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NORTH EAST INSURANCE COMPANY

REPORT OF EXAMINATION
AS OF
DECEMBER 31, 2004

TABLE OF CONTENTS

SCOPE OF EXAMINATION
DESCRIPTION OF THE COMPANY

HISTORY
MANAGEMENT AND CONTROL
CONFLICT OF INTEREST
CORPORATE RECORDS
PLAN OF OPERATION
FIDELITY BOND

HOLDING COMPANY STRUCTURE
INTER-COMPANY AGREEMENTS
REINSURANCE
LITIGATION
INTERNAL CONTROL REVIEW
SUBSEQUENT EVENTS
FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
COMMENTS & RECOMMENDATIONS
STATEMENT OF ACTUARIAL OPINION

APPENDIX A

I hereby certify that the attached report of examination dated November 4, 2005 shows the condition and affairs of the NORTH EAST INSURANCE COMPANY, Scarborough, Maine as of December 31, 2004 and has been filed in the Bureau of Insurance as a public document.

This report has been reviewed.

________________________
James C. Williams, CPA, CFE
Director of Financial Affairs and Solvency

This _______ day of _____________, 2006


November 4, 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

NORTH EAST INSURANCE COMPANY

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

SCOPE OF EXAMINATION

The Company was last examined as of December 31, 2001 by the State of Maine Bureau of Insurance. This examination covers the period from January 1, 2002 through December 31, 2004.

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.

To the extent deemed appropriate, we utilized workpapers of the independent accountants for the year ending December 31, 2004. In conjunction with these workpapers, we extended testing where deemed appropriate in order to achieve a confidence level commensurate with risk assessed through utilization of the NAIC Examiners Handbook.

The Company’s loss and loss adjustment expense reserves were evaluated by line of business for the period under examination. Loss payments, case reserves, accident dates, report dates and reinsurance credits taken from claim data files and loss reports were verified. 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 regulations; a significant change in the amount of the item, or where an explanation, comment and/or recommendation is warranted.

DESCRIPTION OF THE COMPANY

History

The Company was organized as a Maine corporation on August 9, 1965 and began writing property and casualty insurance in Maine in June 1966. The Company was purchased by Preserver Group, Inc., formerly known as Motor Club of America, on September 24, 1999. A wholly-owned New York domestic insurance company subsidiary, American Colonial Insurance Company was merged into the Company in June 2003.

The Company’s principal products are personal and commercial automobile insurance, including both liability and physical damage coverage. The Company also offers Homeowners multi-peril, commercial multi-peril and inland marine insurance.

Management and Control

Management of the Company is vested in not less than seven (7) nor more than twenty-one (21) member Board of Directors. The following are the elected members of the Board of Directors and the Officers serving at December 31, 2004.

Directors:

Robert Stanley Fried William Earl Lobeck, Jr.
Stephen Alan Gilbert Archer McWhorter, Jr.
Patrick Joseph Haveron Archer McWhorter
Russell Keith Jarrett Alvin Ernest Swanner
Ronald Arthur Libby  

 

Officers:

Ronald Arthur Libby President
Patrick Joseph Haveron Chairman of the Board, CEO & Treasurer
Peter Kevin Barbano Vice President & Secretary
Rebecca Joan Cerny Senior Vice President
Lawrence Earl Cowen Vice President
David Leaman Drake III Vice President
Francis James Fenwick Vice President
Betty Kim Martin Vice President
George Bruce Patterson Vice President
Charles Joseph Pelosi Vice President
Myron Rogow Vice President

 

Conflict of Interest

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.

Corporate Records

The Articles of Incorporation, the Bylaws and the Minutes of the meetings of the Board of Directors’, Audit Committee, Finance Committee and of the Shareholders meetings held from the period January 1, 2002 to the completion of fieldwork were reviewed. The Company is managed in accordance with its corporate documents.

Plan of Operation

The Company writes the following lines of business:

Homeowners Multiple Peril Commercial Multiple Peril
Inland Marine Private Passenger Auto Liability
Commercial Auto Liability Auto Physical Damage

The Company currently writes business primarily in the State of Maine, and less than 1% in New York. This was properly reported on Schedule T in the 2004 Annual Statement.

Fidelity Bond

The Company is protected as a named insured under a blanket fidelity bond in the amount of $1,000,000 which was purchased by its Parent. The bond amount was tested with regard to the National Association of Insurance Commissioners (NAIC) standards and determined to be adequate.

