Michigan Municipal League Workers’ Compensation Fund · The Michigan Municipal League Workers’...

Michigan Municipal League Workers’ Compensation Fund

Financial Report

with Supplemental Information

June 30, 2008


Contents

Report Letter 1-2

Management’s Discussion and Analysis 3-14

Financial Statements

Statement of Accumulated Members’ Equity 15

Statement of Revenue, Expenses, and Changes in Accumulated Members’ Equity 16

Statement of Cash Flows 17

Notes to Financial Statements 18-27

Required Supplemental Information 28

Schedule of Claims Information for Line of Coverage 29-30

Other Supplemental Information 31

Statement of Accumulated Members’ Equity by Policy Year 32-33 Statement of Revenue, Expenses, and Changes in Accumulated Members’ Equity by Policy Year 34-35 Statement of Revenue, Expenses and Changes in Accumulated Members’ Equity by Policy Year from Inception through June 30, 2008 36-37

1

Independent Auditor’s Report

To the Board of Trustees Michigan Municipal League Workers’

Compensation Fund

We have audited the accompanying statement of accumulated members’ equity of Michigan Municipal League Workers’ Compensation Fund as of June 30, 2008 and 2007 and the related statements of revenue, expenses, and changes in accumulated members’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Michigan Municipal League Workers’ Compensation Fund at June 30, 2008 and 2007 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The management’s discussion and analysis and schedule of claims information for line of coverage (identified in the table of contents) are not required parts of the financial statements but are supplemental information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management, regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it.

To the Board of Trustees Michigan Municipal League Workers’

Compensation Fund

2

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Michigan Municipal League Workers’ Compensation Fund’s basic financial statements. The accompanying other supplemental information, as identified in the table of contents, is not a required part of the basic financial statements. The other supplemental information is presented for the purpose of additional analysis. The other supplemental information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

October 27, 2008


Management’s Discussion and Analysis

3

This section of the Michigan Municipal League Workers’ Compensation Fund’s (the “Fund”) annual financial report presents our discussion and analysis of the Fund’s financial performance during the year ended June 30, 2008. Please read it in conjunction with the Fund’s financial statements, which immediately follow this section.

The Reporting Entity

The Michigan Municipal League Workers’ Compensation Fund is a group self-insurance program which provides workers' disability compensation benefits to the injured employees of Fund members. The Fund provides additional membership services designed to improve loss control information and reduce the cost of workers' compensation claims. The Fund is comprised of public employers in the State of Michigan which are authorized and approved to enter into agreements to pool their liabilities under Section 611(2) of PA 317 of 1969, the Workers' Disability Compensation Act, commonly referred to as the “Act." The Fund was created by the Michigan Municipal League (the “League”) in 1976 and began operations in 1977. As a condition of membership in the Fund, each public employer must be either a member or an associate member of the League. The Michigan Workers' Compensation Agency (the “Agency”) provides regulatory oversight of the Fund. Governing authority for the Fund's 13-member board of trustees is provided through Rule 408.43i of the Agency regulations, as well as the bylaws and operating procedures of the Fund. Our discussion and analysis of the Michigan Municipal League Workers’ Compensation Fund’s financial performance provides an overview of the Fund's financial activities for the fiscal years ended June 30, 2008 and 2007. Please read it in conjunction with the Fund's financial statements, which begin on page 15. Financial Overview

This annual statement consists of three parts - management’s discussion and analysis (this section), the basic financial statements, and required supplemental information. The three basic financial statements presented are as follows: • Statement of Accumulated Members’ Equity - This statement presents information

reflecting the Fund’s assets, liabilities, and accumulated members’ equity and is categorized into current and noncurrent assets and liabilities. For the purpose of the financial statements, current assets and liabilities are those assets and liabilities with immediate liquidity which are collectible or becoming due within 12 months of the statement’s date.


Management’s Discussion and Analysis (Continued)

4

• Statement of Revenue, Expenses, and Changes in Accumulated Members’ Equity - This statement reflects the operating and nonoperating revenue and expenses for the previous two fiscal years. Operating revenue consists primarily of member contributions, with the major sources of operating expenses being claims and claims adjustment expenses, general and administrative expenses, and reinsurance costs. Nonoperating revenue consists primarily of investment income.

• Statement of Cash Flows - This statement is presented on the direct method of reporting and reflects cash flows from operating activities and investing activities. Cash collections and payments are reflected in this statement to arrive at the net increase or decrease in cash equivalents for the calendar year.

The Fund’s accounting records are maintained on an accrual basis, which is in accordance with accounting principles generally accepted in the United States of America. These statements reflect only the risk carried by the Fund, which also includes any potential unrecoverable reinsurance claims. Financial data is presented for both the current and prior fiscal year. Financial data is also compared to an annual budget adopted by the board of trustees. Additional Information - Notes to the Financial Statements

The notes provide additional information that is integral to a full understanding of the financial information presented in the financial statements. The notes to the financial statements begin on page 18. Required Supplemental Information

In addition to the basic financial statements and accompanying notes, this report also presents certain required supplemental information regarding the Fund’s 10-year claims development history. Setting member rates today to cover the assumed risk of possible future loss occurrences is largely guided by actuarial estimates of claim development. Analysis of trends in claims development indicates whether losses are increasing, decreasing, or static. Required supplemental information is located on pages 29 and 30. Other Supplemental Information

In addition to the basic financial statements, accompanying notes, and required supplemental information, this report also presents certain other supplemental information reflecting the financial activity for each fund year, defined as July 1 to June 30, each of which must “stand on its own.” The Agency requires that revenues exceed expenses in each fund year. In the event expenses exceed revenues, the fund year deficit is eliminated by transfers from the contingency reserve fund. The detailed statements report all of the Fund’s financial activities for the past nine years. These statements help to point out how each fund year has influenced the combined results of operations. The detailed statements can be found on pages 32-37.



5

Financial Highlights

• Membership levels increased during the 2007-2008 fiscal year. The Fund gained a net total of 13 members during the year.

• Net ultimate loss projections have remained consistent with the results derived in last year’s analysis. Overall, net ultimate loss projections as of June 30, 2008 have increased approximately $164,000 for prior years through to 2007. Loss ratios increased through 2001 due to an increase in average claim severity, combined with rate decreases. While severity decreased in 2002 and 2003, ultimate claim projections indicate a somewhat flat level for the 2004 through 2006 periods. Early indications reveal sharp decreases for the 2007 and 2008 periods.

• Total assets increased by $4.6 million or 3.8 percent, primarily as a result of increases in investment market values. For the year, the Fund’s investments experienced a total return of 5.52 percent, primarily due to the decrease in interest rates during the year, which lead to increases in the market value of the investment portfolio.

• The Fund reported excess revenues over expenses of $8.2 million for 2007-2008, compared to $8.3 million for 2006-2007. Dividends declared and paid amounted to $7.0 million in both years. The operating gains and dividend payments produced changes in accumulated members’ equity of $1.2 million and $1.3 million for the fiscal years ended June 30, 2008 and 2007, respectively.



