March 2024 Board Meeting Minutes

Marriott Hotel, San Ramon, CA
March 19, 2024, 9:30 a.m.-2:00 p.m.

Notes: Votes taken by the board are highlighted in yellow.

Opening Business
Rich Gobler called the meeting to order at 9:09 a.m., welcomed new board members Jon Larson and Kris Bauer, and recognized Hank Haldeman in his new role as a consultant with the SLA. Dan Brown reminded all participants in the meeting of their obligations under the SLA’s antitrust resolution.

Sarah Nichols attested that the minutes of the October 2023 board meeting were true and correct. Charlie Rosson moved to accept the minutes as presented, Terri Moran seconded, and the motion passed unanimously.

Report of the Chair
Mr. Gobler said he was excited to be the new chair of the board and thanked board members for their help and advice. He thanked several of his predecessors for their contributions, including Janet Beaver’s focus on collaboration, Terri Moran’s “Employees First” philosophy, and Bob Gilbert’s emphasis on education. He said he plans to make member engagement the hallmark of his tenure and hopes to interact with staff whenever he can.

CEO Report
Ben McKay thanked the board members for their time and commitment and welcomed Mr. Gobler as chair. He said that the CEO of ELANY suggested a joint trip to London and focused on three areas during his report: the organization, regulatory and legislative issues; and Salesforce implementation.

1. Organization—the SLA has reached a mature stage where it is the size it needs to be for the market it serves, with all the people it needs and all the specializations it needs. It is trying to figure out how to properly utilize its various specializations. It is hard to get rid of old habits where people try to do everything themselves. In the past, most projects were single-department projects. Some evolution is going to be necessary to get used to cross-functional projects. Mike Caturegli suggested creating a project management office, assigning roles and prioritizing projects to properly sequence events. An example is that the Learning Center was putting the cart before the horse—the website needs to be overhauled and the SLA needs to really get Salesforce up and running first. Additionally, projects used to be time-finite and could be done during one year’s budget. Now, most of them are multi-year projects. Mr. Haldeman fits into the process by helping to create a three-year plan for the SLA; the project management office will figure out how projects fit into that plan. Another shift is to move away from guessing what members want and instead doing focus grouping and member outreach to see what they want before the SLA spends a lot of money and time on them. Finally, the SLA is hiring for the long-term now; nobody is being hired who is not an absolutely necessary piece. Barbara Trumbly is creating an on-boarding process to integrate employees into the organization in a much more robust way.
2. Regulatory and legislative issues—A fair amount has been happening. One is that we took our Admitted Market Liaison Committee to Sacramento in February and met with the CDI’s Michael Martinez. He asked us to not push any legislation because the CDI is going to try to regulate solutions to this issue. Proposition 103 restricts how much rate a company can ask for without getting into a laborious intervenor process. The commissioner has been good about approving rate filings; it’s just a matter of these intervenors, who prolong the process. The CDI is going to try to fix that. Also, they are struggling with the homeowners’ insurance market and the FAIR Plan, which would essentially be insolvent if not backed by the industry. Surplus lines can help but cannot entirely solve the problem. The FAIR Plan clearinghouse—the SLA approached them and the FAIR Plan’s legal counsel said they have to go directly to the markets and cannot deal with brokers. Mr. Martinez asked us to write a letter to that effect, which the SLA submitted to the Assembly Insurance Committee. The SLA immediately received a call from the head of the American Agents Association, the upshot of which is that the SLA has an offer on the table to provide materials to point them in the right direction. The other big news is that the CDI sent letters out to the 17 most egregious late filers indicating that if they did not come into compliance, they would face legal penalties, including potentially as much as a year in prison. The SLA is getting a lot of phone calls from scared brokers. (Mr. Haldeman said the person who would end up going to jail is the person whose name is on the filing, most of whom are not the people doing the filing.) David Kodama, Jr., noted that the surplus lines market is getting bigger, thereby getting more regulatory attention. Mr. McKay said the SLA knew this day would come and that it has endeavored to be ready for it. On the legislative side, an interesting letter went out to Florida Citizens from Senator Sheldon Whitehouse (D-Rhode Island) requesting disclosures, because if Citizens fails, the federal government will have to bail it out. This is unprecedented, because Citizens is a state-run entity, and to have a senator from another state demanding they open the books is unusual. Lastly, there has been some scuttlebutt about who may be the next California insurance commissioner. Mike McGuire, the new Senate pro tempore, is reportedly expressing interest. It is important to follow his thinking on insurance—he thinks if an insured gets canceled, the insurer should have to provide a plan which, if fulfilled, would result in the insured getting picked back up.
3. Salesforce implementation—The SLA created a dashboard in Salesforce for the 2024 annual meeting, which had 173 registrants and 127 attendees. It shows who is attending the meetings and also which brokerages they are with, which brokerages sent the most and least attendees, which helps drive outreach and targeting. It has also been applied to the SLA’s committee structure. The SLA has eight committees, 45 committee members. Additionally, the SLA has traditionally struggled on how to engage with new members and there was no focus on new member appreciation or branding. The interface has now been improved with the CDI, and the SLA is working to turn new members into life members—people who are involved in the SLA for their whole career. Out of 78 new members, the SLA verbally contacted 26 of them. Two SLA employees spend time calling new members to let them know what to expect and how to engage, sending them SLA swag and a new membership card. James Greene said new members receive a letter and a copy of the Annual Report, building relationships in a human fashion. Another notable development is that about two-thirds of new members are outside California, so this changes the SLA’s views on how to do outreach. The next step in the implementation of Salesforce is adding artificial intelligence, which Salesforce has. Its Einstein AI program goes through the data and provides unique insights, and the SLA can launch this when its data is fully imported and see what it is not seeing.

