2004.05.13 - transcript of special meeting

TRANSCRIPT

SPECIAL MEETING OF GOVERNING COMMITTEE

(continued) A meeting of the Governing Committee was held at the offices of Commonwealth Automobile

Reinsurers, 100 Summer Street, Boston, Massachusetts on

THURSDAY, MAY 13, 2004 AT 10:00 A.M.

Members present -

Mr. Arthur J. Remillard, Jr. – Chairman The Commerce Insurance Company

Mr. Charles I. Boynton, III Boynton Insurance Agency, Inc. Mr. David F. Brussard Safety Insurance Company Mr. Joseph F. Cofield* Metropolitan P & C Insurance Company Mr. John F. Donohue Arbella Mutual Insurance Company Mr. Sumner D. Gilman Economy Insurance Agency, Inc. Ms. Paula W. Gold Plymouth Rock Assurance Corporation Mr. Dennis F. Murphy, Jr. D. Francis Murphy Insurance Agency, Inc. Mr. Steven W. Myers Norfolk & Dedham Group Ms. Nanci S. Peters George Peters Insurance Agency, Inc. Ms. Susan K. Scott The Premier Insurance Company of Mass. Mr. Mark R. Silva Benson, Young & Downs Ins. Agency, Inc. Mr. James J. Tarpey Tarpey Insurance Group, Inc.

Substituting for Mr. Robert W. Harvey* Commonwealth Automobile Reinsurers present - Mr. Ralph A. Iannaco President Mr. Michael J. Trovato Executive Vice President and Treasurer Mr. Joseph J. Maher, Jr. Vice President, General Counsel & Secretary

CAR

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Transcript - 2 - May 13, 2004 Special Meeting of Governing Committee (continued) Commonwealth Automobile Reinsurers present - (continued) Mr. Robert Alessi Director of Human Resources Ms. Susan Basilesco Director of Financial Services Mr. Robert Bell Sr. Claims Manager Ms. Wendy Browne Director of Operations Services Mr. Timothy Costain Market Relations Manager Mr. Steven Gautieri Financial Services Manager Ms. Valerie Gedziun Vice President of Claims Ms. Natalie Hubley Sr. Manager of Actuarial & Statistical Services Mr. Neil Joseph Sr. Director of Information Systems Ms. Janet Kopec Sr. Audit Specialist Mr. Peter McCabe Client Server Application Development Mgr. Mr. John Metcalfe Director of Administration & Market Relations Ms. Joyce Quinn Executive Assistant to President & Exec. V.P. Mr. Paul Ryan Vice President & Chief Information Officer Ms. Kim Tobin Administrative Assistant & Docket Clerk Ms. Pamela Wallace Director of Data Quality Services Ms. Erin Walsh Program Analyst II Also present - Mr. Mark Winiker A-Affordable Insurance Agency, Inc. Mr. Harry Smith Mr. Kenneth Nails Amica Insurance Company Mr. Thomas Carpenter Arbella Mutual Insurance Company Mr. Peter Jones Mr. John Kittel Mr. Paul Moran American Insurance Association Ms. Stacy Gotham Attorney General’s Office Donald Hillman, Esq. Committee for Auto Insurance Reform Mr. Steven D’Amato Center for Insurance Research Ms. Katherine Barry CGI Information & Management Consultants Mr. John Olson Columbia Insurance Agency Mr. David Cochrane The Commerce Insurance Company Mr. Warren Erlich Mr. Regan Remillard Mr. Stephen Indijaru Electric Insurance Company Mr. Gerard McCarthy Mr. Frank Wedge

Transcript - 3 - May 13, 2004 Special Meeting of Governing Committee (continued) Also present - (continued) Mr. Andrew Carpentier Encompass Insurance Edward J. Donahue, Esq. Ferriter, Scobbo, & Rodophele PC Ms. Nicki Colossi-Trilling Fireman’s Fund Insurance Company Mr. Charles McPherson Mr. Greg Ducette G.P. Ducette Insurance Mr. James Lee H. Levenbaum Insurance Agency William Cahill, Esq. The Hanover Insurance Company Mr. Vincent Nieroda Mr. James Herrick Mr. Donald Baldini Liberty Mutual Group Mr. Daniel Foley Massachusetts Association of Ins. Agents Francis A. Mancini, Esq. Mr. Kevin Beagan Massachusetts Division of Insurance Ms. Norma Brettell Ms. Nancy Sillway Mary Ellen Thompson, Esq. Mr. James Harrington Massachusetts Insurance Federation Daniel R. Judson, Esq. Morrison, Mahoney, & Miller Ms. Tami Stanton NAMIC Mr. Danny Kobar National Grange Mutual Insurance Company Ms. Leah Walsh Mr. Robert Cordner OneBeacon Insurance Mr. Frank O’Brien Property & Casualty Insurers Association of America Mr. Charles Alley Pilgrim Insurance Company Mr. Geoffrey Arnold Plymouth Rock Assurance Corporation Mr. Michael Shea Mr. Mark Sweeney Kenneth Willis, Esq. Mr. Richard Welch The Premier Insurance Company Of Mass.

Transcript - 4 - May 13, 2004 Special Meeting of Governing Committee (continued) Also present - (continued) Mr. James Moran Quincy Mutual Insurance Company Peter Robertson, Esq. Office of Peter Robertson Mr. Edward Patrick Safety Insurance Company Mr. Wayne Perkins Sentry Insurance Company Mr. Jeffrey O’Neill The Standard Ms. Katharine Barnes Tillinghast-Towers Perrin Mr. Daniel O’Brien (affiliation not listed) L. Trehis

PROCEEDINGS

Mr. Remillard: Welcome to this continued Governing Committee Meeting, continued from last Thursday, and I would say in advance that I would expect we will probably be continuing this meeting until next Thursday again at 10:00 o’clock. It’s just a matter of housekeeping, since it’s a continued meeting we still have Mr. Joe Colon here, substituting for Bob Harvey of Metropolitan. He didn't need a letter because it's a continued meeting.

Unidentified: We can't hear you. Mr. Remillard: Can’t hear me, somebody say can't hear me? Committee: Yes. Mr. Remillard: I say Joe Colon . . . Mr. Iannaco: Joe Cofield. Mr. Remillard: I say Joe Cofield is here substituting for Bob Harvey, representing Metropolitan. We

didn’t need, did not need another letter because it's a continued meeting. Having said that, we have in front of us an agenda for this meeting. I’ll call upon our President to give us a start.

GC 04.02 President’s Report Mr. Iannaco: Thank you, Mr. Chairman. As a result of last week's meeting, I had a meeting in my

office and developed a working plan and a working group that we think will enable us

Transcript - 5 - May 13, 2004 Special Meeting of Governing Committee (continued)

to complete a large portion of the directive from the Commissioner of Insurance. First thing we did was to look at a series of technical questions that we had relative to implementation of the proposal from the Commissioner dealing with the 2004 and 2005 pieces of their letter dealing with the ERP distributions and deficit share. What we did was list a series of detailed questions that we forwarded to the Division of Insurance and the Office of the Attorney General on last Friday evening at about 4:00 p.m., and arranged to have a meeting with their staff representatives on Monday morning. On Monday at approximately 10:00 a.m., we met with Carol Blank of the State Rating Bureau, Mary Ellen Thomson, who is here today from the Division, and Stacy Gotham of the Attorney General's office. They met with our technical staff and we reviewed the questions that we had with the attempts to clearly identify the intent of the Commissioner's letter. As a result of that meeting and a future, and additional phone calls, we were able to ascertain and develop an outline that we sent out late last night and it would be our intent to discuss that outline this morning. We also pulled out the applicable rules to accomplish that task and began a rewrite and draft of the rule language we felt would be needed to accomplish the task at hand. Those rules and a summary document talking about those rules were also electronically distributed last evening. Overall, we sent out a total of seven draft rule proposals and this comprehensive outline that we have. When we go through the outline this morning you will see in bolded areas a total of at least six questions that have been brought to the table that have to be resolved today. And, upon reviewing the outline and getting the final decisions made relative to these concerns, it would be our intent to take those answers and incorporate them into the draft rules that we've sent out and begin to, and continue to develop those rules for your review. Our working plan calls for, after the conclusion of today's meeting, to come back next Thursday again to iron out the remaining details contained in our outline and then to send out a finalized draft of the rules for your perusal and to put before the Governing Committee for the last Thursday in May, seeking approval of those rule amendments. If we get those rule amendments complete on that date, that would allow us time to submit those rule proposals to the Commissioner and that would comply with the 30-day edict contained in her letter to us. We believe that if we accomplish this task in the next few weeks, we have been able to complete the work necessary for implementation of the Commissioner's directive as I’ve said relative to 2004 and 2005. With that, if anyone has any questions I'd be happy to answer them. If not, Michael Trovato will take us through that outline and explain to you the technical issues at hand and bring forth direction to those matters that have to be resolved.

