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Maine.gov > PFR Home > Insurance Regulation > Company Services > Maine Domestic Companies > 2009 Exam Report of Maine Employers' Mutual Insurance Company

 

July 14, 2010

Mila Kofman
Superintendent of Insurance
Maine Bureau of Insurance
34 State House Station
Augusta, ME 04333-0034

Madam Superintendent:

Pursuant to the provisions of 24-A M.R.S.A. §221 and in conformity with your instructions, a financial examination has been made of the

MAINE EMPLOYERS’ MUTUAL INSURANCE COMPANY

at its home office in Portland, Maine. The following report is respectfully submitted.

 

 

REPORT OF EXAMINATION

MAINE EMPLOYERS' MUTUAL INSURANCE COMPANY

AS OF

DECEMBER 31, 2009

 

I hereby certify that the attached report of examination dated July 14, 2010 shows the condition and affairs of the Maine Employers’ Mutual Insurance Company located in Portland, Maine as of December 31, 2009 and has been filed in the Bureau of Insurance as a public document.

 

 

This report has been reviewed.

 

________________________
Eric Cioppa
Deputy Superintendent

 

Dated the _____ day of _________, 2011

 

 

TABLE OF CONTENTS

SCOPE OF EXAMINATION ......................................................................................................................................... 1

SUMMARY OF SIGNIFICANT FINDINGS ................................................................................................................... 1

SUBSEQUENT EVENTS ............................................................................................................................................... 1

THE COMPANY ........................................................................................................................................................... 2

HISTORY ........................................................................................................................................................... 2
CONTRIBUTED CAPITAL .................................................................................................................................... 2
CORPORATE RECORDS ..................................................................................................................................... 3
CORPORATE OWNERSHIP ................................................................................................................................. 3
CORPORATE GOVERNANCE ............................................................................................................................... 3
CODE OF CONDUCT AND CONFLICT OF INTEREST ............................................................................................ 3
FIDELITY BOND AND OTHER INSURANCE .......................................................................................................... 5
EMPLOYEE BENEFITS ........................................................................................................................................ 5
TERRITORY & PLAN OF OPERATION ................................................................................................................... 5
TRANSACTIONS WITH AFFILIATES ..................................................................................................................... 5
GROWTH OF COMPANY ...................................................................................................................................... 6
REINSURANCE ................................................................................................................................................... 6
ACCOUNTS AND RECORDS ................................................................................................................................. 6
STATUTORY DEPOSITS ....................................................................................................................................... 6

LITIGATION ................................................................................................................................................................ 6

FINANCIAL STATEMENTS ........................................................................................................................................... 7

COMMENTS ON FINANCIAL STATEMENT ITEMS ..................................................................................................... 11

CONCLUSION ........................................................................................................................................................... 11

APPENDIX A - STATEMENT OF ACTUARIAL OPINION ............................................................................................ 13

 

 

SCOPE OF EXAMINATION

Maine Employers’ Mutual Insurance Company (hereinafter, “Company”) was last examined as of December 31, 2005 by the State of Maine Bureau of Insurance (hereinafter, “Bureau”). This examination covers the period from January 1, 2006 to the close of business on December 31, 2009.

This examination was performed pursuant to the risk-focused approach promulgated by the National Association of Insurance Commissioners (hereinafter, “NAIC”), and consisted of a review of the Company’s operations, administrative practices, valuation of assets, and determination of liabilities at December 31, 2009 in conformity with statutory accounting practices, NAIC guidelines including the 2009 Financial Condition Examiners Handbook, (hereinafter “FCEH”), and the laws, rules, and regulations prescribed or permitted by the State of Maine. To the extent deemed appropriate, we utilized the work-papers of the Company’s independent accountants for the year ending December 31, 2008.

Areas reviewed in this examination included: aggregate reserves for workers’ compensation policies, policy and contract claims, reinsurance contracts, investments, risk-based-capital requirements and cash flow adequacy. To the extent deemed necessary, transactions occurring subsequent to the examination date were reviewed.

The results of this examination present the financial condition of the Company as of December 31, 2009. Comments on various balance sheet items, for purposes of this report, may be limited to matters involving clarification, departures from laws, rules and regulations and/or significant changes in amounts.

SUMMARY OF SIGNIFICANT FINDINGS

Prior Examination
There were no report comments in the prior Examination Report for the period ending December 31, 2005.

