Adversity. Evolution. Growth.
2012
Facing adversity may be a stressful part of life, but without adversity, we would never get to experience the joy that arises from overcoming it. At Pharmacists Mutual, we know life is going to continue to provide challenges. It’s just the way it is. That is why as a company, we continue to strive for the best, but make sure we’re prepared for the surprises that may lie ahead. We like to think it is how we respond to the challenges that come our way that make us who we are today. Because in the end, the challenges we face – and ultimately overcome – are opportunities for us to learn and grow. And when we grow as a company, we continue to move forward, no matter what may come our way.
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VISION, MISSION AND VALUES Our vision, mission and values are the guiding ideas and principles upon which we do business. Our vision is our idyllic future and represents the spirit of who we are and what we intend to become; while our mission describes the overall purpose of our organization and is an unmistakable depiction of why this company exists. Our values represent our commitment to our customers, employees and community.
O ur Vis ion
Ou r M ission
To be the leading provider of insurance and risk management solutions by building enduring relationships with our select markets.
To help our customers attain peace of mind through specialized insurance solutions and superior personal service.
O ur Values Relationships • We are dedicated to being a successful mutual insurance company, accountable to and supported by our policyowners. • We offer a diverse and rewarding work environment founded on respect, trust and teamwork. • We establish mutually beneficial relationships with associations that support the professional well-being of our customers. • We choose business partners who share our core values. Integrity • We are honest in everything we do. • We are committed to high standards of ethical conduct.
Citizenship • We support our communities and professional associations. • We advocate for the interests we share with our customers. Excellence • Our success depends on the talents, skills and knowledge of our employees. • Our products, expertise and service deliver value to our customers. • We are committed to continuous improvement. • We manage the company’s resources to ensure its profitability and independence in order to honor the promises we have made.
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In Shakespeare’s Henry IV, Part 3, the deposed King Henry laments, “Let me embrace thee, sour adversity, for wise men say it is the wisest course.” Adversity, whether thrust upon us or accepted willingly, often rewards us with renewed sense of purpose and a sense of accomplishment. Some of my fondest memories were created during my six times running in the Hood to Coast Relay (H2C). H2C features over one thousand teams of twelve runners who accept the challenge of a 199 mile “race” from Mount Hood to Seaside, Oregon. While a few teams ran to win, most of them, including mine, ran to overcome the challenge, meet new friends and maybe be just a bit faster than the year before. Every year was different, one year over 90 degrees with blazing sunshine, the next 55 with drizzle (it was Oregon). One year my team left the start line at 5 p.m.; another year it was 6:45 a.m. However, I always felt invigorated with a can-do attitude during the days and weeks following the event, despite the sore muscles and blisters. While the runners may have received the attention, the unsung heroes were our van drivers and race volunteers. The drivers managed to stay awake for 30 hours to transport us, and the race volunteers made sure no runner made a wrong turn at three in the morning. My colleagues and I know that you face adversity regularly. Your challenges come from many directions including audits by pharmacy benefit managers, CMS’s competitive bidding process, crime, lawsuits and property damage, to list just a few. Like the van drivers of H2C, Pharmacists Mutual is here to help you overcome many types of adversity. Our specialized insurance solutions and superior personal service will help you reach your own personal finish line.
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Ed Yorty President & CEO
We take very seriously our responsibility to honor the promises that we have made to our members, our communities and to each other. Our ability to respond for our members depends on our financial strength, the talent of our employees and your loyalty. Your loyalty to Pharmacists Mutual is well placed.
Let me embrace thee, sour adversity, for wise men say it is the wisest course.
