Chesapeake Employers 2014 Annual Report

THENNOW &NEXT

2014 Annual Report

Our Vision:Be the best workers’ compensation insurance carrier in Maryland.

Our Mission:To provide Maryland businesses with a readily available source for workers’ compensation insurance that features high quality products and services at a fair price; and to protect workers and

employers by championing workplace safety.

Balance Sheet Statutory - Basis

As of December 31 2014 2013Admitted AssetsBonds ............ ................................................... $ 1,444,409,039 $ 1,389,641,842Preferred stock ................................................... 12,178,184 11,258,881Common stock ................................................. 134,140,632 145,844,369Real estate, occupied by Chesapeake .................. 9,180,183 9,417,305Cash, cash equivalents and short-term investments 75,135,453 54,717,411Other invested assets ......................................... 77,514,197 31,875,585 Total cash and invested assets ..................... 1,752,557,688 1,642,755,393Accrued interest on investments ........................ 11,105,669 11,249,904Premiums receivable .......................................... 78,025,388 78,908,205Securities lending reinvested collateral assets ...... 127,527,930 109,389,158Receivables under reinsurance contracts ............ 1,111,130 1,366,389Other assets.... ................................................... 27,907,176 25,230,545Total admitted assets ......................................... $ 1,998,234,981 $ 1,868,899,594

Liabilities and Surplus Liabilities:Reserves for losses and loss adjustment expenses $ 1,353,320,000 $ 1,291,320,000Accounts payable and accrued expenses ............. 15,084,582 14,457,519Unearned premiums .......................................... 104,804,708 105,650,464Payable for securities lending ............................. 127,527,930 109,389,158Other liabilities ................................................. 5,405,786 7,353,268Total liabilities ................................................... 1,606,143,006 1,528,170,409

Total surplus.. .................................................... 392,091,975 340,729,185Total liabilities and surplus ................................ $ 1,998,234,981 $ 1,868,899,594

2014 Chesapeake Employers’ Annual Report 1

Tom PhelanPresident,

Chief Executive Officer

2 2014 Chesapeake Employers’ Annual Report

100I am so very proud to be leading this great company and team of dedicated associates as we celebrate our Centennial anniversary. This report will highlight a few significant events from our first 100 years and some important next steps as we continue our evolution.

THEN(1914) The State legislature established the Maryland State

Accident Fund, a governmental entity, with a mission to provide a guaranteed source of workers’ compensation insurance, and we still hold this mission today. Since our inception, we have grown and flourished along with the businesses in this state, however, it has not always been without some turbulent times. We have witnessed world wars, economic growth and collapse, men landing on the moon and many other significant events.

NOW(2014) We are the workers’ compensation insurance market leader

in the State. We understand Maryland businesses. We recognize that safety protects an employers’ greatest asset, their employees. When an injury happens we coordinate outstanding care for injured workers. We recognize that market leadership is accomplished by our independent agents and policyholders placing their business with us. We are committed to providing quality services to our valued partners. Over the years we have built a very strong financial company. We secured, in 2013, an A-(Excellent) financial strength rating from the A.M. Best Co, the credit rating agency with a unique focus on the insurance industry. The rating was re-affirmed this year.

Our financial strength also reflects a sophisticated Enterprise Risk Management (ERM) process. Through modeling and forecasting, we are able to effectively identify, measure, monitor, and mitigate risks across the company.

The company’s passion is our concern for Maryland’s businesses and their workers. For our 100th year anniversary, we celebrated our historic milestone with a special initiative to give back to the communities that have supported us. This year we gave more than $100,000 to 23 charitable non-profit organizations throughout the state to support and enhance the employability of their clients. This program reflects our belief in the inherent benefits of work and the economic vitality it generates for communities. Additionally, we encouraged greater volunteerism among our employees, particularly for 16 charitable organizations with a longstanding relationship with our company.

