Central outlook cautiously optimistic

Central Mutual Insurance President F.W. Purmort shared a cautious but optimistic outlook with policyholders at Central’s 136th annual policyholder’s meeting held earlier this year.

“The capital base of the company is very strong,” said Purmort.  “And like any business in this economy there is a need to be a little more cautious.”

Purmort noted the -6.5 percent return on Policyholders’ Surplus was of the most concern to the company. While the Policyholders’ Surplus Fund is still strong, there’s been an erosion of the company’s margin for error. This erosion was the trigger for strategic changes in product pricing.

In addition to pricing deficiencies, Purmort noted other factors continued to impact the company’s profits including an increase in large losses over $100,000, lost revenue when the company withdrew from writing business in New Jersey, and the weather.

“Any storm loss of more than $25 million is considered a catastrophe,” said Purmort.  “Our catastrophe losses were a huge driver of what happened to our results in 2010.”

Purmort commented that recent results have raised questions about the company’s strategy and provided an opportunity for management to assess Central’s position, strengths and weaknesses.  The result will be a focus on fundamentals in 2011.

“In our business there are five fundamentals we need to focus on:  Underwriting Selection, Rate Adequacy, Claims Processing and Reserve Integrity, Investment Portfolio Risk, and Customer Service,” said Purmort.  “We’re focusing hard on these five essential functions.”

Purmort stated the bottom line is that the company has recognized its shortcomings, and has a strategy in place for recovery, a cohesive and decisive management team, the support of its agents, and confidence in the coming year.

“We understand the reasons why we’re in the position we’re in.  We know how to fix them and tough decisions have been made.  Now we must have the patience to see our results improve.  I have a great deal of confidence in 2011 and beyond.”

Thad Eikenbary, Vice President and Treasurer, began the Treasurer’s Report by noting that, “calendar year 2010 was another challenging one for the Central.”  Positive investment returns during the year did, however, help to mitigate the impact of the underwriting results.

Eikenbary reported that Central’s direct written premiums decreased from $587.6 million in 2009 to $549.2 million in 2010.  This was mostly a result of Commercial Lines writings decreasing by 15.8 percent.  Personal Lines business saw a small increase of 1.1 percent.  The company’s combined ratio for 2010 increased to 118.9 percent as compared to 108.3 percent in 2009.  Of course, a combined ratio of less than 100 percent is preferred in the industry.

Net investment income for the company increased by $2 million from $41.2 million in 2009 to $43.2 million in 2010.

“Income from the company’s investment portfolio continues to be a very consistent aspect of the entire operation,” said Eikenbary.

Central’s bond portfolio decreased by 3 percent during 2010.  The quality of the portfolio remained very solid and Central continued to manage the maturity of the portfolio to ensure that it maintained the liquidity necessary to meet the company’s financial needs.  Central’s stock portfolio represented 14.1 percent of the company’s total invested assets.

Central registered a net loss after taxes and dividends of $39.3 million in 2010, which was a significant increase over 2009.  While the company experienced a net underwriting loss of $87.4 million, this was offset significantly by positive investment returns.

Central’s assets decreased by 2.3 percent to $1.39 billion, and by the end of 2010, the company’s Policyholders’ Security Fund had also decreased by 6.6 percent to $467.7 million.

Eikenbary concluded, “Although 2010 was another challenging year for the Central Insurance Companies, it was a year in which we focused on the fundamentals and made tough decisions in order to turn around the company’s underwriting results.”

In other business, Edd Buhl, Senior Vice President and Secretary read the minutes from the 135th policyholders’ meeting.  E.R. Buhl, R.S. Lawson, and C.A. Runser were re-elected to the Board of Directors for a three-year term. R.J. Kutella was re-elected for a one-year term.  Other directors include J.L. Hanson, T. B. Kearney, F.W. Purmort, D.P. Maconachy, and E.J. Noonan.

Central Mutual Insurance Company is a personal and commercial property and casualty insurance company operating exclusively through independent insurance agents in 18 states.  The home office is located in Van Wert, with regional offices located in Dallas, Atlanta, Boston, and Van Wert.