To Our Policy Holders, Agents, & Associates
We are pleased to report that 2019 was an outstanding year for MMG on all fronts. Financially, we posted the best-combined ratio in 13 years and substantial investment returns drove the balance sheet to unprecedented strength. Operationally, multiple advances provided competitive positioning in many areas, laying the foundation and infrastructure for the next decade.
From a financial perspective, the 95.84% combined ratio was driven by positive results in all lines. A mild winter in the Northeast, much improved Personal Auto results, and the consistency of excellent Commercial Lines experience contributed to the favorable combined ratio.
These factors produced a $6.5 million underwriting gain. In addition, strong investment returns combined with an equity raise of $4 million increased policyholder surplus by 19%, adding $21 million and finishing at $129.6 million. The result is a balance sheet that provides the capital that will fuel future growth and ensure ongoing security for policyholders.
“Financially, we posted the best combined ratio in 13 years, and substantial investment returns drove the balance sheet to unprecedented strength.”
As mentioned, loss ratios were positive across all product lines. Homeowners finished at 48.84% and a consistent 5 year of 49.80%. We also experienced significant improvement in Personal Auto finishing at 60.46%, much better than the 67.16% in 2018, 74.59% in 2017 and a 5 year of 71.70%. Commercial Lines continued to perform very well at 35.25% and a 5 year of 38.90%. Loss ratios by state were Maine at 39.02% and a 5 year of 46.40%, New Hampshire at 45.68% and 51.60%, Pennsylvania at 53.09% and 64.10%, Vermont at 46.57% and 48.80%, and Virginia at 80.63% and 80.50%. We are pleased with the consistency of Northern New England and welcome the strong results in an improving Pennsylvania book. Virginia continues to run higher than expectations and much work is going into moving that state to a more profitable position.
As for growth, at 4.70%, we finished slightly below the budget of 5.26%. Given actions taken to improve Auto results, Personal Lines growth has remained minimal at 1.53%. However, on the Commercial Lines side of the ledger, a growth rate of 9.63% outperformed expectations of 7.67%. This is a positive development driven by more of our agency partners seeing us as a viable market in this very competitive space. By state, overall growth rates are as follows: Maine 4.89%, New Hampshire 1.94%, Pennsylvania 6.50%, Vermont 2.96% and Virginia 13.95%. Overall, a great year from most measurements, building positive momentum as we look to expand in all areas in the future.
A Year of Operational Gains
2019 will be remembered as one of those years that gains and positioning across the organization provided the Company with a stronger competitive posture, one well-prepared to compete on a higher level. Progress was seen across the board with continuing major investments in the technology that prepares us for an evolving consumer landscape, marketplace initiatives and success that will continue to drive growth, award-winning talent innovations, and staying true to a high-tech, high-touch model that provides exceptional service to policyholders and agents alike. The following are examples from each of those areas that collectively increased our competitive standing across the board in 2019.
Technology continues to evolve at a rapid pace. At MMG, we are taking on that challenge and embracing the needed design for the future. The foundation of our work is our ongoing legacy system replacement project, MMG Next. In 2019, significant resources were dedicated to integrating a new policy administration and claims systems. These two major areas are critical components to all carriers’ technology needs. This effort will lead to a mid-2020 implementation for the BOP and Small Contractor lines of business. Due to the work completed, other lines will be released at an accelerated pace. Personal and Commercial Auto will be next, with a planned new Auto-product roll out for December of 2020. We are excited about the progress made this past year and, more importantly, the efficiencies and effectiveness that will come with these new systems. We also made impactful progress in two other technology-based areas, the build-out of an enterprise data warehouse and an aggressive move to more digital-based transaction platforms. Data and analytics will be central to future product design and the new warehouse will be the engine that drives the needed output. Transacting digitally is the way of the future as we align to evolving consumer expectations. By adapting and simplifying workflow, building a greater level of connectivity, and creating technical foundations that can scale to our future needs, we are prepared to take advantage of digital advancements and ready MMG for what lies ahead.
In the marketplace, 2019 was a year of major advancements in our competitive position in Commercial Lines. A new partnership was formed with Eastern Alliance to allow us to offer Workers’ Compensation solutions with MMG companion Commercial Lines products. This concept has been well received by our agents, and we are seeing a steady flow of new opportunities. This strategic move allows MMG to provide a complete package to the marketplace and a needed component for competing for an expanded segment of Commercial Lines. The significant driver of exceeding our growth expectations in 2019 was the collaborative effort between Marketing and Underwriting. The alignment of the two Departments provided for focus and clear communication to our Agents of our Commercial Lines direction. In addition, our game plan of providing a commitment to accessibility and responsiveness, no matter the size of account, is appreciated by our agency partners. With 41% of our business now in Commercial Lines, it is important this collaboration continues as we look to move the profile of business to 45%.
As mentioned, Personal Lines has not been as vibrant in terms of flow of business. This was intended given priority needed to enhance our model to be more responsive to appropriately price the risk taken. Our Auto product will see significant upgrades in both features and pricing in 2020 and will be implemented alongside new technology to simplify workflow and process. We are excited about this development as it will allow us to broaden our competitive appetite in Personal Lines and become a more relevant market for our agency partnerships.
We have discussed our talent initiative in past years’ reports. We are pleased to state that the success continues. Over the past six years, we have hired 200 individuals in a variety of positions. During that timeframe, we have experienced significant demographic shifts to a much higher Millennial representation, many individuals developing skills and earning promotions, and talent additions that have resulted in a team that has driven success and assumes confidence in taking on the challenges ahead. We were pleased in June to be named the Overall Winner in Innovation by the National Association of Mutual Insurance Companies (NAMIC) due to our talent attraction/development efforts. We were appreciative and excited to be recognized for the creative ways we have attacked the talent concerns that all industries are experiencing.
During the awards ceremony, NAMIC identified the following outcomes and indicators of our efforts dating back to 2013: Millennials in our workforce increasing from 21% to 40%, 100 internal promotions, collaboration efforts with colleges, universities, and local high schools, Junior Achievement involvement, and new approaches to expedite learning to build workforce experience faster. This recognition summarizes the multifaceted manner in which we have navigated through the ongoing war for talent.
“We are pleased with the team that is MMG and see this continuing to play a pivotal role as we look to offer a unique option of high-tech, high-touch in an ever increasingly competitive marketplace.”
Although we have experienced some success, the talent demands are always present. We are pleased with the team that is MMG and see this continuing to play a pivotal role as we look to offer a unique option of high-tech, high-touch in an ever increasingly competitive marketplace. This talent allows us to build on a model that provides exceptional customer service to policyholders and agents alike. It also puts a high value on the development of partnerships with our agents and the many others that are so important to delivering on that model.
In closing, 2019 was an important year from many aspects and provides confidence with an optimistic view as we march into a new decade. We are fortunate to have an engaged and insightful Board of Directors, an employee group that continues to perform at a high level, agency partners that recognize the value of MMG in their respective businesses, and many partners and vendors who make us a better company. We are excited with what lies ahead as we begin the 2020s.