Special VESTNIK Supplement: 2021 Pre-Convention Reports Issue
Pre-Convention Report Chief Financial Officer Leonard Mikeska I will begin by assuring you that the at one time traded below $0 (as low as SPJST is financially strong. At yearend, -$40/barrel!) owing to excess supply and we had near $1 billion of insurance in no available storage. Energy companies force and a surplus of $13.4 million. and all their related suppliers were Actuary’s Cash Flow Testing confirmed strained as well. Market professionals rethat our reserves are adequate. The out- ferred to this ‘upset’ as a market ‘dislocaside audit just completed gave us a clean tion’. With the 2008-2009 financial crisis opinion. Changes in our investment man- still fresh in their memory, the Federal agement have increased our investment Reserve stepped in around mid-March of income by more than $1 million over the last year to provide liquidity. The Dow Inpast 12 months. dustrial Average, This is money which had dethat will help clined as low as fund our fraternal 18,591, immediprograms and ately reversed its benefits. Be asdecline and resured that we take cently has traded our fiduciary renear 35,000. sponsibility seWhile we do not rious, and we will own stocks, do whatever it restocks are an imquires to keep portant barometer SPJST a strong on the overall fiand viable Socinancial health of ety. the economy. It is At yearend good to see a 2020, the investwinding down of ment portfolio rethe COVID-19 mains well pandemic as we positioned to enget back to nordure the current mal. state of the finanOn the bright cial markets. Our side, the virus did Leonard Mikeska, FIC fixed income present some inportfolio had a book value of $244.8 mil- vestment opportunities, and we have been lion. We have no exposure to common able to benefit from higher reinvestment stock and over 95 percent of the portfolio rates. Further, AQS Asset Management, is invested in investment grade issues. our fixed income advisor has been suc“Investment grade” refers to highest two cessful in reallocating some of our posiquality designations recognized by the tions to take advantage of this. Despite National Association of Insurance Com- the pandemic in 2020, we moved forward missioners (NAIC), our regulatory body. with many changes. We implemented a In addition, the securities that we own are comprehensive Enterprise Risk Manageissued in public markets. This means we ment policy to help us focus on the future have liquidity when we or our members challenges. We made numerous changes need it. These two factors – credit quality in technology to make us more efficient and liquidity – insure we can serve our and provide better service to you. members and agents now and in the fuMany insurance companies have been ture. As of June 18, 2021, the average challenged by the low interest rates we quality of our $222.4 million portfolio is have experienced. Bonds in the 3 percent A3 and the book yield is 4.56 percent. range have forced us to look at other inThe COVID-19 pandemic upset finan- vestment opportunities to increase incial markets beginning early last year be- come. With the collaboration with AQS, cause the response to the virus caused our investment consulting firm, we have many sectors of the United States econ- an arrangement to participate in large well omy to close. Because Americans did not secured loans with several other fraternal travel, they did not consume much fuel societies. In this way, we can participate either. You may have seen that oil prices in loans of $10 million or more very
much like much larger insurance companies and earn good rates of return of 6 percent or more. Investment involves risk and reward. While we constantly seek the reward, we also seek to minimize the risk. We continue to know one of our primary challenges is to generate enough returns on our investments to fund the fraternal programs that in many ways define the nature of our Society. I previously referred to cash flow testing. I want to comment that we do this complex study annually to confirm that we have made adequate provision for the Society’s obligations under our certificates and contracts. Analysis determined that assumptions under the likely scenarios found we have made adequate provision for the Society’s obligations. In addition to the more than $219.5 million in fixed income, the Society owned at yearend over $9.7 million in mortgage loans, $5.1 million in real estate, and some $10.5 million in certificate loans, cash, and other assets. Comparison of Assets 2016 $238.1 million 2017 $238.9 million 2018 $243.7 million 2019 $244.7 million 2020 $244.8 million There are many other responsibilities attributed to the position of Chief Financial Officer (CFO) in addition to custody of all matters relating to investment of Society funds. I want to briefly review a few of them. The CFO is responsible for managing the real estate owned by the Society which currently consists of the Home Office, the Social Security Administration Building, and the Camp Kubena physical facility. The lease on the SSA Building provides good income; however, it does require a lot of management time of staff to provide required services. Responsibility of servicing some $9.7 million of first lien mortgage loans is the responsibility of the CFO Department. It involves receipt of payments, monitoring delinquencies, payment of taxes, and insurance coverage. This includes a special lending program for lodge property loans and mortgage notes that are purchased for income. The CFO is responsible for managing the claims department and is proud of our record of prompt payment of death claims. We have worked to automate por-
9 tions of the claims process and use email responses and forms to speed up the claim’s settlement. We are in process of automating more of the procedures so that we can improve on our excellent record of payment of death claims. Death benefits have ranged from $3.5 million in 2016 to $3.7 million in 2019, and $5.7 million in 2020. We experienced 31 COVID-19 related claims for $273,678 which represented a portion of the $2 million spike in death claims in 2020. It is amazing that from 2010 to 2020, we paid some $40.8 million in death benefits to our members. Think about how these claim payments met the needs of our members and their families when a loved one passed from this life. Additionally, we continue to provide many fraternal benefits and programs for our youth and adults. The CFO Department is responsible for providing member services which includes responding to member’s contacts for information, cash values, certificate loans, and surrenders. The department has trained specialists to provide information and administration of both IRA and nonIRA annuities and assist with withdrawals, required minimum distributions, and all general servicing questions. Service requests may come by mail, phone, in person, or email. We use email as much as possible for efficiency and to speed up response time. We have updated our phone system, but we always want to give you access to a person answering if you need assistance. The CFO position serves as the corporate secretary of the organization and is responsible for attesting documents and maintaining records of documents. This includes maintaining records of minutes of the Supreme Lodge, the Investment Committee, the Supreme Lodge Officers, the Enterprise Risk Management (ERM) Committee, and the management team. Assistant to the CFO Janie Coakley was appointed by the Supreme Lodge to take minutes of the Supreme Lodge meetings, and she has excelled at this assigned task as well as assistance with other management responsibility. The CFO serves as the Chief Risk Officer of SPJST. We have in place an Enterprise Risk Management (ERM) Committee with three subcommittees. It is the responsibility of the ERM Committee and the subcommittees to identify risks and to put in place processes that will identify and mitigate risk the organization faces. An updated ERM policy was implemented in 2020 including a
