August 3, 2015Mid-Atlantic Mutual Advantage Convention

Farmington, Pa.

NAMIC — It’s (Still) a Team Sport!

Steve LinkousNAMIC Vice Chairman

The more it changes, the more it stays the same

Combined Effort

This has always been the right road to success

The more it changes, the more it stays the same

We call it MUTUALITY

Mutual insurance as we know it began in London in 1696 with the formation of “Contributors for Insuring Houses, Chambers or Rooms from Loss by Fire by Amicable Contributionship.”

The History of Mutual Insurance

1696London

“THE MUTUAL WAS FORMED …… to the end that all persons who are desirous to insure from loss by fire may be accommodated upon more equal and advantageous terms, wherein all are equal sharers in profit and loss in proportion to their interests.”

The United States

Setting the Stage for Farm Mutuals

Homestead Act of 1862 (homesteading) caused hundreds of thousands to “go West”

No laws allowed formation of farm mutuals until mid-1800s (all stock)

Stock companies did not underwrite; high rates; poor service to farmers

Farm income dropped due to RR prices and market;Congress did not act – only 7% of legislators were farmers

President Andrew Jackson investigated; result was Grange

Grange was politically active; became legislators; changed laws to allow farm mutuals

Most companies were formed based on country of origin German, Swedish, Bohemian, Norwegian, and Danish

The United States

Farm Mutuals

Early farm mutuals started in eastern United States Mutual Assurance Society of Virginia (1794) Bucks County Contributionship of Pennsylvania (1807)

Iowa farm mutuals started forming in 1849 American Mutual Insurance Association of Scott County Many more farm mutuals formed in Iowa starting in 1857 By 1882 there were 84 farm mutual in Iowa

The United States

Factory Mutuals

England forbade manufacturing in the colonies

Commercial activity: agricultural related | textile mills in New EnglandOnly stock insurers | no underwriting | single rate

Zachariah Allen (Providence, R.I.)

In 1835, Allen got a law passed to allow the creation of the first factory mutual, Manufacturers Mutual Insurance Company. The first risk was his mill insured at a 25% rate reduction. Individual risk underwriting was used and inspections were required. A 51% dividend was paid in the first year.

Canadian Mutuals

Centered in England

High rates

Unregulated forms until 1877

Only office located in Quebecrequiring travel to Quebec to receive payment

Often contained clauses that nearly prohibited coverage for loss

Farmers banded together to create farm mutuals to “give insurance coverage on a nonprofit basis to unprotected rural property.”

Home District Company of Toronto (1837) – first Canadian Mutual

Gore Mutual – one of the six original mutuals formed, and the only one still in operation

Insurance Associations

The first Canadian insurance association was formed in 1882 as the Purely Mutual Underwriter’s Association of Ontario. It became the Ontario Mutual Insurance Association in 1974.

1879 1880 1882 1883 1892 1895

Ohio Illinois Iowa New York New Jersey Missouri

State associations formed out of the need for joint representation on common cause

Following the 1895 annual meeting of the Iowa Association of Mutual Insurance Companies, several members lingered behind to discuss the idea of forming a national organization that would be similar in structure to the state association.

The chief advocate for a national association was W.A. Rutledge, a 34-year-old who just two years earlier founded the Farmers Mutual Hail Insurance Association of Iowa.

The following year, 20 to 30 mutual insurance men from aroundthe country met in Chicago where they formally established what was then called the National Association of Cooperative Mutual Insurance Companies.

NAMIC History

The Press as an Agent in Building Up Mutual Insurance

NAMIC History

Agenda Topics from 1896

Business Methods and Bookkeeping for Farm Mutuals

On Laws & the Necessary Legislation to Promote the Best Interests of Mutual Insurance

Upon the Need of Cooperation and the Industrial Education

God Bless the Rich Corporations, the Poor People Can Steal

Nebraska

NAMIC History

First states to be represented within NAMIC

Oregon

Indiana

Iowa

18 county/town mutuals and three state-wide insurance company members.

