President’s Commentary

Before delving into an overview of our operating results, I thought I would start off with a topic that is currently front and center, tariffs. I am not going to debate whether tariffs are good or bad, but to provide my viewpoint on how they may impact both of our businesses. The issue that we face is that we need to figure out how to operate our businesses successfully in a new climate and one that is changing day by day. The current economic climate that we are confronted with is driven by uncertainty, and that has been largely driven by the tariff announcement. That uncertainty is creating problems from a consumer confidence viewpoint and will potentially raise the cost of doing business. Whether this is entirely accurate or not is not the point. What is certain is that we need to prepare to deal with this potential outcome.

The cost of doing business, as well as the prices of many of our inputs look like they are going to rise. I believe there will be hesitation from consumers when making buying decisions, in our case, we are talking about buying homes, furniture, equipment, and just about everything else you can imagine. Perhaps they will buy, but they will think twice before they do, or at least that is the conservative premise we are planning on. The volatility surrounding the entire issue makes it difficult to see where we will find ourselves three to six months from now. In my estimation the future is much foggier, be it bad or good, than I’ve seen in my 47 years in the insurance business.

So, what does that mean for us? Coming into the year we had planned to make some changes to our equity investment portfolio by taking a significant amount of money out of individual equities and putting them into stock ETF’s or mutual funds. I originally envisioned moving about $7 million each quarter. The reality is we accelerated that plan. We have taken $17 million out so far this year and therefore are much ahead of our original plan. However, we have not reinvested in the equity market as planned, but rather holding the $17 million in cash. From my vantage point, this is a conservative approach that’s warranted at this time of volatility and uncertainty in both the economy and our operating results. We do suspect that investment income will be up through the first four months but will level off after that depending on what the FED does rate wise.

We foresee our claims cost will rise not only from a liability standpoint (social inflation, nuclear verdicts, lawsuit funding, legal system abuse, etc.), but also from a property standpoint with cost drivers like building materials, equipment, longer business interruption downtime, and vehicle replacement rising.

We have had a solid growth plan this year and are concerned that premium growth will slow as your growth slows (if in fact that occurs). This will push us to drive new business activity harder. Additionally, slower premium growth will force us to look at our expenses more closely. I imagine we’ll tighten our belt as I’m sure you will, although I do not foresee us reducing staff. In fact, I see potentially increasing staff if we can identify good people that are available. I might even hire them whether we have an opening or not. This will then put great pressure on our profitability.

When looking further into our industry, our reinsurers are most likely dealing with exactly the same issues and predict that we will see costs rise there, although we have a January 2026 renewal date.

I suspect by now you’re starting to say to yourself, my insurance costs are going to go up. The reality is that as a mutual insurance company we don’t have to look over our shoulders at Wall Street. Mutuality allows us to look at the long term, but we suspect at some point in time your thought might be correct.

This of course is the most conservative viewpoint of what we’re confronted with. In my 20+ years as CEO we’ve always taken a very conservative approach and planned for things to be more challenging than they usually are. It’s easier to back off from that viewpoint than to force yourself to consider alternative actions that you need to implement.

Earlier this year, we announced organizational changes as we put in place our leadership team for the future. When we made those changes, I stated that additional changes would be forthcoming. I’m happy to announce these changes as follows:

We have promoted four people to Vice President titles effective immediately.

• Dave Adams, who has been our AVP of field operations in the Southeast and recently moved into underwriting has now been appointed a Vice President.
• Traci Barber, who was responsible for customer service and operations has also been promoted from Assistant Vice President to Vice President and will remain in her current role.
• Tricia Kilrain, our AVP of the Western region has been appointed a Vice President and will remain responsible for the Western region.
• Matthew Kienholz, who was our AVP of regulatory and government affairs, has been appointed a Vice President and will move to marketing.

Four individuals have been appointed to Director titles. The Director title is the first step on the road to an officer title, so it is a significant accomplishment.

• Dan Braiman, Loss Control
• BJ Gardner, IT
• Karen Parker, Claims Litigation
• Ray Rogers, Claims Property

Further changes include Stephone Oakley, from our accounting department, replacing Matthew Kienholz in regulatory and government affairs. Stephone will continue the work he currently does working closely with senior leadership and the Board investment committee. Replacing him in accounting will be a long-time PLM associate, Louis Chow

Over the last several months we’ve promoted three additional people to key roles.

• Veronika Rosenbaum, one of our underwriting consultants, has been promoted to a manager’s role in underwriting.
• In field operations, Sheila Gjevre, one of our business development consultants operating in the upper Midwest, and Chris Moran, one of our senior business development representatives, have been promoted to manager of the Southwest region and manager of the Northeast region, respectively.

I suspect we are not done making changes as we continue to build the organization of the future. All these people have my full faith and confidence. We have historically used rotational assignments to strengthen our skills, and I think a number of these promotions and appointments do that. I think it is remarkable that we can make the changes we have made this year and do it all with internal candidates.

With regards to financial results, our premium through the first quarter has risen 10.3% to $121.6 million, driven by exceptional retention both on a unit basis (94.9%) and from a premium viewpoint (103.4%). New business has been strong as well, although we are concerned that we are not achieving our submission objective or the overall premium growth plan we set earlier this year. We appear to be a couple of million dollars behind our target. We are pleased to note a 2% increase in policy count which is a very important metric for us.

Unfortunately, the same cannot be said from a profitability standpoint. We are dealing with an underwriting loss of about $8.4 million at the end of the first quarter and a loss ratio of 84.1%, up 4.6 points and well over target. On the other hand, our expense ratio has dropped by 1.4 points to 27.3 %, which is impressive. Keep in mind my earlier comments regarding expenses. We are reevaluating our expense budgets to see if there are any areas where we can harvest additional savings.

Despite our strong investment income of over $5 million, we are looking at an operating loss of about $3.9 million for the first quarter. We expect that to deteriorate a bit in April. Those that know me know I’m very conservative from an expense and loss standpoint. I continue to be concerned, as most fellow insurance company CEOs, about general liability and auto loss reserves associated with losses from policies in 2020 back through 2016. PLM is ahead of the industry in reviewing open reserves from those years to ensure adequacy. In fact, we have completed our review while the industry has only just begun there. Further the industry is also seeing losses. Loss reserves from 2020 – 2022 (the COVID years) soar. We completed our review of 2020 and are well into 2021 while at the same time strengthening reserve on a routine basis for 2022 – 2024, which is normal activity as new information on those general liability and auto losses come to light. We’ve put up an additional $4.3 million into Incurred But Not Reported (IBNR) reserves, which is a significant increase year-over-year. Therefore, underwriting profitability is not where we’d like to see it. However, I am not concerned to any great extent and expect these numbers will begin to rebound towards the end of the second and into the third and fourth quarters.

I appreciate any thoughts you may have particularly regarding tariffs and how they may impact your business. You can always give me a call at 267-825-9246 or email me at jsmith@plmins.com.