FAQS

 

  1. How much risk of the other members would we be assuming?
  2. How much capital needs to be contributed by a new member?
  3. Are profits distributed on an equitable basis?
  4. How are the individual exposures of the members recognized through underwriting?
  5. How are premiums developed?
  6. How has ACIG fared in a "soft insurance market"?
  7. Likewise, how has ACIG fared in a "tight insurance market"?
  8. Will our premiums be deductible as respects our income tax returns?
  9. Will ACIG provide adequate coverage?
  10. What types of coverage are provided?
  11. Who manages and monitors operations of ACIG?
  12. How do we dispose of our interest?
  13. How many members will there ultimately be?
  14. Can I still use my local insurance agent?
  15. Can ACIG go broke?
  16. How will reserve funds be invested?
  17. How is the claims service set up?
  18. Can we obtain a paid loss retro from ACIG? 
  19. Do we have to use one company as our primary carrier, or can we use our existing carrier?
  20. Do we have to place all of our workers compensation, general liability, and auto liability premiums with ACIG?
  21. What happens if I do not place my business in ACIG for a term longer than three years?
  22. Is ACIG required to write insurance for each member?
  23. What is the term of the retrospective rating plan used by ACIG?
Email our CEO for more in-depth answers: Mike O'Neill

1) How much risk of the other members would we be assuming?
Due to the experience and retrospective rating plans utilized, each member is primarily responsible for the initial layer of losses on all claims (either $260,000 or $500,000 - most select $260,000). As a result, each member is largely self-rated as respects losses in the initial loss layer.  In order to recognize the inflationary impact on key claims costs drivers (i.e., medical costs, rehabilitation cost, pharmaceutical cost, and cost to repair/replace property damage), the member minimum retention for the initial layer of losses will increase from $260,000 to $270,000 effective June 1, 2013.
 
Above the individual rating plans, all members "pool" the risks as a group, generally up to a total loss occurrence of $5 million for workers compensation ($3 million for participants in ACIG/Zurich program) and $5 million for liability. ACIG reinsures the workers compensation loss layer in excess of $5 million (or $3 million for ACIG/Zurich program). As respects third party general liability and automobile liability policies, the excess risk up to $5 million is also pooled for those who elect to participate.  

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2) How much capital needs to be contributed by a new member?
A stock purchase of $75,000 is required along with purchase of a ten year subordinated debenture equal to 10% of the estimated first year gross annual premium for the member. In addition, each member must purchase insurance coverage during the first three years; from the fourth to the sixth year, the member has the option of purchasing insurance or paying a fee.

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3) Are profits distributed on an equitable basis?
The members own an aggregate of 85.1% of ACIG's equity account (the other 14.9% being owned by International Risk Management Institute, also known as IRMI). Ownership of the 85.1% portion is prorated among the members on the basis of a formula that takes into account the following: (i) the net capital contributed; (ii) the net historical underwriting profits generated from that member's insurance business; (iii) the net historical investment income earned with respect to that member's insurance business; and (iv) a prorata portion of "pooled" underwriting and investment activities.  Those members contributing the most profitable insurance business for the longest period of time receive the biggest share of the equity.

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4) How are the individual exposures of the members recognized through underwriting?
A cornerstone of ACIG's program is individual underwriting of each member. Each member's premiums are a function of that member's own past losses and operational risks.

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5) How are premiums developed?
Each member's own actual experience for past losses and operational risks helps determine, to a significant degree, the amount of premium needed in the primary loss levels. Premiums for the "pooled" layers above the primary plans are based on the historical experience of the group and individual members. The rating plan factors are established to produce an underwriting profit of 10% of premiums for the first six years of a member's participation and 5% thereafter. Excess premiums are returned to the member through annual retro returns or as profits to the shareholders' equity accounts (less the 14.9% profit credited to IRMI).

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6) How has ACIG fared in a "soft insurance market"?
In the soft insurance market of the 1990s, where competitors were cutting rates to acquire or retain business, ACIG was competitive and performed well. We believe that ACIG's low expense ratios and emphasis on services made it an unusually attractive insurance option for the construction industry.

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7) Likewise, how has ACIG fared in a "tight insurance market"?
In the early 2000s, the insurance market was relatively "tight", and insurance premiums often sky rocketed. With the number of competitors in the marketplace with creative ideas and a strong financial condition declining, ACIG found that new business was seeking out the quality that it offered. Since 2001, ACIG has added 22 new members, bringing its number of premium paying members to 39 as of March 31, 2013.