Current Examination
The Company appears to be in substantial compliance with 24-A M.R.S.A. and the Company’s by-laws.

SUBSEQUENT EVENTS

The Company established another subsidiary in January 2010, Casco View Holdings, LLC, and transferred the investment in real estate into that entity. This entity was created pursuant to Board of Directors’ authorization in October 2009.

No other significant material subsequent events were noted. See section “Litigation” for additional information.

THE COMPANY

History

The Company was established through legislative action as an assessable mutual by the State of Maine on November 13, 1992 and commenced business effective January 1, 1993. The Company was established to replace the State of Maine Workers' Compensation Residual Market Pool and to add stability to the Maine worker’s compensation insurance market. The Company writes workers' compensation insurance, and employers’ liability insurance and employment practices liability insurance incidental to and written in connection with workers' compensation coverage for employers in the State of Maine.

In 1996, the Company established a wholly owned, non-insurance subsidiary, MEMIC Services, Inc. (hereinafter, “Services”). Presently, Services sells loss control services to the Company, and to the Company’s insurance subsidiary, MEMIC Indemnity Company (hereinafter, “MIC”).

In 1998, the Company was given authority by the Bureau to apply for licensure in Massachusetts to write coverage for Maine employers with risks in Massachusetts. On August 12, 1999, the Company became licensed in Massachusetts.

In 1999, the Company obtained approval from the New Hampshire Insurance Department to form a New Hampshire domestic subsidiary, MIC, to write workers' compensation insurance in New Hampshire. On May 1, 2000, the State of New Hampshire authorized the MIC to write workers' compensation insurance. To date, the Company has provided capital amounting to $46,000,000 through an equity investment. The Company’s strategy is to use MIC as a vehicle to provide workers’ compensation coverage to entities with principal operations in MIC’s target markets of New Hampshire, Vermont, New York, Massachusetts and Connecticut and to provide workers’ compensation coverage to those entities ancillary operations located in other states including the District of Columbia.

Contributed Capital

As authorized by specific provisions of state law, the Company was formed as a special purpose mono-line workers' compensation insurer without any initial capital or surplus. To provide capital, each of the Company's policyholders were required to make a capital contribution equal to a percentage of final audited premium; 15% for policies issued in 1993 and 10% for policies issued in 1994 and 1995. Capital contributions were suspended for policies effective January 1, 1996 and later.

In 1998, the Company requested, in accordance with 24-A M.R.S.A. §3710 (3)(E) (repealed in 2001), that the superintendent of insurance review and certify that their surplus has reached the levels required by 24-A M.R.S.A. §410. Upon review of the Company’s surplus levels, the superintendent certified that the Company possessed an adequate level of surplus for a domestic insurance company writing workers' compensation. Presently, the Company is subject to all regulations applicable to a mutual casualty insurer that writes workers' compensation insurance in Maine.

From 1998 through the present, the Company requested and received approval from the superintendent to return capital contributions to the extent authorized by the board of directors and the Bureau of Insurance. By December 31, 2005, the Company had returned all but an immaterial amount of the contributed capital.

Corporate Records

The Company’s articles of incorporation, by-laws and minutes of the board of directors’ meetings held during the period under examination were reviewed. Based upon our review, the Company is conducting its affairs in substantial compliance with the statutes of the State of Maine and in accordance with its own charter and by-laws.

Corporate Ownership

The Company is a 100% owner of its insurance company subsidiary, MIC, and is a 100% owner of its non-insurance subsidiary, Services.

Corporate Governance

The Company is governed and overseen by its board of directors and the management team of the Company.

At December 31, 2009 the Company’s board of directors consisted of nine individuals. Other than John Leonard, President and Chief Executive Officer, all directors were outside directors. The Company’s board of directors approves the strategic direction of the Company’s business and financial objectives, monitors the effectiveness of managements’ implementation of policies and plans and provides oversight and support in achieving corporate objectives. Review of the board of directors’ meeting minutes provided acceptable evidence that the board of directors acted in substantial compliance with the Company’s articles of incorporation, its by-laws and provided management oversight.

The board of directors has five standing committees. These committees include executive, audit, investment, compensation, and governance and nominating. Each committee consists of three or more members, and all report to the board of directors. In December 2008, the board of directors developed written charters for all its committees. Review of the minutes indicated that all of the board committee meetings during the period under examination were conducted in substantial compliance with the written committee charters.