Data Analysis Department Report
Mr. Gobler noted that Jody Black will be retiring soon and thanked him for his six years at the SLA. Mr. Black said his final day will be June 3, 2024. Mr. Black noted some of the department’s major accomplishments, including eliminating the 242-day filing backlog and hiring a large number of analysts to accommodate the amount of business in the industry. The department also opened a new office, transitioned to a fully-remote office environment, developed a new coverage code classification system and new NAICS codes, and implemented the Member Value Program. Mr. Black introduced Jane Ramirez, who will become the head of the department upon his retirement, noting she is working on a master’s program in organizational leadership through Gonzaga University. Ms. Ramirez said she was very excited to be here and thanked Mr. Black for his leadership and mentorship. In the past few months, she and her co-AVP, Kevin Chuc, have strategized with Mr. Black on succession planning and ongoing improvements. The department has two other retirees for whom succession planning has also been necessary; it has a solid plan in place to backfill the newly opened positions.

SL-2 Update
Yusuf Mayet reported that Phase 1 went live this year and was very successful. The Compliance Connections seminar on the changes to the SL-2 form had 1,000 participants, a record. On April 1, Phase 2 will go live. This consists of online filings—XML, RAPID and SLIP filings. At that point, 100% of members will be able to file with the new SL-2 form. Regarding the form itself, Data Analysis said that the tag count has decreased. Mr. Black said that in January, the SL-2 form accounted for 11.5% of tags assigned. In February, it was 2.5%. While one month does not make a trend, Data Analysis is watching to see if this improvement continues. Mr. Mayet said he expects the trend will continue—there are fewer things to file and fill out, which should mean fewer tags. Mr. McKay said one of the ways to get members in compliance is to make it simpler for them to file, and that the SLA will work toward making the document available through a DocuSign-like product, and increase the adoption of a system-to-system API to enable automatic filings—currently 31% of filings. System-to-system API is important because the tag rate is about 3%, as compared to 25% for other filings. Mr. Kodama said that investigators from the California Department of Insurance are specifically asking about errors related to SL-2 forms and missing SL-2 reports. They are now looking for the results of SL-2 reform.

Internship Update
Barbara Trumbly said this year, the SLA will again host interns in a nine-week program, June 3-August 2, 2024, introducing students to surplus lines and showing them multiple opportunities, with the goal of giving them an experience, not just a summer job. Last year, all interns but one came from California universities, and this year, the SLA will sponsor one intern from the WSIA Diversity Foundation, as well as a student from the USC emerging leaders program. The WSIA intern comes from Johns Hopkins University, and the emerging leaders’ representative comes from the University of Texas at El Paso. Another student from the University of Colorado at Denver will participate as well. Two students will come from Cal State-Fullerton, and there will also be a student from India. Ms. Trumbly is hoping to confirm one more intern from Sacramento State University. They will present to the board during the CIWA Summer Meeting.