6

Comparative Statement of Accumulated Members’ Equity

2008 2007 2006

Assets Current assets:

Cash and cash equivalents $ 6,160,631 $ 3,940,334 $ 3,449,834 Investments at market value 113,912,621 111,255,535 109,002,829 Accounts receivable 66,645 16,742 - Accrued interest receivable 1,140,710 1,135,107 1,145,444 Reinsurance receivable 9,905 6,705 815 Premiums receivable 34,408 364,789 450,317 Deposit with reinsurer - - 298,967 Prepaid lease 1,167,500 1,197,500 -

Total current assets 122,492,420 117,916,712 114,348,206

Noncurrent assets - Investment in NLCMutual Insurance Company - At cost 1,563,058 1,563,058 1,563,058

Total assets 124,055,478 119,479,770 115,911,264

LiabilitiesCurrent liabilities:

Net reserves for losses and loss adjustment expenses 5,407,297 4,850,962 4,854,905 Net reserves for incurred but not reported losses and loss adjustment expenses 6,515,087 6,522,188 5,353,509 Prepaid premiums 13,207,687 12,948,906 13,027,701 Accounts payable 69,519 38,627 178,165 Dividends payable 2,834,347 2,308,007 1,879,107

Total current liabilities 28,033,937 26,668,690 25,293,387

Noncurrent liabilities:Net reserves for losses and loss adjustment expenses 16,012,305 14,354,079 15,400,838 Net reserves for incurred but not reported losses and loss adjustment expenses 19,292,737 18,907,511 16,982,519

Total noncurrent liabilities 35,305,042 33,261,590 32,383,357

Total liabilities 63,338,979 59,930,280 57,676,744

Accumulated Members' Equity 60,716,499$ 59,549,490$ 58,234,520$

June 30



7

Operating Results and Changes in the Fund’s Accumulated Member Equity

The majority of the Fund’s operating revenue and expenses are contained within a relatively small number of accounts. Following is a brief description of those accounts:

2008 2007 2006

Operating RevenuePremiums $ 24,996,431 $ 25,160,289 $ 25,346,296 Less reinsurance premium expense (1,970,487) (2,275,589) (1,795,440)

Net premiums 23,025,944 22,884,700 23,550,856

Operating ExpensesLosses and loss adjustment expense incurred -

Net of reinsurance 17,946,499 18,569,908 16,195,388 Service agents' fees 2,174,028 2,164,394 1,933,471 Marketing and risk control fees 347,780 347,780 347,780 State of Michigan funds assessment 234,796 274,607 168,852 Administrative expenses 527,221 498,447 550,326

Total operating expenses 21,230,324 21,855,136 19,195,817

Operating Income 1,795,620 1,029,564 4,355,039

Nonoperating Income - Investment income 6,371,389 7,285,406 311,198

Dividends to Members 7,000,000 7,000,000 7,000,000

Change in Accumulated Members' Equity 1,167,009 1,314,970 (2,333,763)

Accumulated Members' Equity - Beginning of year 59,549,490 58,234,520 60,568,283

Accumulated Members' Equity - End of year 60,716,499$ 59,549,490$ 58,234,520$

Year Ended June 30

In addition to accumulated members’ equity, when assessing the overall health of the Fund, the reader needs to consider other nonfinancial factors such as the legal climate in the state of Michigan, the general state of financial markets, and the level of risk prevention undertaken by the Fund and its members.



8

• The Fund’s total assets increased 7 percent over the past two years, from $115.9 million to $124.0 million. A significant component of the change in Fund assets is due to increases in the investment portfolio. The investment portfolio consists of fixed income and equity securities. The fixed income component of the portfolio consists of a variety of securities ranging from Treasury and agency-type securities, AAA to BBB rated securities, to high yield corporate bonds. The average life of the fixed income securities is 4.3 years with an average duration of 3.5 years, yielding an average return of 4.6 percent. The equity component of the investment portfolio represents 8 percent of the total portfolio invested in the Vanguard Total Stock Market Index Fund (the “Vanguard Fund”). The Vanguard Fund is composed of a blend of equity and value, large cap U.S. stocks. The Vanguard Fund generated a negative return of 13.3 percent for the year ended June 30, 2008.

• Reinsurance receivables of $9,905 reflect amounts due from reinsurers on two large cases dating back to 1977. As payments are made on these cases, the related reinsurance is reported as a receivable. All reinsurance balances are deemed collectible.

• Premiums receivable have decreased 91 percent. Last year, this item included an estimate for additional audited premiums for the fund year. Municipalities throughout the State have experienced decreases in revenue, resulting in reductions in staffing and minimal increases in payroll. These reductions have led to audit premiums approximating original estimated premiums for the past couple of years. As a result, additional premiums are not anticipated for the current year. As such, they are not accrued for, thereby resulting in lower premium receivables for 2008 compared to prior years.

• Prepaid lease represents the Fund’s payment to the MML for use of common office space and facilities within the League Capitol Office. The Fund paid $1.2 million in 2007, which is accounted for as a prepayment for the Fund’s usage of the space. This prepayment will be amortized over a 40-year period, the term of the lease agreement, at an annual rate of $30,000.

• Total liabilities increased 9.8 percent since 2006, from $57.6 million to $63.3 million. Net reserves for losses and loss adjustment expenses increased 5.7 percent from 2006 to 2008. Net reserves for incurred but not reported losses increased 15.5 percent from 2006 to 2008. The number of claims reported decreased over the past two years, from 3,750 to 3,145 for the 2007-2008 year. Despite that, average severity has increased due to rising indemnity and medical costs and the occurrence of several significant new claims.

• From 2006 to 2008, accumulated members’ equity increased 4.2 percent, from $58.2 million to $60.7 million. The change in accumulated members’ equity over the past two years is a direct result of fluctuations in the market value of the investment portfolio and increased claim severity.



9

Capital Assets and Debt Administration

The Fund has no long-term debt. All material commitments and contingencies are disclosed in Note 6 on pages 26 and 27 of the financial statements. The Fund has no plans to encumber itself with any debt or additional commitments or contingencies in the foreseeable future.

Premiums Earned

Workers’ compensation coverage is rated for each individual member based on established rates for 50 different class codes. The rates are applied to payrolls to determine the premium. Premiums are further adjusted by experience modifiers and discounts to reflect the actual loss experience of the member. The experience modifier is based on prior experience adjusted by certain factors. As of June 30, 2008, the Fund had 844 members reporting approximate total payrolls of $1.29 billion. Class code rates range from $.20 to $10.98. The two largest class categories are clerical/office and police. For the fiscal year ended June 30, 2008, the Fund reported earned premium of $24.9 million compared to $25.1 million and $25.3 million for the years ended June 30, 2007 and 2006, respectively. Premiums have decreased 1.4 percent over the past three years. From year to year, since 2004, premium rate increases have declined, starting with a 7 percent rate increase for 2003-2004 to a 0 percent change for 2006-2007, to an increase of 2.8 percent for 2007-2008. Preliminary indications reveal a 2.3 percent rate decrease for the upcoming 2008-2009 fiscal year. Reinsurance Premiums Expense

Reinsurance coverage is provided by Discover Property & Casualty Insurance Company. The Fund retains the first $500,000 of each loss. Reinsurance premiums are calculated based on a contractual rate applied to the members’ estimated standard premium. The contractual rate for the year ended June 30, 2008 was 6.94 percent compared to 9.14 percent and 6.97 percent for the fiscal years ended June 30, 2007 and 2006, respectively. Members’ estimated standard premium for 2008 was $27.0 million compared to $25.1 million for 2007 and $25.3 million for 2006. The reinsurance premium expense is adjusted for final audited premiums. Audited premiums resulted in a refund of reinsurance premiums paid for 2006, and additional reinsurance premiums paid for 2007 and 2008. These adjustments resulted in reinsurance premium expense of $1.9 million, $2.2 million, and $1.7 million for the years ended June 30, 2008, 2007, and 2006, respectively.