President’s Message

Chesapeake Employers’ Board Members

Rocky V. GonzalezSecretary

Charles DankmeyerVice Chairman

Maria TildonBoard Member

Leonard (Bud) Schuler, Jr.Board Member

Joseph CoaleTreasurer

Paul V. Gill, Sr.Board Member

Lewis C. PowellChairman

Wayne Gioioso, Sr.Board Member

Ivory TuckerBoard Member


Chesapeake Employers is led by a Board of Directors that is dedicated to effective governance of the company. Our corporate initiatives could not be possible without the support of our board. This year, we welcomed Maria Harris Tildon, Esq., who brings years of healthcare insurance expertise to the board. We look forward to her contributions and guidance. Also in 2014, the term of Kenneth Nwafor, CPA, expired and we thank him for his years of service and leadership.

NEXTOur future will be as exciting and challenging as the past. Governor

Hogan signed legislation on April 14, 2015 that will make significant changes to our operations over the next seven years. The law requires Chesapeake Employers’ Insurance Company to join the National Council on Compensation Insurance (NCCI), gradually adopt its rating system, and file our rates with the Maryland Insurance Administration Commissioner. The law allows Chesapeake Employers, or a subsidiary of the company, to write workers’ compensation insurance in other states, while continuing to be the guaranteed market in the State of Maryland. Also, the law alters the company’s Board of Directors beginning in 2020 so that seven of the nine Board members will be elected by you, our policyholders. The most significant point for our policyholders is that a great deal of work will be going on behind the scenes. Yet, as we transition to NCCI membership over the next seven years, Chesapeake will work diligently to minimize the impact to you.

On behalf of the Board of Directors and my fellow Chesapeake Employers’ associates, we truly thank you for your business and look forward to strengthening our relationship as your workers’ compensation insurance specialist for the next 100 years!

Best regards,

Thomas Phelan, CPA, President and CEO

L-R: “Chip” Peterson, Jr. , Police Chief George P.W. Coudon, CIC, Crothers Insurance Tina Thomas Lyght, Senior Underwriter, Chesapeake Employers Calvin Bonenberger, Jr., Town Administrator Travis Marion, Mayor

THEN

Town of Rising Sun Since 1917, Chesapeake’s Oldest Policyholder

The

THENThe Town of Rising Sun, in Cecil County,

Maryland, is Chesapeake Employers’ oldest policyholder.

In 1720, Henry Reynolds established a stone tavern and a stagecoach stop. According to local lore, a sign over the tavern’s entrance depicted the rays of the sun at dawn along with the words “The Rising Sun.” By the time the town’s first post office was established in 1815, Rising Sun was chosen as the official name.

NOWToday Chesapeake Employers covers all the

town’s employees, including the mayor and town administrators, the police department and public works.

“In addition to good rates, it’s the fast, excellent and committed service that Chesapeake provides which contributes to the town’s long-time partnership with Chesapeake Employers,” says George P.W. Coudon, CIC, of Crothers Insurance.

“Continuity, consistency and reliability of timely service and response,” are some of the reasons the town has stayed with Chesapeake over the years, according to Town Administrator Calvin Bonenberger, Jr. He adds: “We have a very strong relationship with our local agent, Crothers Insurance. We are like one big family. We run into each other at local events and serve as partners in numerous community events for the betterment of the town.”

The recently elected Mayor Travis Marion has injected new energy and vitality into this historic town. Mayor Marion received special recognition from the Maryland House of Delegates for his leadership in reshaping the town’s image.

“The Town of Rising Sun is a community of neighbors and families who love living here,” says Mayor Marion. “Rising Sun has some of the best schools in the state. It is a safe town where people meet at the mailbox to talk or gather at one of our parks to play.”

NEXT“There is a new energy in the air and

excitement in what lies ahead for our great town,” said Bonenberger.

The town has applied for a sustainable community designation with the State of Maryland and is currently soliciting bids to perform a comprehensive Economic Development and Community Revitalization Study. The goal is to develop a 10-year strategy that builds on the town’s master plan.