Code of Conduct and Conflict of Interest

Title 24-A M.R.S.A. §3413 identifies potential conflict of interest areas. As such the Company requires that each director and officer of the Company complete a conflict of interest statement, annually, to disclose any material interest or affiliations which are likely to be in conflict with his/her official duties and responsibilities to the Company.

The conflict of interest guidelines are included in the Company’s code of business conduct and ethics. All directors, officers and employees are required to sign a compliance certificate when hired/appointed that certifies that they have read, understand, and will adhere to the code of business conduct and ethics, and the conflict of interest policy. All directors and officers are required to also sign a compliance certificate annually. Our examination included a review of these compliance certificates and found the Company to be in substantial compliance with its code of conduct and conflict of interest policies. The Company is also in substantial compliance with the Maine statute.

Officers of the Company, as listed in the 2009 statutory annual statements, are:

John Thomas Leonard President & Chief Executive Officer
Daniel Joseph McGarvey Senior Vice President, CFO & Treasurer
Michael Peter Bourque Secretary, Vice President, Corporate Communications
Gary Richard Baxter Senior Vice President & Chief Information Officer
Donald Vernon Hale Senior Vice President, Underwriting
John Francis Marr Senior Vice President, Claims
Catherine Flaherty Lamson Senior Vice-President & Chief Administrative Officer
Gregory Grant Jamison Assistant Vice President, Underwriting

 

The examiner-in-charge and the director of examination interviewed most of the aforementioned officers. All officers appeared to be qualified in terms of experience and knowledge. It is apparent from the interview process that knowledge of business processes, plans, results and risk areas are shared amongst senior management of the Company.

In addition to the officers, the chairman of the audit committee was also interviewed. The professional experience of audit committee chairperson, Ms. Mann, appeared appropriate for this position and she indicated that the audit committee met regularly with the independent auditors and internal auditors.

As of December 31, 2009, the board of directors of the Company consisted of the following members:

Mary Jane Sheehan Chairperson
John Thomas Leonard Director
Vicki Jean Mann Director
Jolan Force Ippolito Director
Robert Dale Umphrey Director
Ward Irving Graffam Director
Katherine Maxim Greenleaf Director
Sara Catherine Longley Director
David Mark Labbe Director

 

Fidelity Bond and Other Insurance

The Company is protected by a fidelity bond, and the bond amount was reviewed and was determined to be substantially in compliance with the NAIC recommended levels of coverage. The Company maintains other insurance policies including property and equipment, automobiles, general liability, and directors and officers' liability.

Employee Benefits

The Company and each of its subsidiaries have employees and offer benefits under medical and other standard benefit programs. The Companies also offer the employees a qualified defined contribution pension plan as well as a 401k plan with both a matching and profit sharing component. The Company also offers non-qualified pension and incentive plans for its executives.

Territory & Plan of Operation

The Company is licensed to transact business as a workers’ compensation insurer, and is currently writing in Maine, New Hampshire, Vermont, Massachusetts, and Connecticut.

The Company primarily writes workers compensation insurance to mid-sized businesses located in Maine as well as businesses located in Maine with operations in the New England states. In 2008, the Company began writing employment practices liability insurance as an endorsement to its workers compensation policies. Products are marketed using the brand name “MEMIC”. Distribution is primarily through a network of independent brokers.

Transactions with Affiliates

The Company is a party to a written tax sharing agreement with its subsidiaries. The agreement provides that the portion of the consolidated tax liability allocated to the Company is based on its separate tax return liability.

The Company provides certain administrative, technical and managerial support pursuant to its subsidiaries under the terms of a written management service agreement.

The Company receives some claims handling services from its insurance subsidiary, MIC, under the terms of a written services agreement.

The Company and its insurance subsidiary receive loss control services from its non-insurance subsidiary, Services, under written service agreements.

Growth of Company

The Company’s direct written premiums have steadily declined each year from 2006 through 2009 due to “soft” market conditions, overall economic conditions, and a NCCI proposed 7.6% rate decrease effective January 1, 2009. A rate decrease of 7% has also been announced by the Company for 2010. Based upon the 3 year projection provided to the Bureau, the Company expects premiums to be stable for the next 3 years. The Company has paid dividends to its policyholders in 2006, 2007, 2008 and 2009.