Mr. Remillard: Questions of our President at this particular time? Hearing none, I guess I’d refer you

to what's in your packages. In big bold letters is CAR Reform Proposal Outline, I think that's what Mike is going to be working on. Is that right Michael?

GC 04.14 Rules of Operation Mr. Trovato: Yes. Okay, I guess as Buddy said, the meeting and the analysis we have here is to

focus on the priority issues and that is ’04, ’05, particularly in regards to ERPs. We really had no discussion whatsoever about subsequent events and Assigned Risk Plans and schedules along those lines and so our focus was on that. And then, I think up front we should make the point that the initial question was, what are we talking about


for ‘04? What is the date in which we are going to make a change and that was July 1. The Division and State Rating Bureau were concerned about allowing carriers adequate time to respond to seek change of this kind, but were very firm that that would be the date for policies effective July 1 and forward for which we would consider these changes. So, along those lines, what we did first was try to focus on the things chronologically that were the most important and that would be to try and get the companies the best data we can get them so that they could make appropriate decisions to get through ‘04 under this sort of a scenario. So, the first thing we dealt with was the so-called High Loss Ratio ERPs and that is in the letter. It's not a number of ERPs but a threshold of loss ratio and the Commissioner's letter indicates the 125%. That's a three-year average loss, a cumulative loss ratio of 125%. We came out with one more caveat and that's that small bullet there in the write-up and that is that the premium has to be greater than zero each year. That is we wanted, we thought it would be more formidable data to make sure that we don't have ERPs who weren't High Loss Ratio ERPs for three years, or maybe even eliminate some of the smaller ones by requiring that they were in business for three years. We thought that the only down side of that, that some, was you could have a High Loss Ratio ERP that had been in business for two years but eventually that would work itself out and maybe not be that big of an issue. But, in addition they were very adamant that we should use the calendar accident year sort of a framework for capturing the data. With that, we put our plans together to say how could we get this information to the industry as soon as possible so that they can begin to look at it and we came up with the next sequence of events. By May 21st we thought we could get out, we will get out, three year loss ratios valued as of December of ‘03 and that's for all of the Servicing Carrier ERPs, we'll give them to you all, your whole book of ERPs so you can see the array of exposures and loss ratios, knowing the benchmark is 125 as of the fixed date of September. And then it will follow-up with additional materials, that is by June 8th, a few weeks later, we'll update that data from December to March evaluations so you get another better look at those ERPs and maturation. With that, the June 8th date, we're going to put together a package of information which we call demographics, but really it will be a package of information with credits, exclusions, exposures, on all your ERPs again to help you with your underwriting and session strategies. If there are any additional requests beyond that, we tried to psyche out what we thought the companies would need to help them and a lot of this stuff is readily available. So, we put a package together. If there are some companies that have needs beyond that, we'll make provisions for you to get into contact with us and we'll work on those requests on an ad hoc basis if you have some unique needs that we haven't covered. Subsequent to that, we'll continue to update the data for the June quarter and then finally for the September quarter for those High Loss Ratio ERPs. I think one thing we should point out there is that there may be some concern about the movement of those loss ratios over time. We studied the data on a quarterly basis and, for the most part, if we end up with this group being 110 or so ERPs, the vast majority of them are going to be hardcore, High Loss Ratio ERPs, so 80 or 90 of them aren't going to change very much over that period of time. So, these early warning lists should be good indicators for you to use in your own books of business, as to what are the ERPs that we're talking about, which of the ERPs we’re talking about. Okay, that’s sort of the . . . Joe?

Mr. Cofield: Can you also publish a list of how many exposures there are in total just so we know

how many people in the market are going to move?

Transcript - 7 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Trovato: Yes. We're going to include industry data where appropriate. That's the summation

on the high rate loss ratio and data issues. Any other questions? Mr. Remillard: Mike, Brussard? Mr. Brussard: Explain the 6th bullet down please? Mr. Iannaco: June 8, 2004. Mr. Trovato: I'm sorry, I missed that one. If you noticed in the Commissioner’s letter, there was a

line or two about the Commissioner will make ERP data available. We weren't sure what that meant. We didn't know if that was regard to High Loss Ratio ERPs or something else. Very clearly the message is, she wants us to publish for her all ERP loss ratios and volumes and that we will have on June 8th.

Mr. Brussard: Thank you. Mr. Trovato: Anyway, I guess we're valued as of March? Mr. Remillard: Comments or questions from Mike at this time? Hearing none, Michael? Mr. Trovato: Going to Roman numeral II is the deficit sharing for policy year ‘04 first. And that's

very significant. That represents a change over what was in the letter. In our meetings, we tried to discern how they saw this splitting up in ‘04 and going forward. How we could, how we were going to perform the cession ratios for companies going forward. And in the course of that discussion the, both the Division and the AG determined that a, that there, that they would change the method that was in the letter and that is that they would come up with a formula that didn't create a separate pool for these High Loss Ratio ERPs, but instead took out of companies private passenger exposure counts, those High Loss Ratio ERPs exposures in continuing to perform the utilization formula as we use it now. So essentially with these high loss ratio exposures become our sort of free cedes or exclusions. With that, companies were allowed to continue to retain that high loss ratio business voluntarily and get the credits associated with it, much like they do today. So the big difference over what we do today versus this change is those ceded High Loss Ratio ERP exposures will be taken out of the formula and counted as free cede so business coming through there would not be counted towards the company's participation ratio. Any questions on the ‘04 deficit changes? I'm sorry but those are for policy effective dates July 1st and forward.

Mr. Remillard: Through December 31st? Mr. Trovato: Through December 31st. In some or our earlier analysis, we were anticipating a count

of about somewhere in the area of 180,000 exposures associated with this high loss ratio business. Again, we've been modeling with 2002 data. We haven't got up with 2003, but figuring somewhere in that ballpark will be 180,000 and then you're going to have to cut back some other slice because we're talking July 1 and forward. So what this change does is, it's really a less significant impact than the original proposal with regard to a separate pool and divvying up this high loss ratio business at least for ’04. Any questions on the deficit sharing? Okay, then we went onto the deficit


sharing going forward and that's the ERP pool. Now it's the total ERP pool going forward throughout the transition. That's ‘05 through ‘07 and that's where all the ERP business will be. They are, in the letter and what they reiterated to us was that they see that pool being sliced up based on company’s market share. They went on to say that, they think that ought to be 2004 total market share. We asked about that, asked a few questions, how they considered that, why they didn't go to a voluntary market share. It seemed a little bit of a double counting when you're assigning these High Loss Ratio ERP exposures and then you're counting them in the total market share to divide up in the future. So we asked a few questions. They brought up some reasons why they thought voluntary market share was problematic as well. So what they did was ask us to forward on to the Governing Committee, that issue is something for the Governing Committee to consider to see if they would either agree with the total market share concept or come up with a reasonable alternative for an equitable distribution of those ERPs for ‘05 and forward. And so that's one of the items we brought back for this committee to consider.

