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i Laa~ua of Mianosofa Cifaes C;fier proinofixg esm~an~ League of Minnesota Cities Insurance Trust 145 University Avenue West, St Paul, MN 55103-2044 (651) 281-1200 • (800) 925-1122 Fax: (651) 281-1298 • TDD: (651) 281-1290 www.lmnc.org December 12, 2003 To: LMCIT cities and agents From: LMCIT Board of Trustees Re: 2003 LMCIT property%casualty dividend -calculations and outlook Members of the LMCIT property/casualty program are sharing again this year in a $9 million dividend. This memo will give you some information on the dividend, how your city's share is calculated, and what you might expect as far as future dividends. How does,LMCIT determine your your city's. dividend? The first step is for the LMCIT Board to determine how much surplus funds are available and not needed for losses, expenses, or reserves. This year the Trustees determined that $9 million. . could be returned to our member cities. The .next step is to allocate that total among the members. The surplus that LMCIT has at any one time is the cumulative result of all of the cities' premiums and losses since LMCIT began. Cities that have been members the longest, that have contributed the most in premiums, and that have had fewer losses have in effect contributed more to creating the surplus. The dividend formula is designed to return a proportionally greater share of the total dividend to those cities. Each city's share is proportionate to the difference between that city's total earned premiums and total incurred losses for all the years the city has participated in LMCIT. The formula also incorporates a "loss limiting factor" to temper the effect of a single large "shock" loss on the city's dividend. Without this kind of limitation, a small or mid-sized city that happened to be hit by a single catastrophically large loss might not receive any dividend for many years. The dividend calculation The enclosed sheet shows the premium and loss figures that were used to calculate your city's dividend. The premium figure is your city's total of all earned premiums through May 31, 2003, for all of the years the city has been an LMCIT member. The "adjusted loss" figure is your city's losses for all years of participation, minus applicable deductibles, and after capping each individual large loss. For purposes of the dividend formula, each individual loss is capped at the lesser of either the city's earned premium for that year or $100,000. To calculate the dividend, we subtract your city's adjusted losses from your earned premiums. The remainder represents your city's contribution to the surplus. We do that same calculation for AN EQUAL OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYER