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Message to Policyholders
I’m pleased to report that the company completed 2010 stronger than when it began, with record capitalization and financial stability. Notably, our improved position of strength was achieved despite a struggling economy, difficult market conditions, and a constant barrage of loss severity throughout the year. Our mission is to protect the financial well-being of our policyholders and to be there to help reassemble the pieces when ill fortune strikes - a duty that I can proudly state continues to be achieved.
On the operational front, 2010 was a disappointing year marked by a weather catastrophe, loss severity, and difficulty maintaining top-line revenue. After phenomenal results for the prior five years running, last year reminded us that experience in the insurance business can change dramatically and swiftly. This only serves to reaffirm our commitment to sound financial practices and proven corporate strategies to meet difficult times directly and in a solid stance of security and strength.
Operating in the Mid-Atlantic region of the country, our primary weather-related exposures are winter storms and hurricanes. While we have been spared from both calamities for several years, Mother Nature reacquainted us with her wrath in various forms throughout the winter. Freezing temperatures, high winds, and massive snowfall culminated into one of the worst blizzards in recent history, when two back-to-back storm systems struck over a four-day period in February. Harford Mutual suffered its largest natural catastrophe total loss ever, $7.5 million direct, $6.8 million net, and 7.3 points of our combined ratio, due to the four and a half feet of snow dropped on the core of our policyholders.
Individual severe losses also took their toll on our overall results during the year. A total of eleven claims were recorded during the year with losses greater than established reinsurance retentions. The number of significant losses exceeded those received for the prior two years combined and far surpassed our annual average. In the end, these high-severity claims impacted our results by $13.3 million direct and $8.3 million net; and, after removing those resulting from the winter storm, represent an additional 7.3 points of our combined ratio.
Written premium revenues ended the year down 2.4 percent direct and 3.0 percent net, as the soft insurance marketplace persisted and policyholder exposures declined with the struggling economy. While our goal was to achieve some modest premium growth, policy count actually grew by two percent, and our growth rate for the year is expected to be on pace with the commercial carrier segment of the industry. Despite the market challenges, our Underwriting and Business Development staffs continue to work diligently with our agency partners in order to retain profitable business while seeking new opportunities.
Notwithstanding our operational losses, we ultimately recorded a moderate net income gain and a rise in our investment portfolio. Adherence to sound investment strategies, a late uptick in the markets with a trace of an economic recovery, and tax offsets for underwriting losses led to an increase of 3.3 percent, $4.7 million in our policyholders’ surplus. The surplus now exceeds $147 million, the highest mark in our long 168-year history, building upon our already resolute capital position. In recognition of the company’s strength and sound execution and operations, Harford Mutual’s financial rating of “Excellent” with a “Positive” outlook was reaffirmed in 2010 by A.M. Best.
Although our financial projections for the year were not fully realized, we continued to make significant advancements in various key initiatives to improve internal operations and provide robust services to our agents and policyholders. These included the implementation of a new accounts receivable and billing system – improving processing and reporting, and laying the groundwork for significant convenience offerings in the near future. Throughout the company, we continued to refine our automated workflows and electronic content management systems in an effort to improve efficiencies, reduce waste and redundancies, bolster quality, and accelerate delivery. Finally; and, most importantly, we were successful in filling key positions with experienced employees, while at the same time expanding the continuing educational achievements of our existing staff.
While the primary purpose of our annual statement is to convey corporate prior-year results and financial security, we also take the liberty to highlight stories which demonstrate our ongoing Commitment to Mutual Success. Certainly, a review of 2010 cannot go without mentioning the winter storms and how the company maintained superior service and stability in the midst of a catastrophic event. Next, an example of the successful execution of strategy, commitment, and partnership translates into positive results in one of our growing states. And, finally, officers and employees of Harford Mutual give of their time, talents, and resources in achieving one of our corporate core values – meaningful community involvement and charitable support.
In an effort to gain perspective through reflection of the past, one must not only discern challenges met and victories won, but also goals unattained and lessons learned along the way. While large elements such as Mother Nature, the economy, and the overall soft market are out of our control, many are not. Therefore, we will continue to implement course corrections in the execution of our core strategies. When we work together – company, agent, and policyholder – we not only exhibit the principles of mutuality, we share in the success that comes from a stronger and more unified partnership. This successful collaboration is a direct result of the guidance of our Board of Directors, the dedication of our experienced management and staff, and the support of our independent agents.
After one of the most challenging and harshest years in recent history, rest assured that we remain a strong, highly-capitalized, and sound insurer of your financial well-being. No doubt, brighter skies are ahead as we continue into our 169th year of operation. We look forward to supporting your own future success, and I sincerely thank you for your ongoing commitment to Harford Mutual.
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