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SELECTIVE INSURANCE COMPANY

OF

NEW ENGLAND

 

REPORT OF EXAMINATION

AS OF

DECEMBER 31, 2007

 

I hereby certify that the attached report of examination dated January 7, 2009 shows the condition and affairs of SELECTIVE INSURANCE COMPANY OF NEW ENGLAND of Branchville, New Jersey as of December 31, 2007, and has been filed in the Bureau of Insurance as a public document.

 

 

This report has been reviewed.

 

__________________________________
Stuart E. Turney, CPA
Director of Examination

 

Dated this _____ day of _____, 200_

 

TABLE OF CONTENTS

SCOPE OF EXAMINATION 3
DESCRIPTION OF COMPANY 3
   
  COMPANY HISTORY 3
  AFFILIATED ENTITIES 4
  MANAGEMENT AND CONTROL 4
  CORPORATE RECORDS 5
  FIDELITY BOND AND OTHER INSURANCE COVERAGE 5
  OFFICERS’ AND EMPLOYEES’ WELFARE AND PENSION PLANS 5
  TERRITORY AND PLAN OF OPERATION 5
  ACCOUNTS AND RECORDS 5
     
REINSURANCE 6
FINANCIAL STATEMENTS 6
     
  STATUTORY STATEMENT OF ADMITTED ASSETS, LIABILITIES, AND CAPITAL 7
  STATUTORY STATEMENT OF OPERATIONS 8
  STATEMENT OF STATUTORY CAPITAL AND SURPLUS 9
     
NOTES TO FINANCIAL STATEMENTS 10
     
  NOTE 1 - BONDS 10
  NOTE 2 - COMMON STOCKS 10
  NOTE 3 - CASH AND SHORT-TERM INVESTMENTS 10
  NOTE 4 - INTER-COMPANY POOLING ARRANGEMENT 10
  NOTE 5 - FEDERAL AND FOREIGN INCOME TAXES 11
  NOTE 6 - PAYABLE TO PARENT, SUBSIDIARIES AND AFFILIATES 11
  NOTE 7 - CAPITAL AND SURPLUS 11
     
CONCLUSION 12


STATE OF MAINE


BUREAU OF INSURANCE

IT IS HEREBY CERTIFIED THAT THE ANNEXED REPORT OF EXAMINATION FOR

SELECTIVE INSURANCE COMPANY OF NEW ENGLAND

has been compared with the original on file in this bureau and that it is a correct transcript thereof and of the whole of said original.

IN WITNESS WHEREOF,

I have hereunto set my hand and affixed the official seal of this Office at the City of Gardiner this

____ day of _____, 2009

 

_________________________
Mila Kofman
Superintendent of Insurance

 

 

January 7, 2009

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

RE: Selective Insurance Company of New England Statutory Examination of the Period Ended December 31, 2007

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 conducted an examination, as of December 31, 2007, on the condition and financial affairs of

SELECTIVE INSURANCE COMPANY OF NEW ENGLAND

The examination, performed at the home office of Selective Insurance Company of New England in Branchville, New Jersey, was made in accordance with the standards and procedures established by the Bureau and the National Association of Insurance Commissioners 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 National Association of Insurance Commissioners and the Maine Bureau of Insurance. 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

Selective Insurance Company of New England (hereinafter, “Company”), formerly Cadillac Mountain Insurance Company (hereinafter, “Cadillac”), was last examined by the Maine Bureau of Insurance (hereinafter, “Bureau”) as of December 31, 2006. This examination, as of December 31, 2007, was performed by the Bureau acting as a participant in a full-scope multi-state coordinated risk-focused examination of Selective Insurance Group, Inc. (hereinafter, “SIGI”). The New Jersey Department of Banking and Insurance acted as the lead state. The New Jersey Department of Banking and Insurance performed a five year examination.

 

DESCRIPTION OF COMPANY

The Company is a member of an insurance holding company and is a wholly-owned subsidiary of SIGI, a publicly traded company. The Company is a stock insurance company organized and existing under the laws of the State of Maine. The Company was licensed for property and casualty authority by the State of Maine on January 1, 2004. The Company participates in a pooling arrangement with six other insurance affiliates pursuant to a written Reinsurance Pooling Agreement.

