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Managers Review
 
2007
Management Report
February
21st 2008
Germania
Farmers Mutual
Fire
Insurance Company
CHANGES IN BUSINESS
Broker
Contracts:
Cancellations
- No Cancellations of Brokerage or Agency Contracts
Appointments
-
Chatsworth Insurance Brokers (Chatsworth, Owen Sound, and Lionshead)
The brokerage meets with Germania Mutuals new
brokerage guidelines. Key areas of these guidelines include the
following:
1)
No more than two other Farm Mutual (OMIA)
insurers in house
2)
Principally located in areas not served or
seen as under serviced by Germania Mutual
3)
Small to Mid-size Brokerages but we will
consider larger offices if management plays an active role in any
satellite or Sub-offices
Staffing/Management
As mentioned in our 2006 report we have made some
internal changes concerning employee responsibilities which we feel will
assist us both from a Human Resources viewpoint as well as from a
succession planning standpoint. We also added one fulltime underwriter
during the summer of 2007. He initially came on as a contract employee to
assist with the computer conversion but was hired full time in December.
Investment
Portfolio
The Germania Mutual investment portfolio met budget
expectations in 2007 with an investment income of $811,000. It should
also be noted that the pending legislative changes regarding the -Prudent
Portfolio Guidelines- should assist Germania Mutual maximize our
investment portfolio performance and should also allow for more diversity
on the equity side of the portfolio (Diversity traditionally assists in
adding strength, stability and overall less volatility to a portfolio).
Subsidiary
Our financial subsidiary -Farm and Town Financial-
reported a bottom line loss in 2007 of $19,459 which eliminated the
positive results of 2006. Farm and Town Financial will be ceasing day to
day operations early in 2008. Our sales representatives have been given
the option of dealing directly with FMFS or dealing with another vendor
with whom Farm and Town have negotiated contract terms. The financial
effect of the closing of day to day operations is recognized in our 2007
Financial Report.
Budgeting
The Germania Board and Management continued to place
an emphasis on controlled growth while attempting to control our expense
ratio. We feel this was accomplished in 2007 as expenses came in at
budget levels in most areas. Our premium growth was steady at 7.8% with
at least small growth in all lines of business. Our claims experience was
higher than projected on the property business but mostly do to severity
versus frequency which has affected our reinsurance results more than our
bottom line.
Our 2008 Budget was completed in December 2007 and we
expect only moderate to nil growth in all business lines on both a
premium and a PIF (Policies in Force) basis. Our budgeted GWP (Gross
Written Premium) growth for 2008 is $400,000 or 4%, which translates into
an annual GWP of just over $10,200,000.
Planning
In 2007 we reviewed our -Disaster Recovery Program-,
and have now included provisions for the effects of a -Pandemic- on our
company. We recognize that this will need to be a living document and
require regular updating given the continuous changes to our corporate
needs. The timing was appropriate as we moved into our new location in
October and started our computer conversion to the mutually owned MCCG
system on August 1st 2007. We continued to monitor and
implement our 2 year strategic plan and will again use the services of
Harry Vlachos as an independent moderator for our 2008 planning sessions.
During the 2005 planning session we established our key financial goals
including five year growth expectations as well as strengthening our
surplus position, with a five year expectation of returning to a one to
one GWP to Surplus ratio. I am pleased to report that our 2007 financial
results show that our -Members Surplus- is now within $200,000 of our
GWP. This means that we should meet our 5 year financial goal of
achieving a 1 to 1 GWP to Surplus ratio in just 3 years.
Income
Statement
Residential premiums increased by just over $41,000 or
1.4% while our PIF (Policies in Force) increased slightly more at 2%.
Farm premiums increased by $284,000 or 9.6% while our PIF increased by
4.8%. Commercial premiums increased by $85,000 or 9.1% and our PIF
increased similarly at 9.8%. Automobile premiums were the largest growth
area at $294,000 or 13.2% and our policies in force increased at a
similar percentage 12.2%. Overall in 2007, the company met or exceeded
budgeted growth expectations in all lines in both premium and PIF count.
Claims Review
Property
The Germania Mutual property experience was worse than
budgeted in 2007 even without having a catastrophic event. We did however
experience several large fire losses in 2007, which exceeded our
retention levels and affected our reinsurance experience more than our
bottom line.
Automobile
Claims experience remained consistent with budget
expectations for 2007 up slightly from our 2006 levels.
Liability
The Germania continued to revise reserving practices
for BI claims in Automobile and Property Liability lines, which should
allow us to monitor our individual claims exposure and limit our risk
potential as it relates to IBNR.
We continue to see an increase in claims involving
Farm Machinery on the Road, and Livestock on the Road although it did not
adversely affected our overall claims experience in 2007.
Overview
The Board and Management feel that we can
realistically expect that our claims frequency will remain at current
levels or possibly increase and we will definitely see an increase in the
severity of claims given the industry initiative to have buildings
insured to full replacement value.
New Office Building
In October 2007 we moved into our new 6400 sq ft
office located on a property previously owned by the Germania Mutual,
located in Ayton. The total cost of the project including building,
excavation, utilities, furnishing, back-up generator and the land
(purchased 10 years earlier) will be just under $1,000,000.
I feel this is a qualified managerial review of the
Germania Farmers Mutual with an overview of past performance.
Daniel J. Hill CIP
General Manager
Germania Farmers Mutual Fire
Insurance Company
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