Texas Mutual Insurance Company
2004 Annual Report
Letter from the Chairman
2004 was a challenging year, but it was also a rewarding year. The outstanding financial results that appear later in this report would not have been possible without the hard work and commitment of our board, management and staff. Their dedication to excellence helped produce approximately $716 million in written premium, representing coverage for over 43,000 Texas businesses employing 714,000 Texans.
In 2004, we focused on upgrading our excellent customer services. Some of the resulting improvements appear online in the form of new or enhanced programs, such as broader Internet Quoting and our safety resource center. Others are natural byproducts of our staff and management’s culture of service, which continually seeks ways to improve.
We also provided information to members of the Texas Legislature who studied ways to reform and improve the workers’ compensation system. We believe system reform in Texas is key to achieving improved outcomes for injured workers and lower system costs, which ultimately are paid by Texas employers through their insurance premiums, and that it is important to increase employer participation in the system.
We view this work as part of our role as a responsible system participant, and we remain strong in our long-term commitment to help improve the Texas workers’ compensation system. We will also continue to ensure that Texas employers of all types have a stable source of affordable workers’ compensation coverage, as envisioned by the Legislature.
Martin H. Young Jr.
Chairman
Letter from the President
What do we mean when we say Texas Mutual Insurance Company has a culture of service? It means we make service the priority in everything we do. We do not compromise service for the sake of expediency, and we strive to make service second nature at Texas Mutual Insurance Company.
We can measure our culture of service against our accomplishments over the past year. We distributed over $50 million in dividends to qualifying policyholders. Our information services center answered approximately 360,000 calls from customers and other stakeholders. Our policyholders and their agents logged on to our website 57 percent more often. Perhaps most telling, we renewed over 82 percent of our policies.
Of course, we did not establish our culture of service overnight, and we know that we must be diligent to maintain it. It will take time, hard work, and above all, commitment at every level of our company.
In the following pages, you will meet some of the hundreds of Texas Mutual® employees who have made that commitment, along with a few of the thousands of customers they’ve helped. I hope that as you read about the things we do everyday to serve our customers’ needs, you will understand why I am proud of Texas Mutual Insurance Company and our culture of service.
Russell R. Oliver
President
A Culture of service
At Texas Mutual Insurance Company, our vision is to be the model provider of workers’ compensation insurance.
In 2004, we wrote a record $716 million in premium, enjoyed an 82 percent policyholder retention rate, and continued to be the state’s leading provider of workers’ compensation insurance. Our success might lead some to believe that we have achieved our goal.
We have not.
For the staff and management at Texas Mutual Insurance Company, the concept of model provider transcends premium dollars and number of policyholders. It means always challenging ourselves to lead the industry in the services we provide, the way we provide them, and the results they help produce.
We regularly re-evaluate our business processes to adapt to our customers’ changing needs. The following pages chronicle the progress we have made toward our goal during the past year.
Promoting return-to-work programs
“Getting injured workers back into the workforce is the best non-medical treatment they can get,” said Sally McGraw, catastrophic injury team leader. “All the studies 
I’ve seen show that returning an injured worker to work at the earliest medically reasonable date will speed recovery.”
We encourage all of our policyholders to develop a return-to-work (RTW) program. During our statewide employer workshops, at which Sally is a frequent speaker, we teach employers how to create and maintain good RTW programs.
For many employers, the most difficult aspect of establishing an RTW program is preparing the initial documentation. That’s why we created RTW kits, which explain the basic RTW requirements and include sample documentation for employers to use for their RTW programs.
We developed two RTW kits: one for large businesses and one for small businesses. Any Texas employer can download these free kits from our website.
Expanding online services
The RTW kit is just one of a host of online services we offer. Other online tools include Internet Quoting, policy endorsements, agency information management, injury reporting, loss run reports, claim details, interim payroll reporting, and premium payments. We also provide workshop registration, downloadable forms and brochures, news updates, reports of suspected fraud, and a safety resource center.
Internet Quoting (IQ) has grown into our most popular tool for agents. We increased its available class codes and added capabilities for accepting split modifiers, quoting incidental longshore accounts, automatically placing qualifying accounts into interim payroll reporting, and increasing IQ’s scope to include qualifying accounts with no previous workers’ compensation coverage. We now receive over 42 percent of our new-business submissions via IQ.
