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MESSA’s Rate Stabilization Reserve (RSR) Increases To help smooth out spikes in rates following a year with bad medical claims experience, MESSA utilizes a rate stabilization reserve (RSR) held by our underwriters. An RSR is a standard insurance industry tool utilized to smooth rates for large fully-insured plans such as MESSA. As recently as three years ago MESSA’s rate stabilization reserve was a negative $67 million, indicating just how volatile the ups and downs of the underwriting cycle can be. Underwriting gains such as those realized by MESSA in the past three years allowed MESSA to return its RSR to a positive balance, in turn providing a cushion against future rate increases and allowing MESSA to subsidize rates to moderate increases.

Positive RSR Allows MESSA to Reduce Rates As a not-for-profit association, MESSA’s stakeholders are our members - not stockholders who demand profits and dividend payments. MESSA does not earn profits or pay dividends. As a VEBA, MESSA is required to return positive reserves to our members and their school districts. Reserves accumulated over and above what is necessary to ensure the financial health of the organization are returned to our members and their employers directly through a rate subsidy that reduces premiums. Likewise, three years ago when MESSA’s projected rate

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stabilization reserve was in the negative, MESSA was required to re-coup the shortage in future premiums to rebuild adequate reserves. MESSA’s rate stabilization reserve had turned negative after three consecutive years during which our claims costs exceeded the premiums we charged. Last year, MESSA’s positive RSR allowed us to reduce the rates charged our members and their employers for the 2006-2007 plan year by $14 million. For the current plan year (2007-2008), MESSA’s positive underwriting gains allowed us to again lower the premium rates charged to our members and their employers. We reduced our 2007-2008 rates by a projected $60.2 million, the maximum allowable rate credit under the ERS (Experience Rating System) methodology filed with the state Office of Financial and Insurance Services. The settlement process for the 2006-2007 plan year resulted in a change in Net Assets of $90.5 million over the prior year. The underwriting gains, customer savings refund and more than $30 million in investment returns will allow MESSA to again reduce the projected rate increase in the upcoming 2008-2009 renewal to the benefit of our members and their employers. MESSA’s positive financial picture allows us to continue our mission of providing outstanding value and quality products to MESSA members, while returning surplus dollars directly to our members and their employers by reducing future premiums in accordance with standard underwriting and reserving procedures.