HOLDING COMPANY STRUCTURE

At December 31, 2004, all of the outstanding shares of the Company were owned by Preserver Group, Inc. (Preserver), formerly known as Motor Club of America, a holding company domiciled in the State of New Jersey. An ownership group, consisting of three of the Company’s Directors, owned 100% of Preserver’s outstanding shares.

The Company owns 100% of the stock of subsidiary, North Atlantic Underwriters, Inc., an inactive Maine licensed insurance agency.

INTER-COMPANY AGREEMENTS

The Company has a management services and cost-sharing agreement with its Parent, Preserver Group, Inc., under which the Parent provides certain management services. The Company also has entered into a tax allocation agreement with its Parent. The Company does not have a current fully executed tax allocation agreement with its Parent. (See Comments & Recommendations #1)

REINSURANCE

Examiners reviewed Schedule F and noted that all significant reinsurers are authorized and in compliance with Title 24-A M.R.S.A. § 731-B. At December 31, 2004, the Company had excess of loss, catastrophe, and commercial umbrella reinsurance contracts in place. The Company provided Interests and Liability Agreements signed by various reinsurers for most of the contracts, but was unable to provide these Agreements for the Catastrophe contract for either 2003 or 2004.

None of the Company’s reinsurance contracts contained an “entire contract clause” as required by SSAP 62, paragraph 8. (See Comments & Recommendations #2)

LITIGATION

A review of letters furnished by outside legal council 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.

INTERNAL CONTROL REVIEW

Examiners conducted a review of the Company's internal controls. All reportable weaknesses identified during the examination were reviewed and recommendations, if any, for strengthening internal controls are reported within this report. Other, less material, weaknesses were brought to management’s attention through a separate letter.

SUBSEQUENT EVENTS

The Board of Directors of Preserver Group, Inc., the parent of North East Insurance, authorized North East Insurance to declare a dividend of $250,000 payable to Preserver Group, Inc. at its July 2005 meeting. Michael Clipson Haines was elected Senior Vice President, Chief Financial Officer and Treasurer on July 28, 2005.

FINANCIAL STATEMENTS

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
Bonds (Note 1) $ 24,025,520
Common stocks (Note 2) 622,202
Cash and short-term investments (Note 3) 3,017,434
Subtotals, cash and invested assets $ 27,665,156
 
Premiums and agents' balances in course of collection (Note 4) $ 1,267,500
Premiums and agents' balances booked but deferred and not yet due (Note 4) 6,535,667
Reinsurance: Amounts recoverable from reinsurers 237,429
Reinsurance: Funds held by or deposited with reinsured Companies 8,029
Net deferred tax asset (Note 5) 1,018,569
Investment income due and accrued 212,890
Receivable from parent, subsidiaries and affiliates 261,280
Total assets $ 37,206,520
 
Liabilities, Surplus and Other Funds
Losses (Note 6) $ 7,211,117
Loss adjustment expenses (Note 6) 1,390,753
Commissions payable, contingent commissions and other similar charges (Note 7) 1,185,519
Other expenses 103,630
Taxes, licenses and fees 84,493
Federal and foreign income taxes (Note 8) 1,186,487
Unearned premiums (Note 9) 11,815,619
Ceded reinsurance premiums payable (Note 10) (196,559)
Net deferred tax liability (Note 5) 11,096
Amounts withheld or retained by Company for account of others 8,676
Provision for reinsurance 26,000
Total liabilities $ 22,826,831
 
Common capital stock (Note 11) $ 3,049,089
Gross paid in and contributed surplus 8,407,132
Unassigned funds (surplus) 2,923,468
Surplus as regards to policyholders $ 14,379,689
Total liabilities and surplus $ 37,206,520

 

INCOME STATEMENT

December 31, 2004

Underwriting Income
Premiums earned $ 21,550,431
Deductions
Losses incurred $ 8,524,662
Losses expenses incurred 1,729,577
Other underwriting expenses incurred 8,729,535
Total underwriting deductions $ 18,983,774
Net underwriting gain or (loss) $ 2,566,657
 
Investment Income
Net investment income earned $ 830,312
Net realized capital gains or (losses) 82,260
Net investment gain or (loss) $ 912,572
 
Other Income
Net gain or (loss) from agents' or premium balances charge off $ (55,614)
Finance and service charges not included in premiums 747,225
Total other income $ 691,611
 
Net income, after dividends to policyholders but before federal and foreign income taxes $ 4,170,840
Federal and foreign income taxes incurred 1,174,832
Net income $ 2,996,008
 
