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Annual Report 2001
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TABLE OF CONTENTS
VISION STATEMENT
| To become the most trusted business partner of healthcare providers. |
MISSION STATEMENT
| To provide high-quality, professional liability insurance and other services to enhance the strength and security of the healthcare community. | | |
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LETTER TO SHAREHOLDERS
Seizing Opportunities, Conquering Challenges
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ANDREW J.K. SMITH
MMIHC Board Chair |
DAVID P. BOUNK
MMIHC President & CEO |
JACK L. KLEVEN
MMIC President |
Two thousand and one was an extraordinary year for MMIC, a year of opportunities and challenges.
2001 was a year of turmoil in the insurance industry in general; the medical malpractice sector was no exception. Severity in all areas increased dramatically and put considerable pressure on reinsurance pricing, which was further impaired by the September 11 tragedy and by Enron's bankruptcy. In the medical malpractice industry we saw huge severity increases that caused "crisis warnings" in states such as Texas, Pennsylvania, Florida and West Virginia. Phico, the fifth largest writer of medical malpractice in our core states, was placed in liquidation and The St. Paul announced its withdrawal from the healthcare market.
As a result of the exiting of The St. Paul and Phico, MMIC had an unprecedented opportunity to write new business. We were able to capitalize on these circumstances to expand our market share and add solid new business in a very short period of time.
While continuing our strategy of selective underwriting and appropriate pricing, we had excellent growth. New direct written premium growth of $13.5 million exceeded our goal by $10 million, bringing our total written premium to $65 million in 2001.
When we began our five-year plan in 1998, MMIC insured 5,924 physicians, 14 hospitals and 543 clinics. We retained 99.6 percent of our policyholders last year and by year end, we insured 10,009 physicians, 139 hospitals and 774 clinics. This is a remarkable accomplishment.
Last year was our ninth consecutive year of returning unanticipated profits to policyholders. We returned $8 million to physicians and $95,464 to hospitals in 2001; and the board declared dividends of $4 million for distribution to physicians in 2002. MMIC is one of a few medical malpractice carriers still returning dividends to policyholders.
Two thousand and one was an extraordinary year for MMIC, a year of opportunities and challenges.
In 2001, underwriting, claim and risk management became even more focused on those factors underlying our gradually increasing claim severity. Jury verdicts and settlements in the upper Midwest reached their highest level ever last year. So far, we have been able to keep our claim severity at a reasonable level when compared to other parts of the country. Fortunately, at the same time, frequency remained at historic low levels of 5 per 100 physicians.
The overall impact of the events of 2001 required MMIC to increase physician and hospital rates in all our states for 2002. Even with these increases, the current cost of our coverage is near a historic low level, almost the lowest in the United States. We sustained a modest loss from operations, primarily because we increased loss reserves for 2001 to more closely reflect the current, more challenging environment. MMIC still remains financially strong at every level as shown by its rating of A (Excellent) by A. M. Best.
In 2001, MMIC Technology Solutions exceeded goals, with decreased costs and increased revenue. While there is the ongoing challenge of the healthcare sector's relatively slow adaptation of technology, we benefited from our MMIC branding and the trust we have built with policyholders. We are gratified by the acceptance of our newer products and services and are confident that Technology Solutions will be profitable by the end of its third year.
MMIC Benefits, our affiliated insurance agency, exceeded gross revenue goals in 2001 by 3.5 percent. We benefited from greater cross selling by the MMIC sales staff. To supplement our benefits services, we acquired 20 percent ownership of Langan & Flynn, LLC, a human resources consulting firm offering a variety of consulting services to both healthcare and non-healthcare clients.
MMIC continued its leadership role by developing resources to assist physicians with the challenges of dealing with HIPAA (the Health Insurance Portability and Accountability Act of 1996) regulations. MMIC has been directly involved in shaping HIPAA at the national level through our effort with the Physician Insurers Association of America and the Department of Health and Human Services.
Finally, we thank Drs. Anton Nesse, Richard Schmidt and Tom Evans, who left the board in 2001. We are appreciative of their leadership and support during an exciting time in MMIC's history.
Joining the MMIC board last year were Drs. Mark Barnhill, Peter J. Daly, T. Michael Tedford and William L.Youmans. Dr. Barnhill is a Des Moines, Iowa, pediatrician; Dr. Daly a St. Paul, Minn., orthopedic surgeon; Dr.Tedford a Minneapolis, Minn., otolaryngologist; and Dr.Youmans a Minneapolis family practitioner.