Reinsurance

The Company assumes some minimal reinsurance from various state run and national workers’ compensation pools.

In 2009 the Company ceded reinsurance on its workers’ compensation in excess of loss layers up to $75,000,000, above a $5,000,000 retention, to various authorized reinsurance companies.

The employment practices liability insurance business is 100% ceded to an outside authorized group of reinsurance companies.

Accounts and Records

As part of the information systems review, reliance was placed on review of the Company’s response to the NAIC prescribed Information Systems Questionnaire. Interviews with Company staff were conducted to gather supplemental information and corroborate the Company’s responses to the questionnaire. Included in the scope of this review were management and organization controls, logical and physical security controls, changes to applications, system and program development, contingency planning, operations and processing controls.

Statutory Deposits

As required by 24-A M.R.S.A. §412, the Company has maintained the required security deposit with the Treasurer of Maine.

LITIGATION

In the normal course of its business operations, the Company is involved in litigation from time to time with its claimants, beneficiaries and others. The Company believes that it has valid defenses in all material suits and is in the process of defending its position. The Company’s representations in this regard were confirmed through direct correspondence with the Company’s outside legal counsel. In the opinion of management, the ultimate liability, if any, arising from this litigation is not expected to have a material effect on the financial position of the Company.

FINANCIAL STATEMENTS

The accompanying financial statements fairly present, in all material respects, the Company’s statutory financial position as of December 31, 2009 and statutory results of operations for the period then ended. The financial statements as of December 31, 2008, 2007, and 2006 are unexamined and are presented for comparative purposes only.


STATEMENT OF ADMITTED ASSETS, LIABILITIES AND SURPLUS
as of December 31, 2009, 2008, 2007 and 2006

 

  2009 2008 2007 2006
Assets   (unexamined) (unexamined) (unexamined)
Bonds $ 487,210,027 $ 464,184,517 $ 449,490,816 $ 414,995,027
Preferred Stock - - 580,442 787,420
Common stocks 101,172,130 91,744,666 115,544,439 109,085,451
Real estate 5,294,269 4,511,008 - -
Cash & cash equivalents 16,431,801 19,456,583 14,078,973 8,836,031
Other invested assets 147,355 185,950 173,783 174,697
Aggregate write-ins for invested assets 5,097,664 4,543,385 4,443,441 3,771,426
Investment income due and accrued 5,673,632 5,447,225 5,119,792 4,573,452
Premiums in the course of collection 7,226,179 8,609,750 8,519,080 8,760,438
Premiums deferred 31,350,137 33,942,025 35,303,304 35,816,809
Accrued retrospective premiums 133 8,282 63,700 109,795
Amounts recoverable from reinsurers 661,788 1,019,880 1,629,475 2,134,163
Current federal income tax recoverable 154,081 - 947,600 3,572,431
Net deferred tax asset 9,678,819 9,887,198 10,599,218 9,012,076
Electronic data processing equipment/software 468,606 617,329 707,106 542,907
Receivables from subsidiaries and affiliates 937,666 176,389 925,468 380,473
Aggregate write-ins for other than invested assets 63,971 23,663 58,125 -
Total Assets $ 671,568,258 $ 644,357,850 $ 648,184,762 $ 602,552,596
Liabilities, Surplus and Other Funds        
Losses 309,752,661 300,922,066 300,281,527 279,534,149
Loss Adjustment expenses 38,486,960 38,855,011 34,554,397 33,334,292
Commissions payable 3,819,844 4,011,977 4,445,578 4,197,590
Other expenses 11,881,581 10,188,171 11,974,083 9,921,870
Taxes, Licenses and fees 693,000 465,243 418,575 422,097
Current federal income taxes - 1,330,949 - -
Unearned premiums 60,343,419 65,324,885 69,846,978 71,256,135
Advance premiums 981,520 1,678,383 686,761 1,464,072
Declared policyholder dividends - - 68,752 68,752
Ceded reinsurance premiums payable 798,902 770,903 879,203 932,001
Amounts withheld for the account of others 2,568,888 2,876,730 2,875,957 2,808,172
Provision for Reinsurance - - - 43,000
Aggregate write-ins for liabilities 1,123,567 1,057,280 1,373,254 1,405,029
Total Liabilities 430,450,342 427,481,598 427,405,065 405,387,159
Surplus        
Gross paid in and contributed surplus 3,222,136 3,222,875 3,220,336 3,226,708
Unassigned funds 237,895,780 213,653,377 217,559,361 193,938,729
Surplus as regards policyholders 241,117,916 216,876,252 220,779,697 197,165,437
         