Capital and Surplus Account
Surplus as regards to policyholders, December 31, 2003 $ 10,890,334
 
Gains and Losses in Surplus
Net income $ 2,996,008
Change in net unrealized capital gains or (losses) 295,220
Change in net deferred income tax (185,426)
Change in nonadmitted assets 273,553
Change in provision for reinsurance 110,000
Change in surplus as regards to policyholders $ 3,489,355
Surplus as regards to policyholders, December 31, 2004 $ 14,379,689

 

NOTES TO FINANCIAL STATEMENTS

Note 1 - Bonds $24,025,520

 

Bonds are stated at amortized value, and at December 31, 2004, consisted of the following:

  Cost Par
Value
Market
Value
Amortized
Value
Government $ 7,006,072 $ 6,716,678 $ 6,786,486 $ 6,968,316
Political Subdivisions 547,195 500,000 539,645 540,821
Special Revenue 7,603,323 7,439,345 7,482,312 7,588,717
Public Utilities 248,880 250,000 238,634 248,993
Industrial 5,733,578 5,250,000 5,487,359 5,619,784
Industrial - Misc. 3,084,804 3,000,000 2,983,332 3,058,889
TOTAL $ 24,223,852 $ 23,156,023 $ 23,517,768 $ 24,025,520

 

Company ownership of bonds was confirmed through direct confirmations from custodians to the independent CPA firm, who provided us with copies. Amortized values were tested and no material exceptions were found.

As required by Title 24-A M.R.S.A. § 412, the Company maintains the required security deposit with the Treasurer of Maine. It was noted that the Company also maintains a deposit with the States of New York and Louisiana.

During review of the custodial agreements, it was noted that the agreement with one of the Custodians does not include an indemnification clause as required by the NAIC Examiners Handbook, Part I, Section IV, (J). (See Comments & Recommendations #3)

Note 2 - Common Stock $622,202

Common stocks at December 31, 2004 consisted of the following:

  Book
Value
Market
Value
Insurance Service Office, Inc. $ 533,543 $ 533,543
North Atlantic Underwriters, Inc. 88,659 88,659
TOTAL $ 622,202 $ 622,202

 

All North Atlantic Underwriters, Inc. stock listed above is that of a wholly owned subsidiary. The Company properly accounts for its common stock investment in its subsidiary using the statutory equity method.

Note 3 - Cash and Short-term Investments $3,017,434

Copies of certifications confirming bank balances at year-end were provided by the independent CPA firm who received confirmations directly from the custodians. The Company properly reports cash and short-term investments in compliance with SSAP 2.

The bank reconciliation of the Company’s primary checking account listed approximately 690 old outstanding checks that should have been escheated to the State of Maine as required by Title 33 M.R.S.A. § 1953. (See Comments & Recommendations #4)

Note 4 - Agents' Balances $7,803,167

 

Premiums and agents' balances in course of collection $1,267,500
Premiums, agents' balance and installments booked
but deferred and not yet due
6,535,667
Total Agents' Balances $7,803,167

The Company did not adjust the receivable accounts for Advance Premium received on policies not yet effective, thereby causing both the receivable and liabilities to be understated by the amount of Advance Premium. Not reporting the advance premium as a liability is not in compliance with SSAP 53, paragraph 13.

Receivables over 90 days old were noted during the testing of premiums receivable. As they were not written off, and appeared on the receivable report, they should have been identified and reported as non-admitted on the Annual Statement. The Company was unable to provide an aged receivable report and could not quantify the amount of receivables over 90 days which should be reported as non-admitted. This is not in compliance with SSAP 6, paragraph 9. (See Comments & Recommendations #5 for non-compliance with both SSAP 53 & SSAP 6)

Note 5 - Net deferred tax assets and liabilities $1,029,665

Net deferred tax asset $1,018,569
Net deferred tax liability $ 11,096
Total $1,029,665

 

The Company improperly reported deferred tax assets and liabilities as separate amounts. Per SSAP 10 (7), deferred tax assets and liabilities should be offset and presented as a single amount. (See Comments & Recommendations #6)

Note 6 - Loss and LAE Reserves Loss $7,211,117
LAE $1,390,753

Examiners reviewed the Company’s claim files for the period under examination and ensured the Schedule P data appeared to be properly slotted. The Bureau of Insurance contracted with Practical Actuarial Solutions, Inc. to perform an actuarial analysis of the Company’s loss and loss adjustment expense reserves. Based on this actuarial analysis, 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 the Actuarial Opinion)

Note 7 - Commissions Payable, Contingent Commissions $1,185,519

Testing was performed on this balance and it is deemed to be fairly stated.