Company History

Cadillac was incorporated on May 20, 1992 in the State of Maine as the Compensation Mutual Insurance Company (hereinafter, “CMIC”). Effective October 31, 1998, CMIC demutualized and reformed as a stock insurance company, Cadillac, and all the outstanding shares of stock were purchased by Acadia Insurance Company (hereinafter, “AIC”). On January 1, 2004, SIGI purchased Cadillac from AIC and renamed the Company. Simultaneously SIGI revised its intercompany pooling agreement to include the Company.

Affiliated Entities

The chart below is an abbreviated organizational chart of the Company as of December 31, 2007:

Organizational Chart

* Selective Way Insurance Company owns 75% of SelecTech, LLC and 75% of SRM Brokerage, LLC.
** Selective Insurance Company of the Southeast own 25% of SelecTech, LLC and 25% SRM Brokerage, LLC.

Management and Control

The Company is governed by a twelve-member Board of Directors. The following are the duly elected members of the Board of Directors and the Officers serving at December 31, 2007:

Directors

 

Gregory Edward Murphy, Chairman. Charles Anthony Musilli III
Richard Francis Connell Jamie Ochiltree III
Sharon Rose Cooper Eduard John Pulkstenis
Victor Neil Daley Dale Allen Thatcher
Kerry Allan Guthrie Ronald Joseph Zaleski, Sr.
Michael Haran Lanza John Joseph Marchioni

 

Officers

 

Gregory Edward Murphy President & Chief Executive Officer
Michael Haran Lanza Secretary & General Counsel
Dale Allen Thatcher Treasurer & Chief Financial Officer

 

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.

Corporate Records

A review of the minutes for all seven of SIGI’s legal insurance entities was performed.

Fidelity Bond and Other Insurance Coverage

As of December 31, 2007 and pursuant to 24-A M.R.S.A. §3359 (2)(F), the Company is covered by a Federal Insurance Company fidelity bond with a single loss limit of $5,000,000 and an aggregate limit of liability of $10,000,000 shared with its affiliates.

As of December 31, 2007, the Company is also a party to an insurance program whereby its parent, SIGI, has purchased policies to protect itself and its subsidiaries, as applicable.

Officers’ and Employees’ Welfare and Pension Plans

The Company does not have any employees. The Company is allocated employee salary and benefit expense pursuant to a written Service Agreement with Selective Insurance Company of America (hereinafter, “SICA”). SICA is the lead company in the insurance affiliated pool.

Territory and Plan of Operation

As of December 31, 2007, the Company is licensed to write property and casualty insurance in the states of Maine and New Hampshire. Presently, the Company is only writing in New Hampshire.

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

The Company is a participant in a pooling arrangement with six (6) affiliated companies under a written Reinsurance Pooling Agreement. Pool participants cede 100% of their insurance business to SICA, the lead company in the pool, and assume back from the pool their respective pool participation percentage. The Company’s pool participation percentage is 0.5%.

FINANCIAL STATEMENTS

The accompanying financial statements fairly present, in all material respects, the Company’s statutory financial position as of December 31, 2007 and statutory results of operations for the period then ended. The financial statements as of December 31, 2006 and December 31, 2005 are not reviewed under this examination and are presented for comparative purposes only.

STATUTORY STATEMENT OF ADMITTED ASSETS, LIABILITIES, AND CAPITAL

AS OF DECEMBER 31, 2007, 2006, 2005

  2007 2006 2005
    (unexamined) (unexamined)
Admitted Assets:      
Bonds (Note 1) $ 17,744,160 $ 18,916,675 $ 15,768,673
Common Stocks (Note 2) 3,084,408 634,600  
Cash and short-term investments (Note 3) 4,579,790 3,850,558 6,020,570
Investment income due and accrued 176,232 172,194 158,050
Uncollected premiums in the course of collection 946,976 886,279 933,741
Deferred premiums, agents' balances and installments booked but deferred and not yet due 2,028,362 1,887,053 1,822,105
Amounts recoverable from reinsurers 7,662 80 (1,867)
Federal income tax recoverable 12,678    
Net deferred tax asset (Note 5) 435,860 705,019 706,425
Guarantee funds receivable or on deposit 11,230 11,571 6,193
Aggregate write-ins for other than invested assets 189,734 250,135 319,280
Total Admitted Assets $ 29,217,092 $ 27,314,164 $ 25,733,170
       
