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LMC 145 University Avenue West, St. Paul, MN 55103-2044 Phone: (651) 281-1200. (800) 925-1122 Fax: (651) 281-1298 · TDD (651) 281-1290 www.lmcit.Imnc.org League of Minnesota Cities Cities promoting excellence December 17,2002 To: LMCIT cities and agents From: LMCIT Board of Trustees Re: 2002 LMCIT property/casualty dividend - calculations and outlook Members of the LMCIT property/casualty program this year are sharing a $9 million dividend. This memo will give you some more information on the dividend, how your city's share is calculated, and what you might look for in the future. How is your city's dividend determined? The first step is for the LMCIT Board to determine how much surplus funds are available and not needed for losses, expenses, or reserves. This year the Trustees concluded that $9 million could be returned to the member cities. The next step is to allocate that total among the members. The surplus that LMCIT has at anyone time is the cumulative result of all of the cities' premiums and losses since LMCIT began. Cities that have been members the longest, that have contributed the most in premiums, and that have had fewer losses have in effect contributed more to creating that surplus. The dividend formula is designed to return a proportionally greater share of the total dividend to those cities. Each city's share is proportionate to the difference between that city's total earned premiums and total incurred losses for all the years the city has participated in LMCIT. The formula also incorporates a "loss limiting factor" to temper the effect of a single large "shock" loss on the city's dividend. Without this kind of limitation, a small or mid- sized city that happened to be hit by a single catastrophically large loss might not receive any dividend for many years. The dividend calculation The enclosed sheet shows the premium and loss figures that were used to calculate your city's dividend. The premium figure is your city's total of all earned premiums through May 31, 2002, for all of the years the city has been a member. The "adjusted loss" figure is your city's losses for all years of participation, minus applicable deductibles, and after capping each individual large loss. For purposes of the dividend formula, each individual' loss is capped at the lesser of either the city's earned premium for that year or $100,000.