings on every million dollars of income. Using the $3.5 million dividend from last year, a deduction on 12/28 results in a significant savings. This tax savings would turn into a benefit to MTM members.
On December 26th we ran the situation by the MTM Board Chairman, Jack Accardo. He jumped right in with management and contacted other Board members about the situation. A special Board vote was held December 27th and by a vote of 10 to 0, the Board declared a member dividend of $3.5 million payable in the usual time frame of early March. This was a little out of sequence but just as our shops sometimes have to do, you use the facts that are in front of you and manage the situation the best you can.A $3.5 million member dividend with a significant tax savings is a great way to start 2018.
Happy New Year.
