Dividends!

League staff from all over the building
 help stuff dividend envelopes every year.

Cities around Minnesota recently received checks in the mail from the League of Minnesota Cities Insurance Trust (LMCIT). In total, the checks represented $6 million in dividends from LMCIT’s recent fiscal year.

The checks represent a couple things. First, they signify a way of doing business where membership is rewarded when losses are below the expected level, and the potential “profits” are returned to members. It’s like being a member in a co-op. The dividends also signify a good year for LMCIT’s property/casualty fund. That is the fund that covers everything from property claims to liability to all the things that happen involving the cars and trucks that are owned by membership cities.

Laura Honeck, the LMCIT operations manager, agreed to answer a few questions about the dividend.

Q. Are you able to attribute the surplus in the property/casualty program to anything in particular?

A. Whether a dividend can be returned is largely based on how well members’ losses ultimately turned out during preceding years. If there’s favorable claim development in recent years, then a larger dividend can be returned. If there’s less favorable claim development in recent years, a smaller dividend can be returned. While LMCIT does its best to estimate and project what members’ loss costs will be, there’s just no guarantee a dividend will always be returned to members because it is impossible to know precisely what losses will occur or cost. Dividend amounts will vary from year to year just as they have in the past. For example, here are the total dividend returns to all members of LMCIT in the last 5 years:

2017 - $6 million
2016 - $25 million
2015 - $16.5 million
2014 - $9.5 million
2013 - $10 million

In 2016, LMCIT could return the largest dividend in its history because of favorable loss development, but it also released some money it had reserved for claims related to the Drivers’ Privacy Protection Act (DPPA). LMCIT received some favorable court decisions on these claims, and therefore could release some of the contingency it had set aside for the uncertain outcome on these claims.

For 2017, the Board of Trustees once again looked at members’ losses (property, police liability, employment liability, and auto physical damage claims were higher than average) and other financial measures, and they determined $6 million could be returned while remaining fiscally responsible to pay members’ future claims and losses.

Q. What was the smallest and largest dividend in this mailing?

A. The smallest dividend check was made out for $7 to a small joint powers alliance. The largest dividend was sent to one of our largest cities, in the amount of $80,837.

Q. How many dividend checks did we send out?

A. A total of 1,192 dividend checks were mailed!

Q. What else would you like us to know?

A. The goal of LMCIT is to manage risk—in other words, uncertainty. While LMCIT can’t always guarantee future dividends, members should be proud of their success in controlling losses during 2017. LMCIT’s hope is that loss development for prior years is better than expected as time goes on, just as it hopes losses for the coming year are better than expected, both of which would potentially allow LMCIT to return larger dividends to members in future years.

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Stay safe,
Rob