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Est. 1987BY KENTUCKY LAWYERS.FOR KENTUCKY LAWYERS.
2 0 1 5 A N N U A L R E P O R T
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INCLUDED in the items of business are the election of a class of the Board of Directors and a report on Company operations. Proxy materials have been mailed to policyholders prior to the meeting. We urge all policyholders to return their proxies and
to attend the meeting.
WEDNESDAY, MAY 11, 2016
8:00 AM • SKYBOX ROOM
LOUISVILLE MARRIOTT DOWNTOWN – 280 WEST JEFFERSON STREET
CONTENTSLETTER TO OUR POLICYHOLDERS ................................................. 3
A COMMITMENT MADE IN KENTUCKY .......................................... 4
2015 EXECUTIVE COMMITTEE ........................................................ 5
2015 BOARD OF DIRECTORS ............................................................ 5
2015 MANAGEMENT AND STAFF ...................................................... 6
COMMITTEES, ADVISORS AND CONSULTANTS .............................. 7
CLAIMS FREQUENCY BY AREAS OF PRACTICE IN 2015................... 8
CLAIMS FREQUENCY BY AREAS OF PRACTICE SINCE 1987 ........... 8
CLAIMS REPORTED .......................................................................... 9
STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND POLICYHOLDERS’ SURPLUS – STATUTORY BASIS......................... 10
STATEMENTS OF INCOME – STATUTORY BASIS ........................... 11
STATEMENTS OF CHANGES IN POLICYHOLDERS’ SURPLUS – STATUTORY BASIS .......................................................................... 12
STATEMENTS OF CASH FLOWS – STATUTORY BASIS .................... 13
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To our Policyholders,
Kentucky is known for making some pretty legendary things, such as bourbon, baseball bats, bluegrass music and one of the most committed professional liability companies exclusively serving Kentucky Lawyers – Lawyers Mutual.
As we look back on our ninth consecutive profitable year, we are proud of the commitment we have made in Kentucky. The strength of the commitment comes from the continued loyalty and support our many Kentucky policyholders continue to provide us, with 94 percent renewing for the year ahead.
A further testimony to our commitment is the fact that Lawyers Mutual is the only professional liability company in Kentucky governed by a board of directors comprised solely of Kentucky attorneys. They provide a dedicated presence throughout Kentucky that is unrivaled in our field. In 2015, after 26 years of service, David Yewell retired from the Board, and we welcomed Christopher L. Rhoads and R. Michael Sullivan, the Kentucky Bar Association’s new President-Elect.
Our staff’s commitment is exemplified by its longevity in serving Lawyers Mutual and our insureds. With exceptional qualifications in their areas of expertise, they offer unwavering personal service. The Board and staff welcome your questions and feedback. Complete contact information for the Board of Directors and staff is on pages 5 and 6, and on our website at LMICK.com.
While statistics show that the highest number of claims and greatest risks arise from personal injury (plaintiff’s practice) and real estate practice, we continue to welcome attorneys in those fields. We stress communication and a commitment to help avoid claims, perform claims repair and protect our insureds from financial loss when claims inevitably arise and cannot be repaired – all through personal and responsive service. We believe this is a reason for our high renewal rates and proof that Lawyers Mutual remains committed to Kentucky attorneys.
Lawyers Mutual maintains loyal ties to the Kentucky Bar Association and the legal community as well. In 2015, we sponsored 88 meetings and events for various bar groups; distributed our newsletter, The Risk Manager, quarterly to 13,000 Kentucky attorneys; and presented at 15 Continuing Legal Education events. Anyone interested in scheduling a CLE (with your local bar association or group) can view the complete list of topics at: lmick.com/resources/schedule-and-ethics-cle or contact Nancy Meyers at (502) 568-6100 or email meyers@lmick.com.
It has now been 28 years since Lawyers Mutual issued our first policy in Kentucky. We continue to be true to our mission and purpose, enjoying the support of our policyholders, and remaining committed to Kentucky.
