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MEDICAL MUTUAL INSURANCE COMPANY
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Officers: |
|
| Terrance J. Sheehan M.D. | President/CEO |
| William L. Medd, M.D. | Chair |
| Mark S. Cooper M.D. | Treasurer |
| Cynthia A. DeSoi M.D. | Secretary |
Title 24-A M.R.S.A. § 3413 requires that each Director and Officer of the Company complete a conflict of interest statement annually to disclose any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities with the Company. We reviewed the Conflict of Interest Statements for the period under exam and the Company is in compliance with Maine State Statute.
The Articles of Incorporation, Bylaws and the Minutes of various meetings held during the period of examination were reviewed. Based on a reading of these minutes, the Company appears to be conducting its affairs in accordance with its charter and bylaws.
The Company writes business in Maine, New Hampshire and Vermont.
The Company is protected as a named insured under a Financial Institution Bond issued by an insurance carrier authorized in Maine and affords indemnification to an amount not exceeding $1,000,000. The examiners independently calculated the needed amount of fidelity insurance as required by the National Association of Insurance Commissioners. The Company is in compliance with the suggested minimum stipulated by the NAIC. The Company also protects itself from subject perils with the following insurance coverages:
Examiners reviewed all reinsurance contracts in effect for the period under examination and determined that all reinsurers are authorized by the State of Maine per Title 24-A M.R.S.A § 731-B. The Company contracted for essentially the same types of reinsurance during the three-year period under examination and, at December 31, 2005, had the following reinsurance agreements in place for its primary line of business, medical malpractice:
Primary Coverage: The Company has excess of loss coverage in the amount of $1,250,000 in excess of $750,000 retention for each malpractice claim.
Excess Coverage: The Company has reinsurance coverage under a First Excess contract of 90% of $4,000,000 in excess of $2,000,000 for each malpractice claim. The Company also has excess of loss reinsurance coverage under a Second Excess contract for 95% coverage up to $11,000,000 in excess of $6,000,000 for each malpractice claim.
Clash Coverage: The Company also has Clash Coverage to abate the risk of a malpractice claim involving multiple insureds. The company has excess of loss coverage in the amount of $3,500,000 in excess of $1,500,000 retention.
Lawsuits against the Company can arise in the normal course of business. A Charge of Discrimination has been filed by Patrick A. Dowling, M.D., the former President and Chief Executive Officer of the Company with the Maine Human Rights Commission, alleging that the Company discriminated against him on the basis of his disability, in connection with his employment, which was terminated October of 2005. The Company has filed an answer to the Charge. The Company’s defense of the matter is being handled by the Company’s employment practices liability insurer, Carolina Casualty Insurance Company.
On March 1, 2006, the Company issued a $10,000,000 surplus note with a final maturity of March 1, 2036. Interest, which is due quarterly, is at a fixed rate of 8.82% for the first five years and variable thereafter at the 3 month LIBOR plus 3.75%. After the first five years, the Company can elect to redeem any principal amount (in multiples of $1) on each quarterly interest payment due date. Redemption is at par plus accrued unpaid interest.
The following financial statements show the Company’s financial position at December 31, 2005 as determined by this examination.
