2020 Annual Report
Letter from the Leadership of Montana State Fund
There is no doubt 2020 will be etched in our memories forever. The uncertainty of the pandemic challenged Montana’s business owners to dig deep and reconfigure their business models to keep their doors open and their employees safe. Montana State Fund was no different. Like our policyholders, we too had to be flexible, creative, and resilient. I am proud of what our staff accomplished in this unforgettable year.
March 16, 2020, marked the day the MSF team quickly mobilized to work from home. While this was not without some hiccups, our staff did not miss a beat – to take care of our customers and their employees. This included offering customers the option of premium deferments, pivoting to provide virtual safety trainings and online policyholder visits, and scheduling telemedicine appointments for our injured employees.
It’s true many Montana businesses ceased operations during the shutdown, but our state’s essential workers never wavered. In support of these workers, MSF packed and shipped 506 boxes of personal protective equipment (PPE) to 453 frontline policyholders and their employees. In addition, 37 construction trades and industry high school classrooms across the state received PPE. And we quickly created policy and safety focused COVID micro sites to help our customers navigate the everchanging workplace landscape.
Through good times and bad, MSF’s financial resiliency is paramount. We take great care to price our business fairly, effectively manage claims and wisely invest. Due to our prudent financial management, in 2020 our Board of Directors issued a $20 million dividend to policyholders. And, after analysis of 2020 yearend financial results, another $20 million divided was issued to the same policyholders. Due to decreased claim benefit costs and strong investment market returns our policyholder equity saw an increase of $50.3 million to $601 million at the end of 2020.
However, much of this work would not have been carried out without the support of our Board of Directors. Their knowledge of Montana’s business and support of our state’s working men and women was invaluable in responding quickly to evolving conditions.
As I close this letter, there is reason for optimism. Montana businesses are opening and continuing to adapt to a changing economic landscape. Restaurant booths are filling up. Hotel bookings are at an uptick. And new construction projects are dotting the state.
This is a good sign. But it is also a reminder that we must be vigilant to continue our commitment to Montana’s working men and women. Since 1915 MSF has worked side-by-side with Montanans as our state’s economy has grown and evolved. Ensuring safe workplaces and taking care of people injured on the job and the families that depend on them is one of the most important responsibilities we have.
We are not sure what lies ahead, but rest assured, Montana State Fund will stand by our vision. To be an indispensable partner in achieving a safer, healthier, and more prosperous Montana.
President / CEO
Vice President of
Vice President of
Vice President of
Vice President of
Chief Information Officer
Term ended: May 1, 2021
Term ended May 1, 2021
Term ended: May 1, 2021
Term ended: May 1, 2021
Term ended: May 1, 2021
Term ending: May 1, 2023
920 University St Helena, MT 59601
Term ending: May 1, 2023
We packed and shipped 506 boxes of personal protective equipment (PPE) to 453 frontline policyholders and their employees. This included 30,000 KN95 masks, 156,000 tri-fold masks, and 100 thermometers.
We launched our redesigned montanastatefund.com website.
We launched our new website workingformontana.com. The site spotlights MSF’s commitment to protect Montana’s working men and women and our contribution to the state’s economy.
We launched a special work-from-home microsite on our website safemt.com.
We created a COVID-19 employer microsite on safemt.com.
Our Board of Directors declared a dividend total of $40 million for policyholders. This marked the 22nd consecutive year MSF declared a dividend, bringing the total returned to policyholders to $326 million since 1999.
Sam Heigh, Vice President of Operations Support, retired after 35 years of service to MSF.
Our Safety Management Consultants completed 1,248 consultative visits to policyholders in 2020. This was either in person or through remote channels.
In 2020, our Safety Services Specialist facilitated 6 onsite safety workshops and 26 virtual workshops.
We added two new safety educational videos, (Respirator and School Safety) to our video library on our safety focused website safemt.com. In total, MSF has produced 22 safety videos that have been accessed by workers from around the world.
As a part of our Growing a Safer Montana high school personal protective equipment (PPE) grant program, MSF’s safety team mailed PPE to 37 construction trades and industry high school classrooms across the state. Since the program began in 2017, over $64,000 worth of safety gear has helped more than 5,000 students.
Fifteen college students studying Occupational Safety and Health / Industrial Hygiene or Construction Trade and Industry each received a $4,000 scholarship. MSF began these scholarships in 2017 through our Growing a Safer Montana initiative. In all, 52 students have received the competitive academic scholarships totaling $169,500.
We awarded 14 ACE grants in 2020 totaling $20,813.16. Our ACE (Assisting Charitable Endeavors) program awards nonprofit organizations grants for safety and health projects.
Seven higher education students were awarded a total of $5,450 in scholarship money. The scholarship aids children and spouses of workers who were fatally injured in a work-related accident.
Our employees contributed nearly $28,000 to the State Employee Charitable Giving Campaign (SECGC). This contribution amount ranked fourth behind three larger state agencies. In addition, they donated $2,280 to Helena Food Share’s Holiday food drive.
