2021 Medical Mutual Annual Report

2 0 2 1 A N N UA L R E P O R T

In Memoriam Barbara Sinclair, CFO, Medical Mutual

A loyal and loved employee of Medical Mutual since 2006, and the Company’s Chief Financial Officer since 2013, Barbara passed away peacefully after a brief illness on February 22, 2022.

“Barbara’s passing has truly saddened many of us at Medical Mutual,” said Frank Lavoie, MD, Medical Mutual’s President & CEO. “She was a real finance professional, and as CEO, I never worried about our financial affairs because Barbara always kept them in perfect order. But more importantly, she demonstrated a compassionate outlook in all endeavors and was a true friend to all of our staff.

To say that she will be missed understates her importance to our company and its culture.”

Rest in peace, Barbara.

In a tough year for healthcare’s front lines, our work to protect you never waivered.

Staff shortages. Conflicts over mask mandates.

A constant search to find bed space for a seemingly endless wave of COVID patients.

Revenue challenges from the cancellation of

Frank W. Lavoie, MD, MBA President & CEO

countless appointments and procedures. Not to mention workplace safety issues caused by public fear and frustration. Add it all up and it made for an extremely challenging year for healthcare providers.

As your medical liability insurer, we understand the duress under which you operated this past year. We also appreciate that through it all, you somehow managed to maintain admirable levels of patient safety. And on behalf of our communities, we are extremely grateful for the commitment of you and your staff to the immense task of caring for us under such stressful and hazardous circumstances.

HEROES AHEAD.

new members: You have given this sign To Maine’s hospitals and their staff es in the Your efforts in caring for our communiti meaning over the past two years. of heroic. conditions have been nothing short face of overwhelmingly challenging praise. and thanks And for that, we give you our utmost

AND YOUR PARTNER IN PATIENT SAFETY MEDICAL LIABILITY PROTECTION

MedicalMutual.com

Medical Mutual saluted Maine’s hospitals and their staff members for their heroic efforts on healthcare’s front lines during the pandemic in the Maine Hospital Association Annual Guide.

1.

Movement toward a semblance of normalcy While we cannot say it was business as usual here at Medical Mutual, we were fortunately able to bring core business operations much closer to normal. In August, Vice President John Doyle and I resumed our traditional efforts to personally visit the leaders of memberpolicyholder hospitals. We visited seven of our 28 insured hospitals in Maine by the end of year and heard first-hand about the challenges imposed on the care environment and hospital finances as a result of the pandemic.

We held our first Vermont Advisory Committee meeting in Montpelier in August, where we gained further insight into pandemic-related challenges being experienced by our insureds in the Green Mountain State: everything from workforce and bed capacity issues to the offsetting benefits of federal stimulus relief efforts.

And as importantly, our risk management staff was able to re-establish on-site consultations once again, providing that valuable outsider’s perspective and expertise on myriad questions and issues at our insured hospitals.

2.

Daily engagement, attention to details key success in a hybrid work environment While a return to pre-pandemic operations is still a goal, Medical Mutual’s management and staff have not skipped a beat in providing top-flight customer service to our policyholders in the interim.

And our hybrid return-to-office model has helped maintain the culture and collaboration that has always been Medical Mutual’s hallmark. Claims are being adjudicated with the same exemplary attention to detail as always, underwriting functions have continued unabated with the same precision and incisive review the Company’s standards demand, and risk management has remained actively engaged daily with member-policyholders to answer their questions and concerns.

Seamless leadership changes Medical Mutual welcomed two new leaders to the Company in 2021. O. Robert Stevens, MD, a radiologist from Portsmouth, N.H., assumed the role of Board Chair at our 2021 annual meeting. A longtime member of the Board and former Finance Committee Chair, he knows the Company and its staff from top to bottom, a factor that has helped make for a seamless transition into the role.

In addition to steering and overseeing the work of the Board, which he has outlined here in this very annual report, Bob was also intimately involved in the recruitment and hiring of the Company’s other important leadership addition in 2021, David Herzer, J.D., Medical Mutual’s new Vice President of Claims.

