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STATE MUTUAL INSURANCE COMPANY

 

REPORT OF EXAMINATION

AS OF

DECEMBER 31, 2006

 

I hereby certify that the attached report of examination dated March 31, 2008 shows the condition and affairs of STATE MUTUAL INSURANCE COMPANY of Auburn, Maine as of December 31, 2006, and has been filed in the Bureau of Insurance as a public document.

 

 

This report has been reviewed.

__________________________________
Stuart E. Turney, CPA
Director of Financial Affairs and Solvency

 

Dated this _____ day of ____________, 2008

 

TABLE OF CONTENTS

SCOPE OF EXAMINATION ....................................................................................................................2
DESCRIPTION OF COMPANY ...............................................................................................................2
License and Location ............................................................................................................................2
Company History ..................................................................................................................................2
Affiliated Entities ..................................................................................................................................2
Management and Control ......................................................................................................................4
Corporate Records ................................................................................................................................4
Growth of the Company ........................................................................................................................5
Fidelity Bond .........................................................................................................................................5
Officers and Employees Welfare and Pension Plans
..........................................................................5
Territory and Plan of Operation ...........................................................................................................5
Accounts and Records ...........................................................................................................................5
FINANCIAL STATEMENTS .....................................................................................................................6
NOTES TO FINANCIAL STATEMENTS .................................................................................................10
CONCLUSION ......................................................................................................................................11

 

March 31, 2008

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

RE: State Mutual Insurance Company December 31, 2006 Statutory Examination

Dear Superintendent:

Pursuant to your instructions and in accordance with the provision of 24-A M.R.S.A. §221, the Maine Bureau of Insurance (hereinafter, “Bureau”) conducted an examination, as of December 31, 2006, on the condition and financial affairs of

STATE MUTUAL INSURANCE COMPANY

The examination, performed at the main administrative office of State Mutual Insurance Company (hereinafter, “Company”) in Concord, New Hampshire, was made in accordance with the standards and procedures established by the Bureau and the National Association of Insurance Commissioners (hereinafter, “NAIC”) and for that reason, included tests of the accounting records and other procedures considered necessary under the circumstances.

The accompanying financial statements have been prepared pursuant to statutory accounting practices prescribed or permitted by the NAIC and the Bureau. These practices differ in certain respects from generally accepted accounting principles.

For purposes of this report, comments on various items may be limited to matters involving departure from laws, rules or regulations, a significant change in the amount of the item, or where an explanation, comment and/or recommendation is warranted.

The following report is respectfully submitted.

SCOPE OF EXAMINATION

The Company was last examined as of December 31, 2003 by the New Hampshire Insurance Department. This examination of the Company covers the period of January 1, 2004 through December 31, 2006, and was conducted by the New Hampshire Insurance Department representing the Maine Bureau of Insurance.

The New Hampshire Department examined concurrently with the Company the following affiliated mutual companies domiciled in New Hampshire;

Concord General Mutual Insurance Company (NH)
Sunapee Mutual Fire Insurance Company (NH)
Weare Mutual Fire Insurance Company (NH)
Bow Mutual Fire Insurance Company (NH)

DESCRIPTION OF COMPANY

License and Location

The Company is a property and casualty mutual insurance company and has been operating since 1899. The Company is licensed only in the State of Maine and writes primarily homeowners coverage. The Company is a member of the Concord Group Insurance Companies.

The statutory home office is at 572 Kittyhawk Avenue, Auburn, Maine. The main administrative office is located at 4 Bouton Street, Concord, New Hampshire. The primary location of the Company’s books and records is Concord, New Hampshire.

Company History

The Company was incorporated in Gorham, Maine on May 15, 1899 as the Dirigo Mutual Fire Insurance Company and subsequently moved to Portland, Maine. On July 1, 1934, the Company changed its name to State Mutual Fire Insurance Company. On January 19, 1965, the Company changed its name to State Mutual Insurance Company. The Company’s statutory home office was moved to Auburn, Maine on July 1, 1965.