Last year was a pivotal year in our history, a year in which we had to adapt to the challenges of a chaotic insurance environment. We succeeded while maintaining our core principles. As the medical malpractice market continues to change, we strongly believe that our business strategy will allow us to capitalize on many future opportunities to grow, prosper and serve the needs of our shareholders and policyholders.
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ANDREW J.K. SMITH
Board Chair
Midwest Medical Insurance Holding Company
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DAVID P. BOUNK
President & CEO
Midwest Medical Insurance Holding Company |
JACK L. KLEVEN
President and COO
Midwest Medical Insurance Company |
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2001 HIGHLIGHTS
Our Success in implementing and refining MMIC's business strategy has allowed us to create opportunities, during these turbulent times for medical malpractice insurers. We work hard to understand the industry and the needs of our clients. We don't stop at just being an insurer. We have created a variety of other products and services to help our clients succeed in the healthcare environment.
A (EXCELLENT)
MMIC is rated A (Excellent) by A. M. Best, Inc., a premier independent insurance rating organization. The rating reflects MMIC's financial strength and leadership position in its operating territories. We have maintained an "A" rating, the highest available to medical malpractice specialty companies, since 1992.
PREMIUM GROWTH
Chaos in the medical malpractice marketplace brought us many opportunities for growth. When others were leaving the market, we had the management and processes in place that enabled us to choose the best of the available accounts and price appropriately.
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POLICYHOLDER DIVIDENDS
MMIC continues to return excess profits to qualifying policyholders. Last year we returned $8 million to policyholders in Minnesota, Iowa, North and South Dakota, and Nebraska. MMIC has returned $70 million to policyholders over the past eight years, including $10 million from the stock restructure. |
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MARKET SHARE
According to A.M. Best's 2000 report, MMIC was second to The St. Paul in market share in our core territory. The report included premiums for all healthcare providers and nursing homes. MMIC writes only physicians, clinics, health systems and hospitals. We are confident that MMIC will be number one in market share in 2002 in each of the states in which we principally write business.
TORT REFORM
Historically, we have had tort reform success in Minnesota and North Dakota. In recent years, there has been very little tort legislation at the local level. In 2001, we were active in Minnesota to protect the expert witness rule and the statute of limitations. As we look ahead, we believe MMIC will join forces with other organizations to aggressively push reforms if the availability and afford-ability of medical malpractice insurance, and concurrently, access to healthcare are significantly compromised. MMIC is also active at the national level through the Physician Insurers Association of America and as a member of the Health Care Liability Alliance in Washington, D.C.
HIPAA EDUCATION AND AWARENESS
MMIC is a leader in helping policyholders tackle the challenges of the transaction, privacy and security regulations under HIPAA (the Health Insurance Portability and Accountability Act of 1996).We recognized the significance of HIPAA long before there was widespread awareness of the regulations.
Last year working with our affiliate Partners Healthcare Consulting, LLC, we capitalized on an opportunity to develop a range of HIPAA seminars and resources that can be found in the HIPAA Resource Center on the MMICTM medportal Web site (www.mmicmedportal.com). We believe we are the most complete and authoritative source of HIPAA information and education in the Midwest and perhaps anywhere.
HIPAA RESOURCE CENTER
As the deadlines for compliance approach, you can find the latest news and updates on HIPAA regulations and compliance and the following materials in the HIPAA Resource Center:
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TECHNOLOGY RESOURCES
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When we created Technology Solutions three years ago, we knew it would be a challenge to make it a successful venture for MMIC and its policyholders. But you told us there was a need for these types of services and we saw it as another opportunity to follow our mission to serve independent physicians in a demanding health-care environment. After three very deliberate years of strategic planning and execution, Technology Solutions has exceeded our goals once again in 2001. | MMIC PRACTICE SOLUTIONS
Practice Solutions sold its first two practice management systems in 2001. We offer this product to clinics of all sizes. We were especially proud when two of our policyholders became our first practice management clients. MMICTM TECHNOLOGY CONSULTING
Technology Consulting has a solid and growing client base and continues to serve healthcare organizations across the state of Minnesota offering a variety of network, application and Web site services. Technology Consulting will continue to explore geographical expansion into MMIC's other states when it's practicable.
