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A Very Stormy 3rd Quarter! icon

Hail, Wind, Tornado, and Flood! We experienced it all in the 3rd quarter. We tracked 8 storms in 2010 and paid more in net claims (after reinsurance recoveries) than any time in the Company's history. All seven of our Midwestern States experienced some piece of this action though in varying degrees. Where is "Tornado Alley"? Would you believe MINNESOTA!? Through August 2010, 122 tornadoes touched down in Minnesota. Texas was the next closest State at 87. Wisconsin was 6th in the Nation at 59. Is what we experienced in 2010 the new normal? After 3 straight years of similar storm activity in the upper Midwest, we are beginning to question what normal is. Catastrophe models have not predicted accurately the storm activity of the upper Midwest and as such Underwriting and pricing strategies for property lines of business must react accordingly. A rate increase of roughly 6% on Homeowners is the first strike in our efforts to react to these weather patterns. Recent changes in Underwriting by Homeowners tiers is another step to fix this chronically poor line of business.

Our Combined Ratio through September 30 is 104.3. This the worst 9 month result for MFM in 8 years. Interestingly, if we wrote no Homeowners business our Combined ratio would drop to a very respectable .98. Our Marketing People tell me that our 104.3 combined is much better than many of our Competitors---maybe so. This not much consolation to me. We expect to produce a Combined Ratio that produces an Underwriting Profit EACH AND EVERY YEAR!

Sales in 2010 are weak but probably should be expected under the current economic circumstances. Our written premiums are up 1.3% YTD. Sales, receipts and payrolls continue downward trends making premium growth difficult. It is tough to find bright spots in our economy right now though we should be glad we live in the Midwest where we are experiencing a better economy than many other States in the US. Lack of confidence by businesses AND consumers appears to me to be the largest obstacle to greater economic growth. Some premium growth is always necessary or our expense ratio increase as a percentage of premiums.

I am not optimistic that our economy will see significant improvement in 2011. As a result, we are working hard at reinventing ourselves and growing our market size through new opportunities by line of business or new States. Our New Ag Business products are very close to filing. This is our first step in this reinventing process. Our effective date is targeted to respond to 1/1/2011 expiration dates. The agriculture economy in the Midwest is one of the bright spots in the entire country. Can you say: "6 dollar corn!"? We think timing is right for our entry into this new opportunity. We expect to write $3-4M of this business in 2011. Our second step in 2011 is the filing of our Commercial Lines products (Note no Homeowners filings) in Indiana, Ohio, Missouri, Kansas, and, Montana. We expect to appoint no new Agents in 2011 for these States (though we may respond to an isolated opportunity). Our primary purpose for these filings is to respond to your multiple State account opportunities.

We have another quarter to improve upon this 104.3 Combined Ratio. Storm season is likely over for 2010. Our 4th quarter is usually one of our best quarters. October is progressing well so far. It is unlikely that we can expect improvement to much better than a 101 Combined Ratio result for this year. Perhaps we will see an unexpected positive result similar to the unexpected negative result that we saw in the 3rd quarter. At a 101 Combined however, we will experience a Surplus gain as very consistent investment income is realized.

Our Company's largest asset remains our Agents. We continue to look for ways to improve our relationship with you by improving our product offerings, responsiveness, and our overall service levels to you. Know we truly appreciate your business!

Best regards,

Ron Boyd, CPCU
President and CEO

Posted on Friday, November 05 @ 07:55:16 -05:00
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