government of the - d.c. department of insurance, … · · 2017-10-23summary of significant...

GOVERNMENT OF THE DISTRICT OF COLUMBIA

DEPARTMENT OF INSURANCE, SECURITIES AND BANKING

REPORT ON EXAMINATION

AMERICAS INSURANCE COMPANY

AS OF

DECEMBER 31, 2016

NAIC COMPANY CODE: 27898

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TABLE OF CONTENTS SCOPE OF EXAMINATION ...................................................................................................... 1

SUMMARY OF SIGNIFICANT FINDINGS ............................................................................... 2

PREVIOUS EXAMINATION FINDINGS ............................................................................................ 2

COMPANY HISTORY ............................................................................................................... 2

GENERAL ................................................................................................................................. 2 DIVIDENDS .............................................................................................................................. 2 CAPITAL STOCK AND CAPITAL CONTRIBUTIONS ........................................................................... 3 SURPLUS NOTES ....................................................................................................................... 3

MANAGEMENT AND CONTROL ............................................................................................. 3

CONFLICT OF INTEREST ............................................................................................................. 4 CORPORATE RECORDS ............................................................................................................... 5 HOLDING COMPANY SYSTEM ..................................................................................................... 5

ORGANIZATIONAL CHART.................................................................................................... 6

INTERCOMPANY AGREEMENTS ........................................................................................... 7

TAX ALLOCATION AGREEMENT .................................................................................................. 7 MANAGING GENERAL AGENT AGREEMENT ................................................................................. 7 ADMINISTRATIVE SERVICES AGREEMENTS .................................................................................. 7

FIDELITY BOND AND OTHER INSURANCE .......................................................................... 7

PENSION, STOCK OWNERSHIP AND INSURANCE PLANS ................................................... 7

TERRITORY AND PLAN OF OPERATIONS ............................................................................ 8

SPECIAL DEPOSITS ................................................................................................................. 8

REINSURANCE ......................................................................................................................... 9

ACCOUNTS AND RECORDS .................................................................................................... 9

FINANCIAL STATEMENTS ....................................................................................................10

ASSETS ...................................................................................................................................11 STATEMENT OF OPERATIONS .....................................................................................................13 ANALYSIS OF CHANGES IN FINANCIAL STATEMENT RESULTING FROM THE EXAMINATION ...............15

COMMENTS ON FINANCIAL STATEMENT ITEMS ..............................................................17

SUBSEQUENT EVENTS ...........................................................................................................18

SUMMARY OF RECOMMENDATIONS ..................................................................................18

CONCLUSION ..........................................................................................................................19

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Washington, D.C. September 28, 2017

Honorable Stephen C. Taylor Commissioner Department of Insurance, Securities and Banking Government of the District of Columbia 810 First Street, NE, Suite 701 Washington, D.C 20002 Dear Commissioner:

In accordance with Section 31-1402 of the District of Columbia Official Code, we have

examined the financial condition and activities of

Americas Insurance Company Hereinafter referred to as “AIC” and/or “Company”. The examination was conducted at the administrative office of the Company located at 7900 Westpark Drive, Suite A120, Tysons, VA 22102, and the following Report on Examination is submitted.

SCOPE OF EXAMINATION

We have performed our full-scope examination of Americas Insurance Company. The last examination of the Company was a full scope examination covering the period from January 1, 2008 to December 31, 2011. This examination covers the period of January 1, 2012 to December 31, 2016, including any material transactions and/or events occurring subsequent to December 31, 2016.

We conducted our examination in accordance with examination policies and standards established by the District of Columbia Department of Insurance, Securities and Banking (the “Department”) and procedures recommended by the NAIC’s Financial Condition Examiners Handbook (Handbook). The Handbook requires that the examination be planned and performed to evaluate the financial condition, assess corporate governance, identify current and prospective risks of the Company, and evaluate system controls and procedures used to mitigate those risks. An examination also includes identifying and evaluating significant risks that could cause an insurer’s surplus to be materially misstated both currently and prospectively.

