05.02 - Insurance Liability Coverage Waiver

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Premium Rates. The rate changes taking place this year don't mean members' actual premiums will necessarily increase or decrease by these exact amounts. Actual premiums are also affected by changes in city expenditures, property values, payrolls, other exposure measures, and experience rating. Property /Casualty Members with renewals on or after November 15, 2011 will see a 3 percent property rate increase. Property and liability losses are the biggest pieces of LMCIT's expense picture, and play a large role in determining total premium costs paid by member cities. When LMC1T sets premium rates, the average experience over the past several years is used to project how much loss to expect in the future. The increase in property rates for the coming year reflects the higher loss experience in the 2010 and 2011 underwriting years. In addition, lower market interest rates mean we're generating less interest revenue from investments. That revenue now has to come instead from premiums. For the coming year, a somewhat smaller contingency margin was built into the rates than in the past few years. In effect, it means that we're relying a little more on the accumulated fund balance, and a little less on the premium revenues, for the funds we'd draw on if losses in the coming year should turn out to be more than projected. Workers' Compensation Members with renewals on or after January 1, 2012 will see a 2 percent rate increase. The 2 percent rate increase for 2012 is basically driven by two main factors: First, medical costs continue to rise much faster than wages or general inflation. Medical costs now make up 60 percent of LMCIT's total workers' compensation loss costs, and are increasing at a rate of about 9 percent per year. The second factor is declining investment income. Investment income provides about 20 percent of the workers' compensation program's revenue. Lower market interest rates have affected LMCIT's investment income, and the result is that those dollars now have to be made up from premiums. Dividends Members of the property/casualty program will share in a $12 million dividend this year, bringing the total amount of returned property /casualty dividends since 1987 to $206 million. Members of the workers' compensation program will share in a $6 million dividend. The total amount of returned workers' compensation dividends since 1987 is $33 million. 25,000,000 20,000,000 15,000,000 10,000,000 $5,000,000 $0 LMCIT Dividends $239 Million Since 1987 �Co OD rn�rn MOMMOOa000000000Y— Work Comp ■ Property/casualty `-' 21 Page