10

Investment Income

The Fund has been exposed to an environment of declining interest rates and declining stock values. The diversity of the Fund’s portfolio help shield it from drastic losses experienced within the overall investment markets. The Fund earned $5.8 million in investment income for each of the years ended June 30, 2008 and 2007. For the year ended June 30, 2006, the portfolio reported investment income of $5.5 million, a 6.9 percent increase from the year ended June 30, 2005.

Net Increase (Decrease) in the Fair Market Value of Investments

The Fund experienced a net increase in the fair market value of investments of $.5 million in 2008, compared to the net increase of $1.4 million in 2007 and a net decrease of $5.2 million in 2006. Investment market values increased due to the positive returns generated in the fixed income market, despite the negative declines in the equity market for 2008. The fixed income portfolio ended the year with a 7.3 percent overall return. Positive performance within the portfolio can be attributed to an overweighting in various sectors that generated positive returns during the year, such as U. S. Treasuries and asset-backed securities. As of June 30, 2008, 8 percent of the Fund’s portfolio was invested in the Vanguard Total Stock Market Fund. The Vanguard Fund generated a negative return of 13.3 percent for the year ended June 30, 2008 due to investor’s concerns over the downturn in the investment market and economy. The Vanguard Fund is comprised of a blend between growth and value, large cap U.S. companies. This diversification over time is expected to deliver competitive results with average volatility. The returns generated from the Fund’s fixed income and equity fund resulted in a total portfolio return of 5.5 percent for the year 2008, compared to 6.5 percent and 6.2 percent for 2007 and 2006, respectively.

Losses and Loss Adjustment Expenses Incurred, Net of Reinsurance

The Fund processes claims and pays for covered losses experienced by its members' employees. All claims are processed and managed by a third-party administrator. Attorneys, medical experts and other professionals are contracted on an as needed basis. Between the time a claim is reported and the time it is resolved, reserves are established for the estimated amount that will have to be paid at some future date to settle the loss. Reserves are also established for claims that have occurred, but are not yet known to the Fund. This is known as IBNR (incurred but not yet reported) reserves where losses are recognized in the current year for claims that will not be reported until future periods. This process allows a matching of current year premium with estimated total losses. Losses and loss adjustment expenses incurred represent payments and changes in reserves for the fiscal year. Net incurred losses were $17.9 million for the current year, $18.5 million for 2007, and $16.2 million for 2006, up 11 percent over the past three years.



11

It is expected that workers' compensation claims costs will continue to be pushed higher over time due in large part to healthcare cost increases exceeding the rate of inflation. The Fund’s claims administrator takes full advantage of the state medical fee schedule that allows Michigan insurers to evaluate and control their medical expenses. However, the medical fee schedule's positive affects are tempered by the fact that injured employees in Michigan have higher than average utilization of medical services for treatment. Service Agent, Marketing, and Risk-control Fees

The Fund is sponsored and administered by the Michigan Municipal League (MML) as a service for MML members and other public sector entities. The Fund has no employees. As such, the Fund contracts with the MML and Meadowbrook Insurance Group (MIG) for services.

Service agent, marketing, and risk control fees include claims administration, marketing, loss control, risk management, finance, and accounting services pursuant to the MIG and MML contracts. The MIG contract provides for claims administration, marketing, and loss control services. The costs for these services amounted to $1,387,428 for 2008. The MML contract provides for risk management, finance, and accounting services, as well as facilities and equipment at an annual minimum cost of $1,110,000. This fee is adjusted annually for inflation. During 2007, the Fund agreed to pay the MML $1,200,000 for use of common office space and facilities within the League Capitol Office. The $1,200,000 payment is accounted for as a pre-payment for the Fund’s usage of the space over a 40-year period. State of Michigan Fund Assessments

Assessments levied by the State of Michigan for the Second Injury Fund and Silicosis Fund will vary from year to year. Therefore, annual assessments are difficult to accurately estimate. This assessment has ranged from a high in 1996 of $314,000 to a low of $81,880 in 2003. The assessments for 2008, 2007, and 2006 are $234,796, $274,607, and $168,852, respectively. Administrative Expenses

In providing coverage and other member services, the Fund incurs administrative expenses. All administrative expenses are budgeted and monitored on a monthly basis for compliance with budgetary limits. Administrative expenses include actuarial, financial audit, legal, member payroll audit, banking and investment fees, board meeting travel expenses, printing and supplies, and information technology services. Administrative expenses of $527,221 for 2008 represents an increase of 5.8 percent and a decrease of 4.2 percent compared to 2007 and 2006, respectively. Member premium audit fees drove this 5.8 percent increase for 2008. The Fund physically audits one-third of its members annually. During the year, the Fund experienced more members requesting physical audits outside of the normal three-year cycle.



12

Economic Factors

Strong Regulatory Oversight

Workers' compensation group self-insurance programs operate under regulatory oversight that is much stricter than for commercial insurers. The Agency approves all rates in advance of their use. The Agency requires that an actuary develop rates to a 90 percent confidence level. A 90 percent confidence level represents the theoretical probability that the total funding level will not be exceeded. The Agency reviews and approves in advance all rate modifiers. Anticipated investment income cannot be used in rate development. Loss reserves cannot be discounted for the time value of money. The Agency reviews and approves all requests for dividend distributions and an independent review and opinion of all claim reserves accompanies a request to the Agency for a dividend distribution. These regulations emphasize and serve as a constant reminder that the Fund has one primary purpose: to ensure that funds are available to pay all benefits due to injured employees of Fund members for as long as such benefits are due. Board Oversight

The mission of the Fund is to be long-term, stable, and cost-effective. Investments are professionally and independently managed, with quarterly reports to the governing board. Additionally, the investment manager's performance is independently reviewed by a professional investment firm, with quarterly written reports and one annual verbal report to the governing board. Investment Risk

A significant portion of the Fund's annual net income is derived from its investments. The deposits and investments of the Fund are exposed to risks that have the potential to result in losses. As such, there is the risk that the Fund will not earn expected returns and that the investments may lose value. The Fund may be exposed to common deposit and investment risks that relate to credit risk, concentration of risk, interest rate risk, and foreign currency risk. In accordance with Statement No. 40 of the Governmental Accounting Standards Board, disclosures are presented in Note 2 on pages 21-24 of the audit report to inform readers about deposit and investment risks that could affect the Fund’s ability to provide services and meet its obligations. Risk of Inadequate Loss Reserves We consider the risk of using significant amounts of surplus to strengthen loss reserves to be low. Mentioned previously are certain regulatory requirements designed to avoid inadequate loss reserves, including the need to annually establish rates to a 90 percent confidence level, annual reserve reviews by an independent actuary, and independent claims reviews prior to dividend distributions.