Mr. Donohue: Mike, when you're talking about using ‘04 market share, is that just for ‘05 deficit and

then you'll update and use ‘05 market share for ‘06, or is it ‘04 all the way through the transition?

Mr. Trovato: I think so John. I think what happened I think they originally were talking about a

year lag. Then they considered the idea of freezing it at ‘04 and so it really didn’t come out, I don't think it came up with a definitive answer to that question. And I think they're open to some input there.

Mr. Donohue: Right, because if you freeze it at ‘04 and then you have, say, a new company come in,

or a company change its market share significantly one way or the other in ‘05 then it doesn't seem to work.

Mr. Trovato: Yeah, I think it needs to be analyzed. I think there are some other things, you can start

canceling voluntary agents to reduce your market share and get less of a cut that way, and nobody wants to see that. So I think there are some issues there that this Committee has to consider. And, you know, it's traditionally, we've wrestled with that in a lot of areas where it's total market share, voluntary market share, for all those same market reasons.

Mr. Donohue: Okay. Mr. Trovato: Okay, going on, the two bullets after that when we talked about voluntary

relationships created by former ERPs. The next segment here is that we're sort of going to end up with this, for lack of a better term, dual status type of agent where you have these ERPs who are essentially are going to be offered voluntary contracts for their good business and the remaining business is going to be still ERP business, which is going to be ceded. And so you have a sort of split agent at that point and so we didn't really carry the discussion much beyond that other than we couldn't finish writing up the rules the way we normally would because that needs to be flushed out somewhat. We need, there needs to be some thought, you know, given to how do you treat that ERP, that remaining ERP book. Is it subject to production criteria? All the current rules that don't seem to go towards that if your incentive is to write books of voluntary exposures and take them out of the residual market where you don't want to


penalize the remaining ERP. That's just one example but there are in our experience with going through 13 and 14 last year, we, there are a lot of nuances you've got to deal with when you start to go down this road. But, again, that's another area that they thought we should develop through the Governing Committee.

Mr. Myers: The question has come up as we have taken a look at this. The transition period

seems to refer to 2005 through 2007. What happens with ERPs who are given voluntary appointments during the latter part of this year?

Mr. Trovato: I would, that comes at the end with this. We didn’t, we think the whole issue of

subscription, voluntary contract, they made no changes along those lines for ‘04. I think that's another area for this Governing Committee to examine and to say given this is happening and the splits that are happening July 1; do the current rules support what's going on? And, they made, we had no meaningful discussions along that line. Again, under the last point, in there, that’s the Governing Committee to consider, which is the only '04 issue I think that we really have on our plate remaining.

Mr. Remillard: You know, let me just interrupt you here for a minute, Michael. Mr. Trovato: Sure. Mr. Remillard: Let me ask you a question. Are you asking this Committee to make decisions on these

bullet points today? Mr. Iannaco: No. Mr. Trovato: What I'm telling you is that we got answers on some of our questions and on the bullet

points that, that where there are no answers, they asked us to forward those to the Governing Committee. I mean, I think as we saw . . .

Mr. Remillard: So what I'm getting is, does staff expect us in order to comply with the time schedule

that Buddy discussed to render decision on these points today? Mr. Trovato: No. Mr. Iannaco: No, next week. Mr. Remillard: Thank you. We want to make sure that we weren’t trying to decide anything today. Mr. Iannaco: This just got out at 5:00 last night. Mr. Remillard: Oh, okay, thank you. Mr. Iannaco: I’m sorry; I apologize if I didn't make that clear. Mr. Remillard: Okay, okay. Mr. Trovato: Yeah, as Buddy indicated, we thought the process, if we're going to meet this June 1

filing date that we could take you through all this today, come back next Thursday with comments, questions, whatever. And, if there's any additional work we can do,


we'll do it. And, then subsequent to that meeting we can begin drafting rules again. Mr. Remillard: Assuming you get decisions by next Thursday? Mr. Iannaco: Correct, right. Mr. Trovato: Yes. Mr. Remillard: Thank you. Okay. Mr. Trovato: I guess the only other point I'd make here under this Roman numeral is that for policy

years 2005, 2007, voluntary agent ceded business will continue to be shared based on Rule 11 and they'd be ceded through the utilization formula like it is now, until the time that it's eligible to be placed in the Assigned Risk Plan. I should tell you that the original letter talked about a sort of schedule that said that new business with voluntary agents would go in ‘06 and renewal business with voluntary agents would go in ‘07 and all the ERP business would go in ‘08. We never got to that kind of discussion because we didn't get into the assigned risk part of this deal so we didn't get very detailed here so, obviously the, during the transition the current system would run for ceded business until it was, however determined, eligible to be moved over to the Assigned Risk Plan. Any questions on the deficit sharing Roman numeral 3?

Mr. Remillard: Just to the last bullet point. It talks about participation credits for the transition period

determined using territory classification matrix approach under the direction of the Actuarial Committee and looks like the Division of Insurance. Are we going to have any work to do for example, where we have tentatively scheduled a meeting for the Tuesday in June? Are we going to have any work to do at that particular point?

Mr. Trovato: Yeah, I asked them about that. We asked them about that. They were very specific.

They expect that we would continue. As many of you know, last year the Actuarial Committee did work with this so-called matrix system and that was work that we were given to work with AIB on, it includes some subsidy work, earlier this year and we've done that. We've worked from January to most recently, getting a final data from them and we're working through all the models and data that we need to in anticipation for this June Actuarial Committee because that's a charge we were last given at the last Actuarial Committee. So we asked them, given their reference in the letter about supervision or stronger words, by the Division Insurance and with regard to the credit issue, we asked them how they wanted us to proceed. They said we should proceed just like we planned. Have the Actuarial Committee pursue the matrix system of evaluating, of determining credits and they would deal with the outcome of that and monitor that. And so they saw us doing that out into the future throughout the transition period. I don't know as you transition into this, what the credit process looks like in the years subsequent to ‘05 and maybe ‘06 you'd have to do it, but, I don't know if you need it after but given this scenario, but they saw us doing it throughout the transition period.

Mr. Remillard: In listening to that, is it your thought that the Actuarial Committee scheduled in June

should take place in June or at a later date? Mr. Trovato: I think June is the appropriate time frame . . .

Transcript - 11 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Remillard: Thank you. Mr. Trovato: so that we can deal with, and we're still dealing some raw data here and if we're going

to go forward this matrix, which is a new system or any other alternatives, we need to start the deal with that.

Mr. Remillard: Thank you. Mr. Trovato: Sorry, I missed that one. The next Roman numeral is 4. That's the Designated

Servicing Carriers. The idea was to pull out these High Loss Ratio ERPs and spread them to the larger carriers and that she defines as the 7% market share companies. And, again these would be the criteria that was used at the 125% valued at September ‘04 and the market share companies would be 7% as of the ‘03 calendar year or policy year. And those companies were: Commerce, Safety, Arbella, Premier, Liberty and Metropolitan that would meet the 7% threshold. We asked them if other companies wanted to participate voluntarily, that was something that they were acceptable to and they said yes. So it's mandatory for the 7% market share companies as of ‘03 and if somebody else wants to participate then that should be considered as well. Again, I, we tried to say if that's going to happen how can we help facilitate the process and let companies know which ERPs they're going to get. The exercise calls for, say there's just the 6-7% companies, the exercise calls for equalizing those High Loss Ratio ERPs by using market share loss ratio exposures and market disruption as well. We've been through that exercise several times for commercial as well as modeling as private passenger so it's nothing new to us and you can do it. We don't have any trouble with that unless the Governing Committee wants to throw some other criteria in that. But their position was; do it equitably. And so we came up with that criteria. Our next thought was what we have to do is to, we're concerned if it goes forward that way that the September final list of those ERPs probably wouldn't be known until December 1st and it might be problematic for companies to get out there and contract with these ERPs. We proposed that we would take a couple of shots at it. We'd give you some earlier data and say here's what it looks like. And again, 90% of these things aren't going to change and we would assign them and give them to you, saying here are the ERPs you're likely to get. And we would also notify the ERP that they are High Loss Ratio ERP and they are likely to go to this company. We would just reserve that last month to deal with the rest and to make sure we could make it equitable with the remainder. And the remaining is going to be those ERPs that are really border to that 125%, however few that might be, and we would deal with them as a second step. So that's how we proposed to at least make the timeframe more palatable.