— William Shakespeare, Henry IV
Since we are not owned by shareholders, our members have been our first concern since 1909. We hope the knowledge that you have a specialty insurer behind you allows you to better serve your patients. In his accompanying message, Chair Kirk Hayes discusses some of the challenges faced during the company’s history. The company has emerged stronger by overcoming each one. Along with compounding pharmacists across the country, we are dealing with a significant challenge as 2013 gets underway. The tragedy that resulted from contaminated injectable steroids produced by New England Compounding Center (NECC) has impacted patients, other pharmacies and Pharmacists Mutual. The media has reported factually that Pharmacists Mutual provided professional liability insurance for NECC. While possible claim payments may be large, we have significant reinsurance protection in place. Our challenge will be the resulting increased cost of reinsurance and how we continue to serve all sectors of pharmacy, which we are committed to do. We are in the process of implementing new underwriting protocols to better manage this risk. One of the collateral benefits of this process will be the availability in 2013 of web-based rather than paper questionnaires. Apportioning the cost of the protection we offer in an equitable manner will be of significant concern. The new underwriting protocols for pharmacy will help, but despite these efforts, the cost to insure compounding operations, especially sterile compounding, will need to increase. Despite the impact of the NECC claim, your company’s financial condition improved markedly in 2012 following the disappointing results of the year prior. The accompanying financial statement shows underwriting income of $404 thousand and net income of $4.9 million. During the year, the number of policies increased by more than 500, and our policy retention rate is over 90 percent. Over the past ten years, we have increased our policy count by more than 25 percent. The Board of Directors also declared a dividend, continuing the company’s unbroken track record.
We managed many other successes during 2012 as well. Our professional liability and business insurance products are now available in Maine, New Hampshire, New Jersey, New York and Vermont. Our website has been updated in conjunction with our leap into social media. We expanded our claim reporting service by ensuring our claim professionals are available any day at any time. Our businessowners policy was enhanced to provide additional protection for your business or practice. Finally, we made significant changes in our investment management area with the intent to reduce our risk while generating consistently positive returns. The upcoming year also promises to attract additional members and deliver better value. We plan to request a license to operate in Florida, a state with over 1,300 independent pharmacies. We will be updating our professional liability product and underwriting to better manage this risk and apportion the cost. Our business continuity efforts will be increased by relocating our technology disaster recovery facility to a more secure location. And, sticking with our theme of adversity, we will be launching the largest technology upgrade in the company’s history. The outcome, when completed, will give us more efficiency to control costs and provide you with a customer portal. Although a customer portal will provide additional convenience, we know that the personal service we offer sets us apart. We are in the process of improving how we deliver that service by introducing Customer Account Representatives (CARs). Each member will receive a CAR personally assigned to ensure you receive superior service. The CAR will also ensure that you, your field representative and underwriter are working together effectively. Of course, if your CAR is away from the office, their coworkers will be able to step in to help. The adversity faced by King Henry led to his imprisonment in the Tower of London. Your outlook is much brighter with my colleagues and the resources of Pharmacists Mutual on your side. We stand ready to serve you. Cordially yours,
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Logic will get your from A to B. Imagination will take you everywhere.
In 1909 Pharmacists Mutual (Druggists Mutual originally) was chartered by a small group of leading Iowa pharmacist store owners. A special company founded to provide affordable property insurance and fair claims settlements. Today, Pharmacists Mutual is a nationally recognized leader specializing in insurance products and financial services to pharmacists, pharmacies, dentists, and other health care businesses. In a career spanning fifty years, one experiences very good years and the not so good ones…the cyclical ups and downs of growing a company to become an industry leader. The challenge of the insurance business brings together many risk factors and at least in the short term, yearly results are unpredictable. Perhaps this is no different from the challenges and experiences you face yearly in your business or practice.
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In the business of insurance there are years when loss severity and loss frequency or claim numbers are high and investment returns are poor. Business is growing very slowly, if at all. Then, of course, there are years when just the opposite occurs and losses are below
—Albert Einstein
the norm, the investment portfolio return is fantastic and the business is growing rapidly. Yes, a really unpredictable business! In the early 1930s when the company was very small, a fire destroyed the downtown area of an Iowa community and four Pharmacists Mutual insured pharmacies. For many years this stood as the worst loss situation the company had experienced in its young history. Also, poor economic conditions during the great depression forced the company to discontinue operations in several states. In recent years the company has experienced the unpredictable with the occasional large property or catastrophe loss along with very serious and large liability and workers compensation losses. These losses can involve multiple claims and millions of dollars in claim payments…claims that may worsen over time with final outcomes difficult to manage and quantify. Conversely, the company has been blessed with very good years, expanding into new states, adding new customers and growing steadily with strong profits and dividend payments to policyholders. This has
included the founding and growth of a life insurance subsidiary (The Pharmacists Life), providing new quality assurance and risk management programs, enhanced product lines and expansion of its subsidiary agency (Pro Advantage Services) to include health, bonds and other specialty coverages. Through adversity we become stronger as a company. There is much hesitancy and gloomy talk in the business community today, but there is none at Pharmacists Mutual. True to core values of customer service and quality products in a highly efficient organization and environment, we are looking for those new opportunities. We are optimistic about the future, for it is about the future‌the next decade and beyond! We will be prepared for hard times, here to serve you and ready for tomorrow! With regards,
In a career spanning fifty years, one experiences very good years and the not so good ones‌the cyclical ups and downs of growing a company to become an industry leader. The challenge of the insurance business brings together many risk factors and at least in the short term, yearly results are unpredictable.