ASA P. “PETE” GULLETT, IIIChief Operating Officer
JOHN G. PRATHER, JR.Board Chair
RUTH H. BAXTERPresident
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COVERAGE MADE IN KENTUCKY
Our focus has always been providing exceptional professional liability insurance, along with a powerful commitment to lawyer’s risk management, exclusively for Kentucky lawyers. An experienced group of practicing attorneys throughout Kentucky, our Board of
Directors is intimately familiar with what Kentucky lawyers face, and volunteers their time, energy and legal expertise to assure you receive the most outstanding coverage provided in the Bluegrass State.
PERSONAL SERVICE MADE IN KENTUCKY
Whether you are calling on our underwriting, claims or financial departments, you’ll be working with experienced professionals who have spent much of their careers with Lawyers Mutual. In fact, our staff averages 15 years of service, with
almost 140 years of collective experience at Lawyers Mutual alone. This means you’ll always receive personal, reliable and dependable service from someone familiar, someone you know and trust, and most importantly,
someone who knows you and understands your unique circumstances.
COUNSEL MADE IN KENTUCKY
We are committed to being with our insureds every step of the way, whether it be answering questions, handling actual claims or doing claims repair. Potential claims are reviewed by our staff, keeping your best interests in mind. Asa P. “Pete” Gullett, III and Jane Broadwater
Long offer a combined 30 years’ experience with Lawyers Mutual in addition to 70 years’ experience practicing law. You’ll receive personal service and if necessary, representation by a carefully chosen Kentucky attorney.
EDUCATION MADE IN KENTUCKY
Because we’re committed to helping Kentucky lawyers avoid legal malpractice claims and bar complaints, we are committed to providing resources, such as CLE events, a quarterly newsletter and an online resource center to help minimize
risks. Since 1996, we have published The Risk Manager newsletter quarterly, which is mailed to all attorneys in Kentucky and features in-depth articles about current legal malpractice issues. The Risk Manager is carefully edited by Del O’Roark, the first employee and first Executive Vice President of Lawyers Mutual.
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In 1987, in response to an unstable insurance market, our founders envisioned an insurance company owned totally by Kentucky lawyers, that was committed to providing reliable malpractice insurance and dedicated to exceptional personal service. Lawyers Mutual was Made in Kentucky, and has been
exclusively serving Kentucky lawyers ever since.
Every member of our Board of Directors is a practicing Kentucky attorney who volunteers their time. Hailing from all regions of the Commonwealth, our Board members average over 20 years of experience practicing law and include plaintiff’s counsel, members of the defense bar, rural practitioners, and partners in small, medium-sized and large law firms. The board includes at least two directors from each Supreme Court district; the president, president-elect and past president of the Kentucky Bar Association, and a representative of the KBA Young Lawyers division.
LAWYERS MUTUAL INSURANCE COMPANY OF KENTUCKY BOARD OF DIRECTORS
2015 EXECUTIVE COMMITTEE
2015 BOARD OF DIRECTORS
PRESIDENTRuth H. BaxterCarrollton – 6th districtcbjruthbaxter@aol.com
BOARD CHAIRJohn G. Prather, Jr.Somerset – 3rd districtpratherlaw@msn.com
Escum L. “Trey” Moore, III
Lexington – 5th district trey@moorepllc.com
TREASURERGlenn D. DentonPaducah – 1st districtgdenton@dentonfirm.com
Anne Milton McMillinLouisville – 4th districtammatty@bellsouth.net
SECRETARYDaniel P. Stratton Pikeville – 7th district dan@strattonlaw.net
Charles E. “Buzz” English, Jr.
Bowling Green – 2nd districtbenglish@elpolaw.com
Douglass C. E. FarnsleyLouisville – 4th districtdfarnsley@stites.com
Carl N. FrazierLexington – 5th districtcarl.frazier@skofirm.com
William E. “Bill” Johnson
Frankfort – 5th districtwejohnson@jnlawky.com
John G. McNeillLexington – 5th districtjmcneill@landrumshouse.
com
Dustin E. MeekLouisville – 4th districtdmeek@tachulaw.com
Ralph Carmen “Chip” Pickard, Jr.
