STATE OF CONNECTICUT

Transcription

1 STATE OF CONNECTICUT INSURANCE DEPARTMENT ORDER ADOPTING REPORT OF EXAMINATION I, Thomas B. Leonardi, Insurance Commissioner ofthe State of Connecticut, having fully considered and reviewed the Association Examination Report (the "Report") ofr.v.i. National Insurance Company (the "Company") as of December 31, 2010, do hereby adopt the findings and recommendations contained therein based on the following findings and conclusions, TO WIT: 1. I, Thomas B. Leonardi, as the Insurance Commissioner of the State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions of Title 38a of the Connecticut General Statutes. 2. The Company is a domestic insurer authorized to transact the business of insurance in the State of Connecticut. 3. On November 2,2011, the verified Association Examination Report of the Company was filed with the Connecticut Insurance Department. 4. In accordance with Conn. Gen. Statutes 38a-14(e)(3), the Company was afforded a period of thirty (30) days within which to submit to the Connecticut Insurance Department a written submission or rebuttal with respect to any matters contained in the Report. A two week extension was granted the Company. 5. On December 29,2011, the Company filed a written submission indicating that they were in agreement with all of the recommendations contained in the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A. P. O. Box 816 Hartford, CT An Equal Opportunity Employer

2 NOW, THEREFORE, it is ordered as follows: 1. That the Association Examination Report of the Company hereby is adopted as filed with the Insurance Department. 2. That the Company shall comply with all of the recommendations set forth in the Report, and that failure by the Company to so comply shall result in sanctions or administrative action as provided by Title 38a of the Connecticut General Statutes. Dated at Hartford, Connecticut, this 22nd day of December 2011 Insurance Commissioner

3 Exhibit A ASSOCIATION EXAMINATION REPORT OF RY.I. NATIONAL INSURANCE COMPANY AS OF DECEMBER 31,2010 BY THE CONNECTICUT INSURANCE DEPARTMENT

4 TABLE OF CONTENTS Salutation Scope ofexamination History Organizational Chart Management and Control Insurance Coverages Territory and Plan ofoperation Reinsurance Information Technology and Controls Accounts and Records Financial Statements Assets Liabilities, Surplus and Other Funds Statement ofincome Loss and Loss Adjustment Expenses Policyholders Surplus Conclusion Signature

5 November 2, 2011 The Honorable Joseph Torti, ill Chair, Financial Condition (E) Committee Deputy Director and Superintendent ofinsurance Rhode Island Division ofbanking Regulation Division ofinsurance 1511 Pontiac Avenue Cranston, Rhode Island The Honorable Joseph G. Murphy Secretary, Northeastern Zone Commissioner ofinsurance Commonwealth ofmassachusetts Division of Insurance 1000 Washington Street Boston, MA The Honorable Thomas B. Leonardi Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6 th Floor Hartford, Connecticut Dear Superintendent/Commissioners: In compliance with your instructions and pursuant to the requirements ofsection 38a-14 ofthe Connecticut General Statutes (CGS), the undersigned has made an association examination ofthe conditions and affairs of R.V.I. NATIONAL INSURANCE COMPANY (hereinafter referred to as the Company or RVIN), a corporation with capital stock, incorporated under the laws ofthe State ofconnecticut and having its statutory home and main administrative office located at 177 Broad Street, Stamford, Connecticut. The report on such examination is submitted herewith. SCOPE OF EXAMINATION The previous examination of the Company was conducted by the Financial Regulation Division ofthe Connecticut Insurance Department (Division) as ofdecember 31, The current examination, which covers the period from January 1,2007 to December 31, 2010, was conducted at the main administrative office ofthe Company.

6 R. V.I. NATIONAL INSURANCE COMPANY A concurrent examination was perfonned ofr.v.i. America Insurance Company (RVIA). As part of the examination planning procedures, the Division reviewed the following materials submitted by the Company from 2007 through : Board of Director (Board) minutes; Audit reports completed by the CPA finn retained by the Company; Management Discussion and Analysis; Statement of Actuarial Opinion; and Annual Statements filed with the Division. A review of the 2007 through 2010 independent audit reports and a comprehensive analysis of the Company's financial statements and other filings submitted to the Financial Analysis Unit of the Division indicated no material concerns with respect to financial condition or regulatory compliance issues. Workpapers prepared by the Company's independent public accountants, BDO Seidman, LLP (BDO), in connection with its annual statutory audit were reviewed and relied upon to the extent deemed appropriate. The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the National Association of Insurance Commissioners (NAIC) Financial Condition Examiners Handbook (Handbook). The Handbook requires that we plan and perfonn the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining infonnation about the Company, including corporate governance, identifying inherent risks within the Company, and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management compliance with Statutory Accounting Principles and Annual Statement Instructions (Instructions). All accounts and activities of the Company were considered in accordance with the riskfocused examination process. Comments in this report are generally limited to exceptions noted or to items considered to be of a material nature. Failure of items in this report to add to totals or for totals to agree with captioned amounts is due to rounding. HISTORY The Company is a property and casualty insurance concern originally incorporated in Iowa, in 1883, as Dubuque Fire and Marine Insurance Company (DFMIC). In 1962, DFMIC changed its name to Bankers Multiple Line Insurance Company (BML) and in 2

