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PATRONS OXFORD INSURANCE COMPANY
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This report has been reviewed.
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This ____day of _____________, 2006
July 29, 2005
Honorable Alessandro Iuppa
Superintendent of Insurance
Maine Bureau of Insurance
34 State House Station
Augusta, ME 04333
Dear Sir:
Pursuant to the provisions of Title 24-A M.R.S.A. § 221 and in conformity with your instructions, a financial examination has been made of the
PATRONS OXFORD INSURANCE COMPANY
at its home office in Auburn, Maine. The following report is respectfully submitted.
The Company was last examined as of December 31, 2002 by the State of Maine Bureau of Insurance. This examination covers the period from January 1, 2003 through December 31, 2004. The examination was performed for a two year period in order to coordinate with the examination of Quincy Mutual Fire Insurance Company, the Company’s parent, by the Massachusetts Division of Insurance.
The examination consisted of a survey of the Company’s business policies and underwriting practices; a review of corporate minutes; a verification of assets and a determination of liabilities at December 31, 2004 in conformity with statutory accounting practices, NAIC guidelines, and the laws, rules and regulations prescribed by the Maine Bureau of Insurance.
An independent CPA audit of the Company was performed; however, we did not utilize their workpapers. The examiners confirmed that an unqualified report was issued.
The Company’s loss and loss adjustment expense reserves were evaluated on a direct basis for the period under examination. Loss payments, case reserves, accident dates and report dates were verified from the claim files to statistical loss reports. Incurred but not reported (IBNR) reserves were also reviewed as to the reasonability of current IBNR reserves.
To the extent deemed necessary, we also reviewed transactions occurring subsequent to our examination date that were material or unusual in nature. The results of the current examination present the financial condition of the Company at December 31, 2004 as determined by the examiners. For purposes of this report, comments on various balance sheet items may be limited to matters involving a departure from laws, rules or regulation; a significant change in the amount of an item; or where an explanation, comment and/or recommendation is warranted.
The Company was incorporated and licensed to transact insurance in the State of Maine in 1877. On December 30, 1997, the Company demutualized and on December 31, 1997, Quincy Mutual Fire Insurance Company, hereafter referred to as the “Parent”, purchased one hundred per cent (100%) of the shares of the Company. The Parent is a Massachusetts domestic insurer. The Company entered into a management agreement with the Parent whereby the Parent shall manage, perform and administer certain functions. The Company also entered into a reinsurance pooling agreement wherein the Company pools its business with the homeowners and private passenger automobile business of the Parent. The Company reports its participation in the pool as reinsurance assumed. For the period under examination, the Company’s participation in the pool was 0.834%.
Management of the Company is vested in not less than seven (7) or more than twenty-one (21) members of the Board of Directors. The following are duly elected members of the Board of Directors and the Officers serving as of December 31, 2004:
Directors: |
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| James D. Asher | Robert E. Quinton |
| Karl D. Briggs | John M. Sheskey |
| Forrest R. Cook, Jr. | Walter C. Smythe |
| Kevin M. Meskell | Robert P. Whitmore |
| Malcolm W. Philbrook, Jr. | William W. Young, Jr. |
Officers: |
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| Walter C. Smythe | President |
| Sharon L. Buckley | Vice President & Treasurer |
| Clifford B. Biardi | Vice President |
| Cheryl J. Pelletier | Vice President |
| Leo J. Simard | Vice President |
| Kevin M. Meskell | Secretary |
Title 24-A M.R.S.A. § 3413 identifies prohibited pecuniary interest and use of confidential information by directors and officers. The Company requires all directors and officers to complete and sign a “Conflict of Interest Statement” annually. Review of the statements on file demonstrated compliance with Company policy and the Maine Statute.
The Articles of Incorporation, Bylaws and Minutes of the Board of Directors’ meetings held during the period January 1, 2003 to the completion of fieldwork were reviewed. The Company is managed in accordance with its corporate documents.
The Company is licensed to write the following lines of business:
| Fire and Allied Lines | Inland marine |
| Farmowners Multiple Peril | Other Liability |
| Homeowners Multiple Peril | Automobile Liability |
| Commercial Multiple Peril | Automobile Physical Damage |
The Company writes business only in Maine and did not write any commercial lines business. This was properly reported on Schedule T of the 2004 Annual Statement.
