s 368.41 W20r 2002 ^. ?-^ ^ ^ r^» Jumi&^i VBOM for MONTANA ''^ft^'^,-- *: .^ NUAL RE PO RT 2 002 3 0864 0014 9042 7 OUR MISSION MONTANA'S INSURANCE CARRIER CHOICE n L t>< '-^-^^ i<..">: .'\.-r< LetterfromtheChairmanoftheBoard oj c 2002KeyFinancialHighlightsMontanaStateFundFacts Financials AuditorandActuarialLetters ReportofManagement; BoardofDirectors/ExecutiveStaff KMAN OnbehalfoftheBoardofDirectors,itgives megreatpleasuretosharewithyouthe accomplishmentsofMontanaState , FundforFY2002.Throughoutthepast i year,theinsurancemarketnationally copedwithpriceincreasestocustomers, declininginvestmentincomeand increasedlosses. ' Inthistypeofbusinessenvironment,a r,^ competitivestatefundmustbeastabilizing^fDrcein themarketplace.Itisofparamountimportancetothe businessesinMontanathatthereisareliable,stable workers'compensationsysteminplaceforthis essentialandmandatorycoverage.MontanaState Fundisthatorganization.Weunderstandthecritical roleweplayintheeconomicandsocialwellbeingof thecitizensofourstate.Itisa responsibilitythatwe gladlyaccept,andit'swhatseparatesusfromthe otherinsurancecarriersthatoperateinMontana. Bymaintainingourfinancialstrengthandstability, wecontinuetodeliverthehighestqualityworkers' compensationinsuranceatcompetitiveprices. Throughpartnershipswithourstakeholders,we haveimprovedourservicetoourcustomers. MontanaStateFundisadynamicorganizationthatis constantlyfinetuningitselftomaintainourstatusas Montana'sinsurancecarrierofchoiceandindustry leaderinservice. Thankstoouremployees,agents,and,most importantly,ourpolicyholdersformaking2002 anothersuccessfulyear.Iwouldalsoliketothankthe Boardmembersfortheircommitmenttothepeopleof Montana.TheBoardandstaffoftheMontanaState Fundcompriseagreatteam,andit'sapleasuretobe abletoservewithallofyou. HerbertLeuprecht, Chairman IVehave protected Montana Byanymeasure,2002wasa compensationcoverage.During industry,itisreallyacontingent businesses challengingyearforworkers' timeslikethese,theroleofa liabilityfund.Whilesurplus througha compensationinsurers.The competitivestatefundtakeson generatesinvestmentincome depression, combinationofrisingmedical evengreatersignificance. thatbenefitsourpolicyholders twoworld warsand81 costs,decreasedinvestment MontanaStateFund(MSF) ontheirpricing,italsoserves Cat-Criz income,higherreinsurance existstoprovideallbusinesses asareserveforanyfutureloss games. rates,andincreasesinclaim withcompetitivelypriced contingencies.Bymaintaining Montanais ourhome, losseshasresultedindeclining coverageandtop-of-the-line adequateresen^/esanda andweare profitsandupwardpressureon service.Wehaveprotected strongsurplusbasedon heretoserve pricing.Nationally,insurance Montanabusinessesthrougha insuranceindustrybest thepeople carriersarestillcomingtogrips depression,twoworldwarsand practices,wecontinuetobe ofourstate. withtheaftershocksofthe 8iCat-Grizgames.Montanais astrongandlong-term tragiceventsofg/nandthe ourhome,andwearehereto viablecarrier,committedto impactsthatcontinuetoripple servethepeopleofourstate. Montanabusinesses. throughoureconomy. DuringFY02,wesawournet Forthefourthconsecutiveyear, PositiveResultsin earnedpremiumgrowby24.8%, ourBoardofDirectorswasable aDifficultMarket exceeding$92million.Our todeclareadividendforour investmentincomeforthe eligiblepolicyholderswith Montanacomprisesamere periodonceagainshowedan superiorsafetyrecords. 