Mr. Murphy: What's the estimated number of ERPs that would fall in this? Do you have an

estimate? Mr. Trovato: For this high loss ratio? Mr. Murphy: Yes. Mr. Trovato: I would guess it’s about 110, 105, 110. Mr. Donohue: And Mike, I assume that when this business starts to come onto the new carrier it will

come on as renewal??

Transcript - 12 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Trovato: Yes. Mr. Donohue: And then new business, so it will transition over a year. Mr. Trovato: Yes. Mr. Remillard: Joe? Mr. Cofield: Mike when this says an initial distribution of ERPs, but that business has got to start

rolling on 1/1 right? Mr. Trovato: Right. Mr. Remillard: This is all based on earned premium? Mr. Trovato: It’s a . . . Mr. Remillard: Submission of calculation of earned premium? Mr. Trovato: Yes, we'll get there. We have a few gymnastics to do ourselves and we got to start off

with written premium. We have earned premiums systems here but they're not at the agency level, but we'll develop them, so we'll get there.

Mr. Donohue: Mike, if a, so if the carrier was to cause a over 125 to go below 125 at some point,

then they would in effect would they be considered undersubscribed so that they might get assigned a new one, or how does that work?

Mr. Trovato: Yeah, I think those are things we have to think through. They could see this as a

moving list. I mean, I think as you get to September, it's final. And I think they take on somewhat less importance as you transition. I mean the first importance is with the ‘04 participation formula. After you get out, after you pass that, you know, it's going to be a frequency adjusted expense allowance. So it's possible that one could come off and one could come on and that's what they want us to do. I think with the ramifications there may be more that we have planned and stuff like that that's applicable to those groups more than anything else. You're talking about likely ERPs that are at the lower end of this scale because again, hard-core, 180-200% loss ratios don't move much. So I think this bonus plan, this rehab plan probably is where the biggest effect is. But that's what they want us to do, move them off and on.

Mr. Remillard: Joe? Mr. Cofield: You also mentioned that the renewal business would come, I guess on its anniversary

date, but if a person had a, if an insured had a claim prior to their renewal date, the old Servicing Carrier would handle it?

Mr. Trovato: Yeah, but with the new policy effective dates here so. Mr. Remillard: Okay, Michael. Mr. Trovato: Okay. Let’s see, so we’re onto servicing fees. Okay, servicing fees is another area

that they have . . .

Transcript - 13 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Cofield: Sorry. Could I ask you one other question? This says here other carriers may elect to

do this on a voluntary basis, outside of the top six, those carriers who don't elect to do it, when do they have to notify the appropriate party?

Mr. Trovato: No, it's the other way around. It's mandatory for the 7% market shares to do it and if, oh, you're saying if they want to volunteer, when should do they do it?

Mr. Cofield: Or if they don't want to volunteer. Mr. Trovato: Well if they don't want to, they don't have to do anything. It's, just we're accepting

volunteers. And, I realize, I mean we’ve been working with this for a while now, and I realize you guys just got this last night. So, if there's anything at all that you think you need to ask, don't hesitate. Okay. The servicing fees, they have the concept. The concept is, take the current private passenger expense allowance formula which is a frequency adjust, it uses the rates to start off with and it's frequency adjusted with caps at both ends but it's frequently adjust the expense allowance per carrier, if they split their book, and we added in that we think that should be a separate pool for the high loss ratio stuff so that it isn't watered down or changed in any way by a carrier’s current book and they accepted that. So we would make that operational piece. But beyond that they're talking about a bonus program of some sort to get the loss ratio down and there wasn't a lot of discussion there. They're sort of leaving that to us as well. So the expense allowance piece to be finalized and the potential bonus program for improving the three-year loss ratio is what the goal is and they gave that charge to the Governing Committee as well. Okay, any questions there? On 6, the idea is to develop a financial rehabilitation plan for ‘05 through ‘07 and as it’s spelled out in the letter, there are no details there. That was given as a charge to the Governing Committee as well as we've indicated on the write-up. What we were able to work out though, there was a little bit of confusion on the letter. It almost seemed as though the, on April 15th of ‘05, the current Servicing Carrier would work out the plan and then the ERP would potentially move and so they had a reason for doing it that way. We solved their problem so by letting the ERPs know who the High Loss Ratio ERP is and so they're willing to move it to the assigned carrier who gets that High Loss Ratio ERP. Once you get that high loss ratio book you know what it is, whether it was with you before or afterwards. Then you work out that rehab plan and you got from January 1 until April 15th to do that.

Mr. Gilman: Michael, could you define what a financial rehabilitation plan is? Mr. Trovato: No, no, I, we didn't talk about that. They talked about they've had some discussions

with the Agents Association. They talked about there's certain parameters that could be included but the idea was to get the loss ratio down for High Loss Ratio ERPs. They think there's too many of them. We just, operationally, would start off with, it’d better preclude our plan and rules, including 13 and 14 without fraud, with all the other pieces. And, it's supposed to be signed off by the ERP and the company; it’s a joint effort to be filed with the Commissioner. But we really didn't get into that. And, I don’t think, I should say that when I say we didn't get into any of the Assigned Risk Plan, we told them that we can't go further without asking some more questions about how they want to proceed here. But in this area, like the rehab plan, they haven't developed that. They're leaving that for us.

Mr. Donohue: Mike, I guess I have two suggestions here. I don't know whether you take it back to


them or the Governing Committee decides on it. You can see a scenario where the company and a particular ERP can't agree on a rehab plan. So I think there needs to be an option that if they can't reach agreement, each party is free to file their own rehab plan with the Commissioner so that it doesn't get held up if they can't reach agreement. And the second piece I think we need to include that failure of the ERP to follow or live up to the rehab plans, should be grounds for termination under the normal process that we have here, because, you can see scenarios where this is not going to be a friendly relationship in some cases.

Mr. Trovato: We talked a little bit about it internally and certainly those are meaningful comments.

In the first instance about the disagreement on our rehab plan, once those parameters are established we probably have a role we can play there, just like we do in sort of some of the troubled relationships with ERPs and carriers where we try to mediate some things first. So that may be an area that we can play a role in.

Mr. Donohue: Yeah, I mean it certainly would make sense to try to do mediation but you need to

have this kind of final place if nothing else works. Mr. Trovato: Sure. Mr. Donohue: You've got to be able to do your own rehab plan and then the Commissioner could

pick between the two or craft her own. And then there's an option for termination if they just refuse to live with it.

Ms. Gold: Just to follow up on that. You may want to consider if it's a failure to live up to a

rehab plan maybe the process in terms of losing your ERP status should move to the Commissioner as opposed to going through the normal CAR, just a question.

Mr. Donohue: Either party has the right to appeal the Commissioner already under the normal

process. Ms. Gold: Right, but I was saying maybe instead to skip the Market Review Committee. I mean

you already have an agreed upon plan. Just a question of whether or not, you probably don’t want to do that.