Presentation of Conflict of Interest Statements
Ms. Trumbly discussed the welcome packet for board and committee members. All board and committee members will receive these, and they will contain a conflict of interest statement and confidentiality statement that will need to be signed and returned. It can be done electronically. Committee members will receive the packets from staff liaisons. It is hoped to have all of them completed within 30 days.

Market Analysis Report
Michael Caturegli reported that there are not a lot of data points from quarter 1, but there are a few models showing some interesting trends. The SLA is on track for 9% premium growth and 10% transaction growth, as forecast last year. The SLA currently is up 1% on premiums in March, but transactions are up 19% as compared to last year, with more than 90,000 transactions a day, a huge leap from the 70,000 transactions of a few months ago. On a positive note, if premium is adjusted for quarterly seasonality, the 1% growth over the previous quarter indicates 8% growth for the whole year. It is expected that total premiums will be about $18 billion in 2024. Personal lines, arts and entertainment, and accommodations and food services are seeing large growth; utilities, public administration, and extraction industries have seen large drops. In coverages, commercial property is up 250% from last year and a big spike in homeowners. Commercial auto is also up substantially from last year. Terrorism and cyber insurance are down significantly, as is excess liability with umbrella coverage.

Discussion of the 2024 National Excess and Surplus Summit (NESS)
Mr. Gobler noted that NESS is coming up in Beverly Hills this summer. Phaedra Jackson said that there have been 13 responses to the NESS date survey thus far, and most of those favored the week of July 15th. The site is to be determined. Mr. Gobler said that the whole point last year was education, so this year, perhaps the agenda could be wrapped around the theme of collaboration, with an education component. People liked hearing from a regulator last year, so perhaps there could be a California regulator this year. Janet Beaver said it is important to encourage board members to come and that the educational offerings could be geared in that direction, possibly even with continuing education credits. Robert Gilbert suggested trying to get the speaker from AM Best, Matt Mosher, who spoke at the SLA Annual Meeting in February. There was discussion as to how often the event should be held, and Ms. Beaver suggested surveying attendees as to how often the event should take place. Mr. McKay said the fact that there have only been responses from 13 individuals is worrisome. He said he understood the deliverables to be a letter of expectations about the need for entire boards to attend and to gather information about board terms. Ms. Beaver suggested January 2025 might be a good idea. Mr. Haldeman noted that January might interfere with the CIWA January event.

Discussion of 2025 SLA Global Risk Summit
Mr. Gobler mentioned Bermuda, London, and Dubai as potential destinations for the summit event meeting. Mr. Rosson said that London makes a lot of sense—members can have other meetings there and that it dovetails well with what they do. Mr. Haldeman said that the trip to London in 2023 was a primer, and that a trip in 2025 could be on a higher level. Mr. Kodama said that John Huff of the Bermuda reinsurers (ABIR) welcomes the opportunity to host the SLA and could offer an educational component that would be worthwhile, potentially in conjunction with the Bermuda Risk Summit in March 2025. Commissioner Lara has attended in the past and is expected to come again in 2025. A surplus lines panel discussion could be facilitated. Mr. Kodama said Mr. Huff also noted that 40% of Lloyd’s reinsurance capacity is generated in Bermuda. Mr. Gobler said further investigation should be done, and that it appeared the choice was down to Bermuda and London. Mr. Haldeman said that developments are such that going to Bermuda in 2027 might be more valuable than going there in 2025. Mr. McKay said that if NESS is moved to January 2025, Bermuda would not be possible in March.

Education and Compliance Committee Report
Tim Chaix thanked the board for allowing him to continue as chair of the committee and thanked his committee for all it has done over the past year. He also expressed gratitude for the SLA staff support to his committee and reviewed the committee’s purpose and charter. He reported that in 2023, the committee put on seven live CE seminars and webinars, for a total of 19 credits, with more than 1,800 attendees and more than 1,700 CE certificates. Additionally, eight new on-demand CE courses were made available online in 2023, raising the total to 19 available on-demand courses for a total of 39 credits, and that 556 CE certificates were issued through on-demand courses last year. An Export List Compliance Connections episode is the next one that will be presented. Five live CE webinars are planned for 2024, including one which has already taken place in January, with 226 attendees. All but one of those courses will have three credits available, with one course on DEI having a single credit available. Mr. Chaix also noted that there will be a CE conference held at the Claremont Hotel in Berkeley on November 6-7, 2024, with 12 CE credits available, on modern trends in California surplus lines. Complimentary registration will be sponsored by SLAs from California, Arizona, Florida, Illinois and New York. Mr. Kodama said capacity is 100 seats, and registration will be rolled out soon. Mr. Chaix said breakfast and lunch are included, as well as a networking reception on the night of November 6th, and a guest speaker for one of the luncheons. Mr. Chaix also noted that his committee puts forth the required two-hour training that business entities must provide every five years to their transactors, with 744 individuals completing that training last year. Ongoing projects and initiatives include the concept of an SLA University, including customizable course modules, as well as a reassessment of the Learning Management System, upgrading or replacing it to better support all current and future SLA educational services. Mr. Kodama said the CDI is very enthusiastic about the SLA’s offering and has suggested it could be provided to CDI staff to learn about surplus lines. Mr. Chaix concluded by thanking Jim Faley for his efforts to participate as a board member with all the CE classes.

