REPORT OF EXAMINATION

MMG INSURANCE COMPANY

AS OF

DECEMBER 31, 2010

Acceptance of Report of Examination

WHEREAS a verified Report of Examination of MMG Insurance Company dated September 23, 2011, was delivered to that insurer on September 23, 2011, and

WHEREAS MMG 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 MMG 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).

 

Dated:                                                                         ________________________
                                                                                    Stuart E. Turney, CPA, AFE
                                                                                    Director of Examination

Table of Contents

Scope of Examination...................................................................................................................................... 1
Summary of Significant Findings............................................................................................................ 1
Prior Examination................................................................................................................................................ 1
Current Examination......................................................................................................................................... 1
Subsequent Events............................................................................................................................................. 1
The Company............................................................................................................................................................ 2
History...................................................................................................................................................................... 2
Corporate Records.............................................................................................................................................. 2
Corporate Ownership.......................................................................................................................................... 2
Corporate Governance...................................................................................................................................... 3
Code of Conduct and Conflict of Interest.............................................................................................. 3
Fidelity Bond and Other Insurance............................................................................................................. 3
Territory & Plan of Operation....................................................................................................................... 3
Transactions with Affiliates.......................................................................................................................... 3
Growth of Company............................................................................................................................................. 4
Reinsurance............................................................................................................................................................. 4
Accounts and Records........................................................................................................................................ 4
Statutory Deposits.............................................................................................................................................. 4
Litigation.................................................................................................................................................................. 5
Financial Statements...................................................................................................................................... 5
Statement of Admitted Assets, Liabilities, and Surplus.................................................................... 6
Statement of Operations.................................................................................................................................. 7
Statement of Capital and Surplus............................................................................................................... 8
Comments on the Financial Statements.................................................................................................... 9
Reserves............................................................................................................................................................. 9
Guaranty fund Assessments..................................................................................................................... 9
Dividends............................................................................................................................................................ 9
Conclusion................................................................................................................................................................ 9

Scope of Examination

 

MMG Insurance Company (hereinafter, “MMG”) 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, 2010.

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, 2010, 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.

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 MMG as of December 31, 2010.  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

Prior Examination

None noted.

Current Examination

None noted.

 

Subsequent Events

The following subsequent events were observed:

•On January 1, 2011 MMG commuted its 2008 quota share agreement with ACE Property and Casualty Insurance Company.
•MMG plans to begin writing commercial lines of business in Virginia during the fourth quarter of 2011, and personal lines of business during the first quarter of 2012.
•A New Hampshire market conduct examination was ongoing subsequent to year end.

 

The Company

History

MMG, formerly known as Maine Mutual Fire Insurance Company, was incorporated on May 22, 1897 in the State of Maine and commenced writing business during that year.  MMG, a property/casualty insurer, is domiciled in the State of Maine with corporate headquarters located in Presque Isle, Maine.

On March 15, 2002, MMG completed the following:

•Conversion of Maine Mutual Fire Insurance Company to MMG Insurance Company, a stock insurance company;
•Formation of Maine Mutual Group, a mutual holding company;
•Formation of MMG Financial Services, Inc., a stock holding company.

MMG is the same legal entity that it was before conversion.  Pursuant to Maine law, the converted insurer is a continuation of the insurer in its mutual form and the conversion does not annul, modify or change any of MMG’s existing suits, rights, contracts or liabilities.

Corporate Records

MMG’s articles of incorporation, bylaws, and minutes of the board of directors’ meetings held during the period under examination were reviewed for compliance.

Corporate Ownership

MMG is a wholly owned subsidiary of MMG Financial Services, Inc.  The corporate ownership diagram follows:

Corporate Governance

MMG is governed and overseen by its board of directors and the management team of MMG.