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8) Will our premiums be deductible as respects our income tax returns?
It is our intent that these premiums be deductible under current tax law. Our taxation counsel is available to provide each member with a discussion of the tax law on this and other topics upon request.

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9) Will ACIG provide adequate coverage?
To date, all members have been able to broaden their insurance protection by participating in the program.

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10) What types of coverage are provided?
ACIG's program focuses on the workers compensation, general liability, automobile liability and subcontractor default indemnity lines. The forms used for liability and indemnity policies specifically are designed by ACIG for the construction industry. ACIG assists its members in placing other coverage in the open market. The forms used for workers compensation coverage are dictated by statute.

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11) Who manages and monitors operations of ACIG?
A competent team has been put together utilizing the strengths of highly qualified support service firms. Cornerstones of ACIG's management include the following: (a) the emphasis it places on member safety and risk management programs; (b) the use of ACIG's SWAT teams to coordinate and advise on serious accidents; and (c) a unique equity program that is designed to reward the member for profitable insurance business placed with ACIG. Careful reporting is made to the Executive Committee of the Board of Directors of ACIG.

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12) How do we dispose of our interest?
Investment in ACIG is not a short-term commitment. Initially, members must agree to place coverage in ACIG for the first three years. For the second three year period, coverage can be placed elsewhere by paying a maintenance fee of 2.5% of the average annual premium for the prior three years. After six years, a member may withdraw (after providing notice and complying with the other terms of the Bye-Laws) and receive the full value of its equity account, subject to a hold back to secure the member's debt to ACIG. The Bye-Laws set out guidelines thereafter to govern the terms and conditions under which a member can withdraw. Withdrawal on terms other than those approved in the Bye-Laws (i.e., an event of default) typically results in a 50% forfeiture of equity. All obligations of the members to ACIG must be settled upon withdrawal.

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13) How many members will there ultimately be?
At this time, ACIG has approval to have up to 40 premium paying members.

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14) Can I still use my local insurance agent?
Yes. Day-to-day service responsibilities and fee-based compensation are divided between the agent and ACIG.

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15) Can ACIG go broke?
Any company can go broke. However, on most of the business, ACIG accepts a defined amount of risk, much of which is limited by retrospective rating agreements, with the Executive Committee enforcing a reasonable underwriting discipline on ACIG. Our Risk Retention Group writes the first $5,000,000 of general liability and auto liability coverage and is reinsured by ACIGIC and ACIG, while ACIGIC retains the first $5,000,000 on any workers compensation loss ($3,000,000 for participants in ACIG/Zurich program). The risk of insolvency is reduced by the demonstrated profitable 31 years of operations of ACIG and the approximately $127.9 million of consolidated shareholders' equity as of December 31, 2012.

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16) How will reserve funds be invested?
ACIG retains Angeles Investment Advisors LLC to advise it on the management of its investment funds. This advice includes recommendations on (a) asset allocations, (b) the selection of investment managers and (c) evaluation of performance by the investment managers.
 
ACIG's investment policy is to divide its funds between a bond portfolio supporting ACIG's insurance reserves, and a capital portfolio supporting ACIG's shareholders' equity. BlackRock Financial Management manages ACIG's bond portfolio that supports ACIG's insurance reserves. The investment guidelines currently followed provide for a bond portfolio duration in the three-year range and an average rating of AA or better. No more than 5% of the insurance reserves portfolio can be invested in securities rated less than "BBB". The capital portfolio is broadly diversified among common stocks, convertible bonds and fixed income securities, and 10 different advisors manage the various sub-portfolios within the capital portfolio.

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17) How is the claims service set up?
Mutually agreeable third party administrators adjust most of the workers compensation claims. Claims under our general liability and automobile liability policies are adjusted by the staff of our insurance company.

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18) Can we obtain a paid loss retro from ACIG?
Due to the need for equitable treatment of cash flow by each member, cash flow plans are not offered by ACIG.

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19) Do we have to use one company as our primary carrier, or can we use our existing carrier?
In the current environment, the use of ACIG's primary carrier is mandatory.

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20) Do we have to place all of our workers compensation, general liability, and auto liability premiums with ACIG?
A minimum of two lines are required.

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21) What happens if I do not place my business in ACIG for a term longer than three years?
You automatically become a withdrawing member at the end of the three years.

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22) Is ACIG required to write insurance for each member?
No, ACIG may unilaterally cancel insurance coverage of a member and its insured companies, and the member becomes a withdrawing member at the end of three years.

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23) What is the term of the retrospective rating plan used by ACIG?
All members are required to accept a three-year retrospective rating plan.

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