7 RV.I. NATIONAL INSURANCE COMPANY 1990, re-domiciled to Illinois. RV.I. America Corporation (Corp), a holding company organized on January 22, 1995, purchased 100% ofbml on February 8,2006. BML was re-domiciled to Connecticut and concurrently changed its name to RVIN, effective June 23,2006. Between November 10, 1992, and September 29, 1993, BML was under the direction of Southwestern Life Insurance Co., another subsidiary ofi.c.h. Corporation (lch), the ultimate parent company. Direct financial control ofbml from September 29, 1993, until its purchase by Corp had been held by Care Financial Corporation, a wholly-owned subsidiary of ICH, fonnerly Southwestern Life Corp. During 1997, all of the outstanding capital stock ofbml was deposited in the registry of the United States Bankruptcy Court (Court) for the Northern District of Texas for the benefit of fonner creditors of ICH. In 1995, ICH filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. Under the tenns of the Court approved plan of reorganization, the stock of BML would be transferred to a qualified buyer after a change of control was approved under applicable state Insurance Holding Company Acts. The reorganization plan also called for the transfer of certain assets ofbml to the Lone Star Liquidating Trust (Trust), which was fonned to liquidate certain assets ofich. On February 8, 2006, the Trust sold its investment in BML to Corp, after obtaining the required regulatory approvals, for $11,773,210. Corp is wholly-owned by RV.I. Guaranty Co., Ltd. (RVIG), an insurance company incorporated in Bennuda. For all of2009 and until October 26, 2010, RV.I. Investment Holdings Ltd. (Holdings) owned 50% ofrvig. Holdings was directly owned by S.Q. Insurance Holdings, N.V. incorporated in the Netherlands, Antilles (SQ) which was wholly-owned by Quantum Industrial Partners, and LDC (QIP), incorporated in the Cayman Islands (QIP). QIP owned the remaining 50% of the Company and indirectly owned 100%. In connection with a group restructuring in 2010, Holdings and SQ were liquidated and the shares of RVIG previously owned by Holdings were transferred to QIP on October 26,2010, making it the owner of 100% ofrvig until November 17,2010 when 100% of the outstanding shares of RVIG were transferred to Quantum Partners LP, Cayman Islands (QP). Corp, RV.I. Services Co., Inc. (RVIS), Transition Services, Inc. (TSI), RV.I. Analytical Services, Inc. (RVlAS) and RVlA are affiliates ofthe Company and ultimately owned 100% byqp. 3

8 R. V.1. NATIONAL INSURANCE COMPANY ORGANIZATIONAL CHART The following is an organizational chart ofthe Company and its affiliates: Quantum Partners LP* (Cayman Islands) Quantum Industrial Partners LDC (Cayman Islands) R.V.1. Guaranty Co. Ltd. (Bennuda) R.V.I. America Corporation (Delaware) R.V.1. Services Co., Inc, (Connecticut) R.V.I.America Insurance Company (Connecticut) Transition Services, Inc. (Delaware) RVI Analytical Services, Inc. (Delaware) R.V.I. National Insurance Company (Connecticut) *Mr. George Soros, his family and certain not-for-profit foundations, founded and funded by Mr. Soros and his family, ultimately hold, directly or indirectly, a greater than 10% interest in QP; however they do not participate in the management or control the policies ofthe Registrants. 4