As of December 31, 2010, the board of directors of MMG consisted of the following members:

As of December 31, 2010, the executive officers of MMG consisted of the following individuals:

Code of Conduct and Conflict of Interest

Title 24-A M.R.S.A. §3413 identifies potential conflict of interest areas.  MMG has a conflict of interest policy whereby all directors and officers must sign a disclosure and acknowledgement statement on an annual basis.  MMG also has a code of business conduct and ethics policy.

Fidelity Bond and Other Insurance

A blanket fidelity bond protects MMG.  The $2,000,000 fidelity bond maintained by MMG satisfies the NAIC suggested amount of $900,000.  MMG maintains other insurance policies including directors’ and officers’ liability, commercial package, business auto, workers’ compensation, umbrella, aircraft hull and liability, professional liability, fiduciary responsibility, and special events coverage.

Territory & Plan of Operation

MMG is licensed to transact business in the states of Maine, New Hampshire, New York, Pennsylvania, Vermont, and Virginia.  MMG is a multi-line property and casualty company writing personal and commercial coverage.

Transactions with Affiliates

MMG is a party to a written tax sharing agreement with Maine Mutual Group and MMG Financial Services, Inc. whereby tax allocation is made primarily on a separate return basis with current credit for any net operating losses or other items utilized in the consolidated tax return.

Growth of Company

The following table presents certain statistics related to the growth of MMG:

MMG entered into a marketing agreement with MEMIC Indemnity Company on December 1, 2009.

Reinsurance

MMG’s primary reinsurance treaties include property and casualty excess of loss, catastrophe, quota share, facultative contracts.  Summaries of the contracts in place follow:

• Casualty Excess

Throughout the examination period MMG’s retention was $250,000.  The treaty provides four layers of protection limited to $5,000,000.

• Property Excess

In 2009 MMG’s retention increased from $200,000 to $250,000 with three layers of protection limited to $7,000,000.

• Personal Umbrella

MMG cedes 90% of the first $1,000,000 and 100% of the next $4,000,000.

• Commercial Umbrella

MMG cedes 95% of the first $2,000,000 and 100% on the next $3,000,000.

• Net Lines Quota Share

MMG cedes 13% of property and casualty business subject to certain loss ratio limitations.

• Facultative Property

MMG has facultative property coverage with individual limits.

Accounts and Records

Accounts and records were reviewed and tested in order to assess the impact on MMG’s financial condition and conformity with related laws.

Statutory Deposits

MMG reported the following security deposits as of December 31, 2010:

The security deposited with the State of Maine meets the requirements set forth in 24-A M.R.S.A. §412.

 

Litigation

MMG 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 MMG.

 

Financial Statements

The accompanying financial statements fairly present, in all material respects, MMG’s statutory financial position as of December 31, 2010, and statutory results of operations for the period then ended.  The financial statements as of December 31, 2009, 2008 and 2007 are unexamined and are presented for comparative purposes only.

Statement of Admitted Assets, Liabilities, and Surplus

as of December 31, 2010, 2009, 2008, and 2007

Statement of Operations

Years Ended December 31, 2010, 2009, 2008, and 2007

Statement of Capital and Surplus

Years Ended December 31, 2010, 2009, 2008, and 2007

Comments on the Financial Statements

Reserves

The Bureau’s employed actuary, a PhD, ACAS, and MAAA, was assigned to perform an actuarial review and to perform certain actuarial analyses on the reserves reported by MMG at December 31, 2010.  The actuarial opinion is included as an attachment to this report.  See Appendix A.

Guaranty fund Assessments

MMG was granted a permitted practice related to guaranty fund assessments effective January 1, 2001.  The permitted practice allows MMG to book future guaranty fund assessments on a paid basis.

Dividends

MMG makes regular dividend payments to MMG Financial Services, Inc.  The dividend payments relate to the 2003 and 2004 financing of certain capital transactions and to the 2007 financing of MMG’s occupied real estate.

 

Conclusion

MMG’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 MMG personnel is hereby expressed.