Presentation and Vote on 2024 Committee Rosters
Cliston Brown presented the following committee rosters for consideration by the board:

Admitted Market Liaison Committee: Lisa Foley, chair; Jaime Huerta, Paul Laufer, Jerry Sullivan, Tamar Tavitian and Minerva Tirado, members; David Kodama, Jr., staff liaison.

Audit Committee: Janet Beaver, chair; Rich Gobler and John Washington, members.

Diversity, Equity and Inclusion Committee: John Washington, chair; Susan Atkins, Jon Larson and Dymphna Menendez, members; Phaedra Jackson, staff liaison.

Education and Compliance Committee: Tim Chaix, chair; Susan Atkins, Kris Bauer, Carolina Calvo-Betdashtoo, Clancy Marie Johannsen, Shanna Sweeney and Tanisha Woodard, members; David Kodama, Jr., staff liaison

Legislative Committee: Tim Burnett, chair; Paul Laufer, Tony Manzitto, Terri Moran, John Mundelius, Allen Shiu, Jerry Sullivan and Patrick Thomas, members; Cliston Brown, staff liaison.

Next Generation Committee: Pam Quilici, chair; Caroline Bridges, Jordan Chilton, Sunny Lim, Alonzo Wandell and Lichen Zhao, members; Kevin Chuc, staff liaison.

Special Advisory Committee: Jon Larson, chair; Taylor Ambridge, Jeffrey Case, Darren Chilimidos, Joshua Koppel, John Poucher, Jonathon Ramirez, Mark Schroeder and Kelly Tate, members; Mike Caturegli, staff liaison.

Stamping Committee: John Washington, chair; John Mundelius, Aaron O’Campo, Kelly Tate and Andrea Ward, members.

Terri Moran moved to accept the committee rosters as presented, Pam Quilici seconded, and the motion passed without dissent.

Presentation on Investment Policy and Vote
Glenn Leung presented a change to the investment policy. At the last board meeting, there was a question about the last time the SLA reviewed its investment policy. Mr. Leung conducted a review.

• Current Landscape—The SLA has a conservative, liquid and high-quality investment portfolio. Fees are currently 0.15% of managed assets, through First Republic/J.P. Morgan Chase.
• Three key objectives:
  • Preserve value
  • Grow assets
  • Liquidity

The SLA is particularly focused on first and third goals. The investment policy requires fixed income with an average duration of 2.5 years and maximum of five years; investments must be rated by at least two rating agencies Baa3/P-3 or BBB-/A-3. More than half are in U.S. government bonds and Treasuries, some in corporate bonds and non-U.S. bonds/developed. Credit quality—over 74% rated A-minus or better, a smaller portion in BBB or BBB+-rated securities. All of them are investment-grade quality.