Mayfield – 1st districtpickardlaw270@gmail.com
Marcia Milby RidingsLondon – 3rd districtmarcia@hmrkylaw.com
Christopher L. RhoadsOwensboro – 2nd districtchris@rhoadsandrhoads.
com
Beverly R. StormCovington – 6th districtbstorm@arnzenlaw.com
Marcia L. WiremanJackson – 7th districtwiremanmarcial@gmail.com
Joe B. CampbellBowling Green – 2nd district
Charles E. EnglishBowling Green – 2nd district
R. Michael SullivanOwensboro – 2nd district msullivan@smsmlaw.com
DIRECTORS EMERITI
Robert G. BreetzLouisville – 4th District
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Many of our dedicated management and staff have been with us practically from the very first day we opened our doors. With close to 140 years of collective experience at Lawyers Mutual, they are an integral part of our company – experienced professionals committed to meeting
the many needs of our clients through personal and responsive service. Unlike other insurers, at Lawyers Mutual, you’ll always work with a team you’re familiar with and who knows you like family.
LAWYERS MUTUAL INSURANCE COMPANY OF KENTUCKY2015 MANAGEMENT AND STAFF
CLAIMS
Asa P. “Pete” Gullett, IIIExecutive Vice President &
Chief Operating Officergullett@lmick.com
Jane Broadwater LongVice President &
Claims Counsel long@lmick.com
Piper BurnettClaims Adminstratorburnett@lmick.com
Lois A. SmithVice President, Underwritingsmith@lmick.com
Connie S. HarperUnderwriting Assistantharper@lmick.com
Dulaney L. “Del” O’Roark, Jr.
Newsletter Editor; Claims, and Loss Prevention Consultant
del914@bellsouth.net
UNDERWRITING
MARKETING & SALES
Nancy L. MeyersMarketing Directormeyers@lmick.com
John F. Reesor, J.D., CPAVice President &
Chief Financial Officerreesor@lmick.com
Sarah B. KessingerAccounting Assistantkessinger@lmick.com
FINANCIAL
SUPPORT MADE IN KENTUCKYLawyers Mutual has been approved by: Kentucky Bar Association, Kentucky Defense Counsel,
Kentucky Justice Association, Fayette County Bar Association, Louisville Bar Association, Northern Kentucky Bar Association, and the Young Lawyers Division of the Kentucky Bar Association.
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COMMITTEES
EXECUTIVE COMMITTEERuth H. Baxter, PresidentJohn G. Prather, Jr., ChairDaniel P. Stratton, SecretaryGlenn D. Denton, Treasurer
Anne Milton McMillinEscum L. “Trey” Moore, III
AUDIT & FINANCE COMMITTEEGlenn D. Denton, Chair
Charles E. “Buzz” English, Jr.John G. Prather, Jr.Daniel P. Stratton
Marcia L. Wireman
CLAIMS COMMITTEEBeverly R. Storm, Chair
Ruth H. BaxterGlenn D. Denton
Charles E. “Buzz” English, Jr.Anne Milton McMillin
John G. McNeillDustin E. Meek
Ralph C. “Chip” Pickard, Jr.Marcia Milby Ridings
LONG RANGE PLANNING COMMITTEE
John G. Prather, Jr., ChairJohn G. McNeill
Marcia Milby RidingsDaniel P. Stratton
MARKETING COMMITTEEEscum L. “Trey” Moore, III, Chair
Ruth H. BaxterCharles E. “Buzz” English, Jr
Carl N. FrazierJohn G. McNeillDustin E. Meek
NOMINATING COMMITTEEMarcia L. Wireman, Chair
Anne Milton McMillinEscum L. “Trey” Moore, III
UNDERWRITING COMMITTEEMarcia Milby Ridings, Chair
Douglass C.E. FarnsleyWilliam E. “Bill” Johnson
Ralph C. “Chip” Pickard, Jr.John G. Prather, Jr.
Christopher L. RhoadsBeverly R. Storm
Marcia L. Wireman
ACTUARYPinnacle Actuarial Resources, Inc.