13

The Fund uses several recognized insurance industry performance benchmarks to communicate our financial position to our members and other interested parties. Current benchmarks are available on our web site at www.mml.org and by reference are made a part of this report.

Reinsurance Costs

Reinsurance premiums may increase over time as reinsurers pass along their claims costs to primary insurers such as the Fund. These increases will be moderated somewhat by the Fund's own claims frequency, which is better than average for workers' compensation insurers. We believe that the conservative nature of Michigan’s regulatory restrictions, combined with the conservative scope of our mission, will continue to cushion the Fund from volatility in rate or loss reserve fluctuation. Annual Adopted Budget and Budgetary Controls

Each year, the Fund adopts an annual operating budget for the current fund year. The budget is presented to the Fund’s board of trustees for final review and adoption. The board approves any interim amendments to the annual budget. The Fund administrator prepares the budget and reviews expenditures on a quarterly basis. The budget reflects only the current fund year financial information whereas the complete financials for the Fund start on page 16.

Budgeted Actual

Variance Positive

(Negative)

Operating RevenuePremiums 26,300,000$ 25,926,095$ (373,905)$ Less reinsurance premium expense (2,100,000) (1,970,390) 129,610

Net premiums 24,200,000 23,955,705 (244,295)

Operating ExpensesLoss and loss adjustment expenses incurred - Net of

reinsurance 19,500,000 19,581,000 (81,000) Service agent, marketing, and risk-control fees 2,522,110 2,521,808 302 State of Michigan funds assessment 250,000 234,796 15,204 Administrative expenses 558,500 460,479 98,021

Total operating expenses 22,830,610 22,798,083 32,527

Operating Income 1,369,390 1,157,622 (211,768)

Nonoperating Income - Investment income including decrease in fair value of investments and other income 944,000 936,295 (7,705)

Increase in Accumulated Members' Equity 2,313,390$ 2,093,917$ (219,473)$

Fiscal Year 2007-2008 Only



14

The following is an explanation of the significant variances of the budget to actual for fund year 2007-2008. Premiums were consistent with the budget parameters. The budget anticipated a 2.8 percent rate increase and no growth in member payrolls. Total payroll amounted to $1,298,621,816, a tenth of a percent over the prior year. Reinsurance premiums are a function of written premium. The budget was based on approximately $23,000,000 of written premium at a rate of 9.12 percent. Actual reinsurance premiums fell within the budgeted parameters of $2.1 million. Investment income, including changes in the fair value of investments fell just short of the budgeted parameters. The budget anticipated market value increases and positive returns for 2007-2008. As of June 30, 2008, the portfolio’s effective yield was 4.6 percent. For the year, the portfolio experienced a total return of 5.52 percent, primarily due to the positive effect of a decrease in interest rates. Losses and loss adjustment expenses incurred, net of reinsurance, exceeded the budgeted parameters by $81,000. The budgeted figure for paid claims, which is subject to some volatility, was $5,000,000 compared to actual paid claims of $5,348,088. Change in reserves was budgeted at $14,500,000 compared to a final actuarially determined change of $14,232,912, which was approximately 1.9 percent under the budgeted amount. The overall increase in incurred loss and loss adjustment expenses are in part a result of an increase in the severity of claims, especially as it relates to medical cost inflation.

Future Projects No major initiatives or projects are planned. Contacting the Fund’s Management The financial report is designed to provide our members, customers, and the general public with a general overview of the Fund’s finances and to demonstrate the Fund’s accountability for the money it receives. For more information about the Michigan Municipal League Workers’ Compensation Fund, visit our web site at www.mml.org.


The Notes to Financial Statements are an Integral Part of this Statement.

15

Statement of Accumulated Members’ Equity

June 30

2008 2007


Cash and cash equivalents (Note 2) 6,160,631 $ 3,940,334 Investments (Note 2) 113,912,621 111,255,535 Accounts receivable:

Excess insurance 9,905 6,705 Premiums 34,408 364,789 Other 66,645 16,742

Accrued interest receivable 1,140,710 1,135,107 Prepaid lease (Note 6) 1,167,500 1,197,500

Total current assets 122,492,420 117,916,712

Noncurrent assets - Investment in NLC Mutual

Insurance Company - At cost 1,563,058 1,563,058

Total assets 124,055,478 119,479,770

LiabilitiesCurrent liabilities:

Net reserve for losses and loss adjustment expenses (Note 3) 5,407,297 4,850,962 Net reserve for incurred but not reported losses and loss

adjustment expenses (Note 3) 6,515,087 6,522,188 Premiums collected in advance 13,207,687 12,948,906 Accounts payable 69,519 38,627 Dividends payable 2,834,347 2,308,007

Total current liabilities 28,033,937 26,668,690

Noncurrent liabilities:Net reserve for losses and loss adjustment expenses - Net

of current portion (Note 3) 16,012,305 14,354,079 Net reserve for incurred but not reported losses and loss

adjustment expenses - Net of current portion (Note 3) 19,292,737 18,907,511

Total noncurrent liabilities 35,305,042 33,261,590

Total liabilities 63,338,979 59,930,280

Accumulated Members' Equity 60,716,499$ 59,549,490$



16

Statement of Revenue, Expenses, and Changes in Accumulated Members’ Equity

Year Ended June 30

2008 2007

Operating RevenuePremiums $ 24,996,431 $ 25,160,289 Less reinsurance premium expense (1,970,487) (2,275,589)

Net premiums earned 23,025,944 22,884,700

Operating ExpensesLosses and loss adjustment expenses - Net of reinsurance

(Note 3) 17,946,499 18,569,908 Service fees 2,521,808 2,512,174 State assessments 234,796 274,607 Administrative expenses 527,221 498,447

Total operating expenses 21,230,324 21,855,136

Operating Income 1,795,620 1,029,564

Nonoperating Income - Investment income 6,371,389 7,285,406

Dividends to Members 7,000,000 7,000,000

Increase in Accumulated Members' Equity 1,167,009 1,314,970

Accumulated Members' Equity - Beginning of year 59,549,490 58,234,520

Accumulated Members' Equity - End of year 60,716,499$ 59,549,490$



17

Statement of Cash Flows

Year Ended June 302008 2007

Cash Flows from Operating ActivitiesReceipts from premiums 25,532,490$ 25,443,357$ (Disbursements) receipts for other income (expense) (5,603) 10,337 Receipts from reinsurers 13,631 3,003 Receipts from third parties - Claim recoveries 206,195 352,827 Payments on claims (15,573,639) (16,882,769) Payments to reinsurers (1,970,487) (2,275,589) Payments for expenses (3,222,933) (4,622,266)

Net cash provided by operating activities 4,979,654 2,028,900

Cash Flows from Investing ActivitiesReceipts from interest income 5,809,679 5,336,747 Proceeds from sale and maturity of investments 89,417,421 54,644,803 Purchase of investments (91,512,797) (54,948,850)

Net cash provided by investing activities 3,714,303 5,032,700

Cash Flows from Financing Activities - Payments of dividends (6,473,660) (6,571,100)

