WINTER 2013
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COMMENTARY:
John K. Smith , President & CEO
The New Year is upon us and to be quite honest, professionally speaking, we at
PLM are just as happy to put the old year behind us. At the time of this writing we have not announced our final results to our Board of Directors, so what follows is a "rough" financial viewpoint but approximates where we expect the final results to stabilize. We expect a 5 to 6 point improvement in our combined ratio to approximately 112%. Beneath this number, improvement can be found in both the loss and expense side of the equation. The loss ratio dropped approximately 4 points and the expense ratio improved by almost 2 points. On the surface, the loss ratio improvement is more gratifying than the expense ratio improvement only because the expense ratio is more easily controlled and can respond more quickly to steps taken to improve it. During the year, we enjoyed premium growth in excess of 7% finishing the year with approximately $152 million of premium.
Unfortunately, we generated another significant underwriting loss in excess of $17 million and an operating loss (after investment income) of approximately $8 million -- simply unacceptable results from a strictly financial viewpoint. In digging deeper into our financial numbers, it is easy to identify the source of our problem: 14 large losses that generated over $1 million each. This is almost three times the number of severe losses that we usually experience. In 12 of the 14 cases, the risks were sawmills.
Worldwide and across the insurance industry, the sawmill and pallet classes have been generating extremely unprofitable results over the past five years. While PLM has been insulated for much of that time, our results during the last two years in this class are at a point where we must make a decision as to whether or not we will continue to operate in this segment of the wood niche.
In reviewing our results, it has become clear that the sawmill and pallet segments of our business have operated well below our expectation from a profitability standpoint for the last five years. Our financial results would be more dismal if it had not been for the profit that we generated in the light manufacturing and retail/wholesale lumber dealer segments of our business.
Unfortunately, the costs of our reinsurance program are being driven dramatically upward for all of our customers due largely on our poor sawmill results. This is of significant concern to us. Thus the decision has been made to segment our book of business and allow the sawmill book to stand on its own from a cost and loss basis without being subsidized by the results of our light manufacturing and retail/wholesale lumber dealer segments.
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Lori Vander Heyden, Loss Control Services Manager
At PLM, we are proud of the relationships we build with our customers. One of the services we provide at PLM is the opportunity to have a Field or Loss Control Representative visit your location during your policy term. On occasion during these visits, the Field or Loss Control Representative will point out potential issues which need attention, and provide solutions as to how to control the issue. We follow up with a written recommendation letter
and request a response from the insured via response card or email as to how the issue was resolved. These recommendations are typically based using our claims experience by which we develop underwriting standards and the best practices noted in the National Fire Protection Association (NFPA) standards. NFPA is a non-profit organization that strives to improve fire and electrical safety for everyone. Local, state, and federal governments rely on private non-profit organizations like NFPA to complete the research and develop the codes that are adopted into law to protect public safety.
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Testimonial ......... 2
Customer Services
Surveys ............... 4

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continued from page 1
While you are always welcome to discuss any of the recommendations with either myself or your Loss Control Representative, I thought it would be a good idea to point out that NFPA allows free access to their standards online in an effort to further the organization's mission to control fires and save lives. NFPA is the first organization to allow free access to privately developed codes and standards.
To obtain free access to the NFPA codes and standards, you simply need to visit www.nfpa.org/freeaccess. This is a read-only site and documents cannot be printed. It will allow you to further research a number of topics related to the recommendations we provide to our insureds or for you to search any topics which may interest you.
........ testimonial ........
On August 30th 2012 our main sawmill caught fire while under full production. I We are happy to announce that
PLM has hired the following new was not at the mill at the time, but went rushing back to the mill after I received
Field and Loss Control the call that the mill was “on fire”. I started frantically calling my CFO who was
Representatives. responsible for putting our insurance together. He was in a panic, couldn’t think straight, and wasn’t able to remember the name of our insurance company or our
New Field Representatives: agent. Finally in frustration I said emphatically: Brian, DO WE HAVE INSUR-
ANCE? To which he replied: Yes, and I will come to the office and find the Mark Bianchi - Covering Illinois, phone numbers and call.
Iowa & Wisconsin ph: 267.825.9178
mbianchi@plmins.com
After arriving at the fire scene a half hour later, I received a call from our agent
Karl Fetterman of Kling Bros. Karl immediately notified PLM of our situation.
While watching the mill burn, I was contacted at the scene by an agency that is supposed to help hold insurance companies’ feet to the fire to be sure they pay the tab they promised to pay. I was definitely concerned that our carrier may try to weasel out of anything they could. I had been told by this individual and others, that I could expect that kind of behavior from insurance companies. At this point I still was not sure what kind of company PLM was.
Richard Kunz - Covering
Arizona, Nevada, New Mexico,
Utah ph: 267.825.9180
rkunz@plmins.com
When Sam Metts arrived at our mill a few days later as an adjuster for PLM, I was pleasantly surprised at his attitude. I told Sam that I was concerned about getting squeezed and was contemplating the need to “hire” an agency to help me.
He said something like this: Tim, give me a couple of weeks to respond to your claim, If after a couple weeks I’m not doing a good job, feel free to hire them to help you.
