Prospering in a Changing Environment State of the Association 042004 Annual Report vision To be the recognized leader in providing association membership value to the property/casualty insurance industry. mission NAMIC strengthens and supports its members and the property/casualty insurance industry by providing effective and high value advocacy, member services and public policy development. Advocacy: Results oriented advocacy of members’ interests on key legislative and regulatory initiatives that relies on grassroots member involvement and collaborative advocacy relationships. Member Services: Member directed programs and services providing high quality sources for insurance company operational needs and meaningful education, networking and knowledge sharing. Public Policy: Public policy that anticipates emerging issues and consistently promotes the objective social and economic benefi ts of the free enterprise system, fair and open competition, and a rational business regulatory environment. Prospering in a Changing Environment. The mutual insurance industry’s foundation is strong. We prosper by playing an active role in the It is almost as though Benjamin Franklin and the other industry. We know our business and the type of founders of our industry could see into the future, and regulation that works best for our companies and fashioned a system that would adapt to change and thrive consumers. Our collective voices are heard long long after its inception. and loud in state legislatures, before regulators and throughout the halls of Congress. We are alert to Changes in our post-millennium world happen at an regulatory and legislative challenges that affect not amazing and sometimes incomprehensible speed. Keeping only our prosperity, but also the very existence of one step ahead is hard enough; prospering is another the mutual insurance industry. challenge entirely. In this world, prospering takes not only hard work, good business practice and pro-activity, but Mutual insurance has not been in business creativity as well. in North America for more than 252 years by ignoring its changing environment. We prosper NAMIC and its member companies prosper because we do because we know who we are, remember where what it takes. We are responsible, we work hard and we are we have been, and have the vision and fortitude to alert to challenges and changes in our environment. Most of do what it takes to get things done. all, we prosper by fi nding creative ways to remain successful while improving the environment for our customers, and fi nding new ways to protect their lives and property When you’re fi nished changing, you’re fi nished. against the unexpected. – Benjamin Franklin We prosper by giving back. We are good corporate citizens of our communities and take an active role in supporting our customers and our employees. Our involvement remains consistent through good times and bad; and beyond our business obligations, we donate our time, resources and talents to organizations that make our community environment safer and more productive. Everyone can be great, because everyone can serve. – Martin Luther King, Jr. The National Association of Mutual Insurance Companies 1 Prospering It has been a great year serving as the chairman of your association, a year in which we have been reminded repeatedly that the one constant in our industry is change. To prosper as individual companies and as an industry, we -F. Timothy Hegarty, Jr., CPCU have to be proactive in directing the course of the changes 2003-2004 Chairman that occur so that we are never caught unprepared. NAMIC’s collective voice is powerful; its strength lies in its diversity. Members range in size from smaller regional and state carriers to four of the seven largest U.S. carriers. NAMIC members write more than 41 percent of all property/casualty premiums in the country and its member retention rate annually exceeds 99 percent. However, statistics aren’t necessarily important – what is important is the successful NAMIC initiatives, driven by active and engaged members meaningfully collaborating with state associations and others in the industry. NAMIC offers many opportunities for involvement. Coming together is a beginning; Numerous committees and boards thrive because of an keeping together is progress; actively engaged membership. This type of collaboration has working together is success. never been more important as the industry faces challenges – Henry Ford in areas including privacy regulations, the use of credit-based insurance scoring, the inclusion or exclusion of regional and state mutual and stock insurance companies in the Terrorism Risk Insurance Act and Sarbanes Oxley. NAMIC is actively representing you in each of these areas and has not only mitigated some of the more onerous provisions, but has developed and promoted uniform legislative solutions based on input from its membership. More than ever before, NAMIC’s ability to assist members in matters of state advocacy when called upon has borne fruit across the country. Whenever and wherever its strength is needed, NAMIC works daily to help you respond to all the challenges to help your company and the industry prosper in a changing environment. This has been a tremendous year. Thank you for the privilege 2 The National Association of Mutual Insurance Companies of allowing me to serve as your chairman. ■ President’s Letter It has been a year of growth, achievement and transition for NAMIC. Growth is always a positive indication in an association, and NAMIC’s new insurance company members brought with -Charles M. Chamness them nearly $3 billion in new direct written premium which President maintained our position as the largest property/casualty insurance trade association with a market share of 41 percent and 1,350 member companies. Achieving our advocacy objectives was another hallmark of the year. Strong member involvement combined with effective staff work in state and federal affairs won key battles for NAMIC members. At the regulatory level, NAMIC is leading a strong effort to defeat unnecessary and unduly burdensome NAIC-imposed requirements for non-public insurance company corporate governance. This inappropriate and expensive new requirement would have already cost members millions in new compliance costs were it not for our success in fi ghting against its implementation. We make a living by what we get, but Also on the regulatory front, NAMIC helped lead the we make a life by what we give. industry effort to stop an ill-advised multi-state study on – Winston Churchill “disparate impact” in the use of credit-based insurance scores. In federal affairs, NAMIC preserved the small insurance company tax exemption, which had attracted national attention through abuse by wealthy individuals and corporations. Working with key member companies, NAMIC’s federal affairs advocacy was able to achieve this victory in a very tough federal budget defi cit environment. This was the fi rst Congress to receive the Benjamin Franklin Public Policy Award. More than 200 were given to members of Congress who supported legislation that represented good public policy for the insurance industry and consumers. During 2004, hundreds of NAMIC members met with elected leaders during Congressional Contacts The National Association of Mutual Insurance Companies 3 visits to Washington D.C. This year marks were able to learn from each other through not only the the inaugural year of the Legislator of educational sessions, but through the positive value of the Year award, which will be awarded networking. annually to a legislator who exemplifi es NAMIC’s principles of public service and Through added non-dues revenue, the association grew who has established an outstanding record in fi nancial strength to be better equipped to handle the on issues of importance to NAMIC. This challenges confronting our industry. This growth occurred year’s recipient, Chairman Mike Oxley of with a strong emphasis on providing the excellent value for the House Financial Services Committee, the dues of each member company. certainly deserves this honor. Transition occurred in NAMIC staff restructuring in an NAMIC continued its tradition of leading ongoing effort to meet the needs of member companies. the industry through the development of NAMIC’s State Affairs division began providing advocacy public policy papers and creating model in all fi fty states and added more staff to meet the growing legislation to help the industry prosper. demand for services. NAMIC is committed to providing This year the association drafted the Fair members with state regulatory and compliance services Notice and Market Stability Act which was wherever they do business. The Regulatory Solutions Center unanimously approved by the American provides compliance-related information 24 hours-per-day, Legislative Exchange Council (ALEC) seven days per week, and two new specialty newsletters were in May and published two public policy launched to keep members up-to-date. papers: The Damaging Effect of Regulation of Insurance by the Courts and The Legal In recognition of their ongoing dedication and expanded Theory of Disparate Impact Does Not Apply roles within the association, Gregg Dykstra, Roger Schmelzer to the Regulation of Credit-based Insurance and David Winston were promoted to senior vice presidents Scoring. of internal operations, state and regulatory affairs and federal affairs, respectively. Later in the year, Bart Anderson was NAMIC continues to advocate for and hired as