Note 8 – Current Federal and Foreign Income Taxes Payable $1,186,487

Examiners reviewed the Company’irly stated based on the inter-company tax sharing allocation. There was no properly executed written agreement with the Parent, as noted above.

Note 9 - Unearned Premiums $11,815,619

The Company recognizes premium using the daily pro rata method. Unearned Premiums were tested and appear to be reasonably stated.

Note 10 - Ceded Reinsurance Premiums Payable ($196,559)

Examiners tested a sample of ceded premium transactions and traced to applicable reinsurance contracts, and the balance carried by the Company appears reasonably stated.

Note 11 – Common Capital Stock $3,049,089

The Company’s authorized capital is $12,000,000 represented by 12,000,000 shares of common stock with a par value of $1.00 per share. The amount issued and outstanding as of December 31, 2004 was 3,049,089 shares for capital of $3,049,089.

COMMENTS & RECOMMENDATIONS

  1. Comment: As discussed in the Inter-Company Agreements Section, there is no formal written tax sharing agreement between Preserver and North East Insurance Company.

    Recommendation: The Company and its Parent, Preserver Group, Inc. should execute a formal written tax sharing agreement.

  2. Comment: As discussed in the Reinsurance Section, the Catastrophe reinsurance contracts provided for 2003 and 2004 did not include all the Interests and Liability Agreements for all the reinsurers, and several of the reinsurance contracts were not executed timely.

    None of the reinsurance contracts contained an “entire contract clause” as required by SSAP 62, paragraph 8.

    Recommendation: It is recommended that the Company maintain complete timely executed copies of all reinsurance agreements to ensure compliance with SSAP 62, paragraph 23, and that all contracts contain an “entire contract clause” as required by SSAP 62, paragraph 8.

  3. Comment: As noted in Note 1 to the Financial Statements, one of the custodial agreements does not include an indemnification clause as required by the NAIC Examiners Handbook, Part I, Section IV (J). Custodial agreements should at least contain an indemnification of the Company by the Custodian in the case of any lost securities, and were a loss to occur, the Custodian would “promptly replace” the securities.

    Recommendation: The Company should execute a revised custodial agreement including the indemnification clause, and ensure that all custodial agreements are in compliance with the NAIC Examiners Handbook, Part I, Section IV (J).

  4. Comment: As noted in Note 3 to the Financial Statements, the bank reconciliation of the Company’s primary checking account listed approximately 690 old outstanding checks issued before June 30, 2001 that should have been escheated to the State of Maine as required by Title 33 M.R.S.A. § 1953. This requirement is also published in the Office of the Treasurer “Unclaimed Property 2005-2006 Holder Report Forms & Instructions”.

    Recommendation: The Company should submit unclaimed property timely to the State of Maine to be in compliance with State Statutes.

  5. Comment: As noted in Note 4 to the Financial Statements, the Company is not accounting for advance premiums in the 2004 Annual Statement, which causes the premium receivable and the liabilities to both be understated. Not reporting the advance premium as a liability is not in compliance with SSAP 53, paragraph 13.

    Also noted in Note 4 to the Financial Statements, receivables over 90 days old were noted during the testing of premiums receivable. As they were not written off and appeared on the receivable report, they should have been identified and reported as non-admitted on the Annual Statement. The Company was unable to provide an aged receivable report and could not quantify the amount of receivables over 90 days which should be reported as non-admitted. This is not in compliance with SSAP 6, paragraph 9.

    Recommendation: The Company should ensure that the reporting on the Annual Statement is accurate and include properly reporting advance premium as a liability in compliance with SSAP 53. Also, the Company needs to develop an aged receivable report from which it can report admitted and non-admitted assets on the Annual Statement in compliance with SSAP 6.

  6. Comment: As noted in Note 5 to the Financial Statements, the Company is reporting deferred tax assets and deferred tax liabilities as separate items on the Annual Statement, which is not in compliance with SSAP 10, paragraph 7.

    Recommendation: The Company needs to review the presentation on the Annual Statement to ensure compliance with presentation requirements per SSAP 10, paragraph 7, which requires deferred tax assets and deferred tax liabilities to be offset and presented as a single amount.