Affiliated Entities

The organization charts below show Concord General Mutual Insurance Company (hereinafter “CGM”) and all affiliates:

Organizational Chart

CGM controls the following companies through Management and Reinsurance Agreements:

Organizational Chart

 

Management and Control

The Company is governed by a nine member Board of Directors. The following are the duly elected members of the Board of Directors and the Officers serving at December 31, 2006:

Directors

 

Joseph Andrew Desmond, Chairman. Frank Morey Bowie
Richard Dale Bartlett James Oliver Coyne
J. Dudley Colcord Wayne Edward Hutchins
   
Linda Joy Day George Harold Morehouse
Thomas Holmes Moore  

 

Officers

 

Linda Joy Day President
John Everett Goodwin Secretary
Daniel Rodgers Treasurer

 

Each Director and Officer of the Company is required to complete a conflict of interest statement annually to disclose any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities to the Company. The Company is in substantial compliance with its conflict of interest policy.

Corporate Records

Reviews of the Company’s Articles of Incorporation, Bylaws, and Minutes of the Board of Directors’ meetings held from the period January 1, 2004 to the completion of field work were performed. The reviews indicated that the Company is conducting its affairs substantially in compliance with its Articles of Incorporation and Bylaws.

Growth of the Company

The following table presents selected comparative data that the Company reported for the period under examination:

  December 31
  2006 2005 2004
Cash & Invested Assets $ 1,789,267 $ 1,564,622 $ 1,473,412
Total Assets $ 1,801,603 $ 1,574,364 $ 1,482,718
Total Policyholder Surplus $ 1,554,859 $ 1,368,053 $ 1,289,295
       
  Years Ended December 31
  2006 2005 2004
Direct Written Premium $ 1,522,736 $ 1,567,733 $ 1,623,074
Ceded Written Premium (1,522,736) (1,567,733) (1,623,074)
Net Written Premium $ - $ - $ -
       
Pre-tax Income $ 60,250 $ 117,656 $ 51,359
Net Income $ 53,340 $ 114,229 $ 45,357

 

Fidelity Bond

As of December 31, 2006, the Company had adequate coverage under a Dishonesty Bond in compliance with 24-A M.R.S.A. §3359 (2)(F). The policy is issued to CGM and the Company is listed as a named insured. The aggregate limit of liability is $1,000,000.

Officers and Employees Welfare and Pension Plans

The Company does not have any employees. The Company has an Insurance Management Agreement with CGM.

Territory and Plan of Operation

The Company is licensed and operates exclusively within the State of Maine. The Company writes only mobile home related coverage. The method of distribution is through the independent agency system. All policies are issued on a non-assessable basis.

Accounts and Records

Accounts and records were reviewed and tested in order to assess their impact on financial condition and conformity with related laws.

REINSURANCE

All policies are reinsured as written with CGM under a written Reinsurance Agreement between CGM and the Company, entered into on January 1, 1999. The parties agree to the following:

CGM agrees to reinsure and assume and the company agrees to cede and transfer to CGM, automatically from inception, all liabilities incurred under or in connection with all contracts and policies of insurance issued by the Company.

The Company agrees to pay to CGM all premiums on business written by the Company and CGM agrees to pay all losses and loss expenses.

The conditions of the reinsurance shall, in all cases, be identical with the conditions of the original insurance.

FINANCIAL STATEMENTS

The accompanying financial statements fairly present in all material respects, the Company’s statutory financial position as of December 31, 2006, and statutory results of operations for the period then ended. The financial statements as of December 31, 2005 and December 31, 2004 are unexamined and are presented for comparative purposes only.

STATUTORY STATEMENT OF ADMITTED ASSETS, LIABILITIES, AND CAPITAL

AS OF DECEMBER 31

  2006 2005 2004
    (unexamined) (unexamined)
Admitted Assets:      
Bonds (Note 2) $ 863,978 $ 717,637 $ 717,934
Common stocks (Note 3) 884,111 681,347 700,150
Cash and short-term investments (Note 4) 41,178 165,638 55,328
Investment income due and accrued 11,218 9,742 9,306
Current federal income tax recoverable 1,118    
Total Admitted Assets $ 1,801,603 $ 1,574,364 $ 1,482,718
       
Liabilities and Surplus      
Current federal and foreign income taxes $ - $ 28,914 $ -
Net deferred tax liability 246,744 177,397 193,423
Total liabilities & other funds $ 246,744 $ 206,311 $ 193,423
       