Liabilities and Surplus $ 671,568,258 $ 644,357,850 $ 648,184,762 $ 602,552,596

STATEMENT OF OPERATIONS
Years Ended December 31, 2009, 2008, 2007 and 2006

 

  2009 2008 2007 2006
    (unexamined) (unexamined) (unexamined)
Premiums Earned $ 130,036,980 $ 139,884,756 $ 147,286,652 $ 153,163,226
Deductions:        
Losses incurred 86,080,302 72,361,371 89,925,578 101,396,725
Loss adjustment expenses 10,989,392 15,174,892 12,366,832 12,314,532
Other underwriting expenses 28,246,650 28,046,263 30,115,938 29,315,564
Total underwriting deductions 125,316,344 115,582,526 132,408,348 143,026,821
Total underwritng gain 4,720,636 24,302,230 14,878,304 10,136,405
Investment Income        
Net investment income earned 21,027,187 21,429,977 20,586,501 18,684,784
Net realized capital gains (losses); net of taxes 2,519,377 (13,447,677) (448,141) 89,225
Net Investment Income 23,546,564 7,982,300 20,138,360 18,774,009
Other Income        
Net loss from premiums charged off (467,719) (315,214) (439,818) (437,662)
Finance and service charges 76,589 81,280 86,142 88,651
Aggregate write-ins for miscellaneous income (charges) (142,290) (15,244) 8,102 11,870
Total Other Loss (533,420) (249,178) (345,574) (337,141)
Net income before dividends and federal income taxes 27,733,780 32,035,352 34,671,090 28,573,273
Dividends to policyholders 10,000,000 15,000,110 14,006,432 12,002,327
Net income before federal income taxes 17,733,780 17,035,242 20,664,658 16,570,946
Federal income taxes 3,065,319 6,117,053 6,212,186 2,823,671
Net Income $ 14,668,461 $ 10,918,189 $ 14,452,472 $ 13,747,275

 

STATEMENT OF CAPITAL AND SURPLUS
Years Ended December 31, 2009, 2008, 2007 and 2006

 

  2009 2008 2007 2006
    (unexamined) (unexamined) (unexamined)
Policyholder Surplus December 31 Prior Year $ 216,876,252 $ 220,779,697 $ 197,165,438 $ 173,503,825
Net Income 14,668,461 10,918,189 14,452,472 13,747,275
Change in unrealized capital gain/(loss) net of tax 5,992,122 (8,261,710) 6,407,099 7,782,074
Change in deferred income tax (27,801) 3,514,590 2,193,261 788,334
Change in nonadmitted assets 3,609,620 (10,077,053) 524,799 1,566,763
Change in provision for reinsurance - - 43,000 -
Change in paid in surplus (738) 2,539 (6,372) (222,833)
Change in surplus 24,241,664 (3,903,445) 23,614,259 23,661,613
Policyholder Surplus December 31 Current Year $ 241,117,916 $ 216,876,252 $ 220,779,697 $ 197,165,438

 

COMMENTS ON FINANCIAL STATEMENTS ITEMS

 

Reserves

The Maine Bureau of Insurance’s employed actuary, a PhD, ACAS, and MAAA, was assigned to perform an actuarial review and to perform certain actuarial analyses on the reserves reported by the Company at December 31, 2009. That actuarial report and opinion is included in this report in Appendix A.

CONCLUSION

The Company’s financial condition, as disclosed by this examination, is reflected in the statements and the supporting exhibits contained in this report. The basis of preparation of such statements conforms to laws, rules and regulations prescribed and/or permitted by the Maine Bureau of Insurance.

Acknowledgment of cooperation and assistance extended to the examiners by all Company personnel is hereby expressed.



