North Carolina Reinsurance Facility

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North Carolina Reinsurance FacilityMINUTES OF THE FORTY-FIFTH ANNUAL MEETING OF THE NORTH CAROLINAREINSURANCE FACILITY HELD AT THE GRANDOVER RESORT AND CONFERENCECENTER, ONE THOUSAND CLUB ROAD, GREENSBORO, NORTH CAROLINA,OCTOBER 11, 2018MEMBERS PRESENTAllstate Insurance CompanyAllstate Indemnity CompanyAllstate Northbrook Indemnity CompanyAllstate Property & Casualty Insurance CompanyAllstate Vehicle and Property Insurance CompanyEsurance Insurance CompanyAtlantic Casualty Insurance CompanyFalls Lake National Insurance CompanyStonewood Insurance CompanyGEICO Indemnity CompanyAmguard Insurance CompanyBerkshire Hathaway Homestate Insurance CompanyGEICO Advantage Insurance CompanyGEICO Casualty CompanyGEICO Choice Insurance CompanyGEICO General Insurance CompanyGEICO Secure Insurance CompanyGovernment Employees Insurance CompanyHartford Fire Insurance CompanyHartford Accident & Indemnity CompanyHartford Casualty Insurance CompanyHartford Insurance Company of the MidwestHartford Underwriters Insurance CompanyMaxum Casualty Insurance CompanyProperty & Casualty Insurance Company of HartfordSentinel Insurance Company LtdTrumbull Insurance CompanyTwin City Fire Insurance CompanyIntegon Indemnity CorporationAgent Alliance Insurance CompanyAmTrust Insurance Company of Kansas, Inc.REPRESENTED BYLaura HoffmanRobbie StricklandSonja MakiMark CaughronSusan RichardsonMelinda SeiboldEric MizeDaniel PostArt Lyon2910 Sumner Blvd. Raleigh NC 27616 (919) 783-9790 www.ncrb.org

Century-National Insurance CompanyCorePointe Insurance CompanyFirst Nonprofit Insurance CompanyImperial Fire and Casualty Insurance CompanyIntegon Casualty Insurance CompanyIntegon General Insurance CorporationIntegon National Insurance CompanyIntegon Preferred Insurance CompanyMilford Casualty Insurance CompanyNational General Insurance CompanyNational General Insurance Online, Inc.New South Insurance CompanySecurity National Insurance CompanySequoia Insurance CompanySouthern Insurance CompanyTechnology Insurance CompanyWesco Insurance CompanyNationwide Mutual Insurance CompanyAllied Insurance Company of AmericaAllied Property & Casualty Insurance CompanyAMCO Insurance CompanyCrestbrook Insurance CompanyDepositors Insurance CompanyFarmland Mutual Insurance CompanyFreedom Specialty Insurance CompanyHarleysville Insurance CompanyHarleysville Preferred Insurance CompanyHarleysville Worcester Insurance CompanyNational Casualty CompanyNationwide Affinity Insurance Company of AmericaNationwide Agribusiness Insurance CompanyNationwide General Insurance CompanyNationwide Insurance Company of AmericaNationwide Mutual Fire Insurance CompanyNationwide Property & Casualty Insurance CompanyScottsdale Indemnity CompanyTitan Indemnity CompanyVictoria Automobile Insurance CompanyVictoria Fire & Casualty CompanyPennsylvania National Mutual Casualty Insurance CompanyPenn National Security CompanyPermanent General Assurance Corporation of OhioPermanent General Assurance Corporation2Mendi RiddleTom SouderNick SizemoreChristine HugleEric RyanGary MorrisLynette ProsserTeresa BurroughsPat LovellSondra CavanaughDiona Gardner