12/31/2005 ASSETS
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|
| Bonds (Note 1) | $ 122,327,909 |
| Common Stocks (Note 2) | 22,961,295 |
| Cash and short-term investments (Note 3) | 7,427,213 |
| Other invested assets | 1,000 |
| Receivables for Securities | 20,640 |
| Subtotal Cash & Invested Assets | 152,738,057 |
| Investment Income Due & Accrued | 1,331,078 |
| Premiums & Considerations (Note 4) | 15,325,640 |
| Reinsurance recoverable | 63,866 |
| Net Deferred Tax Asset (Note 5) | 4,070,550 |
| EDP equipment | 56,480 |
| Aggregate write-ins for other than invested assets | 13,599 |
| Total Assets | $ 173,599,270 |
| LIABILITIES AND SURPLUS | |
| Loss reserves (Note 6) | $ 66,588,195 |
| Loss adjustment expense reserves (Note 6) | 23,593,382 |
| Other expenses | 474,369 |
| Taxes, licenses and fees | 252,402 |
| Unearned premiums (Note 7) | 25,426,071 |
| Advanced Premiums | 547,117 |
| Ceded reinsurance premiums payable (Note 8) | 4,941,737 |
| Amounts withheld for account of others | 157 |
| Aggregate write-ins for liabilities | 2,239,032 |
| Total Liabilities | $ 124,062,462 |
| Unassigned funds (surplus) | $ 49,536,808 |
| Total Surplus | $ 49,536,808 |
| Total Liabilities and Surplus | $ 173,599,270 |
INCOME STATEMENT December 31, 2005 |
|
| Earned Premiums |
$ 40,678,128 |
| Losses incurred | $ 18,684,674 |
| Loss expenses incurred | 13,428,231 |
| Underwriting expenses | 9,245,559 |
| Total underwriting deductions | $ 41,358,464 |
| Net underwriting gain/(loss) | $ (680,336) |
| Net investment income earned | $ 6,133,526 |
| Net realized capital gain/(loss) | 436,123 |
| Net investment gain/(loss) | $ 6,569,649 |
| Finance and service charges | $ 61,000 |
| Aggregate write-ins for miscellaneous income | 24,012 |
| Total other income | $ 85,012 |
| Net income before taxes | $ 5,974,325 |
| Federal and foreign income tax incurred | 158,886 |
| Net Income | $ 5,815,439 |
| CAPITAL & SURPLUS ACCOUNT | |
| Surplus as regards to policyholders at 12/31/04 | $ 42,157,902 |
| Net income | $ 5,815,439 |
| Net unrealized capital gain/(loss) | 487,007 |
| Change in non-admitted assets | 810,348 |
| Change in deferred income tax | 282,796 |
| Aggregate write-ins for gain/(loss) in surplus | (16,668) |
| Change in surplus as regards to policyholders | $ 7,378,922 |
| Surplus as regards to policyholders at 12/31/05 | $ 49,536,824 |
| Note 1 – Bonds | $122,327,909 |
Bonds are stated at amortized value and, at December 31, 2005, consisted of the following
| Cost | Par Value |
Market Value |
Amortized Value |
|
| U.S. Government | $ 18,047,557 | $ 17,375,218 | $ 18,742,743 | $ 17,896,524 |
| Special Revenue | 25,201,525 | 25,075,519 | 24,721,657 | 25,188,505 |
| Public Utilities | 4,919,298 | 5,125,000 | 5,193,968 | 4,977,187 |
| Industrial & Misc. | 74,946,733 | 73,154,570 | 74,831,152 | 74,265,693 |
| TOTAL | $ 123,115,113 |
$ 120,730,307 | $ 123,489,520 | $ 122,327,909 |
As required by Title 24-A M.R.S.A. § 412, the Company has maintained the required security deposit with the Treasurer of Maine.
Company ownership of bonds was confirmed through the CPA’s direct confirmation with the custodians. Amortized values were tested and no material exceptions were found.
Purchases and sales were tested and found to be supported by adequate source documents and corporate authorization.
Interest Income received and accrued was independently calculated and vouched to supporting documents with no material exceptions noted.
| Note 2 – Common Stock | $22,961,295 |
Common stocks at December 31, 2005 consisted of the following:
| Cost | Market Value |
|
| Public Utilities | $ 403,043 | $ 474,778 |
| Bank, Trust & Insurance Co. | 2,258,617 | 2,443,455 |
| Industrial & Miscellaneous | 18,465,855 | 20,043,062 |
| TOTAL | $ 21,127,515 | $ 22,961,295 |
Confirmation of Company ownership of stock was completed in conjunction with bonds. Market or admitted values were established in accordance with the NAIC Valuation of Securities. Purchases and sales were tested and found to be supported by adequate source documents and corporate authorization. Dividend income was also examined.
| Note 3 – Cash and Short-term Investments | Cash Short-term Investments |
$5,257,665 2,169,548 $7,427,213 |
Certifications confirming bank balances at year-end were received through the CPA’s direct correspondence with the various depositories and reconciled with balances reported in the Company’s general ledger as of December 31, 2005 with no exceptions.
| Note 4- Premiums and Considerations | $15,325,640 |
| Premiums and agents’ balances in course of collection | 943,876 |
| Premiums, agents’ balance and installments booked
but deferred and not yet due |
14,381,764 |
| Total Agents’ Balances | $15,325,640 |
Amounts due to the Company from policyholders were verified during the examination. The total premiums and considerations per the examination are reasonably stated by the Company at year-end 2005.