NAMIC Today

MembershipNumbers

58 Canadian members

900 member groups

50 trade members

826 mutual members

664 farm mutual members

8 NAMIC Chairmen1921 – Justin Peters 1969 – Ezra Harris1928 – Henry R. Gibbel 1974 – Otto C. Lee

` 1942 – J.H.R. Timanus 1982 – Henry H. Gibbel1950 – Guy C. Eaby 1996 – James I. Taylor

NAMIC Today

Pennsylvaniaand

NAMIC

66 domestic member companies

103 NAMIC companies write in Pennsylvania accounting for

35.5% of all property/casualty premium in the state

6 NAMIC ConventionsPhiladelphia – 1911, 1936, 1952, 1969, 2008Reading - 1916

Why Choose NAMIC

Clout

Culture

Courage

Educational Clout: Conferences – Management Conference; Farm Mutual Forum;and CEO RoundtablesProfessional accreditations and certifications – Professional

FarmMutual Manager; Farm Mutual Director Certification; and T.E.A.M. Certification

Why Choose NAMIC

Political Clout: Strong, talented political voice at the federal and state levels

6 advocates in Washington, D.C.8 state affairs directors positioned throughout the country

Clout

Service Clout:NAMIC Arbitration, NAMIC Web Services, Statutory

Reporting/Fast Track (NISS), Benefits Benchmarking, Compensation Surveys, Director Registry

Why Choose NAMIC

Based on self help, formed for mutual benefit

Culture

One company – one vote, rotating board of directors

Progressive – in structure, membership, and products and services

allowed woman as members in 1902

D-rive Telematics

Mutual Career Center

NAMIC is culturally one of us!

Why Choose NAMIC

Courage

Willing to take issues head on: willing to fight!

NAIC – climate survey, governance disclosureHUD – preserve our right to underwrite

SOX – exemptions for insurance/small insurersFIO – preserve state regulation

Why Choose NAMIC

Products and Services

Insurance Employee Benefits

NAMIC.org Information Centers

corporate governance

finance and accounting

investment management

human resources

directors and officers liabilityfiduciary liability

employment practices liabilityfidelity bond

insurance agents E&O

cyber liability

group and voluntary lifegroup disability insurance

dental and vision insurance

defined benefit plan (pension)MEP participant directed 401(k)

Benchmarking

Congressional Contact Program

2015 is the 30th year for the program

Educational Events

NAMIC Political Action Committee

Committee Participation

Professional Certifications

Mutual Brand Program

Pennsylvania ParticipationBoards & Committees

Accounting & Financial Issues

Committee

Advisory Council

Audit/Finance/Risk Committee

Claims Committee

Compliance Committee

Convention Planning Committee

Federal Affairs Committee

FMC Board of Directors

FMC Strategy Committee

Membership Committee

NAMIC Board of Directors

NAMICO Audit Committee

NAMICO Board of Directors

NAMICO Investment Committee

Nominating Committee

PAC Board of Trustees

State Affairs Committee

Tax Steering Committee

TRIA Working Group

Pennsylvania Participation

Professional Farm Mutual Manager 7 certified or in process

Farm Mutual Director Certification 2 certified or in process

Pennsylvania Participation

Congressional Contact Program

23 participants have attended CCP

Additional Participation

Merit Society – 10 members

NAMICO – 31 participants

NAMIC Web Services – 9

participants

Mutual Brand – 7 participants

NAMIC Business Model

Core functions supported by

member company dues

PublicPolicy

Public Affairs

Federal and

Political Affairs

State and

Regulatory Affairs

Core Services

Value-added options available to member companies but not supported by dues

Business Resources

and Services

Annual Convention

Educationand

Networking

Insurance Solutions

NAMIC Business ModelValue-Added

State Legislative Agenda

Priorities

Rate Modernization (based on NCOIL model, NSCL principles)

NAIC Solvency Modernization Initiative

Underwriting Freedom (Insurance Scoring, CLUE, Predictive Modeling)