9 R.V.I. NATIONAL INSURANCE COMPANY Shareholders Meetings MANAGEMENT AND CONTROL The bylaws state that a meeting of the shareholders of the Company shall be held each year at the principal office of the Company or at such other place either within or outside of Connecticut as determined by the Board and stated in the notice to shareholders, during the first six months of the fiscal year. The purpose of such meeting is the election of the Board members and the transaction of such other business as may properly come before the meeting. Special meetings of the shareholders may be called by the president or the Board or as otherwise provided by law. In place of holding a meeting, the shareholders may, by their unanimous written consent, dispose of any matter or transact any business. Written or printed notice stating the place, day and hour of the meeting, and in the case of a special meeting, the purpose ofor purposes for which the meeting is called, shall be given as provided by law. Board of Directors According to the bylaws, the affairs of the Company shall be managed by a Board. The number of directors shall be not less than one (1) nor more than seven (7), as may be fixed by resolution of the Board or by the shareholders at each annual meeting. At each annual meeting of the shareholders, directors shall be elected to hold office until the next succeeding annual meeting. The Board may hold meetings, both regular and special, within or without the State of Connecticut. The Board shall hold at least one regular meeting per year. Special meetings of the Board may be called by or at the request of the president or the secretary. Committees The Board by resolution may designate two or more directors to constitute an executive committee or other committee of the Board. Any such committee shall have and may exercise the powers of the Board in the management of the business, property and affairs of the Company as shall be provided by the bylaws or in the resolution of the Board constituting the committee. The officers serving the Company at December 31,2010, were as follows: Officer Rene Miguel Abdalah Wei Fan Title Vice President Vice President 5

10 R.V.I. NATIONAL INSURANCE COMPANY David Andrew Klanica Douglas Heller May* Michael Patrick McGroarty John Lamar O'Bryan Darrel Mark Seife John Walcott CFO and Executive Vice President Chief Executive Officer and President General Counsel and Secretary Senior Vice President Senior Counsel and Assistant Secretary Vice President, Tax * Also on the Company's Board. INSURANCE COVERAGES The Company is insured on a computer fraud and financial institution bond policy by the Chubb Insurance Company Europe S.B. (A Chubb Company). The financial institution bond coverage is $5 million for each liability with a $100,000 deductible and an aggregate coverage of $5 million. The coverage amount is greater than the minimum amount specified in the Handbook. Additional policies are held by the Company for the following lines: Company Hartford Casualty Insurance Company Chartis Insurance UK Limited Coverage Business owners policy covering business property, EDP equipment and media, Business liability, Employee benefit liability, Business income and extra expense and valuable papers/records, Workers compensation, Employers liability, Commercial auto and general liability as it relates to underlying business owners policy Directors and officers, Employment practices, and employed lawyers TERRITORY MID PLAN OF OPERATION The Company is licensed as a property and casualty insurer in all fifty states and the District of Columbia. Connecticut granted the Company a certificate of authority to underwrite the following lines of insurance: inland marine for purposes ofwriting residual value insurance only; accident & health to service existing business only; liability other than auto (B.I. and P.D.) to service existing business only; fidelity & surety; and residual value. In 2008, RVIN ceased writing fidelity business. 6

11 R. V.l. NATIONAL INSURANCE COMPANY Since 2009, the Company has been marketed for sale as a shell. As part of the sale process, all outstanding residual value insurance policy obligations have been or will be transferred to the books of and assumed by RVIA or RVIG. REINSURANCE The following is a summary of the reinsurance programs that the Company participated in as ofdecember 31,2010: Effective April 1, 1996, the Company reinsured all of its existing individual health and accident insurance business with World Insurance Company (World). Effective April 1, 1998, World assumed, through an assumption reinsurance agreement, all of the individual health and accident insurance and has reported the related reserves and premium as direct business on its books. The assumption was approved in all jurisdictions except New York. In New York, World and the Company were required to enter into a trust agreement wherein World maintains assets with a minimum balance in the trust account at least equal to 102% of the reserves and related liabilities for the New York policies. The trust account balance as ofdecember 31,2010, was $659,000 with total reserves at $71,364. Also, prior to Corp's February 2006 acquisition of RVIN, the Company reinsured certain ofits risks with respect to two other books ofbusiness. To the extent that the reinsurers become unable to meet their obligations under these arrangements, the Company remains contingently liable. The total reserves ceded were approximately $889,000 at December 31,2010. In the first arrangement, the Company ceded an accidental death and dismemberment book ofbusiness to Bankers Life and Casualty Company. As of December 31, 2010, the Company ceded aggregate case and IBNR loss reserves of $872,000. In the second and final arrangement, in September 1995, the Company ceded 100% of its real estate errors and omissions business to Frontier Insurance Company (Frontier). On October 15,2001, the New York Insurance Department placed Frontier in rehabilitation. In 2003, the Company began advancing amounts to Frontier for claim settlements and payments on the business that totaled $175,845. In June 2004, the Company reached an agreement with the rehabilitator of Frontier whereby the Company would forgive its claim to the $175,845 in advances and the rehabilitator agreed that Frontier would pay all future claims, expenses and attorney fees on all the remaining open claims. The NY State Supreme Court, Sullivan County, approved this agreement on July 26,2004. Three claims remain open and as of December 31, 2010, the Company's outstanding recorded ceded case and IBNR loss and LAE reserves totaled $16,000. In December 2006, the Company entered into a quota share reinsurance treaty with RVIG whereby the Company cedes 85% of each risk. The treaty also includes a provision to cede amounts greater than 85% of premiums written, ifthe Company's net retention would exceed its single risk limit of $1.25 million. Pursuant to this treaty, RVIG is required to pay a ceding allowance of 30% to the Company. 7