All accounts and activities of the Company were considered in accordance with the risk-focused examination process. This may include assessing significant estimates made by management and evaluating management’s compliance with Statements of Statutory Accounting Principles (SSAP). The examination does not attest to the fair presentation of the financial statements included herein. If, during the course of the examination an adjustment is identified, the impact of such adjustment will be documented separately following the Company’s financial statements.

AMERICAS INSURANCE COMPANY REPORT ON EXAMINATION

Examination as of December 31, 2016

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This examination report includes significant findings of fact, as mentioned in Section 31-1404

of the District of Columbia Official Code, and general information about the insurer and its financial condition. There may be other items identified during the examination that, due to their nature (for example, subjective conclusions or proprietary information), are not included within the examination report but separately communicated to other regulators and/or the Company.

SUMMARY OF SIGNIFICANT FINDINGS

The Examination did not disclose any material adverse findings or adjustments that impact the Company’s reported capital and surplus. Previous Examination Findings

This is the first examination conducted by the Department as a result of re-domestication from Louisiana and therefore there were no prior examination findings.

COMPANY HISTORY General

The Company was organized under the laws of the State of Florida with its Certificate of Incorporation filed on March 14, 1963. The Company commenced business on July 15, 1963. The original name of the Company was Americas Aviation and Marine Insurance Company, Inc. Since incorporation, the Company has gone through many changes prior to this examination including acquisitions, a name change, being re-domesticated from Louisiana to the District of Columbia.

During the examination period and since 2008, the Company has written homeowners

insurance, including fire protection and allied lines in the State of Louisiana. In 2013, the Company began to write private passenger automobile insurance in the states of California, Georgia, Mississippi and South Carolina through arrangements with managing general agencies (MGAs) and was considered a fronting carrier. In 2015, the Company also began to write private passenger automobile insurance in Nevada through its affiliated MGA. Effective August 1, 2013, AIC acquired 100% of the outstanding stock of Quality Casualty Insurance Company (“QCIC”), an Alabama domiciled insurer which operated in runoff. Effective October 1, 2013, QCIC began to write private passenger automobile insurance in Alabama through an arrangement with an MGA. Effective December 9, 2014, the Company re-domesticated from Louisiana to the District of Columbia. The Company has discontinued certain relationships with prior unaffiliated MGA’s and the Company’s primary focus is to continue to service and grow the homeowner’s insurance business in Louisiana. Dividends

The Company did not declare or pay dividends to its stock holder during the examination period.



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Capital Stock and Capital Contributions

The Company is authorized to issue 1,500,000 shares of Common capital stock. As of December 31, 2016, the Company’s capitalization was as follows:

Number of authorized common capital shares 1,500,000 Number of shares issued and outstanding 750,000 Total common capital stock $1,500,000 Par value per share $2.00

Surplus Notes

The Company received a capital contribution of $5,000,000 on December 30, 2014. The contribution was in the form of additional paid in capital of $2,500,000 and a surplus note of $2,500,000. The surplus note is a ten-year amortizing note, payable quarterly with an effective rate of 6.0%. The first payment was due on March 15, 2015. As of December 31, 2016, the total outstanding balance on the surplus note was approximately $2,111,518.

MANAGEMENT AND CONTROL Board of Directors

The Articles of Incorporation and Bylaws vest the management and control of AIC’s business affairs with the Board of Directors. At December 31, 2016, the members of the Board of Directors were as follow: Name Principal Occupation

Ronald Rayburn Pate, Jr. - Chairman President & Chief Executive Officer Washington, D.C. Americas Insurance Company

Anne Kail Missett Executive Vice President & Chief Operating Officer Fairfax, VA Americas Insurance Company

John Paul McNamara Treasurer Gulf Stream, FL Americas Insurance Company James Daniel Murphy Jr. Chief Executive Officer Boca Raton, FL Computech John Edward Duffy Executive Managing Director/Global Capital Markets Washington, D.C. JLL Alexander Leslie Blondeau Attorney Baton Rouge, LA Attorney At Law



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John Joseph Gorman Partner Chevy Chase, MD Luse Gorman Charles William Smith Faculty Member Nokomis, FL Fairfield University