STATE OF MAINE
COUNTY OF KENNEBEC, SS

Stuart E. Turney, Director of Examination, being duly sworn according to law deposes and says that, in accordance with authority vested in him by Eric Cioppa, Deputy 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

Maine Employers’ Mutual Insurance Company

of Portland, Maine as of December 31, 2009, 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:

Graham S. Payne
Michael R. Nadeau, CPA, CFE, CISA, AES
Margaret S. Boghosian, CPA, CFE
Vanessa J. Leon
Arias Wan

 

________________________
Stuart E. Turney, CPA, AFE

 

Subscribed and sworn to before me
This _____day of _________, 2011

 

_______________________
Notary Public
My Commission Expires:

 

APPENDIX A – STATEMENT OF ACTUARIAL OPINION

 

STATEMENT OF ACTUARIAL OPINION

MAINE EMPLOYER'S MUTUAL INSURANCE COMPANY

FOR THE YEAR ENDING DECEMBER 31, 2009

Identification

I, Michael G. Blake, am the P&C actuary at the Maine Bureau of Insurance. I am a Member of the American Academy of Actuaries and meet its qualification standards to render this Statement of Actuarial Opinion. I am also an Associate of the Casualty Actuarial Society. I was requested by the Maine Bureau of Insurance on May 4, 2010 to render this opinion.

Scope

I have examined the reserves shown in the Annual Statement of the company as prepared for filing with state regulatory officials, as of December 31, 2009. This opinion relates to items in Exhibit A.

The loss and loss adjustment reserves specified above, on which I am expressing an opinion, reflects the items 3 through 8 in Exhibit B.

In forming my opinion on the loss and loss adjustment expense reserves, I relied upon data prepared by responsible officers and employees of the Company. In this regard, I relied primarily upon the data gathered and audited by Graham Payne. I evaluated the data for reasonableness and consistency. I also reconciled the data to Schedule P - Part 1 of the company's 2009 annual statement. In other respects, my examination included the use of such actuarial assumptions and methods used and such tests of the calculations as I considered necessary.

My review was limited to items in Exhibit A and did not include an analysis of any other balance sheet items. I have not examined the assets of the Company and I have formed no opinion as to the validity or values of these assets. My opinion on the reserves is based upon the assumption that all reserves are backed by valid assets, which have suitably scheduled maturities and/or adequate liquidity to meet the cash flow requirements.

Opinion

This is a Reasonable Opinion.

In my opinion, the amounts carried in Exhibit A on account of the items identified:

  1. Meet the requirement of the insurance laws of Maine;
  2. Are consistent with reserves computed in accordance with accepted loss reserving standards and principles; and
  3. Make a reasonable provision for all unpaid loss and loss expense obligations of the Company under the terms of its contracts and agreements.

This opinion applies to loss and loss expenses on a combined basis.

Relevant Comments

a. Risk of Material Adverse Deviation

There is a significant risk of material adverse deviation for the Company.

The Company has booked reserves within a reasonable range of our best actuarial estimates. The potential for material adverse deviation relates to the nature of the coverage provided. The chief factors which bear the risk of material adverse deviation for reserves are the concentration of writings in one line of business and one state, legal, regulatory, economic conditions that impact workers compensation insurance, and the lack of fully developed payment patterns. MEMIC has only been writing workers compensation insurance since 1993. As such, none of their policy periods have become fully mature. Because of the long tail nature of this coverage, many unanticipated changes could occur to the future payout patterns. These changes could result from changing economic conditions, changing societal behavior, and changes in the legal and regulatory climate.

The above risk factors are compounded by the potential variability inherent in the underlying data. Therefore, there is a risk of material adverse development. I have used 10% of MEMIC's statutory surplus, $24.1 million, as a benchmark in determining the risk of material adverse deviation. The selection of this materiality standard was based on the fact that this opinion is prepared for the regulatory solvency of the Company and the amount of adverse deviation that would be expected to result in a decline in MEMIC's financial rating. Other measures of materiality might be used for reserves that are being evaluated in a different context.

b. Other Disclosure in Exhibit B

The data underlying my review, and resulting estimates, are net of salvage and subrogation. The Company reduces its loss reserves for anticipated salvage and subrogation recoverables as of December 31, 2009. The Company does not discount its loss and loss adjustment expenses reserves. I have reviewed the Company's exposure to asbestos and environmental claims. In my opinion, there is a remote change of material liability since the Company writes only workers compensation insurance. The Company does not write any policies which would result in the need for extended reporting reserves. The Company has immaterial exposure to voluntary and involuntary pool arrangement. Reserve exposure with respect to pools is considered to be immaterial.