Net Increase in Cash and Cash Equivalents 2,220,297 490,500

Cash and Cash Equivalents - Beginning of year 3,940,334 3,449,834

Cash and Cash Equivalents - End of year 6,160,631$ 3,940,334$

Reconciliation of Operating Income to Net Cash fromOperating Activities

Operating income 1,795,620$ 1,029,564$ Changes in:

Accrued interest receivable (5,603) 10,337 Prepaid expense 30,000 (1,197,500) Reinsurance receivable (3,200) (5,890) Premiums receivable 330,381 85,528 Accounts receivable (49,903) (16,742) Rate stabilization - 298,967 Net reserves for losses and loss adjustment expenses 2,214,561 (1,050,702) Net reserves for incurred but not reported losses and

loss adjustment expenses 378,125 3,093,671 Prepaid premiums 258,781 (78,795) Accounts payable 30,892 (139,538)

Net cash provided by operating activities 4,979,654$ 2,028,900$


Notes to Financial Statements June 30, 2008 and 2007

18

Note 1 - Nature of Entity and Significant Accounting Policies

Michigan Municipal League Workers’ Compensation Fund (the “Fund”) was established to formulate, develop, and administer a program of self-insurance for participating Michigan municipalities. Any city or village which is a member of the Michigan Municipal League (the “League”) or any municipality of any city or village or any Michigan governmental entity which holds service associate status with the League is eligible to participate in the Fund. There are currently 844 members in the Fund.

The Workers’ Compensation Agency (the “Agency”) regulates the financial activities of the Fund. The Agency must approve all rates charged to participants, distributions to participants, allocations of reserves to the Contingency Fund, and transfers between the individual fund years.

Premiums from participants in each fund year are combined to provide all members with coverage for claims. The premiums and interest earned thereon are used to pay claims, administrative expenses, and to purchase reinsurance. Dividends to participants of each year may be made only from the members’ equity of that fund year, subject to approval by the Agency. In the event of a deficit in a fund year, assessments could be made against participants of that year. The board of trustees of the Fund (the “Board of Trustees”) established a contingency reserve within the members’ equity to appropriate funds for use in the event that any fund year experiences a deficit due to adverse loss experience. The contingency reserve is available for use at the discretion of the Board of Trustees. The intent of the Board of Trustees is to fund any deficits through the contingency reserve which was established to avoid such assessments or offset future premiums. The contingency reserve totaled $3,053,272 and $2,981,280 at June 30, 2008 and 2007, respectively.

The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental insurance pools. In September 1993, the Governmental Accounting Standards Board (GASB) issued Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting. MMRMA has elected to adopt statements or interpretations of the Financial Accounting Standards Board (FASB) that are issued after November 30, 1989 unless GASB specifically adopts pronouncements that conflict with or contradict such FASB statements or interpretations.



19

Note 1 - Nature of Entity and Significant Accounting Policies (Continued)

The Fund distinguishes operating revenue and expenses from nonoperating revenue and expenses. Operating revenue and expenses generally result from providing services in connection with the Fund’s principal ongoing operations. The principal operating revenue and expenses of the Fund relate to premium revenue and claims and administrative expenses. Premium contributions received covering future contract periods are deferred and recognized over the related contract periods. Net investment earnings are reported as nonoperating revenue.

Cash Equivalents - The Fund considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at market value.

Investments - Investments consist of U.S. government securities with maturities of greater than three months, agency-backed securities, collateralized mortgage obligations, and corporate bonds. All investments are stated at fair value as determined by quoted market prices. Investments in proprietary funds offered by Key Bank are valued at the quoted market value provided by the bank. All investment income, including changes in the fair value of investments, is recognized as revenue in the statement of revenue, expenses, and changes in accumulated members’ equity.

Accounts Receivable - Receivables from members are stated at net invoice amounts and receivables from reinsurers are computed based on the applicable insurance arrangement. Collectibility of balances is reviewed periodically. Any amounts deemed to be uncollectible are written off at that time. No allowance for bad debts is recorded because management considers all accounts receivable to be collectible

NLC Mutual Insurance Company - NLC Mutual Insurance Company (NLC Mutual) is a captive insurance company formed by risk funds associated with certain state municipal leagues, including the Fund. The Fund invested in NLC Mutual in 1987 as a prerequisite for membership. The Fund accounts for its investment on the cost basis, as its investment makes up less than 20 percent of the company’s assets and the Fund does not have the ability to exercise significant influence over the company’s operating and financial polices. Under the cost method, income is recognized upon receipt of distributions from NLC Mutual. The Fund’s equity in the company, based on its ownership percentage, is approximately $1,600,000 at June 30, 2008 and 2007.

As described in Note 4, NLC Mutual provides reinsurance coverage to the Fund. Management assesses the solvency and financial health of its reinsurers to determine whether any allowances for potential uncollectible amounts may be necessary. No allowance for uncollectible amounts is recorded as management considers all amounts to be fully collectible.



20


Premiums Collected in Advance - Premiums collected in advance represent premiums received in the current year for policies remaining effective into the next fiscal year.

Dividends Payable - The Fund recognizes a liability for member dividends when approved by the Agency.

Net Reserves for Losses and Loss Adjustment Expenses - The Fund establishes reserves based on estimates of the ultimate cost of unsettled claims, including future allocated and unallocated claims adjustment expenses, that have been reported but not settled, and of claims that have been incurred but not reported. Reserves are evaluated periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. A provision for inflation is implicit in the calculation of estimated claims cost because reliance is placed both on actual historical data that reflects past inflation and on other factors that are considered to be appropriate modifiers of past experience. Adjustments to reserves are charged or credited to expenses in the periods in which they are made. Because actual claims will depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the computation of reserves is a process of estimation and forecasting. The Fund retains a qualified, independent actuarial firm to perform an annual actuarial review of the reserves.

Recognition of Premiums - Premiums are earned on a pro rata basis over the term of the policy, which is generally one year. The Fund’s policy period is the same as the fiscal year; therefore, all premiums written during the year are earned. Prepaid premiums are recorded for amounts received in the current fiscal year for policies becoming effective in the next fiscal year. Premiums are paid to the Fund at rates established by the Board of Trustees pursuant to the recommendation of the Fund’s actuarial firm and by the Agency and are based upon estimated payroll costs of members. The estimated premiums are subject to audit after the end of the insurance coverage period. In 2007, the Fund recorded an estimate of the audit premiums based on past experience. For 2008, management determined that no change was necessary to the original estimated premiums.

Federal Income Tax Status - The Fund’s income is exempt from taxation under Internal Revenue Code Section 115. Accordingly, no provision has been made for taxes on income.



21


Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates related to net reserves for losses and loss adjustment expenses are described in Note 3.

Note 2 - Investments

The Fund’s investment policy is promulgated by Section 408.43i of the Agency regulations, which limits the Fund’s investments to U.S. government bonds, U.S. Treasury notes, U.S. government agency issues, U.S. government-sponsored enterprises, investment share accounts in federally insured savings and loan associations and credit unions, and certificates of deposit issued by a duly chartered commercial bank. Deposits in savings and loan associations, credit unions, and commercial banks are further limited by state and dollar amount. Section 408.43i also allows investments in corporate and municipal bonds and common and preferred stock, subject to certain restrictions based upon the proportion of such investments included in the portfolio. The Fund’s investment policy further restricts investments in mortgage-backed securities, including collateralized mortgage obligations limited to 35 percent of the portfolio’s fixed income securities market value. The Fund is in compliance with the Agency regulations for the fiscal years ended June 30, 2008 and 2007.