Principal Board Committee(s) The Company utilized three (3) board level committees during the exam period. The following table illustrates the membership composition of the committees at December 31, 2016:

Name Audit Compensation Nominating

Alexander Blondeau Chairman

Paul McNamara

J.D. Murphy

John Gorman Chairman

John Duffy

Charles W. Smith

R. Ray Pate Chairman

Principal Officers

The officers elected by the Board of Directors and holding office at December 31, 2016 were as follow: Name Position

R. Ray Pate, Jr. President & Chief Executive Officer Anne Missett EVP & Chief Operating Officer Ethan Mowry, FCAS EVP & Chief Actuary Officer Sean Barnes, CPA EVP & Chief Financial Officer C. Wayne Pyrtle President & Chief Operating Officer Assured Re Intermediaries, Inc. William Schreiner, JD EVP & General Counsel

Conflict of Interest

The Company did not adopt a policy statement requiring periodic disclosure of conflicts of interest by its Board of Directors in accordance with the Handbook. However, the Company does maintain a conflict of interest policy within its Employee Handbook that is reviewed and signed by employees and officers annually. For further discussion see the “Summary of Recommendations” section of this report under the caption “Conflict of Interest Policy”.



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Corporate Records

The recorded minutes of the Shareholder(s), Board of Directors (Board) and certain internal committees were reviewed for the period under examination. The recorded minutes of the Board documented its meetings and approval of Company transactions and events, with the exception of approval of investment transactions and review of the Actuarial Opinion, in compliance with the Handbook. For further discussion see the “Summary of Recommendations” section of this Report under the caption “Corporate Records”. Holding Company System

The Company is part of a holding company system. Assure Holding Corporation (“Assure Holding”) is a Delaware corporation headquartered in Washington D.C. that was organized to engage in the insurance and reinsurance advisory management business. Assure Holding owns 100% of the stock of AssureRe Intermediaries Inc., a reinsurance intermediary. In addition, Assure Holding owns 100% of the stock of ISG Acquisition II LLC (“ISG”), a holding company. ISG owns 100% of the stock of AssureUnderwriting Agency, LLC, a managing general agency. ISG also owns 100% of the stock of Americas Sub Holding Corp., an insurance holding company which in turn owns 100% of the stock of the Company, domicile in the District of Columbia, which in turns owns 100% of the stock of Quality Casualty Insurance Company, a property and casualty stock company domiciled in Alabama. As of December 31, 2016, Assure Holding is ultimately controlled by Rate Pate, Jr. who owns 13.1% of Assure Holding’s issued and outstanding.

An organizational chart as of December 31, 2016, reflecting the holding company system, is shown on the following page.



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Organizational Chart

December 31, 2016



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INTERCOMPANY AGREEMENTS

The Company has entered into numerous agreements and cost sharing arrangements with affiliated companies. We reviewed these agreements and the significant ones are described below: Tax Allocation Agreement

The Company, along with its parent, Assure Holding, filed a consolidated federal income tax return. On December 31, 2016, the method of allocation between the Company and Holding Company was on a separate-entity basis. Each member of the group recorded an inter-company income tax receivable or payable with Assure Holding Company. Within (90) days of the remittance by Assure Holding of any income tax payment to the taxing authorities, all inter-company tax receivables/payables were settled. Managing General Agent Agreement

Effective January 1, 2013, the Company contracted with Assure Underwriting Agency LLC (“AUA”) to provide the Company full managing general agency (“MGA”) services. The Company pays 33% of direct written premium and policy fees to AUA. The terms of the MGA contract give AUA the authority for underwriting, premium collection, binding authority and claims management. During 2016, the Company incurred $6,639,508 of commissions pursuant to the agreement. Administrative Services Agreements

Effective January 1, 2013, the Company entered into an Administrative Service Agreement with AUA that provided for cost sharing by AUA to the Company in relation to the Assure Louisiana Homeowners Program. The Company received $121,351 for services provided to AUA under the agreement.

Effective July 29, 2014, the Company entered into an additional Administrative Services Agreement with AUA for services in connection with the administration of the Company’s private passenger automobile program business. The Company incurred $107,104 in 2016 pursuant to the terms of the agreement.