Progressive Southeastern Insurance CompanyTravelers Indemnity CompanyDiscover Property & Casualty Insurance CompanyFarmington Casualty CompanyFidelity & Guaranty Insurance CompanyFidelity & Guaranty Insurance Underwriters Inc.Northland Casualty CompanyNorthland Insurance CompanySelect Insurance CompanySt Paul Guardian Insurance CompanySt Paul Mercury Insurance CompanySt Paul Protective Insurance CompanySt. Paul Fire & Marine Insurance CompanyStandard Fire Insurance CompanyThe Automobile Insurance Company of Hartford, ConnecticutThe Charter Oak Fire Insurance CompanyThe Phoenix Insurance CompanyThe Travelers Indemnity Company of AmericaThe Travelers Indemnity Company of ConnecticutTravco Insurance CompanyTravelers Casualty & Surety CompanyTravelers Casualty & Surety Company of AmericaTravelers Casualty CompanyTravelers Casualty Company of ConnecticutTravelers Casualty Insurance Company of AmericaTravelers Commercial Casualty CompanyTravelers Commercial Insurance CompanyTravelers Constitution State Insurance CompanyTravelers Home & Marine Insurance CompanyTravelers Personal Insurance CompanyTravelers Personal Security Insurance CompanyTravelers Property Casualty Company of AmericaTravelers Property Casualty Insurance CompanyUnited States Fidelity & Guaranty CompanyOTHERS PRESENTYoung Moore and Henderson, P.A.North Carolina Department of InsuranceWellington Management CompanyAble Auto Insurance AgencyAdcock AgencyJones Insurance Agency, Inc.3Kuda MaposaKirsten ForbesREPRESENTED BYGlenn RaynorMickey SpiveyBrian BeverlyAngela CraddockMike Causey, CommissionerFred FullerChris HollemanEric TanakaJeff ButlerMiles ButlerJohn MillerWortham W. Boyle

Litaker InsuranceMountcastle InsurancePublic Members – NCRF Board of GovernorsStaffJustin LitakerAndy CalvertDr. Mark R. RoysterJannet BarnesJoanna BiliourisTom BurnsShelley ChandlerTerry CollinsEdith DavisLinda DavisRay EvansVicki GodboldKeri JohnsonFrank LonnettAndy MontanoRebecca WilliamsTwo hundred and sixteen (216) other companies were represented by proxy.The meeting convened as scheduled, Ms. Riddle presiding. Mr. Collins announced that therewas a quorum.Reference was made to the Facility’s Antitrust Compliance Policy, Conflicts of InterestStatement, and Code of Ethics and Standard of Conduct Statements, copies of which wereincluded in the materials provided. Mr. Spivey briefly commented on the importance of theseguidelines.1.Minutes of the last meetingThere were no outstanding minutes to be approved.2.Annual ReportCopies of the Forty-Fifth Annual Report for the fiscal year ended September 30, 2018were distributed, a copy of which is attached. The members were also advised theReport would be available on the Facility website under its own link from thehomepage. Mr. Evans offered general observations from the past year and reported onprogress made towards the current year’s goals, highlighting the focus on managingmembers’ equity.3.Chairman’s CommentsMs. Riddle thanked everyone for their support during her two years as Chairman. Shealso shared comments on the accomplishments during the preceding year, especiallynoting the favorable activity regarding the improvement in members’ equity and theimplementation of the commercial auto loss recoupment. Ms. Riddle recognized RayEvans for his continued leadership, as well as the Board, the various participatingcommittees, staff, and counsel for their efforts on behalf of the Facility.4

4.Commissioner of InsuranceCommissioner Causey shared his thoughts on recent events in North Carolina with afocus on flooding that resulted from hurricane Florence and the general low number offlood policies.5.Recognition of new and outgoing Board membersMr. Collins advised that the Governor had selected Reverend Dr. Mark S. Royster, Sr.of Chapel Hill to replace Steve Smith of Raleigh as one of the two public members onthe Board. He noted that both public members, Dr. Royster and David Walker ofLumberton, will serve at the Governor’s pleasure. Mr. Collins recognized the outgoingMr. Smith’s twenty years of contributions to the Facility as both an agent member andlater a public member5.AdjournmentThere being no further business, the meeting was adjourned.Respectfully submitted,Terry F. CollinsChief Operating OfficerNorth Carolina Reinsurance FacilityTFC/ladEnclosureRF-18-215

