LMCIT Dividend

Staff from departments all over LMC/LMCIT volunteered
to process this year's dividend check mailing.

Soon, members of the League of Minnesota Cities Insurance Trust (LMCIT) will receive checks in the mail, and—combined—those checks total more than $16 million. This is the amount that the Trust's property/casualty program is able to return in the form of a dividend this year. LMCIT Operations Manager, Laura Honeck, can better explain the dividend process.

Q. Laura, Why does LMCIT send money back to its members?

A. LMCIT was formed in 1980 by Minnesota cities. It was one of the first municipal self-insurance pools in the country, and it has always operated under a nonprofit philosophy. Cities that are members of LMCIT pay premiums to ensure their property, liability, auto, and workers’ compensation risks are covered. Those premiums go into a member-owned fund, and those funds are used to pay for members’ claims, losses, and expenses. If LMCIT receives more income from premiums and investments than is needed—and if losses turn out to be below LMCIT’s projections—then the extra money goes back to members in the form of a dividend.

Q. What factors lead to this large dividend?

A. A number of factors are weighed, but one of the major drivers behind this year’s dividend is some continued good experience in some of LMCIT’s more significant loss areas. These areas include property damage, land use litigation, employment claims, sewer backups, administrative errors and omissions, and street and sidewalk liability. If we set aside the impact of claims related to the Driver’s Privacy Protection Act (DPPA), police liability looks quite positive, too.

Laura Honeck is the operations manager for LMCIT
and also manages the PATROL program for law enforcement.

Q. How is the dividend amount calculated for each member?

A. The dividend is calculated in such a way that it will return a proportionally greater amount to members that have been with LMCIT for a longer period of time and that have been most successful in avoiding and controlling losses. If you’re interested, here are the steps to determine the dividend for each individual member:

Step 1: Each member’s adjusted losses are subtracted from its gross earned premiums for the past 20 years.

Step 2: After calculating Step 1, the remaining dollar amount for each member is added together. This is the total that is used to calculate each individual dividend amount.

Step 3: The amount for each member calculated in Step 1 is then divided by the sum of all members calculated in Step 2. This results in each member’s percentage, or share, of the $16.5 million total that’s available as a dividend this year.

Q. Do you know total historical amount of dividends that has been returned to LMCIT membership?  

A. Of course! Since 1987 (the first year in which LMCIT began returning dividends), the property/casualty program has returned $256 million and the workers’ compensation program has returned $38 million.

Q. Anything else that you would like to add?

A. The ultimate goal of LMCIT is to manage risk—in other words, uncertainty. There’s no guarantee that a dividend will always be returned to members because it is impossible to know precisely what losses will occur or cost in any given year. Dividend amounts will vary from year to year just as they have in the past.

LMCIT will do its best to estimate and project what loss costs will be, and will continue to return to members any funds that aren't needed for losses, expenses, or reserves. While it can’t guarantee future dividends, members should be really proud of their success accomplished in controlling losses during 2015!

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Rob