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PATRIOT LIFE INSURANCE COMPANY
REPORT OF EXAMINATION AS OF DECEMBER 31, 2006
STATE OF MAINE BUREAU OF INSURANCE IT IS HEREBY CERTIFIED THAT THE ANNEXED REPORT OF EXAMINATION FOR Patriot Life Insurance Company has been compared with the original on file in this bureau and that it is a correct transcript thereof and of the whole of said original. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of this Office at the City of Augusta this ____ day of January, 2008
________________________
I hereby certify that the attached report of examination dated July 9, 2007 shows the condition and financial affairs of PATRIOT LIFE INSURANCE COMPANY located in Brunswick, Maine as of December 31, 2006 and has been filed in the Bureau of Insurance as a public document. This report has been reviewed. _________________________
Dated this 16 day of January, 2008
TABLE OF CONTENTS FIDELITY BOND AND OTHER INSURANCE OFFICERS', EMPLOYEES' AND AGENTS' WELFARE AND PENSION PLANS TERRITORY AND PLAN OF OPERATION
July 9, 2007
Honorable Eric A. Cioppa Dear Sir: Pursuant to your instructions and in accordance with the provision of 24-A M.R.S.A. § 221, the Maine Bureau of Insurance (hereinafter, "Bureau") conducted an examination of the condition and financial affairs of PATRIOT LIFE INSURANCE COMPANY (hereinafter, "Company"), as of December 31, 2006. The examination, performed at the Company's home office in Brunswick, Maine, was made in accordance with the standards and procedures established by the Bureau and the National Association of Insurance Commissioners (hereinafter, "NAIC") and accordingly, included tests of the accounting records and other procedures considered necessary under the circumstances. The accompanying financial statements have been prepared in accordance with statutory accounting practices prescribed or permitted by the NAIC and the Bureau. These practices differ in certain respects from generally accepted accounting principles (hereinafter, "GAAP"). For purposes of this report, comments on various items may be limited to matters involving departure from laws, rules or regulations, a significant change in the amount of the item, or where an explanation, comment and/or recommendation is warranted. The following report is respectfully submitted. The Company is a wholly owned subsidiary of Patriot Insurance Company, (hereinafter, "Parent"). The Parent provides administrative and management services for the Company for an agreed upon fee. In accordance with the provisions of its charter and the laws of the State of Maine, the Company is authorized to write life and health insurance in the State of Maine, but is currently not writing new business. The Company was last examined as of December 31, 2003 by the Bureau. The Bureau conducted a routine statutory examination of the Company covering the period of January 1, 2004 to December 31, 2006. A full scope examination was performed using the specific risk analysis approach. The examination was performed concurrently with a financial examination of its Parent. The following matters were reviewed to assess their impact on financial condition and conformity with related laws. The Company was incorporated on September 21, 1995 in the State of Maine and commenced operations on October 1, 1995. The Company assumed the insurance assets, related liabilities, duties and responsibilities of Maine National Life Insurance Company. The officers and directors of Maine National Life, with the consent of the State of Maine Superintendent of Insurance, then voluntarily liquidated Maine National Life. Patriot Mutual Insurance Company owned all outstanding common stock of Maine National Life and owns all outstanding stock of the Company. On July 1, 2007, the Company's Parent was acquired by and became a wholly owned subsidiary of Frankenmuth Mutual Insurance Company. The Company remains a wholly owned subsidiary of Patriot Insurance Company, with Frankenmuth Mutual Insurance Company the ultimate Parent. Management of the Company is vested in no less than seven (7) and no more than fifteen (15) members of the Board of Directors. The Board of Directors and the Officers serving as of December 31, 2006 were as follows: Directors
Officers
Each Director and Officer of the Company is required to 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 to the Company. The Company’s Articles of Incorporation, Bylaws, and Minutes of the Board of Directors’ meetings held during the period of examination were reviewed. Fidelity Bond and Other Insurance The Company is protected as a named insured under Employee Dishonesty Coverage issued by an insurance carrier authorized in the state of Maine and affords indemnification to an amount not exceeding $100,000. Officers', Employees' and Agents' Welfare and Pension Plans The Company does not have any employees, and is managed by its Parent through a management services agreement. Company Officers are officers of the Parent. The Company does not provide any welfare or pension benefits. Territory and Plan of Operation The Company operates as a stock life, accident and health insurance company pursuant to 24-A M.R.S.A. The Company has written various types of individual life insurance policies within the State of Maine, but is not currently writing new business. All operations are administered by the Company's Parent in accordance with a written management agreement. Charges for services are allocated to the Company monthly, and the net due to or from the Parent is reconciled monthly. The Company has not written any new business over the past 6 years and is currently in run-off. The Company had 105 life insurance policies in force at 12/31/06, with an aggregate benefit amount of $270,075. All policies were written in the state of Maine. The Company's aggregate reserves are determined by an outside actuary each year. The death benefits paid were between $5,000 and $16,000 for each year under examination. As of December 31, 2002, the Company discontinued its reinsurance activities and is not a party to any reinsurance agreement. Accounts and records were reviewed and tested in order to assess their impact on the Company's financial condition and conformity with related laws. The accompanying financial statements present fairly, in all material respects, the Company's statutory financial position as of December 31, 2006, statutory results of operations for the period then ended and statutory capital and surplus since the last examination. The financial statements as of December 31, 2005 and December 31, 2004 are unexamined and are presented for comparative purposes only. STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS December 31, 2006, 2005 and 2004
STATUTORY STATEMENT OF OPERATIONS Years Ended December 31, 2006, 2005 and 2004
STATUTORY STATEMENT OF CAPITAL AND SURPLUS Years Ended December 31, 2006, 2005 and 2004
Existence and ownership of bonds was confirmed with investment custodians. Because the amortizable value over the terms of bonds is immaterial, amortization was reviewed for reasonableness. Analytical procedures were performed on investments in bonds.
Existence and ownership of common stocks was confirmed with outside custodians. Analytical procedures were performed on investments in common stock. At December 31, 2006, the Company had 33% of its total assets, and 37% of its surplus invested in common stocks, which is in non-compliance with 24-A M.R.S.A. Chapter 13, §1156 which limits the investment in common stocks to 20% of total assets. The Company is also not in compliance with its own Investment Policy which limits investments in common stocks to 20% of surplus. (See Comment and Recommendation #1)
Short-term investments are primarily money market funds.
The Company is taxed at regular corporate tax rates on taxable income, as defined by the Internal Revenue Code, and files a combined income tax return with its Parent. There is a written tax allocation agreement in place between the Company and its Parent. The Financial Statements in this report have not been adjusted from the Annual Statement filed with the Bureau. The audited Financial Statements prepared by an outside CPA firm differ from the Annual Statement and the Examination Report Financial Statements because the audited statements include a reclassification of liabilities from the AVR, which was determined to be overstated, to the deferred tax liability. That adjustment to the Financial Statements was not made in this report because there was no affect on surplus, and the amount of the adjustment was immaterial. (See Comment and Recommendation #2)
Estimated aggregate reserves are prepared for the Company by contracted actuaries. The Company had 105 life insurance policies in force at December 31, 2006 with an aggregate benefit amount of $270,075; as a result, actuarial assistance was not considered necessary.
STATE OF MAINE
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 Eric A. Cioppa, Acting Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, has made an examination of the condition and financial affairs of PATRIOT LIFE INSURANCE COMPANY of Brunswick, Maine as of December 31, 2006, 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: Margaret S. Boghosian, CPA, CFE Respectfully submitted, ___________________________________
Subscribed and sworn to before me Patricia A. Galouch
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