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STATE OF MAINE
BUREAU OF INSURANCEIT IS HEREBY CERTIFIED THAT THE ANNEXED REPORT OF PATRONS OXFORD INSURANCE COMPANY has been compared with the original on file in this bureau and that it is a correct transcript therefrom and of the whole of said original.
I have hereunto set my hand and affixed the official seal of this Office at the City of Gardiner this fourth day of April, 2011
______________________
January 10, 2011 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 PATRONS OXFORD INSURANCE COMPANY at its home office in Auburn, Maine. The following report is respectfully submitted.
REPORT OF EXAMINATIONPATRONS OXFORD INSURANCE COMPANYAS OFDECEMBER 31, 2009
I hereby certify that the attached report of examination dated January 10, 2011, shows the condition and affairs of the Patrons Oxford Insurance Company located in Auburn, 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 4 day of April, 2011
TABLE OF CONTENTS
SCOPE OF EXAMINATION .......................................................................................................................................1 SUMMARY OF SIGNIFICANT FINDINGS..................................................................................................................1
SUBSEQUENT EVENTS..............................................................................................................................................2 THE COMPANY...........................................................................................................................................................2
LITIGATION.................................................................................................................................................................5 FINANCIAL STATEMENTS............................................................................................................................................6
CONCLUSION.............................................................................................................................................................11 APPENDIX A – STATEMENT OF ACTUARIAL OPINION.............................................................................................12
Patrons Oxford Insurance Company (hereinafter, “Company”) was last examined as of December 31, 2004, by the State of Maine Bureau of Insurance (hereinafter, “Bureau”). This examination covers the period from January 1, 2005, 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 2010 Financial Condition Examiners Handbook, (hereinafter “FCEH”), and the laws, rules, and regulations prescribed or permitted by the State of Maine. This examination was a coordinated examination with the Massachusetts Department of Insurance, (hereinafter, “MADOI”), which concurrently examined Quincy Mutual Fire Insurance Company (hereinafter, “Quincy”) a Massachusetts domestic insurance company, the Company’s Parent. PricewaterhouseCoopers LLP, a Delaware limited liability partnership, (hereinafter, “PWC”) performed the 2009 external audit of Quincy and all insurance affiliates. MADOI made use of PWC workpapers to the extent deemed appropriate. The Bureau utilized the work of MADOI’s examination of Quincy when appropriate in order to enhance the effectiveness and efficiency of this examination. Areas reviewed in this examination included claims administration and loss reserves, underwriting and premium policies, reinsurance contracts, investments, and risk-based-capital requirements. 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 There were no report comments in the prior examination report for the period ending December 31, 2004. The Company appears to be in compliance with 24-A M.R.S.A. and the Company’s bylaws. No significant subsequent events were noted. The Company was incorporated and licensed to transact insurance in the state of Maine in 1877. Former names include Patrons Androscoggin Mutual Fire Insurance Company, Patrons Mutual Insurance Company and Patrons-Oxford Mutual Insurance Company. On December 30, 1997, the Company demutualized and on December 31, 1997 Quincy purchased one hundred percent (100%) of the shares of the Company. The Company entered into a management agreement with Quincy whereby Quincy manages, performs and administers certain functions. The Company also entered into a reinsurance pooling agreement wherein the Company pools its business with the homeowners and private passenger automobile business of Quincy. The Company’s articles of incorporation, bylaws, and minutes of the board of directors’ meetings held during the period under examination were reviewed. Based upon our review, the Company appears to be conducting its affairs in substantial compliance with the statutes of the State of Maine and in accordance with its own charter and bylaws. The Company is owned 100% by its parent, Quincy. The Company is governed and overseen by its board of directors and the management team of the Company. As of December 31, 2009, the Company’s board of directors consisted of nine 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. 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, and bylaws, and provided management oversight. The Quincy board of directors has three standing committees which provide oversight for the executive, audit, and investment activities of the Company. 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, are:
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. The conflict of interest statement discloses any material interest or affiliation(s) 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 also required to sign a compliance certificate annually. Our examination included a review of these compliance certificates. The Bureau 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. The Company is protected by a fidelity bond. The fidelity bond amount was reviewed and was determined to be in compliance with the NAIC recommended levels of coverage. The Company’s employees are covered by a qualified defined contribution 401(k), and a profit sharing plan sponsored by Quincy. The Company is only licensed to transact business as a property and casualty insurer in the state of Maine. Presently, the Company is writing homeowners, private passenger automobile, dwelling fire, mobile homeowners, personal umbrellas, watercraft, and snowmobile business in the state of Maine. The Company is a party to a written tax sharing agreement with Quincy and other affiliates. 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 also participates in a reinsurance pooling arrangement with Quincy and another affiliate. The Company’s direct written premiums have gradually declined each year from 2007 through 2009. The decline was primarily due to “soft” market conditions, overall economic conditions, and limited growth opportunities. The Company participates in a pooling arrangement with Quincy and another affiliate under a written pooling agreement. The Company currently cedes 100% of its direct business to the pool and assumes 1% of certain lines of business from the pool. The Company reports its participation in the pool as assumed reinsurance. The Company’s participation in the pool, for the period under examination, was 0.834% in 2005 and 2006. In 2007, along with the addition of another affiliate to the pool, the Company’s participation was increased to 1% which continued in 2008 and 2009. As part of the information systems review, the Bureau relied in part on the Quincy responses to the NAIC prescribed Information Systems Questionnaire received by the MADOI. 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’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, 2006, and 2005 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 STATEMENT ITEMS Reserves The Bureau utilized the MADOI contracted actuarial firm of KPMG LLP to perform certain actuarial analyses on the reserves reported by the Company as of 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 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. Acknowledgment of cooperation and assistance extended to the examiners by all Company personnel is hereby expressed.
APPENDIX A – STATEMENT OF ACTUARIAL OPINION
QUINCY MUTUAL GROUP Review of Loss and Loss Adjustment Expense Reserves
EXECUTIVE SUMMARY Introduction The Commonwealth of Massachusetts Division of Insurance ("the Division") engaged KPMG LLP ("KPMG") to perform an actuarial review of the loss and loss adjustment expense reserves of Quincy Mutual Group (collectively "the Group" or "the Companies") as of December 31, 2009, in conjunction with its statutory examination of Quincy Mutual Group. The insurance companies comprising The Quincy Mutual Group are: Quincy Mutual Fire Insurance Company ("QMFIC"), Patrons Oxford Insurance Company ("POIC") and New England Mutual Insurance Company ("NEMIC"). Report Distribution This report is intended exclusively for the Commonwealth of Massachusetts Division of Insurance and the Maine Bureau of Insurance. We understand that this actuarial report will also be shared with the management of the Group. No other distribution is authorized without the prior written permission of KPMG. Background Quincy Mutual Group writes predominately homeowners multiple peril, fire and commercial multiple peril coverages, private passenger automobile, commercial automobile, and workers compensation; its operating territory is focused in New England, New Jersey, and New York. Effective December 30, 1997, QMFIC acquired control of Patrons Oxford Mutual Insurance Company ("Patrons Oxford") through the conversion of Patrons Oxford from a mutual insurance company to a stock insurance company, and the subsequent acquisition by QMFIC of all shares of common stock of Patrons Oxford upon its conversion to a stock company. The new stock company is now known as Patrons Oxford Insurance Company. In 2006, QMFIC purchased all the issued and outstanding guaranty capital shares of New England Mutual Insurance Company. Effective January 1, 2007, NEMIC began to participate in the inter-company pooling arrangement with QMFIC and POIC. Participations in the Group are as follows:
The Group has been assigned a rating of A+ (Superior) by A. M. Best Company. KPMG Approach In accordance with the engagement work plan, KPMG has completed the following steps:
Conclusions Reserve Position: Quincy Mutual Insurance Company Quincy Mutual Insurance Company's loss and loss adjustment expense reserves as of December 31, 2009 are stated gross of salvage and subrogation recoverables and gross of expected interest income associated with the time value of money. As of December 31, 2009, QMFIC recorded statutory-basis loss and loss adjustment expense reserves, net of reinsurance recoverables, of $197.9 million. Based on our independent review, we estimate QMFIC's net loss and loss adjustment expense liabilities as of December 31, 2009 at $194.6 million, with a range of reasonable net loss and loss adjustment expense reserves which spans from a low of $179.8 million to a high of $208.9 million. In our opinion, net loss and loss adjustment expense reserves carried by QMFIC as of December 31, 2009 make a reasonable provision for the unpaid loss and loss adjustment expense obligations of QMFIC as of that date. As of December 31, 2009, QMFIC recorded statutory-basis loss and loss adjustment expense reserves, gross of reinsurance recoverables, of $204.7 million. Based on our independent review, we estimate QMFIC's gross loss and loss adjustment expense liabilities as of December 31, 2009 at $202.2 million, with a range of reasonable gross loss and loss adjustment expense reserves which spans from a low of $186.9 million to a high of $217.1 million. In our opinion, gross loss and loss adjustment expense reserves carried by QMFIC as of December 31, 2009 make a reasonable provision for the unpaid loss and loss adjustment expense obligations of QMFIC as of that date. Our estimates of the unpaid loss and loss adjustment expenses as of December 31, 2009 were developed in accordance with Actuarial Standards of Practice promulgated by the Actuarial Standards Board. In the course of our review, we used several accepted loss reserving methods and procedures to derive our estimates of unpaid loss and loss adjustment expense liability and to construct our ranges. We gave consideration to the relative strengths and weaknesses of each of the methods in deriving our actuarial central estimate of the liability (i.e., an expected value over the range of reasonably possible outcomes). Throughout this report, the terms "selected" and "selection" should be interpreted to reflect our actuarial central estimates. Our range of reasonable reserve estimates reflects a range of actuarial estimates that were derived using alternative methodologies and parameter assumptions that are either more optimistic or more pessimistic than those underlying our actuarial central estimate but that we consider reasonable for financial reporting purposes. The following table summarizes the KPMG reserve ranges, our actuarial central reserve estimates, and the QMFIC carried loss and loss adjustment expense reserves as of December 31, 2009 for each reserve category. Loss & Loss Adjustment Expense Reserve as of December 31, 2009
QMFIC Net and Gross Summaries, Page 1 summarize our line of business analysis of QMFIC's estimated net and gross loss, respectively. QMFIC Net and Gross Summaries, Pages 2 through 4 summarize our QMFIC line of business analysis for Defense and Cost Containment ("DCC") and AOE ("Adjusting and Other Expenses") reserves. Reserve Position: Patrons Oxford Insurance Company Patrons Oxford Insurance Company's loss and loss adjustment expense reserves as of December 31, 2009 are stated gross of salvage and subrogation recoverables and gross of expected interest income associated with the time value of money. As of December 31, 2009, POIC recorded statutory-basis loss and loss adjustment expense reserves, net of reinsurance recoverables, of $1.05 million. Based on our independent review, we estimate POIC's net loss and loss adjustment expense liabilities as of December 31, 2009 at $1.11 million. We estimate a range of reasonable net loss and loss adjustment expense reserves which spans from a low of $1.02 million to a high of $1.19 million. In our opinion, net loss and loss adjustment expense reserves carried by POIC as of December 31, 2009 make a reasonable provision for the unpaid loss and loss adjustment expense obligations of POIC. As of December 31, 2009, POIC recorded statutory-basis loss and loss adjustment expense reserves, gross of reinsurance recoverables, of $13.2 million. Based on our independent review, we estimate POIC's gross loss and loss adjustment expense liabilities as of December 31, 2009 at $13.2 million. We estimate a range of reasonable gross loss and loss adjustment expense reserves which spans from a low of $11.8 million to a high of $14.2 million. In our opinion, gross loss and loss adjustment expense reserves carried by POIC as of December 31, 2009 make a reasonable provision for the unpaid loss and loss adjustment expense obligations of POIC. The following table summarizes the KPMG reserve ranges, our actuarial central reserve estimates, and the POIC carried loss and loss adjustment expense reserves as of December 31, 2009 for each reserve category. Loss & Loss Adjustment Expense Reserve as of December 31, 2009