Liabilities and Surplus      
Losses $ 9,769,798 $ 8,795,753 $ 7,901,493
Reinsurance payable on paid loss and loss adjustment expenses 283,149 372,259 275,715
Loss adjustment expenses 1,790,629 1,624,306 1,410,311
Commissions payable 300,890 274,069 369,362
Other expenses (excluding taxes, licenses and fees) 223,486 225,054 191,902
Taxes, licenses and fees (exc fed and for income taxes) 132,810 130,195 130,962
Current federal and foreign income taxes (Note 5) - 47,663 42,521
Unearned premiums 3,795,828 3,607,994 3,426,651
Advance premium 16,616 12,689 15,639
Dividends declared and unpaid to policyholders 28,254 21,100 15,235
Ceded reinsurance premiums payable (187,633) 12,668 4,731
Amounts withheld or retained by company for account of others 20,658 18,964 16,798
Payable to parent, subsidiaries and affiliates (Note 6) 80,303 65,150 688,638
Aggregate write-ins for liabilities 9,906 16,207 17,723
Total liabilities & other funds $ 16,264,694 $ 15,224,071 $ 14,507,681
       
Common capital stock (Note 7) $ 2,500,000 $ 2,500,000 $ 2,500,000
Gross paid in and contributed surplus 7,796,873 7,796,873 7,796,873
Unassigned funds (surplus) 2,655,525 1,793,220 928,616
Surplus as regards to policyholders $ 12,952,398 $ 12,090,093 $ 11,225,489
       
Total Liabilities and Surplus $ 29,217,092 $ 27,314,164 $ 25,733,170

STATUTORY STATEMENT OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, 2005

 

  2007 2006 2005
    (unexamined) (unexamined)
Revenue:      
Premiums earned $ 7,708,982 $ 7,613,634 $ 7,196,214
Deductions:      
Losses incurred $ 4,218,794 $ 4,042,739 $ 3,732,761
Loss expenses incurred 846,262 836,150 862,277
Other underwriting expenses 2,491,597 2,421,533 2,257,714
Aggregate write-ins for underwriting deductions 1,985 4,319 5,553
Total underwriting deductions $ 7,558,638 $ 7,304,741 $ 6,858,305
Net underwriting gain or (loss) $ 150,344 $ 308,893 $ 337,909
Investment Income:      
Net investment income earned $ 946,162 $ 837,306 $ 541,234
Net realized capital gain/(loss) (68,276) (30,180) (13,617)
Net investment gain or (loss) $ 877,886 $ 807,126 $ 527,617
Other Income:      
Net loss from premium balances charged off $ (14,155) $ (17,539) $ (10,349)
Finance and service charges not included in premiums 21,408 22,029 17,951
Aggregate write-ins for miscellaneous income 1,913 3,963 1,036
Total other income $ 9,166 $ 8,453 $ 8,638
       
Net income before dividends, federal and foreign tax $ 1,037,396 $ 1,124,472 $ 874,164
Dividends to policyholders 36,009 29,634 28,440
Federal and foreign income taxes incurred 248,687 258,319 840,994
Net income $ 752,700 $ 836,519 $ 4,730

 

STATEMENT OF STATUTORY CAPITAL AND SURPLUS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, 2005

CAPITAL & SURPLUS ACCOUNT 2007 2006 2005
    (unexamined) (unexamined)
Surplus as regards to policyholders, December 31 (prior year) $ 12,090,093 $ 11,225,489 $ 5,912,514
       
Net income $ 752,700 $ 836,519 $ 4,730
Change in net unrealized capital gains or (losses) 293,066 31,084 -
Change in net deferred income tax 33,219 (8,923) 643,665
Change in non-admitted assets 393,224 63,924 (274,340)
Paid in surplus adjustments - - 5,000,000
Aggregate write-ins for gains and losses in surplus (609,904) (58,000) (61,080)
Change in surplus as regards to policyholders $ 862,305 $ 864,604 $ 5,312,975
       
Surplus as regards to policyholders, December 31 (current year) $ 12,952,398 $ 12,090,093 $ 11,225,489

 

NOTES TO THE FINANCIAL STATEMENTS

Note 1 –Bonds

Bonds are stated at amortized value using the scientific interest method pursuant to Statement of Statutory Accounting Principles (hereinafter “SSAP”) No. 26.