MMICTM MEDPORTAL
At the end of last year, more than 6,500 policyholders were registered members of the MMICmedportal. Users of the www.mmicmedportal.com Web site continue to grow. The MMICmedportal offers a number of exciting business applications including medical supply purchasing, on-line insurance forms, clinical information and electronic printing. We expect its value to increase as we enhance its content with transcription service and a greater ability to conduct your business with MMIC on-line.
MMICTM MEDPORTAL RESOURCES
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MD Consult on-line medical content
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On-line insurance forms
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Electronic document printing
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HIPAA resource center
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Medical supply purchasing
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Human resources services
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Risk management materials
RISK MANAGEMENT MEDPORTAL RESOURCES
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On-line Publications
- Risklutions Manual Request videos
- Minimizing Obstetrical Risk Manual
- Medical Office Staff Handbook
- Perspective on Prevention newsletters
- Litigation booklet
- Malpractice handbook
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Register for seminars
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Request videos
MMIC'S STRATEGIC ALLIANCES
PARTNERS HEALTHCARE CONSULTING
Partners specializes in medical practice performance improvement, hospital-physician integration strategies and ambulatory strategic planning on a national basis. They work with medical groups as well as hospitals/health systems that own, operate, or joint venture ambulatory care delivery systems.
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Medical practice business planning and operations improvement
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Physician compensation design
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Coding, reimbursement and compliance
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Network/MSO development and performance improvement
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Health plan contracting
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Hospital/physician integration
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Strategic and market position planning
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Health Insurance Portability and Accountability Act (HIPAA)
LANGAN AND FLYNN, LLC
Langan and Flynn, LLC, a human resources firm, offers a variety of human resource tools to policyholders. Many of the services are designed especially for healthcare organizations. We offer these services through our Human Resources E-Store on the MMICmedportal Web site, www.mmicmedportal.com. The human resource materials are available 24 hours a day.
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Human Resource policies and forms that can be downloaded and customized
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A hotline where you have access to healthcare human resource
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Professionals
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Employment background screening services
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On-line recruitment service
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Professional license and background checks
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Employment verifications
MULTIPLE RELATIONSHIPS
We made progress in our multiple relationship cross-selling efforts. At the close of last year, 141 additional policyholders or customers were using more than one of our products or services. Now more than 2,000 physicians purchase more than one of our products and services. Our goal is to help more of our policyholders see the advantage of purchasing many of their healthcare business CUSTOMER products from MMIC a partner they can trust. |
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| MIDWEST MEDICAL INSURACEN HOLDING COMPANY AND SUBSIDIARIES |
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED, IN THOUSANDS) |
| BALANCE SHEETS |
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December 31 |
| Assets |
2001 |
2000 |
| Invested assets |
$247,293 |
$263,436 |
| Other assets |
40,112 |
38,305 |
| Total assets |
$287,405 |
$301,741 |
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| Liabilities and shareholders' equity |
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| Liabilities: |
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| Unpaid losses and loss adjustment expenses |
$118,574 |
$118478 |
| Other Liabilities |
41,944 |
42,665 |
| Total liabilities |
160,518 |
161,143 |
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| Shareholders' equity |
126,887 |
140,598 |
| Total liabilities and shareholders' equity |
$287,405 |
$301,741 |
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| Statments of Income |
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Year Ended December 31 |
| Revenues: |
2001 |
2000 |
| Net premiums earned |
$50,097 |
$41,344 |
| Net investment income |
12,341 |
12,240 |
| Realized capital gains |
6,571 |
10,502 |
| Other |
2,637 |
4,023 |
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71,646 |
68,109 |
| Losses and expenses: |
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| Losses and loss adjustment expenses |
58229 |
39,587 |
| Underwriting, acquisition and insurance expenses |
8,844 |
7,570 |
| Other operating expenses |
6,901 |
6,822 |
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74,044 |
53,979 |
| Operating margin: |
(2,398) |
14,130 |
| Policyholder dividends |
4,050 |
8,108 |
(Loss) income from continuing operations
before tax |
(6,448) |
6,022 |
| Income tax (benefit) expense |
(2,222) |
437 |
(Loss) income from continuing operations
after tax |
(4,226) |
5,585 |
| Discontinued operations, net of tax |
(375) |
(299) |
| Net income (loss) |
$(4,601) |
$5,286 |
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The foregoing unaudited condensed consolidated financial information has been derived from the audited consolidated financial statements. These statements are available upon request from the Finance Department or on our Web site: www.mmicgroup.com.