POIC Net and Gross Summaries, Page 1 summarizes our line of business analysis of POIC's estimated net and gross loss reserves. POIC Net and Gross Summaries, Pages 2 through 4 summarize our POIC line of business analysis Defense and Cost Containment ("DCC") and AOE ("Adjusting and Other Expenses") reserves. Reserve Position: New England Mutual Insurance Company New England Mutual Insurance Company's loss and loss adjustment expense reserves as of December 31, 2009 are stated gross of salvage and subrogation recoverables and gross of expected interest income associated with the time value of money. As of December 31, 2009, NEMIC recorded statutory-basis loss and loss adjustment expense reserves, gross of reinsurance recoverables, of $2.60 million. Based on our independent review, we estimate NEMIC's gross loss and loss adjustment expense liabilities as of December 31, 2009 at $2.78 million. We estimate a range of reasonable gross loss and loss adjustment expense reserves which spans from a low of $2.56 million to a high of $2.97 million. In our opinion, gross loss and loss adjustment expense reserves carried by NEMIC as of December 31, 2009 make a reasonable provision for the unpaid loss and loss adjustment expense obligations of NEMIC. Since NEMIC does not cede any loss and loss adjustment expense reserves, net loss and loss adjustment expense reserves are equal to the gross loss and loss adjustment expense reserves. The following table summarizes the KPMG reserve ranges, our actuarial central reserve estimates, and the NEMIC carried loss and loss adjustment expense reserves as of December 31, 2009 for each reserve category. Loss & Loss Adjustment Expense Reserve as of December 31, 2009
New England Mutual Net and Gross Summaries, Page 1 summarizes our line of business analysis of NEMIC's estimated net and gross loss reserves. New England Mutual Net and Gross Summaries, Pages 2 through 4 summarize our NEMIC line of business analysis Defense and Cost Containment ("DCC") and AOE ("Adjusting and Other Expenses") reserves. Materiality Considerations Actuarial Standard of Practice No. 36: Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves states that the actuary should consider the purposes and intended uses for the statement of actuarial opinion in evaluating materiality. For the purposes of our review, we considered several possible thresholds in evaluating materiality. In particular, we considered thresholds based on percentages of surplus or of net loss and loss adjustment expense reserves to be material. We considered other thresholds, such as the movement in reserves that would trigger a change in each company's Risk Based Capital position, in selecting our materiality standard. Ultimately, we evaluated 5% of surplus as regards policyholders to be material for the Companies, which translates to $35,453,248, $360,705, and $1,044,486 for QMFIC, POIC, and NEMIC, respectively. The Massachusetts Division of Insurance has confirmed that it considers adverse reserve development in excess of 5% of policyholders surplus to be significant. Based on our materiality threshold and the facts and circumstances known as of the date of this report, we do not reasonably believe that there is risk of material adverse deviation in the reserve amounts carried by each of the Companies as of December 31, 2009. The Group's operations and reserve development have been quite stable, on bases both gross and net of reinsurance. It should be understood that the emergence and settlement of insurance claims are subject to uncertainty; actual developments may vary, perhaps significantly, from the amounts carried by each of the Companies as of December 31, 2009. No warranty is expressed or implied that this will not occur. Limitations of Findings During our review, we neither examined the assets of the Companies nor formed any opinion as to the value or validity of the assets. Our opinion that the net reserves make a reasonable provision in the aggregate for the unpaid net loss and loss adjustment expense obligations of the Companies presumes that these reserves are backed by valid assets and that these assets reflect suitably scheduled maturities and/or sufficient liquidity to meet cash flow requirements. The Companies represented to us that they write no single or fixed premium policies or contracts with coverage periods of thirteen months or more that are non-cancelable and not subject to premium increase (excluding financial guaranty contracts, mortgage guaranty policies and surety contracts) for which an actuarial opinion is now required. Likewise, the Companies report no extended loss and expense reserves in its Schedule P Interrogatories. Therefore, no opinion was expressed with respect to the unearned premium reserve (Page 3, Line 9), or any component thereof, reported by the Companies as of December 31, 2009. Our projections are based on generally accepted actuarial techniques applied in a consistent manner. While we have used our best professional judgment in all instances, projections of future ultimate losses and loss expenses are inherently uncertain because of the random nature of claims occurrences. They are also dependent upon future contingent events and are affected by many additional factors. Company claim reserving procedures and settlement philosophy, current and perceived social and economic inflation, current and future court and jury attitudes, improvements in medical technology, and many other economic, legal, political, and social factors all can have significant effects on ultimate claim costs.
STATE OF MAINE 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 Patrons Oxford Insurance Company of Auburn, 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, CIE
____________________________
Subscribed and sworn to before me _______________________________
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