The Company writes no policies or contract related to single or fixed premium policies with coverage periods of thirteen months or greater which are non-cancelable and not subject to premium increase (excluding financial guaranty contracts, mortgage guaranty policies, and surety contracts).

c. Reinsurance

Based on a review of the reinsurance contracts provided by the Company, I am not aware of any reinsurance contract that either has been or should have been accounted for as loss portfolio transfer, retroactive reinsurance, or financial reinsurance. I have reviewed the Part 2 - Property and Casualty Interrogatory # 9 regarding the risk transfer elements of the Company's reinsurance contracts.

The treaties have been reviewed for any terms or conditions that would limit risk transfer, whether the limitation included limits on underwriting and timing or risk. These contracts have no such limitations.

My opinion on the loss and loss adjustment expense reserves net of ceded reinsurance assumes that all ceded reinsurance is valid and collectible.

d. IRIS Ratios

I reviewed the results of the three NAIC IRIS tests, which are relevant to loss reserves.
These tests are listed as follows:

  1. One-Year Reserve Development to Policyholders' Surplus
  2. Two-Year Reserve Development to Policyholders' Surplus
  3. Estimated Current Reserve Deficiency to Policyholders' Surplus

No exceptional values resulted for tests, a, b, or c.

Variability

In evaluating whether the reserves make a reasonable provision for unpaid losses and loss adjustment expense, it is necessary to project future loss and loss adjustment expense payments. It is certain that actual future losses and loss adjustment expenses will not develop exactly as projected and may, in fact, vary significantly from the projections. Further, my projections make no provision for extraordinary future emergence of new classes of losses or types of losses not sufficiently represented in the Company's historical data base or which are not yet quantifiable.

Actuarial Report

An actuarial report and any underlying actuarial papers supporting the findings expressed in this Statement of Actuarial Opinion has been provided to the Maine Bureau of Insurance ("MBI") in conjunction with its regulatory examination of the Company.

This statement of opinion is solely for the use of, and only to be relied upon by, the MBI and the various state departments with which the company files its Annual Statement.

 

______________________________
Michael G Blake, Ph.D., ACAS, MAAA
P&C Actuary
Maine Bureau of Insurance
76 Northern Ave.
Gardiner, ME 04345
(207)-624-8427
July 12, 2010

 

Exhibit A: SCOPE

Loss Reserves: Amount
   
A. Reserve for Unpaid Losses
(Liabilities, Surplus, and Other Funds page, Line 1)
$309,752,661
   
B. Reserve for Unpaid Loss Adjustment Expense
(Liabilities, Surplus and Other Funds page, Line 3)
$ 38,486,960
   
C. Reserves of Unpaid Losses - Direct and Assumed
(Schedule P, Part 1, Total from columns 13 and 15)
$336,729,000
   
D. Reserve for Unpaid Loss Adjustment - Direct and Assumed
(Schedule P, Part 1, Total from columns 17, 19, and 21)
$ 38,812,000
   
E. Page 3, write-in item reserve, “Retroactive Reinsurance Reserve Assumed.” 0
   
F. Other Loss Reserve items on which the Appointed Actuary is Expressing on Opinion (Extended Reporting Loss Reserves) 0
   
Premium Reserves:  
   
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 on Opinion (list separately) 0


Exhibit B: Disclosures

  Amount
   
1. Materiality Standard (expressed in $US) $ 24,111,792
   
2. Statutory Surplus $241,117,916
   
3. Anticipated net salvage and subrogation included as a reduction to loss reserves as reported in Schedule P $ 7,837,000
   
4. Discount included as a reduction to loss reserves and loss expense reserves as reported in Schedule P  
   
(a) Nontabular Discount 0
(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 that are included in reserves shown on the Liabilities, Surplus and Other Funds page, Losses and Loss Adjustment Expenses lines. 0
   
6. The net reserves for losses and loss adjustment expenses that the Company carries for the following liability included on the Liabilities, Surplus and Other Funds page, Losses and Loss Adjustment Expense lines, as disclosed in the Notes to Financial Statements 0
   
(a) Asbestos 0
(b) Environmental 0
   
7. The total claims made extended loss and expense reserve (Schedule P Interrogatories)  
   
(a) Amount reported as loss reserves 0
(b) Amount reported as unearned premium reserves 0
   
8. Other items on which the Appointed Actuary is providing Relevant Comment (list separately) 0

 

Last Updated: October 22, 2013