The Fund’s investments are held in the Fund’s name. The Fund has designated Key Bank for the deposit of its investments.



22

Note 2 - Investments (Continued)

The Fund’s cash and investments are subject to several types of risk, which are examined in more detail below:

Custodial Credit Risk - Custodial credit risk is the risk that in the event of a bank failure, the Fund’s deposits may not be returned. The Fund does not have a deposit policy for custodial credit risk of its bank deposits. However, the Agency regulations allow deposits to exceed the federally insured amount if the amount does not exceed 5 percent of the combination of surplus and undivided profits and reserves as currently reported for each bank in the state in the banking division annual report of the financial institution’s Agency of the Department of Consumer and Industry Services or if the amount does not exceed $500,000 per institution. The Fund’s uninvested cash balances are swept to zero at the end of each day and are invested into short-term investment vehicles, which are not insured or guaranteed by the Federal Deposit Insurance Corporation or by any other government agency or government-sponsored agency of the federal government or of any state. As such, the cash and cash equivalent balance of $6,160,631 and $3,940,334 at June 30, 2008 and 2007, respectively, is uninsured and uncollateralized and, therefore, is exposed to custodial credit risk.

Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The Fund’s investment policy does not restrict investment maturities. The Fund’s policy minimizes interest rate risk by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market and limiting the average maturity in accordance with the Fund’s cash requirements.

At June 30, 2008, the Fund had the following investments:

Investment Type (Key Bank Defined)

Market Value (Excluding Accruals)

Weighted Average

Maturity Date Years

U.S. government 29,112,400$ 10/15/2014 6.27U.S. government agencies 13,321,437 2/15/2013 4.64Mortgage-backed securities 38,902,571 10/15/2026 18.29Corporate bonds 22,771,213 3/1/2013 4.68Vanguard Stock Equity Fund 9,805,000 N/A N/A

Total fair value 113,912,621$



23


At June 30, 2007, the Fund had the following investments:

Investment Type (Key Bank Defined)

Market Value (Excluding Accruals)

Weighted Average

Maturity Date Years

U.S. government 21,442,374$ 3/31/2012 5.33U.S. government agencies 20,636,543 11/22/2010 3.05Mortgage-backed securities 32,350,516 6/15/2009 1.76Corporate bonds 27,537,505 12/15/2011 4.20Vanguard Stock Equity Fund 9,288,597 N/A N/A

Total fair value 111,255,535$

Credit Risk - The Fund’s fixed income investment portfolio consists of a variety of securities ranging from Treasury to agency-type securities, and AAA to A-rated securities. The overall quality rating of the fixed income portfolio is equal to an AA-rated portfolio on a market value weighted basis. No unrated corporate securities are purchased.

At June 30, 2008, the credit quality rating of debt securities, without regard to investment type, is as follows:

RatingEstimated

Market ValueQuality

Weightings

AAA 26,961,919$ 25.90% AA 12,687,707 12.19% A 11,519,406 11.06%

BBB 997,050 0.96% NR 51,941,539 49.89%

Total 104,107,621$ 100.00%



24


At June 30, 2007, the credit quality rating of debt securities, without regard to investment type, is as follows:

RatingEstimated

Market ValueQuality

Weightings

AAA 20,015,339$ 19.63% AA 13,124,281 12.87% A 16,174,711 15.86%

NR 52,652,607 51.64%

Total 101,966,938$ 100.00%

The rating organization used by the Fund to rate its investments is Standard and Poor’s.

Concentration of Credit Risk - The objective of the Fund’s investment policy is to generate a well diversified portfolio without any inappropriate credit concentrations. There were no investments that individually exceed 5 percent of the Fund’s total investments, other than direct obligations of the U.S government, at June 30, 2008 and 2007.

Foreign Currency Risk - Foreign currency risk is the risk that an investment denominated in the currency of a foreign country could reduce its U.S. dollar value as a result of changes in foreign currency exchange rates. The Fund’s portfolio has no non-U.S. dollar investments, although such investments are not specifically prohibited by the investment policy. As such, the Fund is not subject to any foreign currency risk.

Declines in Investment Values - Subsequent to year end, the Fund’s investment portfolio has incurred a significant decline in fair value, consistent with the general decline in financial markets. However, because the values of individual investments fluctuate with market conditions, the amount of losses that will be recognized in subsequent period, if any, cannot be determined.



25

Note 3 - Net Reserves for Losses and Loss Adjustment Expenses

The Fund establishes reserves for both reported and unreported insured events; such reserves include estimates for future payments of losses and related loss adjustment expenses, including state assessments. A summary of changes in net losses and loss adjustment expenses for the Fund for the years ended June 30, 2008 and 2007 is as follows (amounts are net of the effects of reinsurance):

2008 2007 2006

Net losses and loss adjustment expenses (undiscounted) - Beginning of year 44,634,740$ 42,591,771$ 42,223,209$

Incurred losses and loss adjustment expenses:Provision for insured events of the current fiscal year 19,581,038 19,053,934 18,257,134 Change in provision for insured events of prior fiscal years (1,634,539) (484,026) (2,061,746)

Total incurred losses and loss adjustment expenses 17,946,499 18,569,908 16,195,388

Payments - Net of reinsurance recoveries and member deductibles:

Losses and loss adjustment expenses related to insured events of the current year (5,348,088) (5,351,059) (5,956,041)

Losses and loss adjustment expenses related to insured

events of prior fiscal years (10,005,725) (11,175,880) (9,870,785)

Total payments (15,353,813) (16,526,939) (15,826,826)

Net losses and loss adjustment expenses (undiscounted) -End of year 47,227,426$ 44,634,740$ 42,591,771$

The provision for incurred losses and loss adjustment expenses has been reduced for amounts recoverable from reinsurers of approximately $10,000,000 and $9,500,000 at June 30, 2008 and 2007, respectively. The incurred losses relating to prior accident years reflect a savings, which is generally related to changes in estimates of prior years’ insured events.

The estimated liability for incurred prior year claims decreased in 2008 and 2007 due primarily to claims settling for amounts different from those originally estimated.

Note 4 - Reinsurance Agreements

The Fund uses reinsurance agreements to reduce its exposure to large losses. Reinsurance permits recovery of a portion of claims from reinsurers, although it does not discharge the primary liability of the Fund as direct insurer of the risks reinsured. The portion of claims covered by reinsurance is not reported as a liability, nor is the related recoverable for the reinsurer recorded as an asset.