Bloomington, IL
AUDITORDean Dorton Allen Ford, PLLC
Louisville, KY
INVESTMENT BROKERPNC Investments, LLC
Louisville, KY
REINSURANCE BROKERLockton Re, LPNew York, NY
ADVISORS & CONSULTANTS
RESOURCES MADE IN KENTUCKYPartnered with The Bar Plan, we also offer a range of bonds, including Probate, Court Bonds
(Appeal, Replevin, Injunction, etc.), Notary Bonds and Lost Instrument Bonds. For more information, call our underwriters at (877) 553-6376.
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n Real Estate 26%n Estate, Trust & Probate 22%n Personal Injury, Plaintiff 17%n Collection & Bankruptcy 7%n Workers’ Compensation 7%n Other 7%n Family Law 6%n Personal Injury, Defendant 3%n Corporate & Business Organization 2%n Criminal Law 2%n Labor & Employment Law 1%
n Personal Injury, Plaintiff 24%n Real Estate 22%n Other 10%n Collection & Bankruptcy 10%n Estate, Trust & Probate 9%n Family Law 8%n Workers’ Compensation 6%n Corporate & Business Organization 3%n Criminal Law 3%n Labor & Employment Law* 3%n Personal Injury, Defendant 2%
*Since 2005
24%
22%
10%
10%
6%
3%3% 3% 2%
9%
8%
CLAIMS FREQUENCY BY AREAS OF PRACTICE IN 2015
CLAIMS FREQUENCY BY AREAS OF PRACTICE SINCE 1987
7%
7%
2%2%
22%
7%
26%
3%
17%
6%
1%
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FREQUENCY OF CLAIMS
(NUMBER PER 100 LAWYERS INSURED)
CLAIMS REPORTED
2011 2012 2013 20140.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 3.79
3.363.04
2.28
2015
2.02
2011 2012 2013 2014 20150
50
100
150
200
INCIDENTS CLAIMS TOTAL
152
58
94
148
63
85
131
52
79
122
64 58 56
106
50
PRACTICE OF LAW MADE IN KENTUCKYLawyers Mutual is the only professional liability company in Kentucky governed by a board of
directors comprised solely of Kentucky attorneys, providing a keen understanding of what lawyers in Kentucky require in their professional liability carrier that is unrivaled in our field.
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STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND POLICYHOLDERS’ SURPLUS –
STATUTORY BASIS
December 31, 2015 and 2014
2015 2014
Admitted AssetsCash and invested assets:
Bonds $ 19,539,112 $ 19,023,959Common stocks 1,468,680 1,381,639Cash, cash equivalents and short-term investments 1,077,451 1,374,863
Total cash and invested assets 22,085,243 21,780,461Accrued investment income 193,412 183,755Uncollected premiums 1,290,490 1,226,133Reinsurance balances receivable 198,083 28,521Deferred income tax asset 343,318 172,004Other admitted assets 4,012 11,449
Total admitted assets $ 24,114,558 $ 23,402,323
Liabilities and Policyholders’ SurplusReserves:
Losses $ 4,667,732 $ 6,104,050Loss adjustment expenses 4,269,621 4,938,490Unearned premiums 2,651,834 2,699,070Advance premiums 379,104 380,322
Total reserves 11,968,291 14,121,932
Reinsurance balances payable 1,285,932 407,181Provision for reinsurance – 3,000Accrued expenses and other liabilities 286,487 255,012Federal income taxes payable 378,902 251,491Funds held under reinsurance treaties – 8,471
Total liabilities 13,919,612 15,047,087
Policyholders’ surplus:Paid-in surplus 4,297,685 4,306,205Unassigned surplus 5,897,261 4,049,031
Total policyholders’ surplus 10,194,946 8,355,236Total liabilities and policyholders’ surplus $ 24,114,558 $ 23,402,323
DEAN DORTON ALLEN FORD, PLLC, performed an independent audit of the company’s 2015 financial statements. A complete copy of the audited statements with all
explanatory notes and the Independent Auditors’ Report is available upon request.