FIDELITY BOND AND OTHER INSURANCE

The Company has fidelity bond coverage of 5,000,000 with a single loss deductible of

$25,000. The fidelity bond complies with the minimum coverage recommended by the NAIC.

PENSION, STOCK OWNERSHIP AND INSURANCE PLANS

The Company does not have employees and therefore does not have employee pension, stock ownership and insurance plans.



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TERRITORY AND PLAN OF OPERATIONS

The Company was authorized to transact insurance in the following states as of December 31,

2016:

Alaska Minnesota Oklahoma California Mississippi Oregon Delaware Missouri South Carolina District of Columbia Montana South Dakota Georgia Nebraska Tennessee Hawaii Nevada Texas Illinois New Jersey Utah Louisiana North Carolina Maryland North Dakota

The Company has written homeowners insurance, including fire protection and allied lines, as well as private passenger automobile insurance. The Company’s business is produced primarily through the use of managing general agencies.

SPECIAL DEPOSITS The following is a summary of special deposits held as of December 31, 2016:

State Book/Adjusted

Carrying Value Market

Value Alabama(1) 778,444 778,444 California 105,000 105,000 District of Columbia 1,202,645 1,200,192 Delaware 101,875 101,875 Georgia 35,017 35,017 Louisiana 104,760 105,017 Missouri 105,636 101,596 North Carolina 554,859 542,675 Nebraska 25,000 25,000 Nevada 205,681 200,853 New York 147,485 147,485 Oregon 150,000 150,000

Totals $ 3,516,402 $ 3,493,154 (1) – Reinsurance Trust for benefit of subsidiary Quality Casualty Insurance Company,

remaining assets are state deposits.



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REINSURANCE

The reinsurance agreements reviewed complied with NAIC standards with respect to the standard insolvency clause, arbitration clause, intermediary clause, transfer of risk, reporting and settlement information deadlines. Reinsurance Agreement Summary:

Between 2008 and 2014 the Company had various per risk excess of loss, catastrophic, and quota share reinsurance agreements in place. Effective June 1, 2013, there were some minor changes to the reinsurance structure for the homeowners business. In addition to the $1.5 million excess of $500k excess of loss agreement, the Company has a $250,000 excess of $250,000 for liability claims. The catastrophe reinsurance retention increased to $2 million, reflecting the increase in total exposure. The quota share treaty for the losses net of the specific and catastrophic coverage increased to 65% without any loss corridors, although there is a sliding scale ceding commission. There were no significant changes to the reinsurance program during 2014 and 2015, with the quota share remaining at 65%, although the quota share percentage increased to 80% in the second half of 2016.

The non-standard auto business, including both that written by the Company and QCIC, was initially covered by a 90% quota share agreement with the Company retaining the remaining 10% of losses when the programs began in 2013. The defense and cost containment expense (DCCE) and adjusting and other expense (AOE) reserves (collectively referred to as loss adjustment expenses, or LAE) are 100% retained, as the Company has already earned its provision from the reinsurers that it pays for outside claims adjusting services and legal defense.

When AssuranceAmerica Managing General Agency became the MGA for the southeast auto program as of September 1, 2014, the quota share remained at 90%. However, the LAE reserve was ceded to the reinsurers in the event the third-party claims administrator (TPA) was unable to service the claims. The September 1, 2014 to August 31, 2015 agreement was extended three months for policies written between September 1, 2015 and November 1, 2015, except the ceding percentage dropped to 45%. For policies written December 31, 2015 and subsequent, the quota share percentage has increased to 70%, with the LAE reserve being retained. This business was placed in runoff.

ACCOUNTS AND RECORDS

The Company’s general accounting records consist of an automated general ledger and various subsidiary ledgers (e.g. cash receipts, cash disbursements). The Company utilizes PRO Financial General ledger package, provided by Stone River. Claims, policy administration, human resources and payroll were provided by third party vendors. A review did not disclose any significant deficiencies in these records. However, our review of the Company’s electronic data processing system disclosed several areas in which the electronic data processing controls could be improved. These conditions are further discussed in a separate Management Letter to the Company’s Board of Directors.