2018 Annual ReportNorth Carolina Reinsurance Facility

REINSURANCE FACILITYTable of ContentsManagement ContactsGeneral Manager’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2NCRF StaffMessage from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Ray Evans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Manager919-783-9790 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . rfe@ncrb.orgBoard of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Standing Advisory Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Management Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Balance Sheet & Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Special Purpose Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Special Purpose Statement of Operations . . . . . . . . . . . . . . . . . . . . . . 10General Organizational InformationNCRF Main Phone Number . . . . . . . . . . . . . . . . . . . . . . . . 919-783-9790Facsimile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919-783-0355Website Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.ncrb.org/ncrf/Physical Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2910 Sumner Blvd.Raleigh, NC 27616Terry Collins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Operating Officer919-582-1076 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tfc@ncrb.orgTom Burns . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director, Auto Operations919-719-3033 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tfb@ncrb.orgJannet Barnes . . . . . . . . . . . . . . . . . . . . . Manager, Compliance Claims919-582-1022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . jbb@ncrb.orgAndy Montano . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manager, Automobile919-582-1021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . afm@ncrb.orgDonna Kallianos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manager, Claims919-582-1046 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . dpk@ncrb.orgEdith Davis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer919-582-1006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . etd@ncrb.orgVicki Godbold . . . . . . . . . . . . . . . . . . . . . Chief Human Resources Officer919-645-3170 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vcg@ncrb.orgShelley Chandler . . . . . . . . . . . . . . . . . . . . . . . Chief Information Officer919-582-1057 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . src@ncrb.org2018 Annual MeetingThe annual meeting of member companies of the North CarolinaReinsurance Facility will be held October 11, 2018, at the GrandoverResort and Conference Center, Greensboro, North Carolina.12018 Annual Report