Report of Leadership
The Leadership of the Montana State Fund (MSF) is responsible for the results and stewardship of the resources entrusted to it, which is reflected in its financial statements and all other information presented in the Annual Report. MSF governance, culture, values, and system of internal controls are designed to provide reasonable assurance that resources are used appropriately, assets are safeguarded against loss, and that transactions are executed and recorded promptly and accurately. Attributes and tools include organizational structure and corporate governance practices, selection and training of personnel, communication and enforcement of policies and procedures, strategic and financial planning and budgeting, enterprise risk management, monitoring, and ongoing internal and external audit programs. The effectiveness of these systems, controls, and tools are continually being evaluated by Leadership. MSF’s financial statements are presented on its website for the year ending December 31, 2021, and include financial results based on the best estimates and judgment of MSF Leadership. These results are presented on a statutory basis, which is consistent with insurance industry financial statement presentation. Inasmuch as MSF, which is domiciled in the State of Montana, is under the auspices of the Montana State Auditor, it compiles and reports its financial results according to Statutory Accounting Principles (SAP), which are the principles and standards required by the Montana State Auditor’s Office.
The financial overview and results included in this Annual Report should not be considered MSF’s audited financial statements. The results presented herein are summarized from the audited financial statements produced by the independent public accounting firm, Eide Bailly, LLP, for the year ending December 31, 2021. Eide Bailly issued a “clean” auditor’s opinion, which means that MSF financial statements fairly represent results and balances and there were no material misstatements identified. MSF’s complete audited financial statements, including the accompanying notes, are available on MSF’s website. Furthermore, inasmuch as MSF is a component unit of the State of Montana, it is required by statute that the State of Montana’s Legislative Audit Division (LAD) conduct an audit of MSF’s financial statements in accordance with generally accepted accounting principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). The governmental financial statements and the related audit opinion for the year ending December 31, 2021, will be available on the State of Montana Legislative Audit Division’s website once they have been presented and approved by the Legislative Audit Committee. Due to reporting differences between SAP and GASB and timing differences of the two audits, it should be noted that the statutory financial results differ from the GASB results. Therefore, a financial reconciliation of policyholder equity between the GASB financial statements and the SAP financial statements follows.
|A comparison of Statutory Policyholders’ Equity to GASB Net Assets|
|For the year ended December 31, 2021|
|Statutory policyholders’ equity (SAP)||$ 646,425,178|
|Non-admitted assets 1||28,913,288|
|Change in investment value of bonds to fair market value 2||29,411,344|
|Change in investment lot inventory method 3||(1,321,325)|
|Change in investment value of other invested assets to equity method 4||(6,930,819)|
|Change in allowance for doubtful accounts 5||(2,062,893)|
|Effect of differences in lease accounting|
|standards on income and equity 6||5,756|
|Effect of differences in pension accounting
standards on income and policyholders’ equity 7
|Effect of differences in OPEB accounting
standards on income and policyholders’ equity 8
|PBRI valuation adjustment timing difference 9||141,742|
|GASB net position (subject to audit)||$ 668,398,287|
1 Non-admitted assets – Under Statutory accounting standards, assets that are not readily convertible into cash and cannot be used to fulfill policyholder obligations are categorized as “non-admitted assets” and removed from the balance sheet via a direct charge to policyholders’ equity. Under GASB standards, these assets are recognized on the balance sheet subject to certain valuation allowances.
2 Change in investment value of bonds to fair market value – Statutory accounting standards require investment valuation practices that differ from those required by governmental accounting standards.
3 Change in investment lot inventory method – Statutory accounting standards require investment valuation practices that differ from those required by governmental accounting standards.
4 Change in investment value of other invested assets to equity method – Statutory accounting standards require investment valuation practices that differ from those required by governmental accounting standards.
5 Change in allowance for doubtful accounts – Governmental accounting standards regarding accounts receivable require an assessment of collectability and the establishment of an allowance for doubtful accounts on the balance sheet. Statutory accounting standards require doubtful accounts to be charged directly against the income statement.
6 Governmental lease accounting standards (GASB 87) require assets and liabilities to be recorded for certain leases. Statutory accounting standards require lease payments to be expensed when paid.
7 Effect of differences in pension accounting standards on income and policyholders’ equity – Governmental pension accounting standards (GASB 68) require recognition of an allocation of the state’s unfunded retirement plan liability at the agency level. Under SAP, the recording of a portion of the unfunded liability is not required for a reporting entity, which participates in a plan sponsored by another entity, but is not directly liable for the obligations under the plan (SSAP No. 102 paragraph 86); however, the amounts contributed to the plan by MSF are recorded as expense in the current period.
8 Effect of differences in OPEB accounting standards on income and policyholders’ equity – Governmental postemployment benefit accounting standards (GASB 75) require recognition of an allocation of the state’s Other Post-Employment Benefit liability at the agency level. Under SAP, the recording of a portion of the liability is not required for a reporting entity which participates in a plan sponsored by another entity, but is not directly liable for the obligations under the plan (SSAP No. 92 paragraph 100).
