State Volunteer Mutual Insurance Company’s Profits Explode

Yesterday  I reported that SVMIC, the bedpan mutual that insures the vast majority of Tennessee doctors,  reduced its rates by 23.1% .  I also reported that  the company declared a $20,000,000 dividend.  The net effect of the dividend means that policyholders with a history of no paid claims will receive another 8% reduction (or so) in rates effective May 15, 2010.

How can SVMIC cut rates so dramatically while paying the highest dividend it has paid in years?   There are two reasons.   First, as a result of the tort reform passed effective October 1, 2008 (revised effective July 1, 2009) claims have decreased substantially.   Fewer claims means reduced claims handling costs, defense fees, court reporter and other litigation fees, and claims payments.  Since the law permits insurers to "write off" reserves as they are established, fewer claims means that reserves are lower than these would have otherwise been had there been more claims.   A decrease in the need to set aside money in reserves for these "absent" claims increases net income.

And how it has increased.   In 2009, SVMIC had a net income (after taxes) of a whopping  $71, 968,000, an increase of over 100% from a year earlier.  

The company had revenues of  $289,482,000 in 2009.  That means its after-tax income was almost 25% of revenue.     For comparison purposes, Walmart’s net income was about 6% of its revenue.  Exxon Mobile’s was about the same.

Here is a number that is even more shocking.   SVMIC’s surplus (think:  net worth)  increased over $100,000,000 in one year, from $251,321,000 to $364,163,000.     Remember, this company has only been in existence about 35 years.

Does this mean that the company will stop its efforts to reduce the right of malpractice victims to have a jury determine the value of their case?  No way.  Here is what the company told its doctor/owners:  "The uncertainty of awards in our civil court system makes the process [of establishing reserves] exceedingly difficult."   Caps on damages will simply that effort, and that is why the company will continue to fight for them, regardless of its profitability.

One last point.  SVMIC is cutting rates not only because of an abundance of wealth but also because of increased competition in the marketplace.   Med mal insurers are in what is known as a "soft market," and thus are scrambling to lower rates to maintain market share.  When rates go up (they always do) medical malpractice victims and juries will be blamed (they always are).

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