“When I first tried Internet Quoting, I was a little uneasy,” admitted Cindy Perez, a customer service representative at Time Insurance Agency in Austin. “I got a quote so fast that I had to call the 800 number to confirm I did everything right. It was just so easy.”
We also enhanced our safety resource center in 2004. This interactive catalog lets policyholders order safety education materials, track their orders, get tips on safety program improvements, and calculate their incidence rate and compare it with the national average.
“Texas Mutual’s online safety resource center provides a modern approach to our safety-training program,” said Gwen Drumgoole, risk manager at Houston Community College. “It brings together many practical techniques that allow our staff to perform safety and risk assessments and share them with employees.”
We are committed to the ongoing development of Internet services that make it easier for policyholders and agents to do business with us. Judging by our customers’ responses, our online tools are right on track.
Building customer trust
We appreciate our customers’ positive feedback about our website. We understand, however, that they also value our reputation for personalized service.
“We work to strike a healthy balance between automation and the human element of customer service,” said Grace Guerrero, an Information Services Center (ISC) supervisor. “Fortunately, we’ve got a great team. They take pride in their work and genuinely enjoy helping people.”
In 2004, our information specialists fielded approximately 30,000 calls per month. Despite record business volume, they strived to deliver superior service to every customer.
“The people at your 1-800 number are awesome,” said Cindy Perez. “They’re always in a good mood, always so pleasant. When you call Texas Mutual, you can be sure that there will always be a friendly and helpful voice on the other end.”
One of those voices belongs to Mary Avila, information specialist. Besides helping our customers, Mary also serves as an ISC mentor for new information specialists.
“The ISC is the first point of contact most customers have with Texas Mutual,” said Mary. “In fact, we’re sometimes the only contact they have. That’s why it’s important that we work to make every experience a positive one.”
Our customers’ actions suggest that they appreciate our efforts. In 2004, we renewed over 82 percent of our policies.
Working with agents
In November, we began a program to give select agents the authority to bind policies and service accounts directly for Texas Mutual Insurance Company. We believe these new contracts for select agents will strengthen our business relationships with the agents and help them better serve our policyholders.
Matt Berry Sr. of William Gammon Insurance became the first agent to sign a contract with us. Mr. Berry is a longtime member of our Agent Advisory Council and serves as our liaison to the Independent Insurance Agents of Texas.
“This contractual partnership sets up a framework to jointly provide more effective and timely service to our employer clients and their injured employees,” said Mr. Berry. “The fact that Texas Mutual has started offering contracts to selected agents is a testament to their commitment to the independent agency system.”
Texas agents have always played a key role in our success. Although our charter requires us to accept direct submissions from employers, approximately 98 percent of our business comes from the agent community.
Distributing dividends
By managing our resources responsibly, we were able to distribute over $50 million in dividends to qualifying policyholders whose loyalty and low claim losses contributed to our success. 2004 marked our sixth consecutive year for dividends.
Our dividend plan included an annual component and a retention component. The annual component rewarded qualifying policyholders with policies that had expired the previous year. The retention component rewarded qualifying policyholders for up to five consecutive years of low claim loss experience. We also included in our 2004 dividend plan a special component, which was a product of our exceptional financial results in 2003.
The general and special dividends went to individual qualifying policyholders. Several purchasing groups also qualified for group dividends in 2004. Many purchasing group members received both types of dividends.
Offering purchasing groups
Each purchasing group member receives a premium discount based on an
estimate of the group’s entire written premium. For example, if a group is projected to generate $500,000 in annual premium, we will give all policyholders in the group the premium discount applied to the $500,000 premium level, regardless of their individual premium size.
“We worked with agents to form three new purchasing groups last year,” said Jack Ogden, field operations analyst and coordinator. “By the end of 2004, we offered 23 groups for more than a dozen industries.”
We assign a loss prevention consultant to develop a safety plan for each group’s common operations. Our loss prevention consultants also speak at group association meetings, at educational workshops, and in other settings.
Focusing on loss prevention
Whether they work with a group of employers or an individual policyholder, our loss prevention consultants always focus on helping employers reduce the number and severity of workplace accidents. Toward that end, they make over 10,000 policyholder visits every year.
Susan Owens, SVP of business operations for Cal Farley’s Boys Ranch, credits our loss prevention assistance with lowering her company’s experience modifier (part of the statistical procedure used to calculate premium).
“Our Texas Mutual loss prevention representative gave us a practical approach [to behavior-based safety] for our employees,” said Ms. Owens. “With Texas Mutual Insurance Company’s guidance, we have significantly reduced our job-related injuries.”