9 An adjustment to the total PBRI project cost was made after the Statutory audit was complete, but before the Governmental audit began, causing a timing difference.
|Quick Facts as of December 31, 2021|
|Net earned premium||$ 159,679,855|
|Number of policies serviced||25,958|
|Number of new claims processed||8,345|
|Investment income earned||$ 73,104,894|
|Net income after dividends||$ 21,576,288|
|Policyholder dividends||$ 60,001,990|
|Loss and LAE reserves||$ 935,976,788|
|Statutory equity||$ 646,425,178|
|Reserves to equity ratio (after dividend)||1.45|
|Premium to equity ratio (after dividend)||0.25|
Transparency in Government
As part of the corporate governance practices of MSF, the following is the list of the top five compensated employees in the organization as well as their compensation for 2021.
|Laurence Hubbard||President/Chief Executive Officer||$ 463,660|
|Julie Jenkinson||Vice President-Insurance Operations||$ 332,862|
|Albert Parisian||Chief Information Officer||$ 289,292|
|Kevin Braun||General Counsel||$ 253,044|
|Mark Burzynski||Vice President – Corporate Support||$ 252,659|
MSF annually files audited financial statements and all other required reports and documentation with the Montana State Auditor’s Office (SAO) Commissioner of Securities and Insurance (CSI). The MSF Board of Directors (Board) decreased rates 10% for policies effective July 1, 2021. During 2021, the Board of Directors issued $60 million in dividend to policyholders. Since 1999, MSF has returned a total of $366 million to policyholders through dividends. MSF recorded net income of $22 million for 2021. Decreasing claim benefit costs and continued strong investment market returns supported MSF policyholder equity increasing $45.4 million to $646 million at the end of 2021. MSF’s strong financial condition allows MSF to offer efficacious safety programs and training, stable year-to-year costs for workers’ compensation coverage, and dividends rewarding policyholders for safe workplaces.
Graphs Tell the Story
The average wage-loss claim currently costs an estimated $65,000, although the most catastrophic of claims can cost several million dollars. About 70% of workers’ compensation claim costs are for medical services, which is a fast growing driver of Montana claim costs. Wage replacement (indemnity) costs have been relatively constant over the past 10 years. Workers’ compensation medical costs were rising 6% per year prior to 2012, but have only been rising about 2.4% per year since HB334 benefit reforms were enacted in 2012.
MSF predominantly serves small employers in Montana who would not otherwise have access to affordable workers’ compensation insurance. However, MSF’s role as a competitive guaranteed market allows MSF to maintain lower and more stable rates as well as a high level of customer service for all policyholders (the premium volume from medium and large account employers who choose to insure with MSF creates economies of scale and reduces financial variability, benefiting all Montana employers regardless of size).
Claim frequency is measured in claims per exposure volume written in order to account for changes in business volume and rate level. MSF total claim frequency has declined by 4% per year over the past decade. NCCI finds a general pattern of declining workers’ compensation claim frequency throughout the country. NCCI research suggests that innovations which improve labor productivity in the economy tend to have secondary impacts on workplace injury rates. Reductions in claim frequency have helped offset increases in medical costs. Claim frequency for 2020 is exceptionally low due to business disruptions caused by the COVID-19 pandemic.
Over the last 23 years, MSF has returned a total of $326 million to policyholders through its general dividend program. Primarily as a result of interest income and stock market gains, MSF’s last 6 dividend returns have exceeded $30 million each year. MSF’s dividend program helps stabilize rates by distributing excess capital when conditions are favorable as opposed to having rates increase and decrease in unpredictable ways depending on the whims of financial markets. About 95% of eligible MSF policyholders receive a dividend each year. Dividends are an effective incentive in favor of workplace safety that is noticed by policyholders when they receive a reward for having no or few employee injuries that year.
*In 2020, an initial dividend of $20 million was paid in November; an additional $20 million dividend was approved after year-end results were available in March 2021, totaling $40 million distributed to the same set of policies.
Since the inception of the Montana State Fund in 1990, private carriers have variously expanded and contracted their written workers’ compensation insurance volumes in Montana, depending on the business conditions at the time. General economic conditions also affect the number of insured employers. As the guaranteed market, we insure any Montana business, offering employers a stable, locally controlled, reliable, and competitively priced source for workers’ compensation insurance.
In the soft market conditions of the late 1990s, MSF’s retention of written premium was relatively low by industry standards. However, in the last few years as market conditions have changed and MSF has established itself as the industry leader in service for workers’ compensation in Montana, MSF’s retention of written premium has dramatically improved. In recent years, we typically retain more than 90% of our business from year to year (based on premium dollars), which is a very high retention rate by industry standards.
MSF manual rate levels rose in the early 2000s due to increasing medical costs and statutory and judicial benefit expansions. Rate levels have decreased since 2007, particularly as a result of legislative benefit level reforms enacted with HB334 in 2012. MSF rates effective July 1, 2021 are now 53% below the 2007 level and are the lowest rates ever in the history of the Montana State Fund.