Mr. Trovato: I think where John was going was to maybe the first foundation of strength is the rules

and if it's a violation of the rules it's cause for termination. Ms. Gold: Well, I was just thinking in following up that if there's a specified rehab plan which

may have more than the rules in it and because of, either this is a targeted group and you want to have teeth in having to live up to the rehab plan, it may be that in discussions with the department you might want to ask them whether or not they want violations of the rehab plan to go to the department directly.

Mr. Trovato: Sure. Mr. Gilman: May I speak? Mr. Remillard: Sumner?

Transcript - 15 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Gilman: I'm not going to debate whether Ms. Gold or Mr. Donohue's comments are positive or

negative. I don't necessarily agree nor do I necessarily disagree but for us to contemplate how an ERP should be penalized relative to a financial rehabilitation plan when we don't know what a financial rehabilitation plan is, seems rather ludicrous to me at this particular instant in time.

Mr. Remillard: Could there be a better name than financial rehabilitation? What we’re talking about

here is cutting down the loss ratio. That's what we're talking about. Financial rehabilitation sounds like some respectable thing, you know

Mr. Murphy: How about quality improvement plan? Mr. Trovato: That's a charge they gave to the Governing Committee so you can call it anything you

want. Mr. Remillard: I know what the ERPs are going to call it. Mr. Trovato: Seven is really an ‘04 issue and that is trying to figure out, you know, the whole

subscription methodology, current and ‘04 and through the transition period as to how it would operate with these changes. And I don't know that we can decide that all or have that all until we decide some of the other things like how we slice up the ERPs for ‘05 and forward. But that's another area that they, we brought to the table that they really hadn’t addressed.

Mr. Remillard: That concludes your summary? Mr. Trovato: That’s all we have, yes. Mr. Donohue: Mr. Chairman, I'd like to make one other comment. I'd like to strongly commend the

CAR staff for getting this much done in this short time and doing it very, very well, so. I know you guys must have spent a lot of long hours completing that.

Mr. Trovato: We did. We have great people in this place. Mr. Remillard: Mr. Fisher? Mr. Fisher: Yes. It's obvious that the Industry and Insurance Commissioner, the Governor, the

Attorney General, are all moving towards an assigned risk program. And if you remember, and I remember, back in the assigned risk days we had to go down to Batterymarch Street and wait in line to get assigned a company with a five-part application. You know, those were tough days to service the motoring public. But they were also good days, because every licensed agent/broker had access to the residual market. But, we don't have that today. We don't have an open residual market as other states do, as the Fair Plan does. And that's something that this Committee should address and certainly you can't fight all the bad rules of the past by CAR and they weren't bad restrictive rules. You can't move your office. You can't expand. You can't have new licensed people get into the residual market unless you're from Lowell. That's crazy for the residual market. So if you're going to put all these new changes which will benefit and more equitably distribute the loss ratios, which is fine, which is good, you've got to do something to the ERP, and just say, we're going


to kick you over to another company. We’re going to disrupt your business again. We're going to restrict your market again to you. You've got to get rid of some of this market need baloney and let free enterprise and let a residual market be a residual market and that's what you're supposed to do. And so you don't have to do it overnight. But I think in the year, this year, 2004, if you're going to bring this forward to the Insurance Division and the Attorney General, we will write again as we did before and the wake-up call has gone out to you that these restrictions for residual market cannot exist. The motoring public has got to have access to motor vehicle insurance because it's mandatory. And with the voluntary agents and ERP there won't be a difference. They'll all have access eventually but you shouldn't wait, because if it's going to improve then, you should improve it now. Improve it by the end of the year and get rid of these restrictive covenants that you have, that you have accumulated during the years without moratoriums I might ask. And consider that because when we go to all the ERPs out there and tell them you're going to get, you’re going to get herded again like cattle and you're going to be thrown into other places, you've got to give them some incentive. However we're going to take off some of these restrictive covenants that you were saddled with these last four, five or six years. And so I ask the Committee, and incidentally, I think you ought to get some ERPs on your Committee so they'll understand and they'll give you some insight what the real world is out there. And you ought to get some minority interests on your Committee too, who are in the high-risk district because CAR can't be run like a country club. It has to be run like a public quasi business. And that's my recommendation to the Committee. Thank you.

Mr. Remillard: Anybody have anything they’d like to say at this particular time? Someone from the

audience wishes to speak? Mr. Lee: Yes. Jim Lee from Levenbaum Insurance Agency. I just had a question. Will the

information on May 21st and June 8th be available for my agency as well as other agencies or will it just be for the Servicing Carriers?

Mr. Trovato: Those were for Servicing Carriers. What we were going to, I don’t, when you say

your agency, the only information we were going to send out to the agents was going to be helping them identify which of the high, that they were High Loss Ratio agents, that group. Are you a high loss ratio agent do you think?

Mr. Lee: No, I'm not. But if I want to market myself as a voluntary agent I think this whole

purpose of what this is going forward to be, why would you not allow us to have that information?

Mr. Trovato: That would be up to the Committee. We were putting it out to the whole industry.

Are you talking about your own? Mr. Lee: Well, just my own, I mean I'd like it for other ones too, but . . . Mr. Trovato: You can always have your own. Mr. Lee: Well, again I'd have to order it in case, you know, it takes months to get the reports. Mr. Trovato: No, no, no, from us; we don't take months. You can call us and ask us what


information that we have for you here. Mr. Lee: Will the information all be posted on May 21st. If I called May 22nd I will be able to

get all those reports? Mr. Iannaco: No. Mr. Trovato: As an ongoing practice, if an agent calls us and asks us certain general information

about their agency with their carrier, exposures, loss ratio, we would provide that to you.

Mr. Lee: Yes, I've got those in the past and it does take a while. Why would I not have access

to that, is what I'm asking. Mr. Trovato: You do. What we’re sending out to the carriers is different. We're sending a lot of

different information to the carriers. If you tell us what you want in particular we'll try and honor your request.

Mr. Lee: Okay, I make a request for all that information now. Mr. Trovato: You have to put it in writing. Mr. Lee: Again, it’s a delay the process. If we're trying to have more voluntary agents and

reduce the market why would I not have access to it? Let's make it some exception. Mr. Trovato: I think we're getting confused here. You can send a letter in here tomorrow. You

don't have to wait until May 21st. We'll give you your current information now. All you've said you want to do is to get your sort of profile so you can go look for a voluntary contract and we'll give you your own information tomorrow.

Mr. Lee: Tomorrow? Okay. Thank you. Mr. Iannaco: Someone’s at the back; it’s Steve D’Amato. Mr. Remillard: Steve D’Amato. Mr. D’Amato? Mr. D'Amato: Thank you. I just wanted to, I'm not going to reiterate my concerns about the, you

know, the overall approach here, obviously I'm not in favor of the move to Assigned Risk Plan. But I just want to raise a couple of technical points that I was curious about. The way I read this plan, it looks as if by the elimination of the credits and the cession penalties for ERP business during the years 2005-2007, isn't there going to be huge explosion in the number of risks that are going to be going to the pool during this interim period? And specifically I know that there's talk once you move into an Assigned Risk Plan of having this territory classification matrix approach in terms of credits and cession, sorry, credits and debits. And my question is why isn't that going into place next year? Because if you don't have some kind of credits for writing risks in Dorchester and Roxbury and Roslindale and Hyde Park, obviously, you know, the smart insurers are going to cede all the ERP business because the premiums are not sufficient to write those risks. It seems like you've moving to a system unnecessarily. So frankly, during the interim period where you're going to explode the size of the


pool, and, I don't understand quite why. I mean, do you know, just from a technical matter. You could create incentives to prevent that from happening. Maybe I'm misreading this but it looks as if you're not putting those in place until 2008. So I wanted to raise sort of that issue in order to, you know, the whole point of this was supposedly to eliminate a lot of the gaming going on at CAR, but I can tell you, just looking at this, that the next three years you're going to create a very, very complicated game. There’s going to be, whoever reads this right and the quickest will end up doing very well. So, I don't think you're satisfying your goals of creating a simple system. And lastly, again, I'm not in favor of an Assigned Risk Plan, but I'm not quite sure why you need, you know, this three year transition, if you're going to go to one, if you have faith in it, go with it now, next year or maybe the middle of next year. I don't see the need for this interim period. Again, I'm not in favor of going to that but if you're going to do it, why not avoid all of the market disruption of making the pool, if it gets any larger because you don’t, you've created incentives frankly for people to cede business for the pool. I just want to raise those questions and again, I'd be available to discuss them now or later on.