4/iothsof1%ofthenational increasebytopping$33million Inlightofthechallenges workers'compensationmarket. fortheyear.Giventheturmoilin facingtheinsuranceindustry, Whentimesgettoughinthe thefinancialmarkets,wedonot thisisasignificantresult insuranceindustry,carriersoften expecttosustaintheseresults Since1998,$28millionhasbeen finditnecessarytoconcentrate intothefuture.Lossreserves givenbacktoMontana theirresourcesintheircore increased$20.5millionto businessesin markets.Inthepastseveral $346.4million.Duringthis dividendsand years, carrierswithdrewfrom sametime,we improved returnedpremiums. ourstate,leavingMontana oursurplusby$7.6million. I Since1994,overall businesseswithfeweroptions Oftenreferredtoas"surplus > premiumrates forpurchasingworkers' intheinsurance havedecreased inMontanaby38%.Duetothe creation.Wehavetransitioned environmentofteamwork, marketconditionsoutlined fromatraditional creativityandtrust. above,aswellasrecognizingan organizationalconfigurationto additional$9millioninadverse onethatisadaptedtothe Thetruemeasureofwhowe lostdevelopmentinFY02,we needsoftheinsuranceindustry. aregoesbeyondourfiduciary founditnecessarytoincrease WeembarkedonPhaseIVof responsibilities.Weare ourratesbyamodestamount. ourinternalrestructuringthat Montanans,andrecognizehow anticipatethatforthenear weimplementedinNovember fortunatewearetocallthis I term,thistrendwillcontinueas 2000andarealreadyseeing placeourhome. MontanaState wecopewiththechallenges improvementsinefficienciesin Fundplaysauniqueand confrontingallworkers' anumberofoperationalareas. importantroleinourstate. compensationcarriers.Fornow, Inourmostrecentpolicy- Asapublicentityandthe employersneedtorecognize holders'survey,wesawa guaranteedmarket,we thatpricesforcoveragewill markedimprovementinhow acknowledgetheobligation increase.Itthereforebecomes ourcustomersviewMSF. wehavetoour908,000 incumbentonallofustodo AsMontana'seconomic citizens.Awell-runorganization whatwecantoprevent structureundergoesanother isconstantlyfinetuning accidentsintheworkplace. evolutionarychange,we itself,respondingtothe Byincreasingourinvestmentin continuetofillourcriticalrole currentandanticipated safetymanagementthrough astheguaranteedmarket. marketenvironment. stationingourconsultants Wewillcontinuetomake Byincreasing ourinvestment acrossthestate,andoffering OurVisionforMontana improvementstoour insafety freesafetytrainingseminars, organizationalstructurein management M5Fiscommittedtodoingall Ourvisionasanorganizationis ordertomeettheformidable through stationingour itcantoreduceaccidents. thatMontanaStateFundis challengesthatlieahead. consultants committedtothehealthand Workingcloselywithour acrossthe FineTuningOurOrganization economicprosperityof BoardofDirectors,wewill state,and Montana.Weaccomplishthis ensurethatMSFisproperly offeringfree safetytraining MontanaStateFundhasgone byprovidingsuperiorservice, positionedtomaintainour seminars,MSF throughnumerousstructural leadership,withcaring competitivenessin iscommittedto improvementssinceour individualsworkinginan themarketplace. doingallitcan toreduce accidents. Ourvisionalsodifferentiates Duringthesetoughfinancial increasepremiumstoreplace usfromotherworkers' times,somemayfeelthatitis surplususedforotherpurposes. compensationinsurancecarriers appropriatetodivertour inMontana.Weexisttoprovide policyholdersurplustothe Wehavenointerestin Montanaemployersandtheir GeneralFund.Theintegrityof representingotherlinesof employeeswithcompetitively oursurplusmustbepreserved. insurance.Ourvisionfocuses pricedcoverage,andtoserve Onthiswearequiteadamant. onourcommitment,andin themnomatterwhatchallenges Theroleofsurplusforan thatwearededicatedto