Kirk Hayes Chairman
Holly Whitcomb Henry, R.Ph.
William A. Stuart, R.Ph.
Donnie R. Calhoun, R.Ph.
Washington
California
Alabama
Relationships – developing, nurturing and cherishing them with family, friends and colleagues; through thick and thin, and over many years.
Opening a new pharmacy in another state.
Becoming the first person in our entire family to attend college.
Randall S. Myers, R.Ph.
Susan L. Sutter, R.Ph. Wisconsin
Iowa
Surviving the premature birth of our first child.
Having three children in 3.5 years – also my greatest joy.
Onboarding as CEO at PMC to perpetuate, enhance and honor the achievements of everyone who has come before me.
Board of Directors 7
Edward J. Yorty, FCAS, MAAA
Ohio
We as ked. Th e y a n s w e r e d. We asked our Board of Directors this question, “What’s the biggest challenge you have faced in your life?” The answers they provided are diverse, but one thing they all had in common: they didn’t give up in the face of adversity. And that’s a lesson from which we can all learn.
Kirk M. Hayes, CPCU
Kelly S. Selby, R.Ph. Steven T. Simenson, R.Ph.
Matthew C. Osterhaus, R.Ph.
Iowa
Texas
Minnesota
Iowa
Providing classified USAF intelligence briefings for Headquarter’s Commanding General.
Achieving PCAB sterile and nonsterile accreditation for my compounding pharmacy.
Sustaining and growing our community pharmacy, as well as being elected President of APhA.
Balancing my duties and responsibilities as a pharmacist, an active community leader and a dad.
Jonathan C. Grether, MSIM, CPCU
Richard B. Moon, R.Ph., PharmD
F. Michael James, R.Ph.
Iowa
New York
North Carolina:
Completing my master’s degree at age 50.
Keeping my family healthy, happy and safe.
Going through a two-week survival school during flight training while in the Air Force.
Financial Highlights AS OF DECEMBER 31, 2012
ASSETS Cash & Short-Term Investments
$ 4,768,796
To meet current losses and expenses.
Bonds
150,077,544
Amortized value of federal, municipal and corporate bonds.
Stocks
19,590,978
The current value of unaffiliated equity investments.
Subsidiaries
8,925,914
The value of The Pharmacists Life, Pro Advantage Services and Pharmacy Marketing Group.
Real Estate
5,790,792
Depreciated cost of owned land and buildings.
Other Investments
1,700,061
Accrued interest and book value of leases, partnerships and loans.
Premiums Receivable
27,830,513
Current unpaid accounts under 90 days old.
Deferred Taxes
4,615,000
Future tax benefit due to book/tax differences.
Other Resources
5,416,350
Reinsurance recoverables and other admitted assets.
TOTAL ASSETS 9
In addition, the company owns furniture and software valued at $776,191 not included in Total Assets.
$ 228,715,948
LIABILITIES & POLICYOWNERS SURPLUS $ 93,115,444
Estimate for Losses & Adjusting Estimated amount to be paid on losses and adjusting in process of settlement.
43,819,966
Unearned Premiums The unearned portion of the premium recorded by the company carried to policy expiration.
500,000
Borrowed Money From Federal Home Loan Bank.
12,865,333
Accrued Expenses & Taxes For various taxes, bills payable and other liabilities.
200,000
Dividends Payable For 2012 dividends to be paid in 2013.
TOTAL LIABILITIES
$ 150,500,743 78,215,205
Policyowners Surplus This is an additional guarantee the company can meet contingencies and its obligation to insureds.