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FINANCIAL STATEMENTS

The examination does not attest to the fair presentation of the financial statements included

herein. The following financial statements are based on the statutory financial statements filed by the Company with the Department and present the financial condition of the Company for the period ending December 31, 2016. The accompanying comments on financial statements reflect any examination adjustments to the amounts reported in the annual statement and should be considered an integral part of the financial statements.



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Assets December 31, 2016

Examination

Per Company Adjustments Per Examination

Bonds $3,517,008 $3,517,008Stocks: Common 793,590 793,590Cash and Short-Term Investments 9,184,835 9,184,835Investment Income Due and Accrued 23,018 23,018Agents' Balances: Uncollected premium 1,061,483 1,061,483 Deferred premium 1,459,721 1,459,721Reinsurance recoverable 1,979,802 1,979,802EDP Equipment 0

Interest and dividend income due & accrued 0

Net Defferred Tax Assets 969,954 969,954Equities and deposits in pools and associations 0

Aggregate write-in for other than invested assets 808,133 808,133

Totals $19,797,544 $0 $19,797,544



12

Liabilities, Surplus and Other Funds December 31, 2016

Examination

Per Company Adjustments Per Examination

Losses (Note 1) $2,831,721 $2,831,721Loss adjustment expenses (Note 1) 218,522 218,522Commissions payable, contingent and other 635,207 635,207Other expenses 270,304 270,304Taxes, licenses and fees 402,407 402,407Unearned premium 4,235,402 4,235,402Advance premium 549,816 549,816Ceded reinsurance payable 2,289,376 2,289,376Funds held under reinsurance 119,196 119,196Remittances and items not allocated 182,467 182,467Provision for reinsurance 98,000 98,000Payable to parent, subs and affiliates 185,921 185,921

Total Liabilities $12,018,340 $0 $12,018,340

Common capital stock $1,500,000 $1,500,000Surplus notes 2,111,518 $2,111,518Gross paid in and contributed surplus 14,382,816 14,382,816Unassigned funds (surplus) (10,215,130) (10,215,130)

Surplus as regards policyholders(Note 2) $7,779,205 $0 $7,779,205

Total liabilities, surplus and other funds $19,797,545 $0 $19,797,545



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Statement of Operations December 31, 2016

Underwriting Income

Premiums earned $ 8,687,843 Deductions:

Losses incurred $ 6,168,704 Loss expenses incurred 516,965 Other underwriting expenses incurred 2,919,777 Aggregate write-ins for underwriting deductions (61,758) Total underwriting deductions $ 9,543,688

Net underwriting gain or (loss) $ (855,845)

Investment Income

Net investment income earned $ 49,145 Net realized capital gains or (losses) 3,741 Net investment gain or (loss) $ 52,886

Other Income

Net gain or (loss) from agents' or premium balances charged off $ - Finance and service charges not included in premiums - Aggregate write-ins for miscellaneous income - Total other income $ -

Net income before dividends to policyholders and before federal & foreign income taxes $ (802,960) Dividends to policyholders - Net Income, after dividends to policyholders, but before federal & foreign income taxes $ (802,960) Federal & foreign income taxes -

Net Income $ (802,960)

Capital and Surplus Account

Surplus as regards policyholders, December 31 prior year $ 8,783,828

Net Income $ (802,960) Net unrealized capital gains or losses 5,105 Change in net deferred income tax 575,702 Change in non admitted assets (587,449) Change in provision for reinsurance 5,000 Change in surplus notes (200,023) Aggregate write-ins for gains and losses in surplus - Examination Adjustment - Change in surplus as regards policyholders for the year $ (1,004,625)

Surplus as regards policyholders, December 31 current year 7,779,203



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Reconciliation of Capital and Surplus

December 31, 2016

2012 2013 2014 2015 2016

Capital & Surplus, Beginning of Period $ 4,049,812 $ 5,176,005 $ 5,588,771 $ 10,406,410 $ 8,783,828 Net Income (1,072,918) 95,657 (379,996) (1,522,866) (802,960)