Subrogating claims
Sometimes, an outside entity causes a workplace accident. When that happens, we provide workers’ compensation benefits to the injured employee, and we work to recover those benefits from the responsible party through a legal process called subrogation.
“Anytime we can subrogate a claim, we’re helping a policyholder lower claim reserves and reduce their experience modifier,” said Allyson Lednicky, subrogation recovery specialist. “Because reserves and e-mods affect the premium costs at renewal time, subrogation helps ensure that our policyholders don’t end up paying—literally—for someone else’s mistake.”
In 2004, our Subrogation Department reported the recovery of over $8.6 million in subrogation cash, plus an additional savings of approximately $44.7 million in future credit.
Fighting fraud
Our Special Investigations Department (SID) also works to recover money and save future costs. SID includes three teams of investigators who review every report of suspected fraud we receive. In 2004, their work identified over $4.8 million in fraud.
“Investigating and prosecuting workers’ compensation fraud is a labor-intensive, detail-oriented process,” said Terre Tomblin, SID manager. “It requires money, resources, expertise, and most importantly, commitment.”
At Texas Mutual Insurance Company, we are committed to reducing fraud and its impact on the system. From our board of directors to our frontline staff, we have zero tolerance for fraud. In fact, some of our most successful investigations begin when an adjuster notices something unusual about a claim and reports it to SID.
Hosting workshops & classes
Helping policyholders get the best value for their workers’ comp policy is a recurring theme at Texas Mutual Insurance Company, especially in our educational efforts. In 2004, we hosted educational workshops in 14 cities for agents, employers, and health care providers.
Our workshops help promote the workers’ compensation system to employers, provide agents with detailed information on workers’ compensation classification and exception codes, and train health care providers’ staff on the intricacies of workers’ compensation billing.
By partnering with the College of the Mainland in Texas City, we provided college courses on safety and industrial hygiene for regional employers. Our loss prevention department also offered quarterly safety seminars to policyholders.
“Texas Mutual’s courses at the College of the Mainland are excellent training resources,” said Gwen Drumgoole. “They are well-prepared and presented, and they give each attendee the personal attention they need to really apply the training to their own workplace.”
Granting scholarships
We invest in stakeholder training, in part, because we believe in the power of education. Unfortunately, severe workplace injuries and fatalities can leave some workers or their dependents without much hope of continuing their education.
We offer college scholarships to surviving family members of employees who die from compensable accidents and to persons whose injuries qualify them for lifetime income benefits (LIBs) and to their spouses and unmarried children. We pay LIBs for severe injuries, such as permanent blindness, paraplegia or quadriplegia.
“This is a really special program,” said Temetria McVea, administrative assistant. “We give up to $4,000 for tuition and fees [per qualifying individual per semester]. We even offer limited financial assistance for course-related books and supplies.”
In 2004, our scholarship program granted over $34,000 to 12 qualifying individuals. Our scholarship program is not an automatic benefit; however, part of our mission is to help minimize the consequences of workplace accidents, and we carefully review each scholarship application with that in mind.
Being here for you, Texas
We believe that our motto, “We’re here for you, Texas,” captures our company spirit. At Texas Mutual Insurance Company, we have created a culture of service to our state, its employers, and their employees.
Financial Highlights
| For the year ended December 31, 2004 (in thousands) |
|
| Gross premiums written | $716,113 |
| Gross premiums earned | $710,539 |
| Net premiums earned | $701,188 |
| Net investment income | $117,242 |
| Claim benefits paid and incurred | $497,449 |
| Dividends to policyholders | $53,253 |
| Underwriting expense and policy acquisition costs | $101,111 |
| Provision for uncollectible premiums | $678 |
| Operating expenses | $49,128 |
| Net income | $116,811 |
| At December 31, 2004 (in thousands, except number of policyholders and employees covered) |
|
| Assets | $3,040,828 |
| Liabilities | $1,920,982 |
| Policyholders' surplus | $1,119,846 |
| Number of policies in force | 43,499 |
| Number of employees covered on policies in force | 714,234 |
| Key indicators, year ended December 31, 2004 | |
| Incurred loss ratio* | 70.0% |
| Combined ratio* | 100.1% |
| Premiums written to surplus ratio | 0.64:1 |
| *Ratios calculated as a percentage of gross premiums earned | |