Dave took the helm of the Claims Department in May upon the retirement of longtime Vice President, Mary Elizabeth Knox. Before joining Medical Mutual, as reported in the inaugural issue of Rounds, the Company’s new semi-annual newsletter, “Dave practiced law at Norman Hanson & DeTroy of Portland for 28 years, where he worked closely with the Company’s Claims Department staff in defending dozens of malpractice lawsuits for the Company’s member-insureds.”

Rounds NEWS

FROM

MEDICAL

MUTUAL

Issue #1

FA L L 2021

On The Road Again

and Terrance Sheehan, MD, then President Before dark one morning in 2012, and Doyle, Vice President of Marketing CEO of Medical Mutual, and John the first of a and began driving north. It was Administration, hopped in a car rs of memberthey visited with administrato series of trips that year where were they challenges their operations, the insured hospitals to learn about they were and, more generally, the issues facing in the care environment industry. They would visit 15 hospitals grappling with in a changing healthcare year, gathering insights that provided over the course of six trips that looked on what the practice of medicine important background and context reds. like among their member-insu Tour. as Medical Mutual’s annual Listening Thus began what became known and CEO, and current Company President The tradition continued with Doyle hospitals every executives at a dozen or more Frank Lavoie, MD, MBA visiting interrupted the usual plan in 2020. year — until the current pandemic visit five Maine and Doyle hit the road again to Now, over a year later, Lavoie your More will follow. To find out where hospitals from August 24 to 26.

Doyle at future rotation, contact John hospital is in the Listening Tour’s jdoyle@medicalmutual.com.

INSIDE TO ATTORNEY DAVID HERZER MOVES TMENT. LEAD COMPANY’S CLAIMS DEPAR Claims, as the new Vice President of David Herzer joined Medical Mutual he is a new who retired on May 21, 2021. While succeeding Mary Elizabeth Knox, would be a with the Company and its insureds employee, to say he is familiar & DeTroy practiced law at Norman Hanson significant understatement. Dave Claims he worked closely with the Company’s of Portland for 28 years, where the for lawsuits dozens of malpractice Department staff in defending Company’s member-insureds. experience bringing extensive medical liability Which is to say, in addition to g of the equally important understandin to the position, Dave brings an Dave’s full apart from other carriers. See culture that sets Medical Mutual /leaders.

bio at www.medicalmutual.com

medic almutual.co m

David Herzer’s appointment in May of 2021 as Vice President of Claims was announced last year in the inaugural issue of Rounds, the Company’s new newsletter.

3.

Consistency transforms average into excellence All in all the biggest challenge for Medical Mutual in 2021 was ensuring we had the right plan in place to continue to do the fundamental block and tackle work necessary to uphold our mission and deliver results. The good news is that our consistent discipline lead to another strong year of results for you, our member-policyholders.

You can view the detailed financial results on page 8. But two accomplishments in particular go a long way toward summing up the Company’s 2021 performance.

First, Medical Mutual declared the largest dividend in the Company’s history for 2021. The $8 million dividend was approximately 21 percent of eligible primary premiums collected and was paid out, as usual, as premium credits to eligible policyholders. A remarkable feat of consistency, it marked the 16th dividend the Company has declared in the past 16 years.

Given such a notable accomplishment, it’s no surprise to know that in its annual review of our Company, AM Best reaffirmed Medical Mutual’s “A” rating and “Stable” outlook.

So to complement your outstanding 2021 performance on the front lines of healthcare, Medical Mutual in 2021 proved once again that we are not your average medical professional liability insurer. As always, we made sure we had your back, and we remain grateful for that opportunity.

P O L I C Y H O L D E R D I V I D E N D S - T E N Y E A R H I S TO R Y 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3000,000 2,000,000 1,000,000 0 2012

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Medical Mutual declared a dividend of $8 million in 2021, the Company’s 16th dividend in 16 years— and the largest such declaration in its history. In 2020, the Company actually declared two separate dividends: a $5 million declaration in the spring and a special COVID-related dividend of $4 million in the fall.