Bond Classification Actual
Cost
Fair
Value
Par
Value
Book
Carrying Value
         
U.S. Government $ 135,031 $ 136,047 $ 100,000 $ 127,457
States, Territories & Possessions 1,765,717 1,664,528 1,600,000 1,666,396
Political subdivisions of States, Territories & Possessions 2,837,276 2,765,534 2,600,000 2,737,739
Special Revenue 7,369,358 7,095,857 6,855,000 7,137,083
Industrial & Miscellaneous 6,060,804 5,989,166 6,114,879 6,075,485
Total $ 18,168,186 $ 17,651,132 $ 17,269,879 $ 17,744,160

 

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

Note 2 – Common Stocks

Corporate stocks are stated at market value in accordance with valuations promulgated by the National Association of Insurance Commissioners. Unrealized capital gains and losses on investments reported at market value are charged directly to policyholders’ surplus pursuant to SSAP No. 30.

Note 3 – Cash and Short-term Investments

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

  2007 2006 2005
Cash $ - $ 4,375 $ -
Short-term Investments 4,579,790 3,846,183 6,020,570
Total Cash and Short-term Investments $ 4,579,790 $ 3,850,558 $ 6,020,570

 

Note 4 – Inter-Company Pooling Arrangement

The Company is a party to an inter-company pooling arrangement under a written Reinsurance Pooling Agreement with other insurance company affiliates. The lead company, SICA, assumes from the affiliates all of their net premiums written and cedes 50.5% of all premiums written back to the pool. All losses, loss expenses, other underwriting and administrative expenses are pro-rated among each party on the basis of their respective pooling percentage.

Reinsurance amounts receivable or payable to an affiliate under this pooling arrangement are properly reported as any other reinsurance arrangement, in accordance with SSAP No. 63.

The inter-company pooling participants and their respective participation percentages follow:

 

Participating Companies Percentages
   
Selective Insurance Company of America 49.50%
Selective Way Insurance Company 21.00%
Selective Insurance Company of South Carolina 9.00%
Selective Insurance Company of the Southeast 7.00%
Selective Insurance Company of New York 7.00%
Selective Insurance Company of New England 0.50%
Selective Auto Insurance company of New Jersey 6.00%
Total 100.00%

 

Note 5 – Federal and Foreign Income Taxes

The Company is party to an inter-company Tax Allocation Agreement. Current federal and foreign income tax recoverable and payable is based upon separate return calculations. SIGI, the ultimate parent, files a consolidated federal income tax return which includes all of its subsidiaries.

The deferred tax asset was determined to be substantially in compliance with SSAP No. 10.

Note 6 – Payable to Parent, Subsidiaries and Affiliates

Amounts due or receivable from parent, subsidiaries and affiliates represent the amounts payable under a written inter-company Services Agreement. The administrative services are performed by SICA, the lead insurance affiliate, for all the insurance company affiliates. The balance due at December 31, 2007 represents the December charges under this Services Agreement.

Note 7 – Capital and Surplus

As of December 31, 2007, the Company had authorized, issued, and outstanding 500,000 shares of common stock, par value $5. SIGI, the immediate parent, owned 100% of the Company’s common stock.

Capital and surplus of $12,952,398 was in compliance with the minimum net worth requirement pursuant to 24-A M.R.S.A. §410 (1).

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 Bureau.

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

 

STATE OF MAINE
COUNTY OF KENNEBEC, SS

Kendra L. Godbout, CPA, CFE 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

SELECTIVE INSURANCE COMPANY OF NEW ENGLAND

of Branchville, New Jersey as of December 31, 2007, 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 assisted:

Michael R. Nadeau, CPA, CFE, CISA, AES
Jill Tobey, CPA, CFE

 

________________________________
Kendra L. Godbout, CPA, CFE
Director Financial Analysis

Subscribed and sworn to before me

this ___day of _____, 2009

 

Notary Public

 

My commission expires:

 

Last Updated: October 22, 2013

July 8, 2009