February 22, 2013 - Oregon State Bar

2013 PLF BUDGET, AND 2013 PRIMARY ASSESSMENT PAGE 8
OCTOBER 6, 2012
litigation ($41,000) have been charged against contingency in the 2012 projections.
As discussed earlier, we have raised the 2013 contingency budget to 4 percent of operating costs
($302,172).
Total Operating Expenses and the Assessment Contribution to Operating Expenses
Page one of the budget shows projected 2012 Prnnary Program operating costs to be about 1.9
percent lower than the budget amount.
The 2012 Primary Program operating budget is 4.5%higher than the 2012 budget and 6.5%greater
than the 2012 projections. The main reasons for the increase from projections are the new positions
in the claims department, the 2 percent salary increase, and the higher costs of PERS and medical
insurance.
Excess Program Budget
The major focus of this process is on the Primary Program and the effects of the budget on the 2013
Primary Program assessment. We do include a budget for the Excess Program (page 8). After a
couple of years of small declines in participation in the Excess Program, we expected further
declines for 2012.However, we now project a small increase in Excess participant for 2012. We are
increasing promotional efforts and will have some educational programs regarding the need for
excess insurance. We have budgeted for an increase of 3 percent in Excess Program participation
for 2013.
The major revenue item for the Excess Program is ceding commissions. These commissions
represent the portion of the excess assessment that the PLF gets to keep and are based upon a
percentage of the assessment (premium) charged. Most of the excess assessment is turned over to
reinsurers who cover the costs of resolving excess clanns. We currently project ceding commission
of $725,000 for 2012. The 2013 budget estimates ceding commissions to increase 3 percent from
the 2012 projections.
After three or four years from the start of a given plan year, the two reinsurance treaties covering
the first $5 million provide for profit commissions if excess claun payments are low. If there are
subsequent adverse developments, prior profit commissions are returned to the reinsurance
companies. In recent yeazs, excess claims have increased and it is quite difficult to predict profit
commissions in advance. Actual profit commissions have proven to be rather small. As a result, no
profit commissions have been included in the 2012 projections or 2013 budget.
Excess inveshnent earnings were calculated using the same method described in the Primary
Program revenue section.
The major expenses for the Excess Program are salary, benefits, and allocations from the Primary
Program that were discussed in an earlier section. As was mentioned earlier, the allocation of