Adapting to the times while building on a great history.

It has been my honor and privilege to take the reins of the Medical Mutual Board from Bill Medd, MD upon his retirement a year ago. As most of you know, Bill served the Company since its inception and set a very high bar for board leadership. I feel obligated to continue his high standards and look forward to serving the Company with the same energy and dedication.

O. Robert Stevens, MD Board Chair

Fortunately, I was able to witness Dr. Medd exercise his skills as a supreme listener and consensus builder first hand for many years. In this, my first year as your board chair, I have consciously worked to make listening an important element of my skill set. As for building consensus, it may be too early for anyone to judge, but I can report this: Your board is engaged, active and has worked diligently on governance issues and general Company oversight in service to you, our policyholders. I think I can confidently speak for the group in saying we collectively take our responsibility to you and the Company very seriously.

“Your board is engaged, active and has worked diligently on governance issues and general Company oversight in service to you, our policyholders.”

5.

Your board as an ever-evolving reflection of the Company’s policyholders The Medical Mutual Board has always reflected its member-policyholders in meaningful ways. When the Company was founded 44 years ago, the board was comprised entirely of practicing physicians, mostly independent practitioners. As the healthcare industry has moved to a model of greater physician employment, our policyholders reflect this trend through insuring a greater number of hospital systems and large group practices. Current board composition reflects this changing model.

Our board diversity exhibits geography, gender, and a broad spectrum of roles in the medical system. Currently our insureds are represented on the board by hospital CEOs, hospital CFOs, chief medical officers, and both primary care and specialty physicians including cardiology, radiology, infectious disease, orthopedics, emergency medicine, and oncology.

We will continue to promote a diverse board composition reflecting all viewpoints looking to future recruitment and identification of those policyholders best able to represent the interests of the Company’s insureds.

6.

Self-assessment as routine Beyond the evolution of the board’s composition, the board plays a role in helping Medical Mutual and its operations stay in sync with the times. In recognition of this, it is incumbent on us to constantly and responsibly evaluate the environment in which the Company operates and, when appropriate, adjust our guidance as overseers.

That’s why your board regularly focuses on questions of self-assessment: What kinds of services or programs can we launch to add value to our insureds’ coverage or our customer relationships? Do we have the financial and staff capacity to onboard a large new healthcare system should the opportunity arise? Are our member-policyholders best served by our current company structure?

The goal in tackling such questions as a board is to stay nimble and keep the Company in the best position to fulfill its mission.

Planning for the unpredictable I believe preparation leads to success. Unforeseen events with major impacts can put an unprepared company into reaction rather than success mode. It is therefore our goal to be ready to effectively address sudden events that pose threats to Company operations.

Accordingly, we conduct adverse event exercises that examine impacts across all areas of the Company. These scenarios have included cyber security, financial crises, and personal safety. Conducting these exercises allows us to craft a blueprint and structure as part of the decision-making process in order to best marshal resources to deal with major adverse events.

Staying nimble, validating the vision As a Company in the business of risk management, conducting such exercises on various scenarios, both predictable and not, is an important way your board prepares to manage even highly improbable risks, to ensure our ability to fulfill our responsibilities to you, even in potentially dire circumstances. In short, it’s an important way Medical Mutual stays nimble in an ever-changing marketplace. For now, just know that the results of these important theoretical exercises, coupled with Medical Mutual’s excellent performance, have time and again validated the Company’s vision for supporting the medical community.

There’s no question this Company can boast a great history. And by continuing to conduct our due diligence as a board, we are determined to keep pace with the times and build an even better future as your partner in patient safety and medical liability protection.

7.

