Columbia-based Missouri Employers Mutual is charting new territory this year with plans for distributing the first policyholder dividend in its history.
Historically, the workers’ compensation insurer has given its policyholders a rate reduction when it had a strong year.
But this year, most of its policyholders will receive their first dividends as the company returns $2.02 million to 11,033 of its approximately 12,000 policyholders.
“This is our first dividend in the company’s history,” said Jennifer Peck, director of marketing/communications at MEM. “Why not sooner? It’s hard to explain in just a couple of sentences … but as an insurance company it takes a bit of time to acquire the strength you need.”
Peck said dividends – expected to be distributed in June – would average $183.
“Of course, that’s going to run the gamut of some getting $15 or some folks getting a $3,000 dividend,” she added, noting the amount is a percentage of policyholders’ premiums. Some policies are for as little as $1,000 and others are for $1 million or more. The dividends are for policies in effect for at least six months of 2009 and that had a loss ratio within a certain range.
Sitting on a surplus Created by the Missouri General Assembly in 1994 to foster competition and reduce workers’ compensation insurance rates for small businesses, MEM received a $5 million state loan for startup, and it paid back the funds in 1999. The company opened a Springfield branch in 1997 and also has offices in Kansas City and St. Louis. MEM is the state’s largest workers’ compensation insurer, with about 16 percent of the workers’ comp policies in Missouri – 13 percent more than the next-largest company, according to audit results released in February by State Auditor Tom Schweich’s office.
The company is an independent public corporation led by a board of directors, with five directors appointed by the governor.
The company’s strength – and its amassed surplus of funds – drew attention in Schweich’s audit.
The audit found no accounting improprieties, but it did call into question some of MEM’s expenditures and its failure to pay dividends despite having a surplus of more than $160 million.
According to the audit summary, “MEM enjoys the federal income tax exempt status of a ‘public corporation,’ an advantage that competitors do not enjoy.” The summary noted that MEM has saved roughly $50 million in federal taxes since its inception.
“With the help of this advantage, MEM has accumulated a surplus totaling in excess of $160 million, and has become the dominant provider in the state’s workers’ compensation market,” the audit summary read.
The audit also found that MEM essentially operates as a private entity, compensating officers and employees at rates in excess of public sector entities. According to the audit, MEM paid more than $15 million in compensation and $2 million in employee incentive bonuses, and its 10 highest-paid employees received an average of nearly $250,000 each. Incentive payments are generally prohibited for public employees, the audit said. It also noted that MEM “incurs expenses that are not considered acceptable in the public sector, and does so without complying with state open records laws.”
In the audit, MEM responded in part: “MEM agreed to this audit to clearly demonstrate that the company has proper internal controls in place, which this report confirms. … MEM’s compensation and expenses are reasonable and necessary for a mutual insurance company. MEM respectfully disagrees with the auditor’s assessment that compensation and certain other expenses are unreasonable. This audit compares MEM to a public sector entity (i.e. state agency), which it is not. The statutes creating MEM state that the company ‘shall be organized and operated as a domestic mutual insurance company and it shall not be a state agency.’”
Dividend decision Peck said MEM’s board of directors began working on a dividend plan last year. The payout was approved at its March meeting after review of audited financial results. Though the decision came roughly a month after release of the audit results, Peck said the decision to pay dividends was unrelated to the separate state audit.
Company leaders wanted to be sure MEM could maintain it’s A-, or excellent, credit rating from A.M. Best before moving forward with dividend payments, Peck added.
“When you have a growing company, establishing a strong financial position is a key objective, and they’ve really done a nice job of improving their financial strengths,” said Jim Jura, chairman of the MEM board’s audit committee and CEO of Associated Electric Cooperative in Springfield.
Chris Stack – regional president of SMI Group, a division of BancorpSouth Insurance – said he hasn’t heard any reactions yet from MEM policyholders regarding the dividend, but he expects that to change.
“I suspect in the next few weeks when the checks are actually issued and they start hitting the businesses’ mailboxes, the phone will start ringing,” said Stack, who also serves on MEM’s Agent Advisory Council.
Peck said MEM is optimistic that dividends will continue to be paid annually, but it will depend on performance.
“It’s always going to be based on those financial ratios and financial strengths,” she said.[[In-content Ad]]
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