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<br />To calculate the dividend, we subtract your city's adjusted losses from your earned <br />premiums. The remainder represents your city's contribution to the surplus. We do that <br />same calculation for all of the member cities, add up all of those remainders, and then <br />calculate your city's remainder as a percentage of that total. Your city receives that <br />percentage of the $9 million total that's available this year. This is the same formula <br />we've used for many years. <br /> <br />What's behind this year's dividend? <br /> <br />Several factors were involved in producing the funds that are available to be returned this <br />year: <br /> <br />= For the past several undenvriting years, municipal liability and auto liability losses <br />have been less than the projected losses which the premium rates for those years were <br />designed to fund. <br /> <br />.. There's a "safety margin" built into the LMCIT premium rates, to cover the risk that <br />losses might turn out to be greater than projected. When losses are less than <br />projected, that margin isn't needed and can be returned as a dividend. <br /> <br />I) Earned premiums have been more than what we'd projected. <br /> <br />It LMCIT's fixed-income investments have gained value as market rates have declined, <br />so we've realized some capital gains on investments. <br /> <br />One word of caution - while the liability picture overall is good, an ongoing area of <br />concern is the cost of litigation relating to land use regulation and development. Those <br />litigation costs make up a significant part of the total municipal liability cost, and they've <br />been quite volatile from year to year. <br /> <br />Should we expect similar dividends in the future? <br /> <br />For several years, we've been moving in the direction of strengthening LMCIT's <br />financial reserves and fund balances, and at the same time reducing somewhat the size of <br />the "safety margin" that's built into the rates. Iflosses turn out to be at or below what we <br />projected when we set the rates, that "safety margin" is where the surplus funds for <br />dividends come from. All else being equal then, we'd expect in the future to have less <br />surplus funds available to be returned as dividends - unless, of course, cities can continue <br />to reduce losses further. <br /> <br />Another factor to be aware of is reinsurance. The reinsurance market is currently harder <br />than it's beenfor many years. One result of that hard market is that our reinsurance costs <br />increased significantly this year, especially for property risks. We anticipate that the <br />reinsurance market will continue to be difficult for the next several years. It might in the <br />future make economic sense for LMCIT to retain more risk rather than to reinsure it. To <br /> <br />2 <br />