The Company has a premium financing plan where the insured is pre-approved by Medical Mutual to obtain a loan from McDonald Financial Group (Key Bank) to make the premium payment. The Company is not disclosing this liability in Notes to the Financial Statements in accordance with SSAP No. 5, paragraph 15. (See Comment and Recommendation # 1)
| Note 5 – Net Deferred Tax Asset | $4,070,550 |
The calculation of deferred taxes and the respective presentation in Note 9 of the financial statements are not in accordance with SSAP 10. (See Comment and Recommendation #2)
| Note 6 – Loss and LAE Reserves |
Loss $66,588,195 LAE $23,593,382 |
Examiners reviewed the Company’s claim files for the period under examination and determined that the Schedule P data appeared to be properly slotted. The Bureau of Insurance contracted with AMI Risk Consultants, Inc. to perform an actuarial analysis of the Company’s loss and loss adjustment expense reserves. Based on this actuarial opinion, the Company’s estimates for gross and net unpaid loss and loss adjustment expenses appear to be reasonably stated in all material aspects (See Appendix A for actuarial opinion).
| Note 7 – Unearned Premiums | $25,426,071 |
The Company recognizes premiums using the daily pro-rata method. Unearned Premiums were tested and appear to be reasonably stated.
| Note 8 – Ceded Reinsurance Premiums Payable | $4,941,737 |
Examiners tested a sample of ceded premium transactions and traced to applicable reinsurance contracts. The liability reported by the Company appears reasonably stated.
1) Comment: As noted in the Note 4, the Company has
a premium financing plan where the insured is pre-approved by Medical
Mutual to obtain a loan from McDonald Financial Group (Key Bank) to
make the premium payment. The amount of premium loans outstanding at
year-end 2005 was $495,299.67 which the Company guarantees and therefore
is a contingent liability. This contingent liability was not reported
in Note 14 (A) in the annual statement.
Recommendation: Per SSAP No. 5, paragraph 16, “Certain loss contingencies, the common characteristic of each being a guarantee, shall be disclosed in financial statements even though the possibility of loss may be remote.” The Company should disclose this liability and include the nature and amount of the guarantee.
2) Comment: As noted in the Note 5, the calculation of deferred taxes and the respective presentation in Note 9 of the financial statements are not in accordance with SSAP 10. Notwithstanding, the admitted net deferred tax asset amount appears reasonable.
Recommendation: Deferred taxes should be calculated
and reported in the Notes to the Financial Statements in accordance
with SSAP 10.
STATE OF MAINE
COUNTY OF KENNEBEC, SS
Michael R. Nadeau, CPA, CFE, AES, CISA being duly sworn according to law, deposes and says that in accordance with the authority vested in him by Eric A. Cioppa, Acting 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
MEDICAL MUTUAL INSURANCE COMPANY OF MAINE
of Portland, Maine as of December 31, 2005, 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:
_____________________________________
Michael R. Nadeau, CPA, CFE, AES, CISA
Subscribed and sworn to before me this _____th day of, 2007
| _________________________________ Patricia A. Galouch, Notary Public |
My Commission Expires: March 2, 2014 |
STATEMENT OF ACTUARIAL OPINION
MEDICAL MUTUAL INSURANCE COMPANY OF MAINE
For the Year Ended December 31, 2005
IDENTIFICATION
I, Aguedo M. Ingco, am an employee of the firm of AMI Risk Consultants, Inc. I have been retained by the Maine Department of Professional and Financial Regulation, Bureau of Insurance (“the Department”) to express an opinion on the loss and loss adjustment expense (LAE) reserves of Medical Mutual Insurance Company of Maine (“Medical Mutual”).