Net Chg in Unrealized Capital Gains Less Taxes - 65,896 53,835 1,787 5,105

Net Chg in Deferred Income Taxes 37,258 (24,257) 182,887 400,605 575,702

Chg in NonAdm Assets 138,915 282,470 (39,087) (297,049) (587,449)

Chg in Provision for Reinsurance 20,600 (7,000) - (16,600) 5,000 Change in Surplus Notes - - 2,500,000 (188,459) (200,023)

Surplus Adj Paid In 2,002,338 - 2,500,000 - -

Chg In Surplus As Regards Policyholders 1,126,193 412,766 4,817,639 (1,622,582) (1,004,625) Surplus as Regards Policyholders, End of Period $ 5,176,005 $ 5,588,771 $ 10,406,411 $ 8,783,828 $ 7,779,205



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Analysis of Changes in Financial Statement Resulting from the Examination December 31, 2016

There were no changes to the Company’s surplus as a result of examination.



16

Comparative Financial Position and Results of the Company December 31, 2016

Selected financial information for the Company as of December 31, 2016, 2015, 2014, 2013, and 2012, and for the years then ended was as follows:

2016 2015 2014 2013 2012

Assets 19,797,544 23,522,231 25,945,124 23,869,462 12,124,792

Liabilities 12,018,340 14,738,403 15,538,713 18,280,691 6,948,787

Policyholders surplus 7,779,205 8,783,828 10,406,411 5,588,771 5,176,005

Net underwriting gain (loss) (855,845) (1,480,137) (458,692) 10,361 (1,881,176)

Net Investment gain (loss) 52,886 (42,729) 74,494 70,809 182,553

Net Income (Loss) (802,960) (1,522,866) (379,996) 95,657 (1,072,918)



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COMMENTS ON FINANCIAL STATEMENT ITEMS Note 1: Losses and Loss Adjustment Expenses

As of December 31, 2016, the Company reported “Losses” and “Loss adjustment expenses” reserves of $2,831,721 and $218,522 respectively. These reserves totaling $3,050,243 represent management’s best estimate of the amounts necessary to pay all claims and related expenses that have been incurred but are still unpaid as of December 31, 2016. These amounts are shown net of estimated recoverable from reinsurers under the Company’s reinsurance agreements. If the reinsures are not able to meet their obligations under these agreements, the Company would be liable for any defaulted amounts. The Company has recorded reserve credits related to estimated amounts recoverable from reinsurers as of December 31, 2016, totaling approximately $11,882,474. Note 2: Total Capital and Surplus

The total capital and surplus of the Company at December 31, 2016, as determined by this examination, is the same as the amount reported by the Company on its 2016 Annual Statement.



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SUBSEQUENT EVENTS The examination was made aware of no material events or transactions occurring subsequent to the annual statement date that would materially affect the financial statements of the Company.

SUMMARY OF RECOMMENDATIONS

Conflict of Interest Policy The examination finds that the Company did not have a conflict of interest policy that applies to their board of directors. We recommend that the Company develop and implement a conflict of interest policy for board of directors, officers and key personnel. On an annual basis, the Company should require all officers, directors and employees to provide a certification regarding compliance with the Conflict of Interest Policy. Corporate Records The Board of Directors meeting minutes did not evidence approval of the Company's investment transactions on a consistent basis. Additionally, the Board of Directors meeting minutes did not indicate the Board's review of the Actuarial Opinion for each year covering the exam period as the only time the Actuarial Opinion was reviewed by the Audit Committee or the Board during the period was in 2013. We recommend that the Board of Directors review and approve investment transactions occurring in the prior quarter. In addition, the Board of Directors should review the Actuarial Opinion annually. Evidence of review should be documented in the relevant meeting minutes. Additional Comments and Recommendations In addition to the above Comments and Recommendations, we made a number of other suggestions and recommendations to the Company with regard to record keeping and other procedures relating to its operations. These additional suggestions and recommendations were not deemed significant for purposes of our Report on Examination, and were included in our Management Letter to the Board of Directors of the Company.

government of the - d.c. department of insurance, … · · 2017-10-23summary of significant...

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