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, 2011. 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 2011 Annual Statement is available upon request.
The bursting of the real estate bubble in 2007 and 2008 caused havoc with the national and state economies. It also presented Lawyers Mutual and its insureds with serious challenges. Many law firms have made hard choices and adjusted their business models to meet conditions existing after the so-called Great Recession. The market, with government prodding, is slowly working through the inventory of real estate issues, and the economy has recently recorded low growth.
During this challenging period, Lawyers Mutual has made significant changes in its approach to: (a) underwriting exposure, (b) claim reserving philosophy and administration, and (c) investment asset allocations. These changes have brought improved operating results, some of which are described below.
Summary of Results
The Company’s unassigned surplus as of year-end was approximately $44.6 million. This strong surplus has allowed the Company to weather the surge in claims, lower investment returns, inflationary pressures and heightened unemployment rates ushered in by the recession. Lawyers Mutual reported total revenues (comprised of premiums, investment income and other income) of $18 million. Claims incurred declined $5 million from the previous year. Reported claim counts returned to levels consistent with years prior to the real estate crash.
Lawyers Mutual experienced a 70 percent loss ratio and an 87 percent combined ratio (loss ratio + expense ratio excluding dividends) during 2011, improving significantly from the 102 percent and 118 percent ratios posted in 2010.
The steps taken by Lawyers Mutual over the past three years, as well as changes in the business environment, have allowed the Company to record two years of improving operational results with an underwriting gain of $2.2 million for the year ending December 31, 2011.
Investment income suffered during 2011 due to declining bond yields; total investment income declined $549,000 from 2010. On a total return basis, the Company’s managed investments out-performed its weighted composite index by 107 basis points (4.28 percent compared to 3.21 percent). The Company’s investments are weighted heavily toward investment grade bonds with relatively short average maturities. The bond allocations are designed to accommodate claims payout patterns and protect the portfolio against large potential increases in future yields that would decrease bond market values.
After underwriting income and investment income offset by taxes and policyholder dividends, Lawyers Mutual ended 2011 with a net income of $3.4 million. Based on the improvements described above, Lawyers Mutual’s board of directors voted to declare a 6 percent or $1.048 million dividend to policyholders in-force as of year-end, payable upon the expiration of their policies.