GENERAL MANAGER’SREPORT2018 has been a good year. Most significantly, we havemade great progress towards financially “righting theship” after four years of very poor loss experience. And,while responding to the Facility’s financial position was thenumber one priority, we have also made good progresstowards our other strategic objectives: A well-trained and professional workforce, A comprehensive electronic environment, Faithful compliance with statutes and regulations, andRay EvansGeneral Manager C ontinuing to fulfill the purpose of the Facility inenabling access to liability insurance for all eligibledrivers.The Facility’s financial position improvement, which is detailed in following reports, isdue to a number of factors. Extremely important is that loss experience appears to be nolonger deteriorating due to a number of factors in the background: miles driven continuesto increase, but at a reduced rate; distracted driving remains a problem if my unscientificsurveys driving to work are accurate, but there are now constant reminders in the mediaof the effects, which are creating greater awareness; and, repair cost inflation is notquite as strong. The biggest impact on our financials, though, is due to rate changes andloss surcharges.The most significant of these was a 10% increase in PPA liability rates approved byCommissioner Causey early in 2017 and effective last October. Almost as significant havebeen four commercial auto increases since 2015, with another on the way early in 2019. Theclean risk surcharge and PPA “other than clean” rates are reviewed regularly and adjustedto actuarially correct levels when indicated. And now, effective October 1, 2018, there willbe a commercial auto loss recoupment surcharge applicable to commercial auto policies.The key to a successful Facility is a well-trained and professional workforce managed bygood leaders. For the last year, this has been directed by Terry Collins, who, while dealingwith financial concerns, has quickly learned the complexity of the Facility. To keep theFacility moving forward, he has hired several experts, including Tom Burns, a propertycasualty insurance veteran with considerable commercial auto experience. There havealso been additions to our member analysts and compliance auditors in anticipation ofincreased activity due to the commercial auto loss recoupment.Developing a comprehensive electronic environment is a moving target, with securityconcerns, constant upgrades to the 60 or so individual software programs we have, andnear constant equipment upgrades. However, with the help of a sophisticated InformationServices Department led by Shelley Chandler, our CIO, we have made great progress,even with a large project like the commercial auto loss recoupment. In fact, we recentlypurchased a new program enabling us to access more data and ultimately convert it intoinformation displays that we believe will not only be useful to us, but also to carriers. Tomand Jannet Barnes will be using this to create the next level of compliance technologyduring 2019 to increase our effectiveness in verifying premiums and losses.Faithful compliance with statutes and regulations has been made a little more difficultover the past few years as we do not lobby and we rely on insurance industry and otherlobbyists to keep us “in the loop.” In return, they use us as experts on the potential effectsof proposed and pending legislation and regulatory changes. Over the past few years, inaddition to Legislators experienced in insurance matters leaving the Legislature, manyof the lobbyists we have been connected to have retired, leaving a void and damaging an“early warning” system, if you will, that enabled us to respond quickly, professionally, andappropriately to upcoming changes. While still maintaining our “no lobbying position,”this is an issue we are trying to resolve before the long session of the Legislature beginsin January 2019.As I look back on 2018 and survey the progress, it is important to note how involved,concerned, and effective the Board, our committees, and task forces have been. Withouttheir counsel, guidance, and willingness to meet with us, often at short notice, much of ourprogress would not have happened. So, from all of the Facility staff, a giant thank you to allof you who contribute so much of your time to the work of our committees and task forces.MESSAGE FROM THECHAIRMANLast year I mentioned “change” as the theme for 2017 — lookingback I would say that dealing with change is the new norm forour industry. As I reflect on 2018, new themes come to mind:collaboration, flexibility, and discipline. The NCRF team has a greatworking relationship with the Department, has engaged associatesand working committees, and has the respect of many industryleaders both in and out of NC. The team has worked swiftly andshown flexibility as market conditions continue to change and haveexecuted on tough business decisions to improve members’ equitythroughout the course of the year. They have done this and a terrificjob of taking care of associates and the business at hand.Below are some of the highlights for the year: An improvement in our members’ equity deficit of 65 millionfrom June 2017 through June 2018 developed from continuingto “pull all levers” (clean risk recoupment, loss recoupment,and rate increases coupled with positive impacts from fraudlegislation). Together these actions combined to drive the inflowof revenue to exceed outflow. The Facility witnessed another year of growth with ceded writtenpremium once again eclipsing 1 billion. However, both cessionactivity and policies in force declined for the first time in severalyears, possibly indicating a slowing of growth. The first commercial auto loss recoupment since the late 1980swas implemented effective on October 1, 2018, to recover priorlosses on ceded commercial auto risks. This all-importantprogram required a great deal of collaboration, partnership, andcommunication between the Facility and member companies. After escalating for several years, Facility automobile loss trendshave leveled out during the fiscal year. This halt in momentumcoupled with clean risk and loss recoupments should providethe basis for continued improvement in the Facility results. As the Facility continues to evolve, we have welcomed anothernew associate in a key management position. Tom Burnsjoined the Facility in the newly created role of Director of AutoOperations, overseeing commercial auto rating and both privatepassenger auto and commercial auto compliance auditing. Through June 2018, our administrative expenses were justbelow budget. While the administrative expenses have remainedvery stable and consistent over the past few years, significantlegal and advisory expenses and the onboarding of additionalstaff may result in the Facility slightly exceeding the budget byyear’s end. The book value of our investment portfolio has increased sinceJune 2017 and has outperformed the benchmark.I feel honored to have served with the NCRF team and boardmembers. We lost several tenured board members in 2017, butgained new members with both the knowledge and determinationto continue the great work of past Boards. Thank you to my peersfor all that you do for the NCRF — it has truly been a pleasureworking with each of you. And, to the NCRF team — you haveshown unwavering discipline in positioning the Facility for successtoday and in the future. I look forward to working alongside each ofyou in the coming years as we continue to evolve to meet the needsof our customers and member companies.Mendi RiddleNationwide Insurance Company, ChairmanNorth Carolina Reinsurance Facility2

BOARD OF GOVERNORSResponsibility for management is vested in a 15-member Board of Governors.The Board includes 12 voting members, seven member insurance companies,and five agents appointed by the Insurance Commissioner; two nonvotingpublic members appointed by the Governor; and the Insurance Commissioner,who is a member of the Board ex-officio without vote. Six meetings of theBoard

Travelers Property Casualty Company of America Travelers Property Casualty Insurance Company United States Fidelity & Guaranty Company OTHERS PRESENT REPRESENTED BY Young Moore and Henderson, P.A. Glenn Raynor . Mickey Spivey . Brian Beverly . Angela Craddock . North Carolina Department of Insurance Mike Causey, Commissioner . Fred Fuller

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