STATE OF MAINE
COUNTY OF KENNEBEC, SS

Michael R. Nadeau, CPA, CFE being duly sworn according to law deposes and says that in accordance with the authority vested in him by Alessandro 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

NORTH EAST INSURANCE COMPANY

of Scarborough, 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:

Margaret S. Boghosian, CPA, CFE
Faith Talbot
Heather E. Warren

____________________________________
Michael R. Nadeau, CPA, CFE, CISA, AES
Examiner-In-Charge

Subscribed and sworn to before me this ______ day of _______________, 2006

_________________________________
Notary Public

My Commission Expires:


STATEMENT OF ACTUARIAL OPINION

NORTH EAST INSURANCE COMPANY
Statement of Actuarial Opinion
As of December 31, 2004

IDENTIFICATION

I, Jeffrey P. Kadison, am associated with Practical Actuarial Solutions, Inc. I am a member of the American Academy of Actuaries and meet their qualification standards for rendering statements of actuarial opinion regarding property and casualty insurance company statutory annual statements, I am an Associate of the Casualty Actuarial Society. I was requested by the Maine Bureau of Insurance (the Bureau) to render this opinion on the loss and loss adjustment expense reserves of North East Insurance Company (North East or the Company). The loss and loss adjustment expense reserves are the responsibility of the North East’s management; my responsibility is to render an opinion on the reasonableness of the loss and loss adjustment expense reserves based on my review.

SCOPE

I have examined the Company’s reserves listed on Table A, which are included in their Financial Statements as prepared for filing with regulatory officials in the state of Maine as of December 31, 2004. My review was limited to the items shown on Table A and did not include any income statement items or other balance sheet items. I have not examined North East’s assets and I have not formed an opinion as to their validity or value. I have assumed that North East’s reserves are backed by valid assets that have suitable maturity schedules to meet North East’s cash flow requirements.

DATA

In forming my opinion on the reserves, I relied upon the data prepared by Francis Fenwick, Vice President, North East, as to the accuracy and completeness of the data. I evaluated the data used in my analysis for reasonableness and consistency. My evaluation did not reveal any data points that fell outside of the range of reasonable possibilities that would materially affect my analysis. I have assumed that North East used its best effort to supply accurate and complete data and did not knowingly provide any inaccurate data. 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 the “Scope” paragraph on account of the items identified

  1. meet the relevant regulations of Maine;
  2. are computed in accordance with the Casualty Actuarial Society Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves and relevant standards of practice promulgated by the Actuarial Standards Board; and
  3. make a reasonable provision for all unpaid loss and loss adjustment expense obligations of the Company under the terms of its policies and agreements.

RELEVANT COMMENTS

Risk of Material Adverse Development

In my opinion, North East has a reasonable likelihood of experiencing material adverse development. I have defined materiality standard as 10% of the Company’s net worth on the basis of Generally Accepted Accounting Principles. Given North East’s statutory surplus of $14,379,689, my definition of materiality is $1,437,969.

This risk of material adverse development emanates from the following risk factors:

  1. In evaluating whether the reserves make a reasonable provision for on North East’s loss and loss adjustment expense reserves, it is necessary to project future loss and loss adjustment expense payments. The loss levels and loss development patterns arising from any insurance coverage is uncertain. This is due to the impact of a wide range of future events on claims that have already been incurred, on unknown behavioral patterns, and numerous other issues.
  2. North East provides long tail liability insurance coverage to a variety of insured. The nature of the liability coverages that are provided are low frequency and high severity. This indicates that loss levels and loss development are likely to vary substantially from year to year.
  3. The North East loss database is somewhat sparse in actuarial and statistical terms. North East incurs many claims on average during a policy year for its liability coverages. Further, claims that are incurred will tend to be large in value and highly variable in size. Therefore, the absence of presence of one additional claim can have a material impact on ultimate loss, and therefore loss reserve, levels. This implies that Company data will vary by material amounts from year to year given the small size of the data. In addition, loss development patterns will vary by a material amount from year to year. These issues reduce the predictive value of their data and increase the uncertainty of our estimates of North East’s loss reserves.
  4. Our study does not anticipate any new class of claims not sufficiently represented in North East’s database resulting from a new court precedent or a new law.

Other risk factors may exist that may in the future he deemed to have had a significant impact on North East’s loss and loss adjustment expense reserves.

The issues listed above indicate that there is material uncertainty in the estimates of loss reserves. This implies that actual results are likely to deviate, perhaps materially, from the estimates included on Table A. In addition to the possibility of adverse loss development, there is also a reasonable likelihood of material favorable development.

