Special Financial Update
From the Treasurer, Courtney Hagmaier
With just a quick glance at the financial results for 2019
compared to those of 2018, you can see that big changes have
occurred. These changes resulted from a new reinsurance treaty that
LCBA signed on the very last day of the year, December 31, 2019.
This treaty helps to protect members by sharing the risk with
another insurance company while increasing LCBA’s opportunity for
“Reinsurance” is often described as insurance purchased by an
insurance company. One company (such as LCBA) shares (cedes) with
another company (the reinsurer) the risk associated with an
insurance policy. LCBA’s recent reinsurance transaction will change
our size from a financial standpoint but has zero impact on our
daily operations for you, our valued members.
Let me provide you with some important facts regarding this
- Under the terms of the contract, LCBA reinsured 80%
of certain in-force life insurance, annuity, and special deposit
What does this mean? The reinsurer assumes
80% of the risk of each policy ceded (meaning the payout of a
death claim or surrender, as well as any associated
liabilities.) The reinsurer also gets 80% of the premiums paid
on reinsured policies.
Due to the timing of the transaction, LCBA ended the
year with a large liability of about $117 million owed to
What does this mean? LCBA has already
taken care of this liability. In January, our investment
advisors sold what ended up being approximately $104 million
of bonds held as of December 31, 2019, to pay the initial
Aside from sharing the risk, LCBA also received a
ceding allowance of $6.1 million. This allowance resulted in
a gain to surplus as of December 31, 2019. Due to accounting
practices, the allowance will be amortized over time.
What does this mean? Focus your attention
on the “unassigned funds” line toward the bottom of the
Statement of Financial Position; this represents LCBA’s
surplus at the end of the year. Note the balance increased
significantly from 2018 to 2019. This surplus provides LCBA
and you with an additional cushion of safety and with
opportunity. Opportunity to grow. Opportunity to continue
providing our members with top-notch service and benefits.
Opportunity to better serve our Fraternal purpose.
Upon execution of the treaty, LCBA transferred
(ceded) to the reinsurer approximately $123 million in life
and annuity premiums associated with the reinsured policies.
What does this mean? Whle LCBA received
close to $27 million in premiums during 2019 (a 6% increase
from 2018), subtracting the ceded premiums leaves us with
large negative balances on our Summary of Operations. This
particular oddity only occurs when recording the initial
transaction, so the numbers will appear more normalized in
the 2020 statements going forward.
Taking into account all of the above, the first quarter
financial statements, which will be published in the summer issue of
the Direction magazine, will look significantly different than the
quarterly statements you’ve seen recently. However, future
statements will be a better reflection of the “new” LCBA as the
initial impact of the reinsurance transaction is considered
complete. It’s important to note that this reinsurance transaction
gives LCBA the opportunity to continue to grow, while boosting the
protection of our members by sharing the risk, increasing surplus,
and stabilizing LCBA’s financial picture. This enhances your
membership for the future.