Chief Financial Officer’s Report

Pre-Convention Report Chief Financial Officer Leonard Mikeska

I will begin by assuring you that the SPJST is financially strong. At yearend, we had near $1 billion of insurance in force and a surplus of $13.4 million. Actuary’s Cash Flow Testing confirmed that our reserves are adequate. The outside audit just completed gave us a clean opinion. Changes in our investment management have increased our investment income by more than $1 million over the past 12 months. This is money that will help fund our fraternal programs and benefits. Be assured that we take our fiduciary responsibility serious, and we will do whatever it requires to keep SPJST a strong and viable Society.

At yearend 2020, the investment portfolio remains well positioned to endure the current state of the financial markets. Our fixed income portfolio had a book value of $244.8 million. We have no exposure to common stock and over 95 percent of the portfolio is invested in investment grade issues. “Investment grade” refers to highest two quality designations recognized by the National Association of Insurance Commissioners (NAIC), our regulatory body. In addition, the securities that we own are issued in public markets. This means we have liquidity when we or our members need it. These two factors – credit quality and liquidity – insure we can serve our members and agents now and in the future. As of June 18, 2021, the average quality of our $222.4 million portfolio is A3 and the book yield is 4.56 percent.

The COVID-19 pandemic upset financial markets beginning early last year because the response to the virus caused many sectors of the United States economy to close. Because Americans did not travel, they did not consume much fuel either. You may have seen that oil prices at one time traded below $0 (as low as -$40/barrel!) owing to excess supply and no available storage. Energy companies and all their related suppliers were strained as well. Market professionals referred to this ‘upset’ as a market ‘dislocation’. With the 2008-2009 financial crisis still fresh in their memory, the Federal Reserve stepped in around mid-March of last year to provide liquidity. The Dow Industrial Average, which had declined as low as 18,591, immediately reversed its decline and recently has traded near 35,000. While we do not own stocks, stocks are an important barometer on the overall financial health of the economy. It is good to see a winding down of the COVID-19 pandemic as we get back to normal. On the bright side, the virus did present some investment opportunities, and we have been able to benefit from higher reinvestment rates. Further, AQS Asset Management, our fixed income advisor has been successful in reallocating some of our positions to take advantage of this. Despite the pandemic in 2020, we moved forward with many changes. We implemented a comprehensive Enterprise Risk Management policy to help us focus on the future challenges. We made numerous changes in technology to make us more efficient and provide better service to you.

Many insurance companies have been challenged by the low interest rates we have experienced. Bonds in the 3 percent range have forced us to look at other investment opportunities to increase income. With the collaboration with AQS, our investment consulting firm, we have an arrangement to participate in large well secured loans with several other fraternal societies. In this way, we can participate in loans of $10 million or more very much like much larger insurance companies and earn good rates of return of 6 percent or more.

Investment involves risk and reward. While we constantly seek the reward, we also seek to minimize the risk. We continue to know one of our primary challenges is to generate enough returns on our investments to fund the fraternal programs that in many ways define the nature of our Society.

I previously referred to cash flow testing. I want to comment that we do this complex study annually to confirm that we have made adequate provision for the Society’s obligations under our certificates and contracts. Analysis determined that assumptions under the likely scenarios found we have made adequate provision for the Society’s obligations.

In addition to the more than $219.5 million in fixed income, the Society owned at yearend over $9.7 million in mortgage loans, $5.1 million in real estate, and some $10.5 million in certificate loans, cash, and other assets. Leonard Mikeska, FIC

Comparison of Assets 2016 $238.1 million 2017 $238.9 million 2018 $243.7 million 2019 $244.7 million 2020 $244.8 million

There are many other responsibilities attributed to the position of Chief Financial Officer (CFO) in addition to custody of all matters relating to investment of Society funds. I want to briefly review a few of them.

The CFO is responsible for managing the real estate owned by the Society which currently consists of the Home Office, the Social Security Administration Building, and the Camp Kubena physical facility. The lease on the SSA Building provides good income; however, it does require a lot of management time of staff to provide required services.

Responsibility of servicing some $9.7 million of first lien mortgage loans is the responsibility of the CFO Department. It involves receipt of payments, monitoring delinquencies, payment of taxes, and insurance coverage. This includes a special lending program for lodge property loans and mortgage notes that are purchased for income.

The CFO is responsible for managing the claims department and is proud of our record of prompt payment of death claims. We have worked to automate portions of the claims process and use email responses and forms to speed up the claim’s settlement. We are in process of automating more of the procedures so that we can improve on our excellent record of payment of death claims. Death benefits have ranged from $3.5 million in 2016 to $3.7 million in 2019, and $5.7 million in 2020. We experienced 31 COVID-19 related claims for $273,678 which represented a portion of the $2 million spike in death claims in 2020.

It is amazing that from 2010 to 2020, we paid some $40.8 million in death benefits to our members. Think about how these claim payments met the needs of our members and their families when a loved one passed from this life. Additionally, we continue to provide many fraternal benefits and programs for our youth and adults.

The CFO Department is responsible for providing member services which includes responding to member’s contacts for information, cash values, certificate loans, and surrenders. The department has trained specialists to provide information and administration of both IRA and nonIRA annuities and assist with withdrawals, required minimum distributions, and all general servicing questions. Service requests may come by mail, phone, in person, or email. We use email as much as possible for efficiency and to speed up response time. We have updated our phone system, but we always want to give you access to a person answering if you need assistance.

The CFO position serves as the corporate secretary of the organization and is responsible for attesting documents and maintaining records of documents. This includes maintaining records of minutes of the Supreme Lodge, the Investment Committee, the Supreme Lodge Officers, the Enterprise Risk Management (ERM) Committee, and the management team. Assistant to the CFO Janie Coakley was appointed by the Supreme Lodge to take minutes of the Supreme Lodge meetings, and she has excelled at this assigned task as well as assistance with other management responsibility.

The CFO serves as the Chief Risk Officer of SPJST. We have in place an Enterprise Risk Management (ERM) Committee with three subcommittees. It is the responsibility of the ERM Committee and the subcommittees to identify risks and to put in place processes that will identify and mitigate risk the organization faces. An updated ERM policy was implemented in 2020 including a