Salvage and Subrogation

The Company records reserves reflecting anticipated salvage and subrogation. According to the Company, net loss reserves reflect anticipated salvage and subrogation recoveries of $338,417.

Discounting

The Company does not discount its’ loss and loss adjustment expense reserves.

Asbestos and Environmental

Management has stated to me that the Company does not have exposure to either asbestos or environmental impairment liability.

Extended Loss and Expense Reserves

The Company does not carry reserves for extended loss and expense.

Disclosure of Items for Unearned Premium Reserves for Long Duration Contracts

The Company does not write long duration contracts, which include those contracts with terms greater than 13 months that the insurer cannot cancel or increase the premium during its life.

Pools and Associations

The Company participates in the American Mutual Reinsurance Company (AmReco) in rehabilitation, which is a voluntary pool. The Company’s participation in this pool is for accident years 1973 through 1975 and is less than 1% of the pool in each year. The Company includes its participation in the appropriate line of business. The Company records its share of the reported reserves without adjustment for reporting lag. The assumed loss and LAE reserves equal $48,000.

Retroactive Reinsurance and Financial Reinsurance

Management has stated to me that the Company has not entered into any retroactive reinsurance or financial reinsurance.

Reinsurance Collectibility

I have reviewed the Company’s ceded reinsurance losses as shown in Schedule F, Part 3. All ceded balances are being reinsured by companies rated A or better by A.M. Best. Management has stated that there are no disputed balances or uncollectible funds other than those disclosed in Note #23 to the Financial Statements. I have performed no additional analysis to verify the financial condition of North East’s reinsurers or the adequacy of the collateralized balances. Given the information cited above, I have assumed that all reported reinsurance recoverables will be valid and collectible.

ACTUARIAL REPORT

An actuarial report, including underlying workpapers supporting the findings expressed in this Opinion will be provided to the Bureau to be retained for a period of seven years at its offices.

LIMITATIONS

In evaluating whether the reserves make a reasonable provision for unpaid losses and loss adjustment expenses, it is necessary to project future loss and loss adjustment expense emergence and 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.

DISTRIBUTION AND USE

This Opinion is provided for the use of regulatory authorities and may not be used or distributed for any other purpose.

_______________________________
Jeffrey P. Kadison, ACAS, MAAA
President and Consulting Actuary
Practical Actuarial Solutions, Inc
61 South Main Street
Suite 310
West Hartford, CT 06107
(860) 313-0001

November 28, 2005

EXHIBIT A - SCOPE

Loss Reserves  
(A) Reserves for Unpaid Losses - (Liabilities, Surplus, and Other
Funds)
$7,211,117
(B) Reserve for Unpaid Loss Adjustment Expenses - (Liabilities,
Surplus, and Other Funds)
$1,390,753
Total of (A) and (B) $8,601,870
(C) Reserve for Unpaid Losses - Direct and Assumed $7,778,000
(D) Reserve for Unpaid Loss Adjustment Expenses - Direct and
Assumed
$1,429,000
Total of (C) and (D) $9,207,000
(E) Retroactive Reinsurance Reserve Assumed $0
(F) Other Loss Reserve Items on which the Appointed Actuary is
expressing an Opinion
$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 an Opinion
$0

EXHIBIT B - DISCLOSURES

1. Materiality Standard expressed in $US $1,437,969
2. Statutory Surplus $14,379,689
3. Anticipated net salvage and subrogation included as a reduction to loss reserves $388,417
4. Discount included as a reduction to loss reserves and loss
adjustment expense reserves
 
4(A) Non-tabular discount $0
4(B) Tabular discount $0
5. The net reserves for losses and expenses for the company share of
voluntary and involuntary underwriting pools’ and associations’
unpaid loss and expenses that are included in the reserves shown on
the Liabilities, Surplus and Other Funds page, Loss and Loss
Adjustment Expenses lines.
$48,000
6. The net reserves for losses and loss adjustment expenses that the
company carries for the following liabilities included on the
Liabilities, Surplus and Other Funds page, Loss and Loss
Adjustment Expenses lines.
 
6(A) Asbestos liabilities $0
6(B) Environmental liabilities $0
7. The total claims made for the extended loss and loss expense
reserve
 
7(A) Amount reported as loss reserves $0
7(B) Amount reported as unearned premium reserves $0
8. Other items on which the Appointed Actuary is providing Relevant
Comments (list separately)
$0

 

Last Updated: October 22, 2013