Civil Justice Reform

Natural Disasters & Coastal Issues

Federal Legislative & Regulatory Priority Issues

Disparate Impact

Building Codes

PARTS Act

Insurance Regulation

Tax Reform

The Hot Issues:

HUD Disparate Impact Litigation

Small Insurance Company Tax

PARTS Act

Insurance Regulation

HUD Rule Disparate Impact

Department of Housing and Urban Development

November 2011, HUD issued Notice of Proposed Rulemaking defining discrimination

Would use “disparate impact” – statistical disparities for protected

classes(race, religion, gender, disability, etc.)

Would apply to “the provision and pricing of homeowner's insurance”

Could threaten use of any underwriting factor

Finalized the rule in February 2013 to be effective March 2013

Disparate ImpactFighting HUD's Discriminatory Effects Standard

NAMIC challenged the HUD rule from every available angle

• January 2012 comments / direct contact with HUD

• Congressional questioning of HUD (hearings and letters)

• House adopts language prohibiting use of funds for the rule in HUD

approps

• Outside group input opposing DI for insurers (NCOIL resolution)

• Joint trades efforts (multiple letters to HUD, OIRA meeting)

• Organized and led joint industry legal working group challenge

Disparate ImpactFighting HUD's Discriminatory Effects Standard

Disparate Impact NAMIC and AIA Legal Challenge

NAMIC and AIA decided to launch industry legal challenge to the HUD rule in the District Court of the District of Columbia on June 26, 2013.

The District Court agreed with us and vacated the HUD rule in November 2014

HUD appealed the decision to the D.C. Court of Appeals which stayed the case pending a different case before the US Supreme Court on the same legal issue; i.e. Whether the Fair Housing Act authorized disparate impact actions.

Disparate Impact U.S. Supreme Court

• In decision that surprised even HUD, the Supreme Court ruled in June 2015 that the

Fair Housing Act did allow disparate impact actions.

• The Court’s ruling, however, included key limitation and conditions for disparate

impact actions.

Disparate Impact NAMIC and AIA – Continuing the Legal Challenge

NAMIC and AIA will amend our complaint and continue the legal challenge to the HUD rule in the District Court of the District of Columbia

We have strong member support to seek a District Court order requiring HUD to include the Supreme Court’s key limitation and conditions in the HUD rule.

Applying these limitations and conditions will allow only cases where company actions directly cause discrimination through barriers that are “artificial,

arbitrary and unnecessary.

Small Insurance Company Tax

1986 – property/casualty companies with net written annual premiums less than $1.2 million can elect to be taxed on net investment income.

NAMIC is working to adjust this election level to reflect the last 29 years of inflation.

When indexed to inflation, the premium threshold would be $2.2 million.

Small Insurance Company Tax

Feb. 11, 2015 – The Senate Finance Committee voted unanimously to pass legislation in favor of raising the threshold.

April 14, 2015 – The legislation was introduced in the House of Representatives.

Helps nearly 600 companies continue to offer coverage to consumers in niche rural markets

PARTS ActWithout the Promoting Automotive Repair Trade and Sales Act, auto manufacturers could eliminate the aftermarket part industry by abusing design patents.

NAMIC and other industry players joined together as the Quality Parts Coalition to advocate for the PARTS Act.The PARTS Act was reintroduced in the House and Senate in February 2015.

NAMIC and the QPC anticipate a congressional hearing in September with further consideration of the bill to follow.

Insurance Regulation

International Insurance Regulation

The International Association of Insurance Supervisors is developing new global insurance capital standards for internationally active insurance groups.

The Fed, the Federal Insurance Office, and state regulators are negotiating.Congress has weighed with three hearings, during which NAMIC testified, and two bills H.R. 2141 – led by Rep. Duffy – and S. 1086 – led by Sens. Heller and Tester.

IAIS recently decided to delay ultimate implementation of the new standard.

Thank You

Steve LinkousNAMIC Vice Chairman

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