Aggregate write-ins for special surplus funds $ 137,000 $ 137,000 $ 137,000
Unassigned funds (surplus) 1,417,859 1,231,053 1,152,295
Surplus as regards to policyholders $ 1,554,859 $ 1,368,053 $ 1,289,295
       
Total Liabilities and Surplus $ 1,801,603 $ 1,574,364 $ 1,482,718

STATUTORY STATEMENT OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31

 

  2006 2005 2004
    (unexamined) (unexamined)
Investment Income:      
Net investment income earned $ 60,030 $ 55,564 $ 51,359
Net realized capital gain/(loss) 220 62,092  
Net investment gain or (loss) $ 60,250 $ 117,656 $ 51,359
       
Net income before dividends, federal and foreign tax $ 60,250 $ 117,656 $ 51,359
Federal and foreign income taxes incurred 6,910 3,427 6,002
Net income $ 53,340 $ 114,229 $ 45,357

 

STATEMENT OF STATUTORY CAPITAL AND SURPLUS

FOR THE YEARS ENDED DECEMBER 31

  2006 2005 2004
    (unexamined) (unexamined)
Policyholder Surplus, December 31 (prior year) $ 1,368,053 $ 1,289,295 $ 1,182,103
       
Net income 53,340 114,229 45,357
Change in net unrealized capital gains or (losses) 133,856 (33,987) 62,205
Change in net deferred income tax (390) (1,484) (370)
Change in surplus as regards to policyholders 186,806 78,758 107,192
       
Policyholder Surplus, December 31 (current year) $ 1,554,859 $ 1,368,053 $ 1,289,295

 

NOTES TO THE FINANCIAL STATEMENTS

Note 1 – Accounting Practices

The Company reports its financial statements in the Annual Statement as prescribed by the NAIC, in accordance with the Statement of Statutory Account Principles as required by the State of Maine.

Note 2 – Bonds

Bonds are stated at amortized value using the scientific interest method as required by the Statements of Statutory Accounting Principles (hereinafter, “SSAP”) No. 26.

Bond Classification Actual
Cost
Par
Value
Market
Value
Book Carrying
Value
U.S. Government $ 581,017 $ 580,000 $ 576,238 $ 580,024
States, Territories & Possessions 37,252 35,000 35,443 36,495
Industrial & Miscellaneous 247,207 250,000 245,704 247,459
Total $ 865,476 $ 865,000 $ 857,385 $ 863,978

 

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

Note 3 – Common Stocks

Common stocks are stated at market value in accordance with valuations promulgated by the NAIC. Unrealized capital gains and losses on investments reported at market value are charged directly to policyholders’ surplus as required by SSAP No. 30.

Common Stock Classification Actual Cost Market Value
Banks, Trusts, Insurance Companies $ 96,919 $ 193,318
Industrial and Miscellaneous 68,021 690,793
Total $ 164,940 $ 884,111

 

Note 4 – Cash, Cash Equivalents, and Short-term Investments

Short-term investments consist of money market funds which are properly reported as short-term investments as required by SSAP No.2.

Note 5 – Affiliates

The Company cedes 100% of its insurance operations to an affiliate, CGM. The Company has all management and administrative services performed by the controlling affiliate, CGM, under a Services Agreement. Federal tax preparation is included in the services provided under the Services Agreement.

Note 6 – Federal and Foreign Income Taxes

The deferred tax liability reported by the Company was determined to be substantially in compliance with SSAP No. 10.

CONCLUSION

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

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

 

STATE OF MAINE


COUNTY OF KENNEBEC, SS

Kendra L. Godbout, being duly sworn according to law, deposes and says that in accordance with the authority vested in her by Mila Kofman, Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, she has made an examination on the conditions and affairs of the

STATE MUTUAL INSURANCE COMPANY

of Auburn, Maine as of December 31, 2006 and that the foregoing report of examination, subscribed to by her, is true to the best of her knowledge and belief. The following examiners from the Bureau of Insurance assisted:

Graham S. Payne
Margaret S. Boghosian, CPA, CFE
Analisa M. Gallant

 

___________________________
Kendra L. Godbout, CPA, CFE

 

Subscribed and sworn to before me

this _____ day of _________, 2008

 

_______________________________
Vanessa J. Leon, Notary Public
My commission expires:

 

Last Updated: October 22, 2013

July 11, 2008