1996 Report to Members
|
Francis J. Shashaty, President & CEO 1996 Report to Members |
By any measure, 1995
was a great success for First Monetary Mutual. That may sound like "spin
control" or just plain foolishness when one looks at First Monetary's decreased gross
written premiums and net income figures. But, these results are exactly as anticipated in
First Monetary's three-year "David" plan adopted last year.
Faced with a "soft" insurance market in which many D&O liability insurers
were rashly cutting rates to build market share, First Monetary embarked on a somewhat
unique program to take care of its own members first. Rather, than making costly offers to
entice potential new members, it was determined that the interests of First Monetary's
member\owners would be better served by lowering premium prices, improving the basic
policy by including previously optional coverages and increasing membership benefits.
Members First
By lowering expenses and redirecting funds
from marketing to membership services, we were able to reduce premium rates across the
board to highly competitive market levels. In addition, rates on the WRAP product were
substantially reduced, reflecting the broader policies available in the commercial market.
In keeping with its members first strategy, First Monetary last year implemented a
reimbursement policy that now pays two days lodging and air fare for members to attend the
Annual Shareholders meeting in Bermuda.
In a creative step to enhance membership
value, First Monetary last year entered a strategic alliance with INTERmoNETary System
that provides free InterNet services for FM members. INTERmoNETary System, the InterNet
connection for more than 80 community banks, furnishes FM members with complimentary
listings in its directory on the World Wide Web, "Home-Page" sites and E-mail
addresses on the InterNet, space for marketing messages in cyberspace and technical and
marketing assistance to maximize individual bank utilization of this exciting new medium.
INTERmoNETary services truly enhance the value of First Monetary members. Without paying a
penny more for top quality D&O liability coverage, FM members now have instant access
to the InterNet. While financial institutions and other businesses are spending tens of
thousands of dollars to create individual InterNet sites, FM members utilizing the
INTERmoNETary system have virtually the same InterNet marketing capabilities at no cost.
And, FM members now can use complimentary Netcruiser starter diskettes for easy
installation of InterNet access software in their business and personal computers.
Our 100 percent membership retention rate certainly speaks volumes for the acceptance of
the three-year "David" plan. As expected, however, the successful effort to
enhance membership values had an impact on First Monetary's bottom line. Gross premiums
were reduced by nearly $150,000. Net income exceeded budget, but was the lowest in company
history.
The "David" plan -- named for the David of David and Goliath fame -- has been
designed to put First Monetary in a position of strength to respond to the anticipated
stiffening of the D&O liability insurance market over the next few years.
First Monetary will be financially strong. Last year, we reaffirmed the policy of
maintaining claim reserves sufficient to cover anticipated losses. This means the money
has been set aside for all current potential claim losses and future premium dollars will
not be used for past claims. Membership equity in the company stood at $2,105,227 at
year-end 1995.
First Monetary will have the strongest possible coverage. To that end, we have added at no
additional cost to members employment practices liability coverage to provide for claims
brought under federal, state and local employment laws. Included are wrongful termination
claims and other actions relating to the employment relationships. This enhancement
features a $500,000 limit, with a $25,000 deductible for individuals not reimbursed by the
bank and $100,000 when reimbursement is provided. First Monetary will provide the
strongest possible returns to its members. In addition to receiving first rate coverage at
competitive rates, along with the host of value enhancers, First Monetary members will be
paid a dividend equal to approximately 25 percent of gross written premium paid in 1996.
Based on FM's conservative claims reserve position and with capital levels adequate to
meet future needs, First Monetary's Board agreed it is time for the membership to share in
the financial success of their company.
Looking to the Future
Best's Review recently reported that the
alternative insurance markets -- captives, private retention groups, qualified self
insurance, risk retention groups and self insurance pools and trusts -- continue to gain
popularity with companies ranging from the Fortune 500 on down. From 1990 to 1995, the
alternative market grew to 43.7 percent of the total commercial insurance market from 35.3
percent and its total premium volume grew to $104 billion from $66 billion.
Clearly, captives and other alternative options are here to stay. Traditionally, captives
were created during periods of pricing or coverage crisis, only to fade away when the
crisis ended. Now, with a more sophisticated market in which executives realize the value
of alternative insurance options and want to retain as much control as possible, many
companies are opting out of the traditional market entirely.
During First Monetary's early years, we successfully responded to the crisis in the
D&O marketplace. Now, by adding value to our competitively priced product, while
maintaining a strong financial position, we are poised to meet every challenge of the
marketplace.
In closing, I want to thank the officers, directors and professional management team of
First Monetary Mutual for your contributions to our past successes and your foresight in
helping to position us for continued future success. I also want to express my deep
gratitude to First Monetary's shareholders for your confidence and continued support.
Sincerely,
Francis J. Shashaty, CPCU
President & CEO
First Monetary Mutual Limited