Division of Insurance Releases Findings
2005-2006 Premium Rates Affirmed

Dear Colleague:

After meticulous preparation and exhaustive testimony at a series of unprecedented public hearings in Springfield before the Illinois Division of Insurance (DOI) last fall, ISMIE Mutual finally received findings from state regulators on March 14, 2006.

In that report, DOI accepted ISMIE’s 2005-2006 premium rates, as proposed. While other elements of DOI’s findings give cause for concern, we are pleased that state regulators have validated ISMIE’s ratemaking process – now proven indisputable given our unique knowledge of the business of medicine coupled with 30 years of providing continuous medical liability protection to Illinois physicians.

These independent findings thoroughly debunk anti-reform factions’ arguments that attempt to place blame for high premiums on insurance companies. State regulators didn’t buy into this distraction. In fact, they handled the review process with professionalism and respect for ISMIE, our policyholders and our complete compliance with a complex, time-consuming and expensive process.

Here is what the DOI had to say and what the directives mean to you:

Premium Rates

DOI: ISMIE’s rate change for policy year 2005-2006 is accepted as proposed.

This affirms ISMIE’s actuarial assessments and means that the zero percent base premium rate change for the current 2005-2006 policy year remains intact.

DOI: ISMIE shall not increase its average rate for policy year 2006-2007, and shall target an average rate reduction of 3.5% for policy year 2006-2007. Under no circumstance shall ISMIE reduce its average rate if such reduction would unreasonably impact ISMIE’s financial standing or its ability to defend and pay claims, as necessary.

ISMIE has always determined rates based on actuarially estimated losses and takes issue with DOI calling for an arbitrary rate reduction. ISMIE is currently in the evaluation period for setting
2006-2007 premium rates. If there are positive indicators that losses are down and the medical
litigation crisis has lessened, the rates will reflect it. ISMIE will not take any action that would
endanger our financial standing.

Dividend Payment Pool

DOI: For policy years 2005-2006 and 2006-2007, ISMIE shall establish separate dividend payment pools that, if appropriate, will result in dividend payments to renewing policyholders on a three-year distribution schedule. ISMIE shall determine whether to fund the dividend pool, and/or decrease the base rate, and shall endeavor in good faith to do both.

This directive coincides well with existing ISMIE plans to formulate and contribute to a dividend
payment plan. The pool is a fair and equitable vehicle by which to distribute premium savings
achieved as a result of medical litigation reform. We are hopeful that a decline of claims frequency and severity will become consistent enough to advance our groundbreaking dividend plan. Policyholders will receive more details about the dividend plan in the coming months.

Additional topics were addressed in DOI’s order:

Expanded Risk Management Incentives

ISMIE offers the most expansive, up-to-date risk management program for Illinois physicians. In 2005, thousands of policyholders earned premium discounts and demonstrated their commitment to reducing their practice risk through vigorous participation in seminars, courses and self-study programs. The DOI acknowledges the effectiveness of this innovative program, and states that for policy year 2006-2007, ISMIE shall increase the monetary value of premium credits to foster greater participation in risk management. Policyholders can look forward to an expanded roster of Risk Rewards activities and more opportunities to reduce the cost of their liability insurance.

Operational Directives

A number of operational directives issued by DOI are already in place at ISMIE. Some examples of these include the company’s long-standing policies on board member conflict disclosures and recusals. We strongly object to any regulatory directive restricting ISMIE’s
day-to-day operations. Throughout its history, ISMIE has supported a process that allows only
physicians to determine policy. It sets a dangerous precedent for state regulators to impinge on an insurer’s internal business operations.

Our Policyholders are Our Priority; Our Product is Protection

2006 marks our 30th year as a physician-run company that provides the finest medical liability protection at the lowest possible price. Our operational philosophy has always been: Rates are based solely on the expenses and losses of running the company. We pledge to continue this policyholder partnership with the highest degree of professionalism and integrity. Our mutual
respect and history of collaboration with DOI will continue as we work together to provide a robust insurance marketplace. We will continue to serve policyholders and work to improve the quality of health care for all Illinois residents.

Watch for additional communications in the coming weeks with expanded information on the DOI’s order. In the meantime, you may access the full report and related material at www.ismie.com.

Sincerely,

HAROLD L. JENSEN, M.D.
Chairman
ISMIE Mutual Insurance Company