Mr. Remillard: Thank you. Mr. President, did you have some suggestions? Mr. Iannaco: Well, I did. As we developed our working plan and strategies to try to accomplish the

task at hand, my thoughts were that at the conclusion of today's meeting we would adjourn and when we meet next week we would list those areas that have to be resolved as agenda items and this would allow you all a week's time to review the areas that have to be responded to and we’d put them as an agenda item, we could take them one by one and get them resolved. Upon completion of that chore, we could then draft our rules to comply with that decision. And if we came back, as I said, the following Thursday, I believe we'd be in position, if that all happens, to review the rules and then the vote, as I indicated earlier, to approve them and forward them to the Division Insurance. So that would be my recommendation on a going forward basis.

Mr. Remillard: So you're suggesting we adjourn this meeting. Mr. Iannaco: Today. Mr. Remillard: We will publish a formal agenda for next week's meeting and then we will then have

to vote the usual caveats regarding notices and so forth. Mr. Iannaco: Waive the 20-day. Mr. Remillard: And, at that meeting we can start taking this stuff up? Mr. Iannaco: Yes. Mr. Remillard: Paula? Ms. Gold: Just a question. So we come back next week with the paper we have before us now

and we would concentrate on the areas that have been left to CAR, but we wouldn't have any proposals?

Transcript - 19 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Iannaco: Well, the proposals went out last night. We would have to take the results of the

reviewing of these questions and then we would do another edit and draft an update to the proposals. We’re not ready, those are strictly working documents as we speak today. You would have the proposals for the following week. At the conclusion of next week's meeting we then would finalize the proposals and send them out that day.

Ms. Gold: Well, I guess what I meant is I don't, the part that's in black here. . . Mr. Iannaco: Yes. Ms. Gold: there's nothing in writing on it. Mr. Iannaco: Right. Ms. Gold: And so when we come back next time, we still have this general, the Governing

Committee has accepted to develop the general dimensions of the financial remuneration and we just talk about that? Another approach, I suppose is to have some suggested, it's not rules exactly, but a suggested criteria so it could focus the discussion, that's all I meant. Am I making myself clear?

Mr. Iannaco: Yes. Mr. Trovato: From us? Ms. Gold: Yes, from you. In other words . . . Mr. Iannaco: Yeah, are you asking staff, I mean we . . . Ms: Gold: I’m asking staff. Mr. Iannaco: Okay, that's where we need a little more direction. We tried to get it to the point

where... Ms. Gold: Okay, I'm suggesting that it might be useful to have suggestions on these points from

staff which doesn't mean that any member couldn't come in with a whole other criteria, but it would help us concentrate on it. I think it would help the process.

Mr. Iannaco: Okay. Ms. Gold: It that, I mean, at least I would find that useful. And, I suspect other members of the

Governing Committee would find it useful because that would help to zero in our thinking on what are, then we can react and say, well that doesn't seem like the right criteria. Maybe we should have this, this or that, or that seems like great criteria.

Mr. Iannaco: We can do that. Mr. Remillard: David? Mr. Brussard: The first thing I'd like to do is echo John's comments regarding the excellent work that

has been done by staff in a very short time. We all have busy schedules. We made a


point to be here at 10:00. I would like consideration at least given to have a little air time for these issues, discussion, what staff has heard from government as to which way, what are some of the options that we should consider before we leave here today. I think it would be the better use of everyone's time if we could at least spend, even if it's five minutes on each one of those highlighted areas, that staff to outline what the issues are, what the potential options are, so that we leave here certainly much more informed than the way we arrived.

Mr. Remillard: Susan? Ms. Scott: I was about to propose something right in between what David and Paula have just

suggested, which is it seems to me we do need to have a lot of, we would benefit from airing these issues and discussing them and figuring out consequences and unexpected consequences and so on. So, I would, I was thinking that maybe an efficient way to approach this in such a short period of time would be to have two Subcommittees meet very quickly and divide issues into maybe the deficit, and how do we handle the deficit and credits; that would be issues 2 and 3 on the outline, as one Subcommittee. And a second one on the High Loss Ratio ERPs to cover both maybe the standards issues and then all other issues relating to the High Loss Ratio ERPs. So that we can have, you know, and staff obviously participate in those meetings so that we can fully understand the issues and the consequences of those issues and also it seems to me beneficial to have more of the industry participate and bring input to the process. Now the down side of that is that there is so little time. But I, like David, kind of want to get the issues on the table, and yet it seems to me that in this context it's kind of hard to do that in a focused way because the Committee is so big. So, I was thinking breaking it down a little bit, but this is probably the most important thing that any of us are working on in the next week, so I think dropping other demands on our time and focusing on this is what we ought to do. My proposal would be to set up two Committees quickly and study these issues.

Mr. Remillard: Comments from the Committee? Nobody wants to say anything? We had a lot of

proposals, Susan, did you want to frame that in terms of something, oh I see some hand going up, so John?

Mr. Donohue: Yeah, I guess I would, I had to think about it, but I guess I would probably concur

with Susan. My only kind of suggestion would be we already have Committees established. For example, her idea about defining market share issues and deficit sharing. We've got an Actuarial Committee in existence that has a lot of industry members on it, has worked on these issues before, has a lot of experience, so if we're going to go to that rather than creating new Committees, I would say let's just have them meet and go through that exercise. And then I don't know whether we want to have the Claims Committee be the one that does the High Loss Ratio, ERP people or some other Committee. But I guess I'd say we've got some very good existing Committees with very broad industry representation on them. Rather than reinventing Committees, let's pick one or two that seem appropriate and get it to them. I think, you know, I think we need to probably have the meeting tomorrow or Monday at the latest and the time issue is a big problem. But that would be, I guess I would say that sounds like it might make sense.

Mr. Remillard: David, you had something more to say?

Transcript - 21 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Brussard: I still would like to see some discussion of these issues and if that doesn't win the day,

I feel strongly that the issues that should be sent to the Committees are those issues that are outlined, highlighted in the outline versus a general review of credits. I mean, credits, it’s going to be taken up at the June 16th, June 6th normal meeting as previously discussed. And that is not even highlighted in this outline, so.

Mr. Remillard: Are you happy that it’s not highlighted or complaining? I don’t know where you are. Mr. Brussard: Well, it's not highlighted. Mr. Remillard: Right. Mr. Brussard: And yet I hear the maker of the motion to go to two Committees to start discussing

things like credits in the context of trying to meet the deadline as outlined by the Commissioner. I have no problem if you want to establish Committees to look at the highlighted issues and try to give direction and guidance to the Governing Committee, but to take it beyond that I think it defeats the purpose of setting up Subcommittees and try to flesh out the issues that need to be fleshed out.

Mr. Remillard: Susan? Ms. Scott: I did not intend to go beyond the highlighted. Mr. Brussard: Okay. Ms. Scott: For the purposes of these Committees, I think, but I think everything we do has to be

done with an understanding that there will be more to be done. But I didn't mean to do it beyond the highlighted areas for this purpose.