The Company maintains the following insurance coverages at December 31, 2004:
| Commercial Package | Workers’ Compensation |
| Commercial Auto | Fidelity Bond |
| Commercial Umbrella | Directors and Officers Liability |
A blanket fidelity bond in the amount of $1,500,000 provides additional protection for the Company. The bond amount was tested with regard to the NAIC standards and was determined to be in excess of the minimum suggested.
All of the above coverages were written by insurance companies authorized in the State of Maine.
The Company is a wholly owned subsidiary of Quincy Mutual Fire Insurance Company.
Examiners performed a general control and security review of the Company’s information systems, in accordance with Exhibit C of the NAIC Financial Condition Examiners Handbook, for the purpose of assessing controls and identifying exception conditions.
Effective January 1, 1998, the Company entered into a reinsurance pooling agreement with its Parent. This agreement remained in effect for the entire examination period.
In accordance with the agreement, the Company cedes one hundred percent (100%) of its business to the pool. The Parent cedes one hundred percent (100%) of its homeowner and private passenger automobile business to the same pool. The Company, in turn, assumes back 0.834% of the pooled business. Amounts ceded to the pool include written premiums, losses and loss adjustment expenses incurred and underwriting expenses as are customarily included in the National Association of Insurance Commissioners Annual Statement Blank as part of the statutory underwriting results of each company.
Prior to January 1, 1998, the Company had several reinsurance contracts in effect with Employers Reinsurance Company (“ERC”). Losses covered by ERC contracts were in run-off during the examination period. Pursuant to this run-off, as of December 31, 2004, one claim remained open.
Both the Parent and ERC are authorized to transact business in the State of Maine.
A review of letters, furnished by outside legal counsel, revealed that the Company is not involved in any actual, pending or threatened non-claims litigation at this time that would result in a material judgment against the Company.
The following financial statements show the Company’s financial position at December 31, 2004 as determined by this examination.
BALANCE SHEET
December 31, 2004
ASSETS |
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| Bonds (Note 1) | $ 150,000 |
| Real estate (Note 2) | 945,308 |
| Cash and short-term investments (Note 3) | 1,233,523 |
| Subtotal cash and invested assets | $ 2,328,831 |
| Premium and agents' balances in course of collection (Note 4) | $ 47,118 |
| Premium and agents' balances booked but deferred and not yet due (Note 4) | 5,926,918 |
| Reinsurance recoverable on loss and loss adjustment expenses | 3,499,633 |
| Reinsurance: Funds held by or deposited with reinsured Companies | 1,921,317 |
| Electronic data processing equipment | 23,244 |
| Investment income due and accrued | 2,757 |
| Total Assets | $ 13,749,818 |
LIABILITIES AND SURPLUS |
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| Losses (Note 5) | $ 811,683 |
| Reinsurance payable on paid loss and loss adjustment expenses | 273,127 |
| Loss adjustment expenses (Note 5) | 162,583 |
| Commissions payable, contingent commission and other similar charges | 1,732,646 |
| Other expenses (excluding taxes, licenses and fees) | 602,301 |
| Taxes, licenses and fees (excluding federal and foreign income taxes) | 146,663 |
| Federal and foreign income taxes | 220,873 |
| Net deferred tax liability | 1,703 |
| Unearned premium (Note 6) | 995,150 |
| Advance premium | 244,100 |
| Ceded reinsurance premiums payable (net of ceding commission) | 2,725,607 |
| Amounts withheld or retained by Company for account of others | 168,949 |
| Total Liabilities | $ 8,085,385 |
| Common capital stock | $ 2,500,000 |
| Gross paid in and contributed surplus | 2,500,000 |
| Unassigned funds (surplus) | 664,433 |
| Total Surplus | $ 5,664,433 |
| Total Liabilities and Surplus | $ 13,749,818 |
INCOME STATEMENT
December 31, 2004
| Premiums earned | $ 1,809,393 |
| Losses incurred |
$ 942,357 |
| Loss expenses incurred | 154,763 |
| Other underwriting expenses incurred | 634,740 |