facetheinsuranceindustry. insurancecompanyservesasa providingthebestpossible contingentliabilityfund,which workers'compensation Ourfinancialstabilityiskeyin safeguardspolicyholdersand coverageinMontana. allowingustoprovideMontana injuredemployeesfromadverse businesseswithaviablechoice developments.Thesefunds Byfosteringanenvironment forpurchasingtheirworkers' shouldonlybeusedforthe thatfocusesoncreativityand compensationcoverage.Top- purposesforwhichtheywere trust,wetrulyhavebecomethe ratedinsurancecompanies collected.Wearetakinga insurancecarrierofchoiceand maintainadequatereserve leadershiproleinprotectingthe industryleaderinservicein levelstoprovideprotectionfrom interestsofour26,000+ Montana. Ourgreatest unanticipatedlosses.Sincethe customersandthethousands satisfactioncomesfromthe terroristattacksofg/n,thecosts ofinjuredemployeesweserve knowledgethatbyworking forreinsurancenationwidehave onanannualbasis.Theyhave togetherwehavebeenableto skyrocketed.ForMontanaState puttheirtrustinus,andwewill makeadifferencetothepeople Fund,weexperienced vigorouslyopposeanyattempt whoweserve. reinsurancecostincreases toredirectthesefundsfor ofover300%,withgreaterlevels otherpurposes.Weknowcosts ofexposure.Giventheseevents, areontheincreaseforworkers' CarlSwanson,President/CEO ourstrongsurplustakesoneven compensationinsurancedriven greatersignificance. primarilybymedicalcost inflation.Wedonotwantto employees designedthis newemployee pintosignify ourvisionand commitment toMontanans. Wedealwithinjuredemployeesonadailybasis. Weknowwhatitmeanswhenanindividualcan't workduetoanunfortunateaccident.That'swhy wehaveredoubledoureffortstohelpemployers identifyandeliminatethecausesofaccidents beforetheyhappen.Thereisnosubstitutefor workplacesafety.Becauseunsafebehavior contributestomorethan90%ofallinjuries,it's essentialthatbusinessescommitthemselvesto promotingthedevelopmentofasafetyculturein theirorganization. MontanaStateFundhastakenaproactive approachtoprovideemployerswiththebest possibletrainingandinformationavailable.We knowthatasafeworkingenvironment contributestoacompany'soverallsuccessand thewell-beingofemployees.Oneofthekey factorsthatcanhelpcontrolrisinginsurance costsisaninvestmentinworkplacesafety.That's whyweoffered36freesafetyworkshopsinFY02 acrossthestatetogiveemployersthetraining theyneededtodevelopsafetyprogramstailored tofittheirneeds.Ourworkshopsareopento anyemployer,notjustMSFpolicyholders.The safetyandwelfareofallMontanaworkersis ourprimaryconcern. Thisyearwewerealsoabletodeclareour fourthconsecutivedividendforqualifying policyholders.Thisismoneythatstaysin J Montanaandisputbacktoworkinour communities.Atthesametime,we strengthenedoursurplusandreservessowe "Ik^nowthismight cancontinuetooperateasalong-termviable " cliche,butmy insurancecarriercommittedtothebusinesses inourstate.Afinanciallystrongandstable lAjrCllIjjjjiiJiijiKiid*" MontanaStateFundcontributestothegrowth ii\i\\'.'t:,nr:ird':i\\'\\'/di\ andeconomicprosperityofMontana. nianb'df." Rich Daniels - Injured Employee Missoula, MT - PKOSPEKITy Since1999,over$28millionindividendshavebeenpaid topolicyholdersandputbacktoworkInour communities.Whiledividendsaredependentonresults andcannotbeguaranteed,MSFanticipatesthatour strongfinancialconditionwillallowustosupportthe continuationofthisprograminthefuture. '4 'A i'::iinpDftiint'iD/nenm^my when jderstai workers*! KID!} insuranceprogru, yiontanaStateFunu < adegreatstridesovertl yearstoimprovetheir ^ customerservice.We appreciatetheir determinationand dedicationtoMontana PAGE EIGHT