12 R.V.I. NATIONAL INSURANCE COIVIPANY The Company is no longer actively writing residual value insurance policies. During the 4 th quarter of2010, the Company cancelled two of its three remaining in-force residual value insurance policies which were ceded to RVIG totaling ($145,447) in reinsurance premiums. Total direct and ceded unearned premiums at December 31, 2010 were $5,892 and $5,008, respectively. INFORMATION TECHNOLOGY (IT) AND CONTROLS The Division engaged Parentebeard LLC to perform a review of IT controls to determine if the IT control structure was suitably designed to achieve certain control objectives specified in Exhibit C of the Handbook. IT general controls work performed by BDO was reviewed. The review objectives included procedures to obtain reasonable assurance about whether: The Company's responses to the IT Planning Questionnaire presented fairly, in all material respects, the aspects of the Company's policies and procedures that were relevant to its internal control structure; The IT controls selected for testing were suitably designed to achieve the control objectives; and Such controls were operating effectively. The evaluation ofit controls focused on the following areas: Plan and Organize (Strategic Planning, Organization, Policies and Procedures); Acquire and Implement (System Development, Change Control, Vendor Management); Deliver and Support (Maintenance, Support, Operations, Backup and Recovery, Service Desk, Data Center Physical and Environmental Controls); and Monitor and Evaluate (performance Monitoring, Compliance). In performing their evaluation ofit controls for the above mentioned areas, Parentebeard LLC looked at the Quest system, Platinum general ledger and the SQL ServerlData Warehouse. Based on the review ofexhibit C and inquiry and observation of the scope areas noted above, it was determined that controls in the environment were suitably designed and operating with sufficient effectiveness for automated control reliance by the Division for the period ending December 31, ACCOUNTS AND RECORDS During the period under examination, the Company used the Platinum general ledger package. The Company's investments are processed through its investment advisor, Conning Asset Management Company (CAM). 8

13 R.V.I. NATIONAL INBURANCE CONIPANY General ledger account balances were reconciled and traced to the amounts reported in the annual statement for Detailed analyses were performed on the individual accounts throughout the examination. FINANCIAL STATEMENTS The following statements reflect the assets, liabilities, surplus and other funds, and statement of income as ofdecember 31,2010, as reported by the Company and as determined by the examination: ASSETS 1 Ledger Assets 2 Nonadmitted Assets 3 Net Admitted Assets Bonds $13,308,665 $13,308,665 Cash, cash equivalents and short-term investments 588, ,219 Investment income due and accrued 84,288 84,288 Other amounts receivable under reinsurance contracts 126, ,630 Current federal and foreign income tax recoverable and interest thereon 801,263 $801,263 0 Net deferred tax asset 18,870 16,749 2,121 Electronic data processing equipment and software 1,887 1,887 0 Furniture and equipment 5,869 5,869 0 Aggregate write-ins for other than invested assets 18,539 2,864 15,675 Totals $14,954,230 $828,632 $14,125,598 9

14 R.Y.I. NATIONAL INSURANCE COMPANY LIABILITIES, SURPLUS AND OTHER FUNDS Losses Commissions payable, contingent commissions and other similar charges Other expenses (excluding taxes, licenses and fees) Unearned premiums Amounts withheld or retained by company for account ofothers Payable to parent, subsidiaries and affiliates Total liabilities Common capital stock (1,000 shares authorized, issued and outstanding) Gross paid in and contributed surplus Unassigned funds (surplus) Surplus as regards policyholders Totals $40,327 1,003 15, , , ,809 2,772,000 24,208,022 (13,184,233) 13,795,789 $14,125,598 10