TOTAL LIABILITIES & POLICYOWNERS SURPLUS
ANNUAL COMPARISON
$ 228,715,948
2011
2012
Direct premiums written
$ 99,733,529
$ 101,424,556
Assets
211,919,002
228,715,948
Policyowners surplus
67,983,480
78,215,205
INCOME STATEMENT & CHANGE IN SURPLUS
2011
2012
$ 80,065,202
$ 82,301,390
Loss & adjusting incurred
63,629,621
57,192,960
Underwriting expenses
24,585,147
24,505,877
Net premiums earned
Dividends to policyowners
UNDERWRITING INCOME AFTER DIVIDENDS Investment income Realized capital gains (losses) Other income (expense) Federal income tax
NET INCOME (LOSS) Unrealized capital gains (losses) Other changes to surplus
CHANGE IN SURPLUS
863,033
198,393
($9,012,599)
$ 404,160
5,533,525
5,413,712
377,192
(232,751)
312,864
255,154
(716,801)
950,977
($ 2,072,217)
$ 4,889,298
(864,302)
2,157,834
(163,002)
3,184,593
($ 3,099,521)
$ 10,231,725 *Financials are unaudited
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$100,
2012
A Closer Look
WHERE WE’VE BEEN AND WHERE WE’RE GOING – AN OVERVIEW POLICIES IN FORCE 2009
2010
2011
POLICYOWNERS SURPLUS 2012
2009
2010
2011
2012
86,615 86,082 84,880
65,996,637
83,318 71,083,001
69,983,480
11 78,215,205
$97,96
$99,7
$101,
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How you respond to challenge in the second half will determine what you become after the game. —Lou Holtz
%
Overall Customer Satisfaction
91
%
CLAIMS SATISFACTION SCORE
4.5
Customer Retention to Date Very Dissatisfied
TOTAL ASSETS
Very Satisfied 228,715,948
197,167,512
206,798,165
211,919,002
DIRECT WRITTEN PREMIUM $100,954,801
$100,954,801 $97,961,216
2009 2010 2011
$ 97,961,216 $99,733,529
$ 2009
2010
2011
2012
2012
$101,424,556 $ 99,733,529
$ 101,424,556
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Assets:
A lot has happened in the last 100 years. As we continue in our second century of doing business, we reflect on how
Assets:
$3,602
$333,320
Surplus:
Surplus:
$3,602
$228,463
Direct Written Premium:
Direct Written Premium:
Direct Losses Paid:
Direct Losses Paid:
$8,665 $4,399 Salaries:
$308,037 $76,384 Salaries:
$1,452
$18,234
1912
1937
things were 100, 75, 50 and 25 years ago when compared to today.
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A Look Back Sources: techcrunch.com, thepeoplehistory.com
1912-2012
Assets:
In 1962:
$22,668,006
America was shocked at the passing of Marilyn Monroe
Surplus:
$7,183,376
In 2012: 40% of people socialized more online than face-to-face
The average newly-built-home price was $44,040
Direct Written Premium:
$13,540,704
The cost of a dozen eggs was 32 cents
The average newly-built-home price was $286,300
Direct Losses Paid:
The cost of a dozen eggs was $1.77
One gallon of gas cost 28 cents
$5,106,802
One gallon of gas cost $3.60
Salaries:
$1,615,709
1987
2012
1962 Assets:
In 1987:
Surplus:
On Monday, October 19th the U.S. stock market crashed with a 508 point drop, or 22.6%
$1,442,925 $989,099
Assets:
$228,715,948 Surplus:
$78,215,205
Direct Written Premium:
The average newly-built-home price was $92,000
Direct Written Premium:
Direct Losses Paid:
$154,224
The cost of a dozen eggs was 65 cents
Direct Losses Paid:
Salaries:
One gallon of gas cost 89 cents
Salaries:
$678,253
$125,928
$101,424,556 $54,414,343 $12,902,842
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TERRITORIES SERVED|REPRESENTATIVES AL Chuck Neyland Ronnie Wright
LA
Matt Bourgeois
ME
Kevin Kollasch
AK
Anne Kelley
MA
AI Martinelli
AR
Joe Baker
MD
David DeFelice
AZ
Ryan Goodrich
MI
CA
Christine Brough Mike Jarvis Lisa McGinty ISU Vansa* Van Beurden Insurance Services**
Kevin Dotseth Anne Kelley
PA
Ed Costello Mark Kuhns Cliff Lange
Bill Given Steve Hephner Jerry Laridaen II
RI
AI Martinelli
SC
Robby Peed
Tom Nilsson Sheila Welle LeeAnn Sonnenschein
SD
LeeAnn Sonnenschein
TN
Tracy Curtis Chris Meulenberg
MS
Chuck Neyland Ronnie Wright
MO
Ryan Ludwig Scott Naeger Kevin Dotseth
TX Grant Guthrie Mike Gwin Tim James Mark Knutson Shanna Richardson
MN
CO
Tom Quesenbery Jim Sajbel, Jr.