26

Note 4 - Reinsurance Agreements (Continued)

The Fund has obtained specific excess reinsurance and aggregate excess reinsurance for each year prior to June 31, 1986. From 1987 through 2007, the Fund’s specific excess reinsurance was placed with NLC Mutual, a related party. During 2008, the Fund’s specific excess reinsurance was placed with Discover Property and Casualty Insurance Company. The coverage for specific claims for policy years ended June 30, 2008 and 2007 is as follows:

Specific OccurrenceAccident Date byInsurance Period In Excess of

Maximum Coverage

Workers' compensation:Policy year 2006-2007 1,000,000$ StatutoryPolicy year 2007-2008 500,000 Statutory

Note 5 - Accumulated Members’ Equity

At the discretion of the Board of Trustees, accumulated members’ equity may be returned to members in the form of dividends. During fiscal years 2008 and 2007, dividend distributions were made to members for the following fund years:

Fund Years 2008 2007

1995-1996 1,000,000$ 1,000,000$ 1996-1997 1,000,000 1,000,000 1997-1998 2,000,000 2,000,000 1998-1999 3,000,000 3,000,000

Total 7,000,000$ 7,000,000$

Note 6 - Commitments and Contingencies

The Fund has a contract with a service agent to provide claims administration services, law enforcement risk reduction services, and marketing and risk control services. This contract contains future obligations to pay service fees through fiscal year 2008. Maximum service fees under this agreement as of June 30, 2008 are approximately $1,395,000 for fiscal year 2008.



27

Note 6 - Commitments and Contingencies (Continued)

The Fund has an agreement with the Michigan Municipal League to provide services to the Fund including claims administration, data processing, staff travel, printing, and supplies. Under the terms of this agreement, the Fund paid the League approximately $1,125,000 and $1,111,0000 for the years ended June 30, 2008 and 2007, respectively, for all services provided.

In June 2007, the Fund entered into a new lease agreement with the League through 2047 for the use of common space and facilities within the League Capitol Office. The Fund prepaid the total rent of $1,200,000, which will be amortized over the lease term. Total rent expense under the new agreement was $30,000 and $2,500 for the years ended June 30, 2008 and 2007, respectively.

The Fund had approximately $118,300 and $833,100 as of June 30, 2008 and 2007, respectively, of annuity contracts outstanding from third-party life insurance companies to make structured settlements of claims. Neither the annuity asset nor the related claim liability is reflected in the statement of accumulated members’ equity. The Fund is contingently liable for these settlements if the third-party insurance companies are unable to meet their annuity contract commitments. Management believes the likelihood that the Fund will be required to make future payments on these claims is remote.

Note 7 - Payroll Audits

Contributions to the Fund for the policy period ended June 30, 2008 were computed using estimated payroll figures submitted by members. The Fund is in the process of verifying actual payroll and adjusting member contributions where necessary. These adjustments will also have an effect on reinsurance premiums and service fees for that policy period that are based on a percentage of members’ contributions. It is not anticipated that the effect will be significant.

28

Required Supplemental Information


29

Required Supplemental Information Schedule of Claims Information for Line of Coverage

Claims Development Information

The table on page 30 illustrates how the Fund’s earned revenue (net of reinsurance) and investment income compare to related costs of loss (net of loss assumed by excess insurers) and other expenses assumed by the Fund as of the end of each of the last 10 years. The rows of the table are defined as follows:

(1) This line shows the total of each fiscal year’s gross earned contribution revenue and investment revenue, contribution revenue coded to reinsurers, and net earned contribution revenue and reported investment revenue.

(2) This line shows each fiscal year’s other operating costs of the Fund, including overhead and claims expense not allocable to individual claims.

(3) This line shows the Fund’s gross incurred claims and allocated claim adjustment expenses, claims assumed by reinsurers, and net incurred claims and allocated adjustment expenses (both paid and accrued) as originally reported at the end of the first year in which the event that triggered coverage under the contract occurred (called policy year).

(4) This section of 10 rows shows the cumulative net amounts paid as of the end of successive years for each policy year.

(5) This line shows the latest re-estimated amount of claims assumed by reinsurers as of the end of the current year for each accident year.

(6) This section of 10 rows shows how each policy year’s net incurred claims increased or decreased as of the end of successive years. This annual re-estimation results from new information received on known claims, re-evaluation of existing information on known claims, as well as emergence of new claims not previously known.

(7) This line compares the latest re-estimated net incurred claims amount to the amount originally established (line 3) and shows whether this latest estimate of net claims cost is greater or less than originally thought. As data for individual policy years matures, the correlation between original estimates and re-estimated amounts is commonly used to evaluate the accuracy of incurred claims currently recognized in less mature policy years.

The columns of the table show data for successive policy years. A part of the annual change in estimated claims will be an increase attributable to accretion in the present value computation. That amount is not shown separately.


30

Required Supplemental Information Schedule of Claims Information for

Line of Coverage (Continued) (in thousands)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

(1) Earned contributions andinvestment revenue:

Earned 24,006$ 21,932$ 22,689$ 20,158$ 22,458$ 23,504$ 27,077$ 27,770$ 28,863$ 27,212$ Ceded 420 451 459 441 1,127 1,327 1,602 1,768 2,292 1,970

Net earned 23,586 21,481 22,230 19,717 21,331 22,177 25,475 26,002 26,571 25,242

(2) Unallocated expenses 3,089 3,095 3,201 2,796 2,893 2,741 2,966 2,813 3,252 3,216

(3) Estimated incurred claims and expenses -End of policy year:

Incurred 13,557 13,431 15,723 17,017 17,109 16,817 18,969 18,944 19,380 20,491 Ceded 336 331 385 385 344 339 459 687 326 910

Net incurred 13,221 13,100 15,338 16,632 16,765 16,478 18,510 18,257 19,054 19,581

(4) Paid (cumulative) as of:End of policy year 3,278 3,686 4,412 4,275 4,678 4,441 4,689 5,956 5,351 5,348 One year later 6,168 6,870 7,996 8,731 8,432 8,094 9,010 10,906 9,549 - Two years later 8,523 8,842 9,553 11,190 10,300 9,758 11,559 13,463 - - Three years later 9,263 9,524 10,440 12,518 11,506 10,943 12,611 - - - Four years later 9,677 10,252 10,815 13,502 12,584 11,668 - - - - Five years later 10,261 10,786 11,210 13,971 13,045 - - - - - Six years later 10,462 11,134 11,371 14,120 - - - - - - Seven years later 10,780 11,400 11,601 - - - - - - - Eight years later 10,964 11,469 - - - - - - - - Nine years later 11,117 - - - - - - - - -

(5) Re-estimated ceded claimsand expenses 2,291 1,856 153 138 186 840 446 950 367 -

(6) Re-estimated incurred claims and expenses:

End of policy year 12,885 12,769 14,953 16,247 16,421 16,139 18,051 17,570 19,054 19,581 One year later 11,712 12,203 14,411 15,856 15,130 14,473 16,405 19,604 18,002 - Two years later 11,794 12,344 13,494 15,917 14,802 14,103 16,621 18,923 - - Three years later 11,538 12,345 13,433 16,312 15,454 13,718 16,440 - - - Four years later 11,751 12,496 13,330 16,377 15,229 14,057 - - - - Five years later 11,883 12,613 13,218 16,075 15,047 - - - - - Six years later 11,909 12,711 13,031 15,823 - - - - - - Seven years later 11,897 12,348 12,936 - - - - - - - Eight years later 11,906 12,317 - - - - - - - - Nine years later 12,241 - - - - - - - - -

(7) Change in estimated incurred claims andexpenses - End of policy year (980) (783) (2,402) (809) (1,718) (2,421) (2,070) 666 (1,052) -