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BOARD OF DIRECTORS
ANDREW J.K. SMITH, M.D.
Neurosurgeon
Wayzata, Minnesota
(CHAIR)
MICHAEL D. ABRAMS
Executive Director
Iowa Medical Society
West Des Moines, Iowa
JOHN R. BALFANZ, M.D.
Pediatrics
St. Paul, Minnesota
GAIL P. BENDER, M.D.
Oncology
St. Louis Park, Minnesota
JAMES R. BISHOP, M.D.
Director of Medical Affairs
Edina, Minnesota
DAVID P. BOUNK
President & CEO, MMIHC
Minneapolis, Minnesota
TERENCE P. CAHILL, M.D.
Family Practice
Blue Earth, Minnesota
PETER J. DALY, M.D.
Orthopedic
St. Paul, Minnesota
G. RICHARD GEIER JR., M.D.
General Surgery
Rochester, Minnesota
ANTHONY C. JASPERS, M.D.
Family Practice
Lake Crystal, Minnesota
JACK L. KLEVEN
President, MMIC
Minneapolis, Minnesota
RUSSEL J. KUZEL, M.D.
Family Practice
Fargo, North Dakota
SENIOR MANAGEMENT
DAVID P. BOUNK
President and
Chief Executive Officer
MMIHC
JACK L. KLEVEN
President and
Chief Operating Officer
MMIC
NILES A. COLE
Chief Financial Officer/
Vice President of Finance
MMIHC
THOMAS H. LEE
Chief Information Officer/
Vice President Information Systems MMIHC
ELIZABETH S. LINCOLN
Vice President Law and Health Policy MMIHC
DEBRA L. McBRIDE
Vice President Risk Management MMIC
GERALD M.
O'CONNELL
Vice President Sales and Marketing MMIHC
JULIE J. STAFFORD
Assistant Vice President Underwriting MMIC
JERRY A. ZEITLIN
Vice President of Claim
MMIC
STEVE N. GERBERDING
Vice President Operations
MMIC Technology Solutions
STEPHANIE A. KROEGER
Assistant Vice President
Human Resources
MMIHC
ROSALIND M. MILLER
Director of Communications
MMIHC
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WAYNE F. LEEBAW, M.D. Endocrinology
Edina, Minnesota
MARK O. LIABOE, M.D.
Internal Medicine
Dubuque, Iowa
PATRICIA J. LINDHOLM, M.D.
Family Practice
Fergus Falls, Minnesota
STEPHEN A. MCCUE, M.D. Obstetrics-Gynecology
Sunfish Lake, Minnesota
ROGER H. MEYER, M.D.
Family Practice
Seward, Nebraska
HAROLD W. MILLER, M.D.
Family Practice Davenport, Iowa
MARK D. ODLAND, M.D.
General Surgery
Minneapolis, Minnesota
PAUL S. SANDERS, M.D. CEO Minnesota Medical Association Family Practice
Minneapolis, Minnesota
T. MICHAEL TEDFORD, M.D
Otolaryngology
Minneapolis, Minnesota
R. BRUCE TRIMBLE, M.D.
Rheumatologist
Mason City, Iowa
TOM D. THROCKMORTON, M.D. General Surgery
Spencer, Iowa
WILLIAM L. YOUMANS, M.D.
Family Practice
Minneapolis, Minnesota
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THE MMIC GROUP OF COMPANIES
CORPORATE OFFICE
Midwest Medical Insurance Holding Company
7650 Edinborough Way
Suite 400
Minneapolis, MN 55435
Telephone: 800.328.5532
www.midmedical.com
WEST DES MOINES OFFICE
P.O. Box 65790
West Des Moines, IA 50265
Telephone: 800.798.9870
OMAHA OFFICE
10330 Regency Parkway Drive
Suite 302
Omaha, NE 68114
Telephone: 888.397.3034
MMIC Technology Solutions
2800 Campus Drive
Suite 150
Plymouth, MN 55441
Telephone: 800.328.5532
www.mmicmedportal.com
MMIC Benefits, Inc.
4535 Hodgson Road
Suite 100
Shoreview, MN 55126
Telephone: 651.484.1516
www.mmicben.com
AUDITORS
Ernst & Young LLP
ACTUARIAL CONSULTANTS
Bickerstaff + Whatley
Produced by:
Midwest Medical Insurance
Holding Company
Design:
Thomas Design Group
Photography:
The Studio Central
Printing:
Diversified Graphics | |
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