CT
AI Martinelli
DC
David DeFelice
MT
DE
David DeFelice
NE Melissa McKean
GA
Hutton Madden
NH
Kevin Kollasch
ID
Kevin Dotseth
NJ
David DeFelice
NY
Kevin Kollasch
NV
Ryan Goodrich
NM
Jim Sajbel, Jr. Bruce Bauer Nick Garrett
IL Dan Blank Clark Thompson
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OR
IN
Brandon Allen Casey Delks
IA
Kim Dornbier Karla Krogman
NC
Tim Riddle Milt Siegfried
ND
Sheila Welle
OH
Bruce Wyke
Tracy Curtis Bruce Lafferre
OK
Terry Potter Milt Siegfried
KS KY
UT
Kim Dornbier
VA
Stephen Peters
VT
Kevin Kollasch
WA
Kevin Dotseth Anne Kelley
WI
rad Damon B Jerry Laridaen II
WV
David DeFelice
WY
Kevin Dotseth
ISU Vansa is an independent agency – Wayne Brownstein, agent. *
Van Beurden is an independent agency for dental services – Erik Van Beurden, CEO. **
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The only use of an obstacle is to be overcome. All that an obstacle does with brave men is, not to frighten, but challenge them. —Woodrow Wilson
RISK MANAGEMENT SERVICES
Forming enduring relationships with our customers means more than providing insurance solutions. It also means providing the resources and expertise they need to keep costs low by preventing losses from occurring. Risk management services are always just a call, email or tweet away. Michael Warren, Risk Manager Jen Aultman, Risk Management Consultant
COVERAGES AVAILABLE Pharmacists Mutual Insurance Company and its subsidiaries provide a full range of business, professional, personal and specialty insurance coverages and financial products, including: Professional Liability
Commercial Auto
Life & Annuities
Businessowners
Umbrella & Excess Liability
Health & Disability
Workers Compensation
Home & Auto Not licensed to sell all products in all states.
Long Term Care
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Officers
Pictured above (left to right): Back row: Jon Grether, Bill Wiebelhaus, Rich Berke, Ed Yorty, Derrick Shannon. Middle row: Ken Andrews, Don McGuire, Shelly Brown, Mary Paulsen, Vic Garman, Shirley Pierson, Matt Even. Front row: Julie Murphy, Tom Claude, Bob Christian, Steve Hoskins, Tom Goodrich, Kevin Banwart, Alison VanOtterloo
Edward J. Yorty, FCAS, MAAA President & Chief Executive Officer
Victor C. Garman, MSM, SCLA Sr. Vice President, Claims
Shelly A. Brown, AIS Vice President, Marketing
Jonathan C. Grether, MSIM, CPCU, CIC Chief Operating Officer
Thomas P. Goodrich, CPCU, CIC Sr. Vice President, Corporate Sales & Marketing
Robert H. Christian, J.D., MAHRM Vice President, Human Resources
Kenneth M. Andrews Sr. Vice President, North Region Kevin C. Banwart, CPA, AIAF Treasurer & Chief Financial Officer
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Richard M. Berke, PMP, FLMI, CMA Sr. Vice President, South Region Thomas E. Claude, CIC Secretary & Sr. Vice President, Underwriting & Product Development
Steven M. Hoskins, CLU Sr. Vice President, Agency Operations Don R. McGuire, Jr., R.Ph., J.D. General Counsel & Sr. Vice President, Compliance & Risk Management Shirley A. Pierson, CISR, AU Sr. Vice President, West Region William H. Wiebelhaus Chief Information Officer
Matthew J. Even, CIC, CRM Vice President, Corporate Accounts Julie L. Murphy Vice President, IT Security Mary J. Paulsen, CPA, AIAF Vice President & Controller Derrick D. Shannon, FCAS, MAAA, CPCU Chief Actuary Alison A. VanOtterloo, CPA, CIA Vice President, Internal Audit
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We must accept life for what it actually is – a challenge to our quality without which we should never know of what stuff we are made, or grow to our full stature. — Robert Louis Stevenson
800.247.5930 |www.phmic.com|
PMC 1107 AR (03/13)