15 R.V.I. NATIONAL INSURANCE COMPANY STATEMENT OF INCOME UNDERWRITING INCOME Premiums earned DEDUCTIONS Losses incurred Other underwriting expenses incurred Total underwriting deductions Net underwriting gain (loss) INVESTMENT INCOME Net investment income earned Net realized capital gains (losses) Net investment gains Net income before dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes Dividends to policyholders Net income, after dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes Federal and foreign income taxes Net income CAPITAL AND SURPLUS ACCOUNT Surplus as regards policyholders, December 31 prior year Net income Change in net deferred income tax Change in nonadmitted assets and related items Change in surplus as regards policyholders for the year Surplus as regards policyholders, December 31 current year $22,009 3, , ,466 (106,457) 401,437 6, , ,000 o 301, , ,291 13,497, ,291 8, , ,637 $13,795,789 11

16 R.V.I. NATIONAL INSURANCE COMPANY LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) $ The following items were included in the captioned account: Losses $40,327 LAE o $ The Division engaged RSM McGladrey, LLC (RSM) to conduct actuarial examination services in conjunction with the financial examination. RSM focused their review primarily on an assessment ofreserve risk and liquidity risk. Since 2009, the Company has been marketed for sale as a shell. As part of the sale process, all outstanding residual value insurance policy obligations have been or will be transferred to the books of and assumed by an affiliated insurance company. As such a review ofpricing and underwriting risks was not performed. Reserving Risk (i.e., the risk that actual losses or other contractual payments reflected in the corresponding reserves will be greater than the carried liabilities) - RSM's assessment ofreserve risk included: 1) a high level review of the most recent Annual Statement, Statement of Actuarial Opinion and report of the Appointed Actuary supporting the opinion; 2) meeting with Company officers responsible for determining the carried liabilities for loss and LAE; and 3) commenting on the primary reserve risks, the frequency of and the process for reporting actuarial indications to management and the processes and controls in place to mitigate those risks. Liquidity Risk (i.e., the risk that the Company will not meet contractual obligations as they become due because of an inability to liquidate assets or obtain funding without incurring unacceptable losses) i.e., the risk that pricing practices are inappropriate for the risks assumed) - RSM's assessment ofliquidity risk included: 1) meeting with appropriate officers ofthe Company to assess the process for identifying and evaluating catastrophic exposure and risk concentration; and 2) review of the frequency of and the process for reporting assessments to management, as well as the controls in place to mitigate those risks. Based upon the risk-based assessment and review, no material findings affecting policyholders surplus were noted which affected the Company's ability to manage its reserving or liquidity risk. 12

17 R.V.I. NATIONAL INSURANCE COMPANY POLICYHOLDERS SURPLUS $13,795,789 The following is a reconciliation ofpolicyholders' surplus during the period under examination: Surplus as regards policyholders, December 31,2006 $14,880,560 Net Income/(Net Loss) (306,078) Change in net deferred income tax 8,913 Change in nonadmitted assets (787,606) Net change in capital and policyholder surplus for the examination period ($1,084,771) Surplus as regards policyholders, December 31,2010 $13,795,789 As indicated above, changes to the Company's policyholder surplus over the exam period were largely due to a federal income tax recoverable established in 2008 as a result of RVIG utilizing the Company's net operating loss. The asset was nonadmitted in 2008 as the Company was still in a net loss position. CONCLUSION The results of this examination disclosed that as ofdecember 31, 2010, the Company had admitted assets of$14,125,598, liabilities of$329,809 and capital and surplus of $13,795,789. During the period under examination, admitted assets decreased $1,286,746 liabilities decreased $201,975, and capital and surplus decreased $1,084,771. It was determined that the Company's assets and liabilities were fairly stated in accordance with guidance outlined in the NAIC Accounting Practices and Procedures Manual. Assets were acceptable under Section 38a-l02 of the CGS. The liabilities established were adequate to cover the Company's obligations to policyholders. 13

18 R.V.I. NATIONAL INSURANCE COMPANY SIGNATIJRE In addition to the undersigned, William Arfanis, CFE, Gerald F. Burke, CFE, Kent G. Krajick, CFE, Kenneth Roulier, APE, CISA, AES, of the State of Connecticut Insurance Department, Regulatory Examination Consultants, Ltd., Parentebeard LLC, and RSM McGladrey, Inc. participated in this examination. I, William B. Tatelman, do solemnly swear that the foregoing report ofexamination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as of December 31, 2010, to the best of my information, knowledge and belief. Respectfully submitted, William B. Tatelman, CFE Examiner-in-Charge State of Connecticut Insurance Department State of Connecticut ss / J.M+~0- County ofhartford Subscribed and sworn before me,nturlcl1 m. rna c;)c, Notary,{ Public/Commissioner of the Superior Cofut, on this } ~ day of J'tfYe-rn, JJI21J ~. ~- ~~~ (Notary p{ lie/commissioner of the Superior Court My Commission Expires f? lab J;l.6 /.s 14