31

Other Supplemental Information


32

Contingency

Reserve 1977-2001 2001-2002 2002-2003 2003-2004


Cash and cash equivalents 3,494,567$ (6,035,552)$ 618,584$ 183,150$ 553,352$ Investments 1,212,651 49,626,040 2,348,394 4,294,624 6,203,120 Accounts receivable:

Excess insurance - 9,905 - - - Premiums - - - - - Other - - - - -

Accrued interest receivable 12,901 344,270 82,856 52,098 80,667 Prepaid service fees 1,167,500 - - - -

Total current assets 5,887,619 43,944,663 3,049,834 4,529,872 6,837,139

Noncurrent assets - Investment in NLCMutual Insurance Company - At cost - 1,563,058 - - -

Total assets 5,887,619 45,507,721 3,049,834 4,529,872 6,837,139

LiabilitiesNet reserve for losses and loss adjustment expenses - 3,554,163 469,697 619,777 1,464,661 Net reserve for incurred but not reported losses

and loss adjustment expenses - 5,603,510 1,233,881 1,382,538 924,400 Accounts payable - - - - - Premiums collected in advance - - - - - Dividends payable 2,834,347 - - - -

Total liabilities 2,834,347 9,157,673 1,703,578 2,002,315 2,389,061

Accumulated Members' Equity - End of year 3,053,272$ 36,350,048$ 1,346,256$ 2,527,557$ 4,448,078$

Policy

33

Statement of Accumulated Members’ Equity by Policy Year through June 30, 2008

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Total

703,410$ 2,924,565$ (685,018)$ 1,239,355$ 3,164,218$ 6,160,631$ 7,877,216 5,338,818 11,723,249 15,225,929 10,062,580 113,912,621

- - - - - 9,905 - 17,438 (170) 17,140 - 34,408 - - 66,645 - - 66,645

193,317 48,185 106,434 148,414 71,568 1,140,710 - - - - - 1,167,500

8,773,943 8,329,006 11,211,140 16,630,838 13,298,366 122,492,420

- - - - - 1,563,058

8,773,943 8,329,006 11,211,140 16,630,838 13,298,366 124,055,478

2,458,372 2,399,743 4,078,028 6,375,161 - 21,419,602

1,370,439 3,060,277 4,375,028 7,857,751 - 25,807,824 - - 821 68,698 - 69,519 - - - - 13,207,687 13,207,687 - - - - - 2,834,347

3,828,811 5,460,020 8,453,877 14,301,610 13,207,687 63,338,979

4,945,132$ 2,868,986$ 2,757,263$ 2,329,228$ 90,679$ 60,716,499$

Year


34

Contingency

Reserve 1977-2001 2001-2002 2002-2003 2003-2004

Operating RevenuePremiums - $ - $ - $ - $ - $ Less reinsurance premium expense - - - - -

Net premiums - - - - -

Operating ExpensesLosses and loss adjustment expenses - 374,401 (251,085) (181,626) 339,023 Service fees - - - - - State assessments - - - - - Administrative expenses 30,361 14,095 2,326 1,395 2,093

Total operating expenses 30,361 388,496 (248,759) (180,231) 341,116

Operating Income (Loss) (30,361) (388,496) 248,759 180,231 (341,116)

Nonoperating Income - Investment income 82,342 2,628,635 440,817 264,725 397,697

Operating Transfers 20,011 - - - -

Dividends to Members - 7,000,000 - - -

Increase (Decrease) in Accumulated Members' Equity 71,992 (4,759,861) 689,576 444,956 56,581

Accumulated Members' Equity -Beginning of year 2,981,280 41,109,909 656,680 2,082,601 4,391,497

Accumulated Members' Equity -End of year 3,053,272$ 36,350,048$ 1,346,256$ 2,527,557$ 4,448,078$

Policy

35


by Policy Year through June 30, 2008

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Total

8$ - $ (929,672)$ 25,926,095$ - $ 24,996,431$ - - (97) (1,970,390) - (1,970,487)

8 - (929,769) 23,955,705 - 23,025,944

(181,607) (681,545) (1,052,062) 19,581,000 - 17,946,499 - - - 2,521,808 - 2,521,808 - - - 234,796 - 234,796

2,534 1,910 11,491 460,479 537 527,221

(179,073) (679,635) (1,040,571) 22,798,083 537 21,230,324

179,081 679,635 110,802 1,157,622 (537) 1,795,620

479,892 356,117 693,653 936,295 91,216 6,371,389

- - (20,011) - - -

- - - - - 7,000,000

658,973 1,035,752 784,444 2,093,917 90,679 1,167,009

4,286,159 1,833,234 1,972,819 235,311 - 59,549,490

4,945,132$ 2,868,986$ 2,757,263$ 2,329,228$ 90,679$ 60,716,499$

Year


36

Contingency

Reserve 1977-2001 2001-2002 2002-2003 2003-2004

Operating RevenuePremiums - $ 358,915,158$ 17,249,908$ 19,108,711$ 21,060,298$ Less reinsurance premium expense - (10,777,316) (440,509) (1,126,920) (1,326,634)

Net premiums - 348,137,842 16,809,399 17,981,791 19,733,664

Operating ExpensesLosses and loss adjustment expenses - 225,820,145 15,823,468 15,047,083 14,056,786 Service fees 200,000 34,608,645 2,162,027 2,168,002 2,165,686 State assessments - 4,243,306 120,864 232,855 81,880 Administrative expenses 61,457 7,408,931 515,239 493,656 495,756

Total operating expenses 261,457 272,081,027 18,621,598 17,941,596 16,800,108

Operating Income (Loss) (261,457) 76,056,815 (1,812,199) 40,195 2,933,556

Nonoperating Income - Investment income 2,480,988 109,095,145 2,908,455 2,487,362 1,514,522

Dividends to Members 1,440,314 146,282,045 - - -

Net Operating Transfers 2,274,055 (2,519,867) 250,000 - -

Accumulated Members' Equity 3,053,272$ 36,350,048$ 1,346,256$ 2,527,557$ 4,448,078$

Policy

37


by Policy Year from Inception through June 30, 2008

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Total

23,981,399$ 25,137,363$ 24,526,832$ 25,926,095$ - $ 515,905,764$ (1,601,968) (1,751,385) (2,292,428) (1,970,390) - (21,287,550)

22,379,431 23,385,978 22,234,404 23,955,705 - 494,618,214

16,439,944 18,922,930 18,001,872 19,581,000 - 343,693,228 2,237,811 2,156,441 2,512,174 2,521,808 - 50,732,594

181,203 168,852 274,607 234,796 - 5,538,363 549,079 489,286 477,102 461,749 537 10,952,792

19,408,037 21,737,509 21,265,755 22,799,353 537 410,916,977

2,971,394 1,648,469 968,649 1,156,352 (537) 83,701,237

1,973,738 1,220,517 1,808,625 1,172,876 91,216 124,753,444

- - - - - 147,722,359

- - (20,011) - - (15,823)

4,945,132$ 2,868,986$ 2,757,263$ 2,329,228$ 90,679$ 60,716,499$

Year

Michigan Municipal League Workers’ Compensation Fund · The Michigan Municipal League Workers’...

Documents

Transcript of Michigan Municipal League Workers’ Compensation Fund · The Michigan Municipal League Workers’...