Mr. Remillard: In the case of number, Roman numeral 1 here, is there work before us? Mr. Trovato: No. Mr. Remillard: Okay, that's what I want to know. So just the, if something is in highlights doesn't

mean that . . . Mr. Iannaco: Where it’s bolded. Mr. Remillard: Okay, okay. Mr. Trovato: There are five pieces. Mr. Remillard: We’re doing five pieces? Mr. Trovato: Yes, it starts with Roman numeral 3, the second bullet, which is the participation

ratios for 5-7 for ERP for the ERP deficit. Mr. Iannaco That first matter that has to be resolved and talked about, then this one. Mr. Remillard: I thought I heard him say something about 5-7. I don't see 5-7.

Transcript - 22 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Trovato: Policy year 5-7. Mr. Remillard: Where, oh that’s the heading. Mr. Trovato: That’s the title. Mr. Iannaco: That’s the second one, right. Next one is Roman Number 5. Have you got that? Mr. Remillard: Yes. Mr. Iannaco: And 6, the last one, yes, right there, and 7 is the last one that is bolded. Those are the

five items. Mr. Trovato: Does he have this one? Mr. Iannaco: Yes, he’s got those. Mr. Remillard: Would the Committee be happy if, have you all got the five utmost points we're

talking about. Roman numeral 3 is entitled Deficit Sharing Policy and there are two bullet points that have been bolded on that particular page 2 of 4. We're talking about those two items. On page 3, Roman number 6 at the bottom on the page.

Mr. Iannaco: That’s number 5. Mr. Remillard: Excuse me, Number 5 at the bottom of that section of Number 5 on page 3 and 4,

Governing Committee is expected to finalize parameters. That's a bullet point at the bottom of the page. There's another bullet point, that's 4 and the last sentence on page 4 is a fifth bullet point. Those are the things that you'd like us to be discussing, David, right? You’d like us to be discussing those five things.

Mr. Brussard: We’re here. Mr. Remillard: And Susan, you'd like to have a Committee set up to take a look at this? Ms. Scott: Yeah, my thought was that, I do not object to having a discussion here to put, to kind

of set us in motion, I think it probably is a good idea. But there are a lot of details to these, and so I think it would be more efficient for us to air the issues here and then get to work in the two Committees, maybe a Committee covering the issues in 5 and 6 and another one in 3 and 7 to continue discussions and fleshing things out in more detail. I'd also like the opportunity to comment on some of the other areas maybe here. Other areas not highlighted that may be problematic if they affect the highlighted issues.

Mr. Remillard: Well, there is not reason that we can't do both of those things. David wants to take

some time to discuss them now. It sounds pretty proper and Susan would like to discuss some things maybe that are not even labeled and noted as bullet points. Have I got that correct, Susan?

Ms. Scott: To the extent they have an impact on the bulleted ones, yes.

Transcript - 23 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Remillard: Well the first bullet point we have is participation in the deficit associated with ERP

business should be based on total exposure-bases market share for calendar year 2004, or a reasonable alternative the results of equitable distribution among carriers. That’s what we have before us, what does anybody want to say about it? David?

Mr. Brussard: I'd like to ask staff what issues were raised in discussions with government, why this

wasn’t resolved? Mr. Trovato: Well, they, I think again they, they came in with the idea that we should use a total

market share and then they wanted something that couldn't be manipulated and so going from a previous year's market share to maybe a frozen market share, total market share is what the discussion was about. We pointed out that it just didn't seem intuitively that you would assign High Loss Ratio ERP exposures to a company and then use that in their total market share to carve up the next pool of ERPs. It seemed almost like double counting. And they realized that and they said but the alternative, the only other alternative they had brought to the table was using a voluntary market share and that also had problems in that if there are one or two carriers who only have High Loss Ratio ERPs when you take them out of them, they end up with a much smaller share than they normally would have. So there's problems on that end too and they pointed to a particular company. That's why they said it was another area where they hadn't done much modeling or I think carrying through and so said they would accept any reasonable alternatives from the Governing Committee.

Mr. Brussard: Thank you. Mr. Iannaco: Susan’s got . . . Mr. Remillard: Susan? Ms. Scott: It seems that the, that the obvious problem with the total market share is the one you

described. What about, what about with the, I guess I don't understand their concern. Are they worried that we'll, that we’ll terminate voluntary agents and thereby manipulate our voluntary market share or shift business into ERPs somehow?

Mr. Trovato: All of the above. Ms. Scott: Yeah, is that what they're concerned with? Mr. Trovato: I think that certainly was a concern. During this transition period they wanted to

minimize any disruption and manipulation. But again they also pointed to a company who had two High Loss Ratio ERPs and were their only ERPs. And, when you take those away their market share for sharing was much less and they thought wasn't fair either, if you went to a voluntary market share formula. So they pointed out, those were two areas they pointed out.

Ms. Scott: What about using the “ought to have” market shares of July 1, 2004. Then, I mean

then there's no ability to miss, to game that. It addresses the company with the only two high loss ratio agents. I realize it's only a six-month lag. It doesn't answer the question on how you measure it going forward. But it does answer it for 2005.

Transcript - 24 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Remillard: That's a certainly reasonable suggestion and probably deserves at least some

Committee's examination. Mr. Trovato: It would be helpful, what we could do is to take suggestions such as that, take total

market share, take voluntary market share and model at least those three scenarios and have that for some time this week or next week, whenever you're going to assign this thing to a Subcommittee, or send it to the Governing, whatever you want us to do with it. But, I think we could work out those kinds of things.

Mr. Remillard: Mr. Brussard? Mr. Brussard: I just want to say thank you Mr. Chairman for hearing the issue. Mr. Remillard: Well, let me say in response to suggestions I've received that I intend to call a meeting

of the Actuarial Committee to consider at least some of these bullet points, if not all of them. It may very well be that we need a meeting of the Claims Committee, particularly with regard to this financial rehabilitation and I forget what the other one was, remuneration for services. So, it is my intent to call the meetings of both of those Committees to take place prior to next Thursday and I would point out that I believe that in both of those Committees, we have broad industry representation. In fact it seems like the western world belongs to each of them. There's really nobody left out that I could think of. I would suggest that that will be done at the conclusion of this meeting. We'll set up dates and those can show up will show up and those that can't won't, but we'll go forward and we should be able to report some results of our cogitations at the meetings that is scheduled, that will be taking place next Thursday. Mr. Brussard?

Mr. Brussard: Can we go to the second highlighted? Mr. Remillard: Sure. That's voluntary relationship created with former ERPs, is that the one you're

talking about? Mr. Brussard: No, I think it's the second bullet under Roman number 3. Mr. Iannaco: Yeah, that’s right. Mr. Remillard: That’s what I was reading I think. Mr. Iannaco: The third one. Mr. Remillard: The fourth. Mr. Iannaco: The fourth, yes, right. Mr. Remillard: Voluntary relationships created with former ERPs during the transition period leave

questions to be answered regarding the disposition of ceded business and its eligibility for placement in the Assigned Risk Plan. Governing Committee is expected to develop rules.

Mr. Brussard: If I might?

Transcript - 25 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Remillard: Of course. Mr. Brussard: Mike, is this an issue as to when an ERP’s business that doesn't find a home through a

new voluntary contract, goes either in the CAR run-off or it's eligible for the Assigned Risk Plan? Is that the issue?

Mr. Trovato: That's one of the major pieces, yes. Mr. Brussard: Okay. Mr. Trovato: There are some related things too. I mean to be fair to them, what they were trying to

do is offer incentives for voluntary contracts, but as you slice lower you get the market place issues of what do you do with the business and what do you do on the voluntary side in the second year after you've given the voluntary contract. Is that a voluntary agent at that point? It's sort of a hybrid, so there are related issues and what are they subject to and how they fit into the subscription process and that kind of stuff.