Jim Clear - Covering Southern
Ohio and Southern Indiana ph: 267.825.9182
jclear@plmins.com
I was impressed with this challenge, and Sam worked very hard to back up what he said. He was in constant contact via e-mail, phone calls, and visits. He helped us negotiate through what could have been a severe blow to our business. He got all the players involved at PLM including a visit from one of PLM’s Vice
Presidents who hand-delivered a check. The fire occurred on August 30, the resolution of our claim came in less than 45 days! Now that’s P.O.S. at its best.
P ositively O utrageous S ervice. Thank you PLM!
New Loss Control Service
Representatives:
Paul Gills - Covering Maine,
Massachusetts, Rhode Island,
Connecticut, and Nassau &
Suffolk Counties in New York ph: 267.825.9148
pgills@plmins.com
Tim Kuhns, President
Kuhns Bros. Lumber Co. Inc.
Bret Williamson - Covering national sawmill, pallet & pellet operations ph: 267.825.9126
bwilliamson@plmins.com
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WINTER 2013
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We have launched a series of remedial actions focused on sawmills (and pallet manufacturers which we consider part of the sawmill book) that we believe, if successfully implemented, will result in improved performance in this segment of our business. This would allow us to continue to be a marketplace for sawmills. with all our staff the need to remain highly vigilant in reviewing the welding exposures which are prevalent in the sawmill class of business. We are increasing deductibles in an effort to increase the insured’s involvement and concern for loss control actions in general by ensuring that they have more
"skin in the game" should a loss occur. We are increasing pricing, substantially, as it has become clear to us that as the market has softened over the last several years, our pricing has eroded to a point where our sawmill book of business is dramatically underpriced.
Other actions will unfold as we move forward and we finalize our efforts.
We understand these are difficult actions. However, we are determined, as stewards of Pennsylvania Lumbermens
Mutual, to not abandon the sawmill segment of the wood niche and instead to fix the profitability of this segment.
We have created a separate underwriting team and committed additional staffing resources to underwrite and loss control our current book of sawmill renewals and ones that are being proposed.
If you are a lumber dealer or a light manufacturing business currently insured by PLM, you should be aware that the steps outlined above are designed to improve our overall financial
We have hardened the underwriting risk qualification standards that a sawmill or pallet
results and should over time allow us to provide a continued stable marketplace for your business. If we are unsuccessful in fixing the unprofitability associated with sawmills and pallets and are forced to exit that segment of the wood niche, we will do so with a desire and awareness to continue to be a stable and competi-
business must tive market for our retail/wholesale lumber dealers and
achieve for us to consider writing it other light wood manufacturing exposures that we currently insure and will insure in the future. You can
as new business or expect more involvement by our field and loss control
retaining it as a renewal. We have staff in reviewing with you loss control prevention activities as well as a closer underwriting of your busi-
tightened our focus ness at the time of quotation or renewal. Our actions,
on housekeeping and electrical exposures and will be doing a much more detailed analysis of
the insured's procedures and programs in these areas which
selves in regards to understanding the wood business. We have reflected deeply on our responsibilities to our insureds are two of the three largest causes of loss. We will reinforce however, will not be in any way as dramatic or hardnosed in our approach to your business.
This is a difficult article to write and one that has potential, unpleasant outcomes. We at PLM pride ouras a mutual insurance company in developing these actions.
However, when a segment of our business is generating the staggering losses that the sawmill and pallet segment is; there comes a time when these types of actions are not only appropriate but necessary and required.
To put it in more stark terms, we have seen average property rates for sawmills drop almost 70% over the last ten years. If you adjust for inflation, that average rate decrease is even more dramatic. Meanwhile, the cost to rebuild after a loss has not gone down; in fact, it has increased. This is not sustainable in the insurance business, nor is it sustainable in any business. Simply put, our loss costs have far exceeded the rate we have been charging for too many years in the sawmill and pallet segment of our business. As a result, substantial rate increases are to be expected, particularly on large value and/or frame unprotected sawmills. We are eliminating our two-year policy program for sawmill and pallet businesses.
I am sure this information will cause quite a bit of consternation and many questions. As always, I stand ready and willing to discuss and answer them along with the rest of the PLM team at your convenience.
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In 2012, PLM launched a formal customer service program that revealed a wealth of information regarding our insureds' perceptions of our capabilities. We asked our insureds to rate their experience with PLM in nine different areas:
1. Overall customer service
2. Features and benefits of PLM coverage
3. Claims knowledge and service
4. Field representative's product knowledge
5. Loss control representative's product knowledge
6. Ability to resolve discrepancies promptly
7. Promptness in returning phone calls and emails
8. Billing accuracy
9. Courtesy of PLM employees
Customers rated our performance on a scale of 1 to 10. We were pleased to find that we had a fairly good response to this initial survey. A number of specific problems were identified and handled immediately as a result of the survey feedback. Overall, our rating averages were above an 8. Interestingly, the courtesy of our employees, garnered the most positive feedback! The outcome of this survey involves the development of several specific action plans and training programs. Its success suggests that we need to do more of this type of work, in a more focused manner, in 2013.
This survey can be found at www.plmins.com/survey or on our homepage at www.plmins.com. Please send us your feedback so we may further improve service to our insureds.
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MEMO
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