The following information summarizes the financial position and operations of Lawyers Mutual Liability Insurance Company of North Carolina for the two years ending December 31, 2013. This information is based on statutory accounting principles codified by the National Association of Insurance Commissioners and subject to any deviations prescribed or permitted by the North Carolina Department of Insurance. A copy of the Company’s 2013 Annual Statement is available upon request.
The economic recovery from the Great Recession continued in 2012 and 2013, be it at slower rates than in past U.S. recoveries. The subdued recovery affects both the Company and its insureds through slowly increasing business opportunities, below average investment income yields and mixed inflationary effects. The reduction of real estate business activity during years 2009 through 2012 has contributed to a decline in the number of claims reported to the Company and actively adjusted by our in-house claims attorneys. The declining number of claims reported to the Company during 2012 and 2013 has enabled Lawyers Mutual to record underwriting gains that, in turn, have enabled the payment of policyholder dividends in both years. The 7.5% policyholder dividend declared at the end of 2013 and payable to claims-made policyholders of record following their policy expiration represented a 23.6% dividend rate increase. The Company continues to approach the current business environment with conservatism while striving to provide its insureds with coverage at good value and policyholder dividends when justified by underwriting results and surplus position.
SUMMARY OF RESULTS
The Company’s unassigned surplus as of year-end was approximately $58.8 million. This strong level of surplus has allowed the Company to endure declining bond investment yields and inflationary pressures. Lawyers Mutual reported total revenues (comprised of premiums, investment gains and other income) of $17.3 million during 2013, slightly lower than the prior year’s revenues. Claims incurred in 2013 declined $3 million from the previous year. Lawyers Mutual experienced a 29 percent loss ratio and a 63 percent combined ratio (loss ratio + expense ratio excluding dividends) during 2013. The combined ratios improved significantly from the 81 percent and 96 percent ratios posted in 2012 and 2011 respectively.
The steps taken by Lawyers Mutual over the past five years, as well as changes in the business environment, have allowed the Company to record four years of improving operational results with an underwriting gain of $6.6 million for the year ending December 31, 2013.
Lawyers Mutual’s investment income, from all sources, decreased approximately $749,000 largely due to an extraordinary dividend of $625,000 from a non-controlled affiliate in 2012 that did not re-occur in 2013. Excluding affiliated investment income, Lawyers Mutual’s investment income suffered during 2012 and 2013 from declining interest income yields on maturing or refinanced bonds. The Company’s investments are weighted heavily toward investment grade bonds with relatively short effective maturities. The bond allocations are designed to accommodate claims payout patterns and protect the portfolio against large potential future increases in interest rates that would cause bond market values to decline. Over the past two years, the Company has made incremental allocations to quality preferred stocks, dividend-focused common stocks and municipal bonds in an effort to enhance yield.
Based on positive underwriting results and larger than normal affiliated investment income in 2012, the Company declared a 2012 dividend of 6% and a 2013 dividend of 7.5%, payable upon the expiration of year-end in-force claims-made policies. This is the third consecutive year of policyholder dividends and is part of the $4.83 million of policyholder dividends declared over the past ten years.
After policyholder dividends and taxes, the Company recorded a 2013 net income of $6.27 million.