Mr. Remillard: Susan? Ms. Scott: This one eluded my understanding because the previous bullet seems to conclude that

the ERP ceded business will remain with the assigned carrier and the very next bullet implies that somehow they are not going to stay with the assigned carrier. They might be placed in an Assigned Risk Plan. Is that then, just to clarify, to answer David's question. So some of it may stay with the assigned carrier and maybe new business that no one wants voluntarily would go into the Assigned Risk Plan? Something like that?

Mr. Trovato: Well, if you, in reading the Commissioner's letter she puts forward a schedule of how

she sees assigned risk business being placed in the Assigned Risk Plan over time. It starts off with new business of voluntary agents in ‘06. Renewal business for voluntary agents in ‘07 and then all business in ‘08. So it's a graduation of putting business in the Assigned Risk Plan. In the meantime during that transition you have these hybrid agents in this effort to give voluntary contracts. The idea is to go out and voluntary contract bunches of exposures, not necessarily agents, because you're going to have a bunch of ERPs in that middle area where you might want to voluntary contract the whole book but you can take a segment of the book. So the idea is you've now taken a former ERP with maybe a thousand exposures and you've voluntary contracted with him for 500 of those. So he's a voluntary contract with you for that 500 and his remaining ERP was his original carrier, Safety, for the other 500. And so we're treating him as an ERP for that 500 and a voluntary agent for the other 500. We're just saying there are rules that govern ERPs and voluntary agents and now we have a hybrid and we need to think that through as to what are the effects of all that.

Mr. Remillard: David? Mr. Brussard: And I think the issue to be considered by Subcommittee is what is in the best interests

of those producers and those insureds as it relates to market disruption during the transition before all that business, just like the worst ERPs will be in the assigned risk plan when we get to ‘08.

Transcript - 26 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Remillard: In the example you used you make like there were two different companies, but I don't

think they necessarily have to be . . . Mr. Trovato: They don’t necessarily have to be. Anybody can voluntary. . . Mr. Donohue: You have three or four . . . Mr. Trovato: Yes, that's right, the original carrier, the assigned carrier, or some other company or

companies. Mr. Donohue: The other thing I wanted to point out, going to the question Steve had raised earlier

about does any of this apply in ‘04? In reading this they're talking about all this in the transition period, which they define as starting with 1/1/05. So it would seem to me that the intent, all of this doesn't take place in ‘04 but begins in 1/1/05.

Mr. Trovato: Right, that’s what it seems to us too. Mr. Carpentier: Mr. Chairman? Mr. Iannaco: It’s Andy. Mr. Remillard: Mr. Carpentier? Mr. Carpentier: I think there's an imprecision of thought. We continue to talk about hybrid agents but

once an ERP gets a voluntary contract they are a voluntary agent. We have voluntary agents today that have segments of business that we don't like to write. Today we cede that. It might be that with an ERP who becomes a voluntary agent may have the larger segment of the business that we don't like to write, but I don't think we ought to continue to talk to them as a hybrid agent. I think part of what I sense is that, and I was surprised to see it in this write-up, that there's a concern about subscription. My suggestion is that if the data is going to be released to the industry and, as you laid out in this time table in June, where data on all the ERPs is going to be released, that effective with that, we ought to eliminate subscription methodologies entirely. You're going to look at creating a limited number of Servicing Carriers. That ought to be repository for any agents who have lost voluntary contracts or for any newly arising ERPs. But as of the release of that data then it would, you know then we'd have to have the threat of subscription adjustments off the table because that would provide and set up the companies to voluntary contract with ERPs. If we had to continue to think about this hybrid status and worry about subscription methodologies then you're getting into all of this convoluted thinking of how credit exposures back and forth, and I don't think we should be going down that road.

Mr. Remillard: Further comments or conversation regarding bullet point 2? Moving on the

Governing Committee is expected to finalize the parameters of the expense allowance incentive program. I guess this is a job for the Claims Committee. That basically what they based it on as I understand. What the financial rehabilitation means to me, what do you do to bring the loss ratio down so I think that also belongs to the Claims Committee. David?

Mr. Brussard: Arthur, the parameters for the expense allowance incentive program, I can't speak for


all claims people but I know the claims people we send, that's not their bailiwick, or whatever. So, it’s not typically claims.

Mr. Trovato: It's typically been an Actuarial Committee issue in terms of developing expense

allowance. Mr. Remillard: Sounds to me that Actuarial is going to wind up with just about all of this. Mr. Trovato: It always does. Mr. Remillard: Good comment David. How about financial rehabilitation? What do you say about

that? How does that sound for Claims Committee? Mr. Brussard: That works. Mr. Remillard: Further comments on this page? According to Mr. Carpentier, if I understood him

correctly, we don't need rules for subscription methodology. Was that your point Mr. Carpentier?

Mr. Carpentier: That's right. Mr. Remillard: Thank you. I suggest we give that one to the Actuarial Committee. So what we have

as I understand it, is we are going to assign one of these bullet points back to the Claims Committee, to meet and cogitate the well in advance of next Thursday and assign the other four bullet points to the Actuarial Committee to meet and cogitate well in advance of next Thursday and prepare a report. Is that where we are?

Mr. Iannaco: Sounds like it. Mr. Remillard: Somebody in the back, I can't see who it is? Mr. Iannaco: Peter Robertson. Mr. Remillard: Mr. Robertson? Mr. Robertson: Mr. Chairman, procedural question if you are through with the substantive discussion? Mr. Remillard: Yes. Mr. Robertson: Peter Robertson from the Property and Casualty Insurers. The President indicated his

recommendation that this meeting be adjourned until the next meeting. Given the requirements of Rule 4, the 20-day notice requirement, is it my understanding that when the Governing Committee meet next, in either of the next two sessions that there would be another waiver required on the 20-day notice provision and that that in turn, particularly when there is a final rule to be discussed, that in turn would require a ten vote majority to waive, is that correct?

Mr. Iannaco: That's correct. Mr. Robertson: Thank you.

Transcript - 28 - May 13, 2004 Special Meeting of Governing Committee (continued) Mr. Remillard: Susan? Ms. Scott: I was actually going to raise the same point. I don't know what we gain by

adjourning. I think we should just continue this meeting. It was probably noticed. Mr. Iannaco: My only thoughts were that if we did in fact adjourn we'd be able to put together an

agenda, which now will be reports of Committees. It was just a matter of, I thought making it easier. We don't necessarily have to adjourn. We are going to have some Committees meet in the next few days and they'll be filing their reports or bringing their reports to this meeting next week so we can, whatever the Committee's pleasure is. Continue or adjourn and come back in.

Ms. Scott: I would just as soon continue. I think we have adequate notice of what the issues are

and we have so little time that I think continuing makes more sense. Mr. Remillard: I saw one nodding head besides Susan's. That's all I saw. David? Mr. Brussard: I'm not a lawyer. I have a sense that this is a legal issue. Also. . . Mr. Donohue: The problem that's being raised is if you don't continue it, four votes could stop the

implementation on this. Mr. Brussard: Let's continue it. Mr. Donohue: I'll send you my legal bill. Mr. Remillard: Hearing some other objections of staff I guess we'll continue this. Mr. Iannaco: Absolutely. Mr. Remillard: We’ll consider it continued until next Thursday at 10:00. Anything else to come

before us today? Thank you all for coming. We will consider this meeting continued until Thursday at 10:00.

JOSEPH J. MAHER, JR. Vice President, General Counsel & Secretary Boston, Massachusetts August 9, 2004 Note: This Transcript has not been approved. It will be considered for approval at the next Governing

Committee Meeting.

2004.05.13 - transcript of special meeting

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