| Total underwriting deductions | $ 1,731,860 |
| Net underwriting gain (loss) | $ 77,533 |
| Net investment income earned | $ 43,466 |
| Net realized capital gains (losses) | - |
| Net investment gain (loss) | $ 43,466 |
| Net gain (loss) from agents' or premium balances charged off | $ (26,345) |
| Finance and service charges not included in premiums | 416,443 |
| Miscellaneous income | 698 |
| Total other income | $ 390,796 |
| Net income before federal and foreign income taxes | $ 511,795 |
| Federal and foreign income taxes incurred | 225,598 |
| Net income | $ 286,197 |
| Capital and Surplus Account | |
| Surplus as regards to policyholders, December 31, 2003 | $ 5,620,056 |
| Net income | 286,197 |
| Change in net deferred income tax | (189,976) |
| Change in nonadmitted assets | (51,844) |
| Surplus as regards to policyholders, December 31, 2004 | $ 5,664,433 |
NOTES TO THE FINANCIAL STATEMENTS
| Note 1 – Bonds | $150,000 |
Bonds are stated at amortized value and, at December 31, 2004, consisted of the following:
| Cost | Par Value |
Market Value |
Amortized Value |
|
| Government | $ 150,000 | $ 150,000 | $ 149,526 | $ 150,000 |
| TOTAL | $ 150,000 | $ 150,000 | $ 149,526 | $ 150,000 |
As required by Title 24-A M.R.S.A. § 412, the Company has maintained the required security with the Treasurer of Maine for 2004 in the amount of $150,000. At year-end 2004, this required security is the only bond the Company carries.
| Note 2 – Real Estate | $ 945,308 |
The Company owns its home office building located at Auburn Business Park, Auburn, Maine. Real Estate is carried at cost less depreciation. An appraisal was performed in 2002 which exceeded the carrying value.
| Note 3 – Cash & Short-Term Investments | $1,233,523 |
Certifications confirming bank balances at year-end were received through direct correspondence with various depositories and reconciled with balance reported in the Company’s general ledger as of December 31, 2004 with no material exceptions.
| Note 4 – Agents’ Balances | |
| Premium and agents’ balances in course of collection | $47,118 |
| Premium and agents’ balances booked but deferred and not yet due | $5,926,918 |
Premium and agents’ balances due to the Company at December 31, 2004 were verified during the examination. The balance per examination is the same as that reported by the Company at year-end 2004.
| Note 5 – Loss and LAE Reserves | Loss Reserves $811,683 LAE Reserves $162,583 |
Examiners reviewed the Company’s claim files for the period under examination and ensured that Schedule P data appeared to be properly slotted.
The Bureau of Insurance relied upon the opinion of KPMG LLP which was contracted by the Commonwealth of Massachusetts Division of Insurance to perform an independent analysis of the loss and loss adjustment expense reserves of Quincy Mutual Insurance Company and Patrons Oxford Insurance Company. In KPMG’s opinion, the net losses and loss adjustment expense reserves carried by Patrons Oxford make reasonable provision for all unpaid loss and loss adjustment expense obligations.
| Note 6 – Unearned Premiums | $995,150 |
Unearned premiums are calculated using the monthly pro rata method. Unearned premiums were tested on a sample basis without material exceptions. The Company has adequately reserved for unearned premiums.
STATE OF MAINE
COUNTY OF KENNEBEC, SS
Michael R. Nadeau, CPA, CFE, CISA, AES, being duly sworn according to law, deposes and says that in accordance with the authority vested in him by Alessandro A. Iuppa, Superintendent of Insurance, pursuant to the Insurance Laws of the State Of Maine, he has made an examination of the condition and affairs of the
PATRONS OXFORD INSRUANCE COMPANY
of Auburn, Maine as of December 31, 2004 and that the foregoing report of examination, subscribed to by him, is true to the best of his knowledge and belief.
The following examiners from the Bureau of Insurance assisted:
Jill C. Tobey, CPA, CFE
Jennifer R. Reichenbach
Faith Talbot
_______________________________
Michael R. Nadeau, CPA, CFE, CISA, AES
Insurance Examiner-In-Charge
Subscribed and sworn to before me
this ____day of __________, 2006
| ________________________________ Debra L. Blaisdell Notary Public, State of Maine |
My Commission expires: |
Last Updated: October 1, 2008
| Copyright © 2006 All rights reserved. |