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, 2012. 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 2012 Annual Statement is available upon request.
The economic recovery from the Great Recession has been extremely slow compared to recoveries from previous recessions. While Lawyers Mutual and its insureds are still faced with challenges related to the subdued national and state economies, we are seeing some positive signs such as increased home sales and reduced inventories in the real estate market. Many law firms have adjusted their business models to meet the conditions of recovery with slow growth. Lawyers Mutual continues to approach the slow growth 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 $50.5 million. This strong surplus has allowed the Company to endure lower investment returns and inflationary pressures. Lawyers Mutual reported total revenues (comprised of premiums, investment gain and other income) of $17.4 million during 2012. Claims incurred declined $3.5 million from the previous year. Reported claim counts returned to levels consistent with years prior to the real estate crash.
Lawyers Mutual experienced a 51 percent loss ratio and a 74 percent combined ratio (loss ratio + expense ratio excluding dividends) during 2012. These ratios improved significantly from the 70 percent and 88 percent ratios posted in 2011 and the 102 percent and 119 percent ratios posted in 2010.
The steps taken by Lawyers Mutual over the past four 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 $3.5 million for the year ending December 31, 2012.
The Company’s investment income from all sources increased by approximately $911,000 thanks to $1 million of total dividends from affiliates including Lawyers Insurance Agency and an extraordinary dividend of $625,000 from a non-controlled affiliate. Excluding affiliated investment income, Lawyers Mutual’s investment income suffered during 2011 and 2012 due to declining bond yields. 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. Over the past two years, the Company has made incremental allocations to quality preferred stocks and dividend-focused common stocks in an effort to enhance yield.
Based on positive underwriting results and larger than normal affiliated investment income, the Company declared a 2012 dividend of 6%, payable upon the expiration of 12-31-2012 in-force policies. This is the second consecutive year of policyholder dividends and is part of the $3.9 million of dividends paid to insureds over the past ten years.
After policyholder dividends and taxes, the Company recorded a 2012 net income of $4.95 million.