Medical Mutual Insurance Company of Maine Financial Highlights At and For the Years Ended December 31, 2021, 2020, and 2019

(Dollars in Thousands)

At December 31 ADMIT TED A S S E TS

2021

2020

2 019

$266,620

$238,323

$227,614

Investments - Equities

63,499

63,364

55,601

Cash and Short-Term Investments

25,910

27,530

33,381

Investments - Bonds

Other Invested Assets

2,179

2,180

—

Total Invested Assets

358,208

331,397

316,596

28,040

24,633

21,201

5,884

6,128

3,395

$392,132

$362,158

$ 3 4 1 , 192

$78,257

$70,056

$65,362

25,184

25,052

25,299

103,441

95,108

90,661

22,825

22,899

23,005

Premiums Due from Policyholders Net of Reinsurance Premiums Other Assets TOTAL ADM I T T E D A S S E TS L IAB IL ITIES & P O L I C YH O L DE R S’ S U R P LU S Reserves: Unpaid Losses Loss Adjustment Expenses Total Reserves Unearned Premiums Death, Disability, and Retirement Reserve

853

865

907

Federal Income Tax Payable

1,450

1,831

2,649

Net Deferred Tax Liability

4,703

4,237

3,125

Dividends Declared and Unpaid

8,090

5,102

5,039 6,505

Ceded Reinsurance Premiums Payable Net of Ceding Commission

10,870

9,092

Other Liabilities

7,002

6,630

7,275

Total Liabilities

159,234

145,764

139,166

232,898

216,394

202,026

$392,132

$362,158

$ 3 4 1 , 192

2021

2020

2019

$37,064

$38,127

$34,401

Policyholders’ Surplus TOTAL L IAB I L I T I E S & P O L I C YH O L DE R S’ SU RPLUS For the Year Ended December 31 OPER ATIONS Premiums Earned Net Losses Incurred

15,537

14,709

6,280

Net Loss Adjustment Expenses

6,378

6,275

7,756

Underwriting Expenses

8,371

8,333

9,025

6,778

8,810

11,340

15,919

10,674

9,648

28

27

28

22,725

19,511

21,016

7,983

8,785

4,998

14,742

10,726

16,018

1,397

1,427

3,227

$13,345

$9,299

$ 1 2 , 791

$51,120

$53,107

$53,757

14,142

15,127

13,658

$36,978

$37,980

$40,099

72%

72%

75%

Net Underwriting Gain (Loss) Net Investment Gain Other Income Income before Taxes and Dividends Dividends Declared Income before Taxes Federal Income Tax Expense Net Income Gross Premiums Written Premiums Ceded Net Premiums Written Percent Premiums Retained

8.

A D M I T T E D A S S E T S - T E N Y E A R H I S TO R Y 450,000,000 400,000,000 350,000,000 300,000,000

200,000,000

BOARD OF D I R E C TO R S

150,000,000

Chair

250,000,000

O. Robert Stevens, MD 100,000,000

Vice Chair 50,000,000

David B. McDermott, MD

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President & CEO Frank W. Lavoie, MD, MBA

With total admitted assets exceeding $392 million, Medical Mutual continues to carry an A (Excellent) rating from independent rating agency A.M. Best

Secretary Cynthia A. DeSoi, MD Treasurer

S U R P LU S - T E N Y E A R H I S TO R Y

Adam W. Kunin, MD Matthew C. Dugan, DO

250,000,000

Rebekah J. Gass, MD Sean T. Hanley, MD Wendy J. Merchant

200,000,000

Jeremy R. Morton, MD Robert D. Sansonetti, MD 150,000,000

Lois N. Skillings Albert G. Swallow III, CPA James M. Totten, CPA

100,000,000

Robert T. Trowbridge, MD

50,000,000

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Medical Mutual has steadily increased surplus to $232 million over the past 10 years, giving the Company more than ample financial capacity necessary to cover unexpected losses and to support new business efforts.

One City Center • PO Box 15275 Portland, Maine 04112-5275 Tel 207-775-2791 • 1-800-942-2791 MedicalMutual.com

Copyright 2022 Medical Mutual Insurance Company of Maine