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NET INVESTMENT GAIN
(DOLLARS IN THOUSANDS)
STATEMENTS OF INCOME – STATUTORY BASIS
Years ended December 31, 2015 and 2014
2015 2014
Premiums earned $ 4,347,601 $ 4,970,497Losses and loss adjustment expenses incurred (1,699,645) (3,703,510)Other net underwriting expenses incurred:
General expenses (1,129,518) (1,174,033)Net commissions from reinsurers 84,484 84,975
Total other net underwriting expenses incurred (1,045,034) (1,089,058)
Underwriting gain 1,602,922 177,929
Investment gain:Investment income earned 695,016 83,724Net realized capital gains 9,252 –
Net investment gain 704,268 683,724Other income 75,127 75,973
Income before federal income taxes 2,382,317 937,626Federal income tax expense (682,411) (293,301)
Net income $ 1,699,906 $ 644,325
0
100
200
300
400
500
600
700
800
2011 2012 2013 2014
722 695 668 684
2015
704
FINANCIAL STABILITY MADE IN KENTUCKY
Lawyers Mutual Insurance earned a Financial Stability Rating® of “A” EXCEPTIONAL from Demotech Inc.
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POLICYHOLDERS’ SURPLUS
(DOLLARS IN THOUSANDS)
STATEMENTS OF CHANGES IN POLICYHOLDERS’ SURPLUS – STATUTORY BASIS
Years ended December 31, 2015 and 2014 TOTAL PAID‑IN UNASSIGNED POLICYHOLDERS’ SURPLUS SURPLUS SURPLUS
Balance, December 31, 2013 $ 4,313,987 $ 3,104,062 $ 7,418,049Net income for the year ended – 644,325 644,325
December 31, 2014Change in surplus subscriptions (7,782) (2,043) (9,825)Change in net unrealized – 199,364 199,364
capital gains/losses Change in net deferred tax asset – 10,081 10,081Change in non-admitted assets – 65,242 65,242Change in provision for reinsurance – 28,000 28,000
Balance, December 31, 2014 4,306,205 4,049,031 8,355,236
Net income for the year ended – 1,699,906 1,699,906December 31, 2015 Change in surplus subscriptions (8,520) – (8,520)Change in net unrealized capital gains/losses – (83,890) (83,890)Change in net deferred tax asset – 198,731 198,731Change in non-admitted assets – 30,483 30,483Change in provision for reinsurance – 3,000 3,000
Balance, December 31, 2015 $ 4,297,685 $ 5,897,261 $ 10,194,946
2011 2012 2013 2014
6,913 7,042 7,4188,355
2015
10,195
0
2000
4000
6000
8000
10000
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STATEMENTS OF CASH FLOWS – STATUTORY BASIS
Years ended December 31, 2015 and 2014
2015 2014
Cash flows from operating activities:Premiums collected, net of reinsurance $ 5,113,542 $ 4,488,543Net investment income 731,747 720,269Miscellaneous income 75,127 75,973Losses and loss adjustment expenses, (3,974,394) (2,802,291)
net of reinsuranceUnderwriting expenses (1,022,541) (1,093,798)Federal income taxes paid (555,000) (80,000)
Net cash provided by operations 368,481 1,308,696
Cash flows from investment activities:Proceeds from investments sold, matured or repaid:Bonds 1,784,918 1,600,000Other invested assets 17,025 –
Total investment proceeds 1,801,943 1,600,000
Cost of investments acquired: Bonds (2,339,454) (2,516,603)Common stocks (159,370) (194,204)
Total investments acquired (2,498,824) (2,710,807)
Net cash used in investment activities (696,881) (1,110,807)
Cash flows from financing and miscellaneous activities:Change in surplus subscriptions (8,520) (9,825)Other cash received 39,508 71,351
Net cash provided by financing activities 30,988 61,526Net (decrease) increase in cash, cash equivalents (297,412) 259,415
and short-term investmentsCash, cash equivalents and 1,374,863 1,115,448
short-term investments, beginning of yearCash, cash equivalents and $ 1,077,451 $ 1,374,863
short-term investments, end of year
GROSS PREMIUMS WRITTEN(DOLLARS IN THOUSANDS)
6,6817,187 7,301 7,443
2011 2012 2013 2014
7,368
20150
1000
2000
3000
4000
5000
6000
7000
8000
WATERFRONT PLAZA • 323 WEST MAIN STREET, SUITE 600 • LOUISVILLE, KY 40202