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> Patriot Life Insurance Company 2009 Examination Report
May 11, 2011 Eric A. Cioppa Dear Acting 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 PATRIOT LIFE INSURANCE COMPANY The following report is respectfully submitted. REPORT OF EXAMINATION PATRIOT LIFE INSURANCE COMPANY AS OF DECEMBER 31, 2009
ACCEPTANCE OF REPORT OF EXAMINATION WHEREAS a verified Report of Examination of Patriot Life Insurance Company dated May 11, 2011 was delivered to that insurer on June 7, 2011 and WHEREAS Patriot Life Insurance Company and Bureau of Insurance staff have agreed to certain modifications with respect to the Report of Examination, and WHEREAS I find such modifications proper, and WHEREAS no hearing with respect to the Report of Examination has been requested by Patriot Life Insurance Company, NOW THEREFORE, I accept the Report of Examination as modified and hereby order it placed on file in the Bureau of Insurance as provided for by 24-A M.R.S.A. §226(3).
TABLE OF CONTENTS SCOPE OF EXAMINATION........................................................................................................................................ 1 SUMMARY OF SIGNIFICANT FINDINGS................................................................................................................. 1
SUBSEQUENT EVENTS............................................................................................................................................. 2 THE COMPANY......................................................................................................................................................... 2
LITIGATION............................................................................................................................................................... 4 FINANCIAL STATEMENTS.......................................................................................................................................... 5
CONCLUSION............................................................................................................................................................. 9
Patriot Life Insurance Company (hereinafter, “Company”) was last examined as of December 31, 2006, by the State of Maine Bureau of Insurance (hereinafter, “Bureau”). This examination covered the period from January 1, 2007 to December 31, 2009. The Bureau conducted a limited scope risk-focused examination of the financial condition and affairs of the Company. This examination was conducted in accordance with 24-A M.R.S.A. §221 and the National Association of Insurance Commissioners’ (hereinafter, “NAIC”) Financial Condition Examiners Handbook (hereinafter, “FCEH”) and Guidelines. This examination was performed concurrently with a coordinated examination of Patriot Insurance Company (hereinafter, “PIC”) performed by the Bureau. The Bureau’s examination of PIC was part of a coordinated examination of Frankenmuth Mutual Insurance Company (hereinafter, “FMIC”), the Company’s ultimate parent, which was performed by the Michigan Office of Financial and Insurance Regulation (hereinafter, “OFIR”). The Bureau, for purposes of this examination, utilized certain corporate governance documentation prepared by the OFIR. This examination was conducted in the Bureau offices and on-site at the Company’s main administrative office in Yarmouth, Maine. The Company was running off a closed book of life business for the period under examination. The scope of this examination was limited to a detailed analysis and/or testing of certain key balance sheet items as of December 31, 2009 and, 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 1. Comment:
The Company is also not in compliance with its investment policy which limits investments in common stock to 20% of Statutory Surplus. Common stock investments represent 37% of Statutory Surplus at December 31, 2006. The investment issues noted above appear to have resulted from a strategic initiative by senior management and the Board of Directors to manage investment assets on an aggregated basis with the Parent which resulted in an over-allocation of common stock to the Company. Recommendation: Status: 2. Comment: The Company’s audited statutory financial statements were adjusted to reflect these changes; however, no examination adjustments were made as the amounts are not considered to be material or misleading. Recommendation: Status: CURRENT EXAMINATION PIC acquired 100,000 shares of the Company’s common stock for $2,000,000 on July 1, 2010. The Company changed its domiciliary state from Maine to Michigan on October 11, 2010. The Company was acquired by FMIC for $7,286,000 on October 27, 2010. The Company sold 35,000 shares of common stock to FMIC for $3,500,000 on October 27, 2010. The Company entered into a guaranty agreement with FMIC on February 16, 2011. HISTORY On July 1, 2007, the Company’s parent was acquired by and became a wholly owned subsidiary of FMIC. The Company is a wholly owned subsidiary of Patriot Insurance Company, with FMIC, the ultimate Parent. CORPORATE RECORDS CORPORATE GOVERNANCE As of December 31, 2009, the Company’s board of directors consisted of 16 individuals. The Company’s board of directors approves the strategic direction of the Company’s business and financial objectives, monitors the effectiveness of management’s implementation of policies, and plans and provides oversight and support in achieving corporate objectives. As of December 31, 2009, the board of directors of the Company consisted of the following members:
Officers of the Company, as listed in the 2009 statutory annual statement, follow:
CODE OF CONDUCT AND CONFLICT OF INTEREST 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 also required to sign a compliance certificate annually. FIDELITY BOND INSURANCE TERRITORY & PLAN OF OPERATION TRANSACTIONS WITH AFFILIATES REINSURANCE STATUTORY DEPOSITS The Company is not aware of potential lawsuits or other legal action beyond the ordinary course of business which would be considered material in relation to the financial position of the Company. The Company’s representations in this regard were confirmed through external audit work-papers as provided by OFIR. 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 and 2007 are unexamined and are presented for comparative purposes only. STATEMENTS OF ADMITTED ASSETS, LIABILITIES, AND SURPLUS
STATEMENT OF OPERATIONS
STATEMENT OF CAPITAL AND SURPLUS
The Company’s financial condition, as reported by management, is reflected in the statements and 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 extended to the examiners by all Company personnel is hereby expressed.
STATE OF MAINE Stuart E. Turney, being duly sworn according to law deposes and says that, in accordance with authority vested in him by Eric A. Cioppa, Acting 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 PATRIOT LIFE INSURANCE COMPANY of Yarmouth, 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: James C. Williams, CPA, CFE
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Subscribed and sworn to before me
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