L-R: Rising Sun EmployeesMarsha Spencer, Town Manager and Police Chief “Chip” Peterson

L: The Town of Rising Sun, circa 1940’s

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L-R: Bill Cress, Underwriting Supervisor Chesapeake Employers Richard Born, Herman Born & Sons Rick Born, President, Herman Born & Sons Debra Anders, Secretary Treasurer, Herman Born & Sons Eric Kastendike, Maury, Donnelly & Parr Graham Kastendike, Maury, Donnelly & Parr

NOW

THENHerman Born & Sons, a commercial truck

repair company, has been in business for 163 years. It was originally established in downtown Baltimore in 1852 as a blacksmith shop and wagon manufacturer. The company has been a valued Chesapeake policyholder for 60 years.

When the horse and wagon became obsolete at the turn of the century, the company modernized to keep up with the industrial revolution and began building truck bodies.

NOWHerman Born & Sons now performs a wide

variety of truck body repair services for commercial truck fleets in the greater Baltimore and Washington, D.C. area. The company specializes in truck body and cab repair and refinishing.

Herman Born & Sons is still family-owned and spans six generations. It is represented by Graham and Eric Kastendike, of the Kastendike Insurance Group of Maury Donnelly & Parr. Regarding its long-term relationship with Chesapeake Employers, Graham Kastendike had this to say: “Longevity and partnership come to mind when I think about our relationship with Chesapeake Employers’ Insurance. We have shopped the marketplace and are yet to find a better program from a pricing, coverage and loss control standpoint. Chesapeake has been and will continue to be a part of Herman Born & Sons’ risk management program being led by the Kastendike Team at Maury, Donnelly & Parr.”

When it comes to workplace safety, company President Rick Born has a particular message for his 25 employees: “[We tell] our employees it is their responsibility, first, to do the job safely and, second, to do the job right. The foundation of our great safety record is low employee turnover. Quality employees are as valuable to us as good customers.”

Herman Born & SonsSafety,Service,& Specialization

NEXTThis safety- and service-conscious truck repair

specialist plans to continue to meet its customers’ needs. “Over the past 163 years, we have manufactured and repaired commercial vehicles. We believe if we do what is in our customers’ best interest, our business will take care of itself,” said Rick Born.

Above, Herman Born & Sons craftsmen performing their jobs safely. At left a delivery truck repaired and repainted by Herman Born & Sons, circa 1950s.

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NEXTNEXT

L-R: Robert Black, President, Catoctin Mountain OrchardBobby Phelan, Insurance Brokers of Maryland

Kylie Robertson, granddaughter, standing Patricia Black, Co-owner, Catoctin Mountain Orchard Wyatt Black, grandson, standing Eaves Black, grandson “sitting on shoulders” Nathan Black, grandson Katlyn Robertson, granddaughter George Johnson, Territorial Account Executive Chesapeake Employers Insurance

THENThurmont’s Catoctin Mountain Orchard has

been in the Black family for four generations and a Chesapeake policyholder since 2013.

It began as a small fruit and vegetable stand in1948. Current owner Robert Black’s parents assumed the property in 1961. In 1983, the family moved the retail farm market indoors and built a parking lot for customers. Robert and his sister, Patricia, took over the family business in 2001. They continued to sell fruit, preserves, maple syrup and more. Word of mouth spread, and Catoctin Mountain Orchard began attracting customers from all over.

NOWToday, the farm encompasses more than 100

acres. The farm employs 25 people. Two of the Blacks’ five grandchildren also work on the farm.

The family sells their fruits and vegetables locally and to markets in Maryland and Washington, DC. Catoctin Mountain Orchard also supplies the Frederick County Public School system with apples each week for its school lunch program. Black likes to say he is “developing better eating habits for children by providing them with apples in schools. It’s fresh fruit for better health.”

“I’ve known the Black family for many years.” adds Bobby Phelan, agent, Insurance Brokers of Maryland. “They are a hard working family that I am honored to call clients and friends. I was pleased to recommend Chesapeake Employers to Catoctin Mountain Orchard for their workers’ comp coverage. With all the clients we are fortunate to work with, we take great pride in finding the best workers’ comp coverage, service and pricing to protect their businesses and their employees.”

