Skip Maine state header navigation
 |
| Home | Contact Us | Careers | Calendar |
|
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 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.
________________________
Dated the _____ day of _________, 2011
TABLE OF CONTENTS SCOPE OF EXAMINATION ......................................................................................................................................... 1 SUMMARY OF SIGNIFICANT FINDINGS ................................................................................................................... 1 SUBSEQUENT EVENTS ............................................................................................................................................... 1 THE COMPANY ........................................................................................................................................................... 2
LITIGATION ................................................................................................................................................................ 6 FINANCIAL STATEMENTS ........................................................................................................................................... 7 COMMENTS ON FINANCIAL STATEMENT ITEMS ..................................................................................................... 11 CONCLUSION ........................................................................................................................................................... 11 APPENDIX A - STATEMENT OF ACTUARIAL OPINION ............................................................................................ 13
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 Current Examination 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 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. 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. 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. The Company is a 100% owner of its insurance company subsidiary, MIC, and is a 100% owner of its non-insurance subsidiary, Services. 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:
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:
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. 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. 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. 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. 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. 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. 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. As required by 24-A M.R.S.A. §412, the Company has maintained the required security deposit with the Treasurer of Maine. 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. 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
STATEMENT OF OPERATIONS
STATEMENT OF CAPITAL AND SURPLUS
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. 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.
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
________________________
Subscribed and sworn to before me
_______________________
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:
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.
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.
______________________________
Exhibit A: SCOPE
Last Updated: August 22, 2012 |
| Copyright © 2006 All rights reserved. |