I am a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. I meet the Academy’s qualification standards for issuing an actuarial opinion on loss and LAE reserves.
SCOPE
I have examined the reserves listed in Exhibit A, as shown in the Annual Statement of Medical Mutual, as prepared for filing with state regulatory officials, as of December 31, 2005. The reserves listed in Exhibit A reflect the Disclosure Items (3-8) listed in Exhibit B.
In forming my opinion on the loss and loss adjustment expense reserves, I relied upon data in Medical Mutual’s 2005 Annual Statement. I evaluated the data that was provided for reasonableness and consistency. I also reconciled that data to Schedule P-Part 1 of Medical Mutual’s 2005 Annual Statement. In other respects, my examination included the use of such actuarial assumptions and methods and such tests of the calculations as I considered necessary.
OPINION
In my opinion, the amounts carried in Exhibit A on account of the items identified:
CONCLUSION
An actuarial report and underlying workpapers supporting the findings expressed in this statement of actuarial opinion have been provided to the Department. I disclaim their use for any other purpose.
The required Exhibits A and B are attached to this statement.
___________________________________
Aguedo M. Ingco, FCAS, MAAA, CPCU, ARM
AMI Risk Consultants, Inc.
11410 N. Kendall Drive Suite 208
Miami, FL 33176
(305) 273-1589
February 12, 2007
Date
Exhibit A: SCOPE
| Loss Reserves | Amount (in whole dollars) |
| A. Reserve for Unpaid Losses (net) | $66,588,195 |
| B. Reserve for Unpaid Loss Adjustment Expenses (net) | $23,593 382 |
| C. Reserve of Unpaid Losses — Direct and Assumed | $85,061,000 |
| D. Reserve for Unpaid Loss Adjustment Expenses — Direct & Assumed | $24,247,000 |
| E. The Page 3 write-in item reserve, “Retroactive Reinsurance Reserve Assumed” | $0 |
| F. Other Loss Reserve items on which the Appointed Actuary is expressing an Opinion (list separately) | $0 |
| Premium Reserves | Amount (in whole dollars) |
| G. Reserve for Direct and Assumed Unearned Premiums for Long Duration
Contracts |
$0 |
| H. Reserve for Net Unearned Premiums for Long Duration Contracts |
$0 |
| I. Other Premium Reserve items on which the Appointed Actuary is expressing an Opinion (list separately) | $0 |
Exhibit B: DISCLOSURES
| Amount (in whole dollars) | |
| 1. Materiality Standard expressed in $US | $4,953,681 |
| 2. Surplus | $49,536,808 |
| 3. Anticipated net salvage and subrogation included as a reduction to loss reserves as reported | $0 |
| 4. Discount included as a reduction to loss reserves and loss
expense reserves as reported 4 (a) Nontabular Discount 4 (b) Tabular Discount |
$0 |
| 5. The net reserves for losses and expenses for the company’s share of voluntary and involuntary underwriting pools’ and associations’ unpaid losses and expenses | $0 |
| 6. The net reserves for losses and loss adjustment expenses that
Pioneer carries for the following 6 (a) Asbestos 6 (b) Environmental |
$0 $0 |
| 7. The total claims made extended loss and expense reserve 7 (a) amount reported as loss reserves 7 (b) amount reported as unearned premium reserves |
$0 $0 |
| 8. Other items on which the Appointed Actuary is providing Relevant
Comment (list separately) |
$0 |
* The reserves disclosed in item 6 above, should exclude amounts relating to contracts specifically written to cover asbestos and environmental exposures. Contracts specifically written to cover these exposures include Environmental Impairment Liability (post 1986), Asbestos Abatement, Pollution Legal Liability, Contractor’s Pollution Liability, Consultant’s Environmental Liability, and Pollution and Remediation Legal Liability.
AMI Risk Consultants, Inc.
Last Updated: October 1, 2008
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