Despite the fact that, in Maryland, children may work on a family farm without having any formal safety training, Black insists all his grandchildren learn about safety from a very young age. At 14, they must participate in the National Safe Tractor and Machinery Operations certification training program offered by the University of Maryland Extension service and Frederick County 4-H Youth Development.

NEXT“The future of the business is the grand-

children,” says Robert Black. Katlyn, 18, will attend Frederick Community College in the fall, but will continue working at the family orchard as well.

She is already in charge of the new Pick Your Own apple program. “It means she can’t take off any weekends in September and October,” explained Black. He said Katlyn understands that it’s all part of the responsibility of running a seasonal family business that has plenty of room to grow.

Our Future is Growing

Catoctin Mountain Orchard

Catoctin Mountain Orchard has an apple variety, “Autumn Gala,” named in memory of Robert Black’s father, Harry Black.

At left Catoctin Mountain Orchard’s produce store and bakery is open May 1st to January 1st.

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1914 -1920s

u In 1943, the Fund proposed the creation ofitsfirstworkplacesafetydepartment.

u In1945,RichardK.Coggins became the Superintendent for theFund.DickCoggins’careeras Superintendent, and later as a boardmember,spanned50years.

u TheFundinsured3,600businessesin1949. Theaverageannualpremiumwas$234.

1930s -1940s

u AcoalminerfromAllegany County turned Maryland State Senator,DavidJ.Lewis, sponsoredthefirstworkers’ compensationlegislationinMaryland.

u This led to the creation of the Maryland State Accident Fund in 1914, the predecessor to Chesapeake Employers’ InsuranceCompany.

u Initsfirstyear,theMarylandState AccidentFundinsured842businesses.

Our Story


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u In1951,theFundwrote$1millioninannual premium.

uTheFundpromotedanewslogantoits policyholders,“Security,Service,Savingsand CooperationinAccidentPrevention.”

u In 1964, the Fund celebrated its 50th anniversary.

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1950s -1960s

u TheFundinsured9,400policyholdersin1983.

uIn1987,theFundwrote$100million inannualpremium.

uIn1972,thenationalworkplaceinjury ratewas10.9incidentsper100workers. By2013,theworkplaceinjuryratefor privatesectorindustriescontinuedtoshow apositivedeclinewith3.1incidentsper 100workers.

1970s -1980s


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u In1990,theStateAccidentFundchanged itsnametotheInjuredWorkers’Insurance Fund(IWIF).

u In1996,IWIFbeganpartneringwith Maryland’sinsuranceagentcommunity.

u In2013,IWIFbecameChesapeakeEmployers’ InsuranceCo.,aprivatenonprofitinsurance company.

u In November 2013, Chesapeake Employers receivedanA-(Excellent)financialrating fromA.M.Best.Co.

u In 2014, Chesapeake Employers continued to bethelargestwriterofworkers’compensation insuranceinMaryland.

uWeinsured21,000Marylandemployers andprovidedcareandbenefitsformore than23,000injuredworkers.

uOnApril16,2014,wecelebrated100 yearsinbusiness.

1990s & NOW

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Our Operations Highlights100Anniversary

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2013 20122011

Assets

In M

illio

ns

2014

$1.98 Billion$2,000

$1,750

$1,500

$1,250

$1,000

$750

$500

$250

0201320122011

Reserves

In M

illio

ns

2014

$1.35 Billion$1,400

$1,200

$1,000

$800

$600

$400

$200

0

$75

$60

$45

$30

$15

0201320122011

Net Investment Income

In M

illio

ns

2014

$49

Assets Reserves Net Investment Income

covered workers

With approximately

11,963 policyholders qualified for their own beneficial experience modifier or loss-free credit in 2014

First reports of injuriesdeclined in 2014 to

92%Our claims department received a

overall customer satisfaction rating

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A cornerstone of our 100th anniversary celebration included the launch of our VolunCheer Program. The initiative encouraged employees to volunteer and “cheer on” deserving nonprofit organizations. As a result, in 2014 our employees VolunCheered 2,104 hours in the community! Visit our social media pages for highlights.