• Comparisons
  • Mr. Leung compared the SLA to tax filings for the Texas, Florida and New York offices, similar organizations. All the portfolios range between $33 million and $48 million, with California in the middle.
  • Texas does not invest any of its assets in securities, and California invests 68% in securities, with Florida investing 83%.
  • Cash and investments, as a percentage of total expenses, California is at 153.3%, with New York the next-smallest at 318.8%, Texas at 502.2%, Florida at 620.2%. California may look like an outlier, but Mr. Leung thinks this is where California should be, with normal being between 100% and 200%. The SLA needs to make sure it can handle fluctuations in the market without drastic cuts but does not want the stamping fee to be excessive.
    • Mr. Haldeman asked whether the SLA should review its reserves.
    • Mr. McKay said the SLA’s peers are way over where they should be and the SLA believes this ratio represents responsible portfolio management. ELANY recently built a conference center on Wall Street to burn its reserves. It is more fiscally responsible to have the right amount of reserves rather than having to burn funds. Florida built a building.
    • The SLA is around $42 million in investments. If one looks at the 2008 recession, it sustained a three-year drop of 25%. The SLA has more than a year, which Mr. McKay thinks is responsible.
    • Mr. McKay said if the SLA is worried about looking through a regulator’s lens, they are likeliest to be concerned about how much investments the SLA has; if a regulator looked at that, the SLA would probably be in exactly the right spot.
• Discussion
  • Mr. Leung said there were four investment options:
    • Individual securities vs. index funds—bonds allow controlling the maturity of the portfolio as well as the interest rates. He thinks individual securities is the correct route.
    • Fixed income vs. equity investments—the SLA is currently all in fixed income, providing a lot of liquidity and decreasing the risk; equity investments would involve increased risks; a safer proposition if going to equity investments might be using an index fund and tying it to a smaller percentage of the portfolio funds.
    • Investment advisor—Mr. Leung looked at the SLA’s advisor to make sure it had the best advisor for its portfolio. Fidelity has a special team organized for nonprofits and is very skilled at creating a nonprofit investment portfolio. The SLA is in the $25 million to $50 million bucket, which means fees are the same with First Republic and Fidelity (0.15%) and higher with Charles Schwab (about 0.17%). First Republic provides more quickness in moving funds between accounts if needed.
    • Additional controls around the portfolio—Mr. Leung said the SLA asked First Republic to receive a second authorization for SLA-initiated investment sales of more than $5 million; all SLA-initiated investment sales must be authorized by the CEO. Mr. McKay said this figure represents about three months of operations.

Mr. Leung made three recommendations:

1. Minimum of $0.5 million of investments in cash equivalents in the investment portfolio at all times.
2. Annual review of the investment policy by the Board of Directors.
3. Market value of corporate securities, including commercial paper and municipal securities, will not exceed 50% of the total market value of the account, a change from the original language that included the phrase “or $5 million.” Mr. Leung suggested the board remove the language “or $5 million” from the investment policy.

Mr. Rosson moved to accept the change to the investment policy as presented, Ms. Quilici seconded, and the motion passed without dissent.

Presentation of Annuitized Post-Retirement Benefits and Vote
Ms. Trumbly said that the benefits to retirees have been a subject of discussion for many years. The SLA successfully removed the pension liability in 2021 and is looking to do the same with lifetime benefits. Prior to 1991, the SLA offered lifetime health benefits to retirees. No formal agreement has been found regarding retiree health benefits, and an e-mail from Joy Erven in 2005 confirms this. An attorney in 2001 found the SLA could make changes to the policy. In 2012, a resolution passed that the SLA would continue these benefits for employees already receiving the benefits and two employees hired prior to May 1991, at which point the board rescinded the lifetime benefits policy for employees hired after that point retirees. The SLA is now requesting a resolution to purchase an annuity for each retiree covering the cost of their health benefits. It would provide a monthly income for life for retirees to buy their own coverage. If the retiree passes, the benefits would come back to the SLA. The benefits are taxable to the SLA, which will be the owner of the annuity, with relatively low tax consequences. The cost is just under $600,000. The SLA has a broker to whom it will refer these retirees to help them find coverage. A letter has been drafted that will be sent to each qualifying retiree, and they will have to accept if they want to maintain coverage. Mr. Rosson asked if there was any consideration to giving a lump sum, noting that there might be a tax consequence and that some covered retirees may pass sooner than expected.

Ms. Moran moved to accept the staff suggestion on annuitized post-retirement benefits, Mr. Bauer seconded, and the motion passed without dissent.

Discussion of USC Scholarship and Vote
Mr. McKay said the SLA had been working with the University of Southern California on the most impactful way for the SLA to support USC’s new risk management program. The school is proposing that the SLA fund five students in the risk management program in their junior and senior years. No motion was made on the proposal, so it was tabled for further discussion and possibly an electronic vote prior to the next meeting.

New Business
Mr. Gobler said there has been some movement toward getting Kinsale on the List of Approved Surplus Line Insurers. Mr. Kodama said LASLI applications are seeing continued growth.

Adjournment
All business being concluded, Mr. Gobler adjourned the meeting at 1:10 p.m.