Arc of BaltimoreArc of Carroll CountyBaltimore Outreach Service, Inc.Caroline CenterCatholic CharitiesCentral ScholarshipCivic WorksCristo Rey Jesuit High SchoolGoodwill Industries of the Chesapeake, Inc. Greater Homewood Community GroupHuman Services Programs – Opportunity Works Kent County Learning CenterLiving ClassroomsMaryland Food BankMaryland Volunteer Lawyers ServiceMoveable FeastRed Wiggler Community FarmSamaritan WomenSusquehanna Workforce NetworkTraining SourceWaldenY of Central MarylandYouth as Resources

Please visit our microsite to learn more about the stories and missions of these

incredible organizations, www.chesapeakebridgegrants.com.

A second component of our year-long 100th anniver-sary included the creation of our Bridge to the Future Grants Program. The grants program was created to support Maryland-based, charitable organizations that provide human services and develop the em-ployability skills of their clients. The grants application program was announced in the summer and from the dozens of applications received, these 23 deserving nonprofits were selected.

Our Celebrations!

Chesapeake Employers’ Insurance CompanyFinancial Highlights at a Glance

Years Ended December 31 2014 2013

The 2014 condensed fi nancial statements, including the balance sheet on page 1, have been derived from complete statutory-basis fi nancial statements which were audited by Johnson Lambert LLP.

Statement of Operations, Statutory - Basis Years Ended December 31

2014 2013

A.M. Best Co. has reaffi rmed a fi nancial strength rating of A- (Excellent) and an issuer credit rating of “a-” for Chesapeake Employers’ Insurance Company as of December 9, 2014. The outlook assigned by A.M. Best to both ratings is stable. A complete Statement of Actuarial Opinion prepared by Deloitte Consulting, LLP may be obtained upon request from the Chief Financial Offi cer of Chesapeake Employers’ Insurance Company.


Premiums earned .................................... $ 228,711,230 $ 216,827,277Net investment income .......................... $ 49,083,420 $ 48,569,880Loss & loss adjustment expenses incurred $ 191,677,996 $ 193,685,757Underwriting loss ................................... $ (20,167,425) $ (29,615,742)Dividends paid to policyholders ............. $ (187,438) $ Total assets ............................................. $ 1,998,234,981 $ 1,868,899,594Total surplus ........................................... $ 392,091,975 $ 340,729,185Loss/LAE ratio ....................................... 83.8% 89.3%Expense ratio .......................................... 24.9% 23.0%Combined ratio ...................................... 108.7% 112.4%

Underwriting income:Net premiums earned ............................. $ 228,711,230 $ 216,827,277

Losses incurred ....................................... 160,640,093 167,848,926Loss adjustment expenses incurred ......... 31,037,903 25,836,831Commissions .......................................... 22,587,867 21,909,516 Other underwriting expenses, net ........... 33,478,658 29,696,546Provision for bad debt ............................ 1,134,134 1,151,200Underwriting loss ................................... (20,167,425) (29,615,742)

Net investment income .......................... 49,083,420 48,569,880Net realized gain (loss) on investments ... 38,176,621 16,055,740Net investment gain ............................... 87,260,041 64,625,620

Other income ......................................... (16,990,302) (15,633,429)Dividends to policyholders ..................... (187,438)

Net income .......................................... $ 49,914,876 $ 19,376,449

Published by the Chesapeake Employers’ Insurance CompanyCommunications Department

Photo credits:Mark Swisher, pgs. 4-9Cecil County Historical Society, , pg. 5Herman Born & Sons, pg. 7Photo collection of Maxine Beachy Broadwater, pg. 10A. Aubrey Bodine, pgs. 10 & 11Middleton Evans, pg. 12I. Henry Phillips, pg. 11Getty Images, pgs. 11, 12 & 13iStock, pg. 13Chesapeake Employers Insurance, pg. 15

PRSRT STDU.S. POSTAGE

PAIDPermit No. 1962Baltimore, MD

8722 Loch Raven Blvd.Towson, MD 21286

www.ceiwc.com

2014 Annual Report

Documents

Chesapeake Employers 2014 Annual Report