Ecclesia Assurance Company

Transcription

1 Ecclesia Assurance Company Independent Auditors Report, Financial Statements and Exhibits As of and for the Years Ended December 31, 2014 and 2013

2 Accounting Tax Advisory Independent Auditors Report To the Board of Directors and Stockholder of Ecclesia Assurance Company: We have audited the accompanying financial statements of Ecclesia Assurance Company (the Company), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of operations, changes in stockholder s equity, and cash flows for the years then ended. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ecclesia Assurance Company as of December 31, 2014 and 2013, and the results of its operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. April 21, 2015 HARTFORD, CT BURLINGTON, VT PHOENIX, AZ

3 Balance Sheets December 31, 2014 and Assets Cash and cash equivalents $ 8,116,652 $ 7,025,519 Investment in Catholic United Investment Trust (Note 3) 18,837,271 18,078,971 Premiums receivable 2,073,980 1,968,629 Prepaid expenses 20,170 22,700 Reinsurance recoverable on unpaid losses and loss adjustment expenses 3,460,583 4,776,807 Prepaid reinsurance 1,337,312 1,284,972 Deferred policy acquisition costs 11,438 12,019 Total assets $ 33,857,406 $ 33,169,617 Liabilities and Stockholder s Equity Liabilities: Unpaid losses and loss adjustment expenses $ 9,400,800 $ 11,099,493 Unearned premiums 2,859,451 2,771,485 Accrued expenses 90,667 96,429 Deferred ceding commission income - 1,367 Total liabilities 12,350,918 13,968,774 Stockholder s equity: Common stock, $1 par value, 100,000 shares authorized, issued and outstanding 100, ,000 Additional paid-in capital 2,900,000 2,900,000 Retained earnings 18,506,488 16,200,843 Total stockholder s equity 21,506,488 19,200,843 Total liabilities and stockholder s equity $ 33,857,406 $ 33,169,617 The accompanying notes are an integral part of these financial statements. 2

4 Statements of Operations For the Years Ended December 31, 2014 and Revenue: Net earned premiums $ 1,873,639 $ 1,750,291 Ceding commission income 1,367 18,716 Interest and dividend income 331, ,429 Net gains on investment in Catholic United Investment Trust 431, ,685 Total revenue 2,637,908 2,356,121 Losses and expenses: Losses and loss adjustment expenses incurred (36,075) (1,166,399) Underwriting expenses 64,007 58,766 General and administrative expenses 304, ,543 Total losses and expenses 332,263 (795,090) Net income $ 2,305,645 $ 3,151,211 The accompanying notes are an integral part of these financial statements. 3

5 Statements of Changes in Stockholder s Equity For the Years Ended December 31, 2014 and 2013 Common Stock Additional Paid-in Retained Shares Amount Capital Earnings Total Balance at January 1, ,000 $ 100,000 $ 2,900,000 $ 13,049,632 $ 16,049,632 Net income ,151,211 3,151,211 Balance at December 31, , ,000 2,900,000 16,200,843 19,200,843 Net income ,305,645 2,305,645 Balance at December 31, ,000 $ 100,000 $ 2,900,000 $ 18,506,488 $ 21,506,488 The accompanying notes are an integral part of these financial statements. 4

6 Statements of Cash Flows For the Years Ended December 31, 2014 and Cash flows from operating activities: Net income $ 2,305,645 $ 3,151,211 Adjustments to reconcile net income to net cash provided by operating activities: Net gains on investment in Catholic United Investment Trust (431,138) (420,685) Net changes in assets and liabilities: Premiums receivable (105,351) (62,489) Prepaid expenses 2,530 38,929 Reinsurance recoverable on unpaid losses and loss adjustment expenses 1,316, ,349 Prepaid reinsurance (52,340) 55,103 Deferred policy acquisition costs 581 (991) Unpaid losses and loss adjustment expenses (1,698,693) (2,336,551) Unearned premiums 87,966 14,636 Accrued expenses (5,762) (20,307) Deferred ceding commission income (1,367) (13,216) Net cash provided by operating activities 1,418,295 1,370,989 Cash flows from investing activities: Purchases of investment in Catholic United Investment Trust (327,162) (17,658,286) Net cash used in investing activities (327,162) (17,658,286) Net change in cash and cash equivalents 1,091,133 (16,287,297) Cash and cash equivalents, beginning of year 7,025,519 23,312,816 Cash and cash equivalents, end of year $ 8,116,652 $ 7,025,519 The accompanying notes are an integral part of these financial statements. 5

7 Note 1 - Operations Ecclesia Assurance Company (the Company), a wholly owned subsidiary of the Roman Catholic Diocese of Rockville Centre (the Diocese), was incorporated under the laws of the State of New York on December 10, The Company is licensed to transact insurance and reinsurance business as a captive insurance company pursuant to the applicable statutes of the State of New York. The Company provides various property and casualty insurance coverage to the Diocese. The policies cover the Diocese, as well as certain entities that have a relation to the Diocese. Note 2 - Significant Accounting Policies Basis of Presentation - The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), as promulgated by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Cash and Cash Equivalents - Cash equivalents are comprised of a money market fund as of December 31, 2014 and In general, the Federal Deposit Insurance Corporation (FDIC) insures cash balances up to $250,000 per depositor, per bank. It is the Company s policy to monitor the financial strength of the banks that hold its deposits on an ongoing basis. During the normal course of business, the Company may maintain cash balances in excess of the FDIC insurance limit. Money market funds are not insured by the FDIC and are not a risk-free investment. Money market funds invest in a variety of instruments including mortgage-backed and asset-backed securities. Although a money market fund seeks to preserve its $1 per share value, it is possible that a money market fund s value can decrease below $1 per share. Investment in Catholic United Investment Trust - The Catholic United Investment Trust (CUIT) is an independent not-for-profit and non-regulated investment trust established by Catholic religious leaders with the mission to develop and provide secure, reliable investment programs for Catholic organizations and institutions. CUIT offers a variety of investment options and strategies for its investors in the form of several professionally managed pooled investment funds. These funds are managed by Christian Brothers Investment Services, Inc (CBIS). CBIS is an investment advisor registered with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of CBIS Financial Services, Inc. (CBIS-FS), a wholly-owned subsidiary of CBIS, acts as distributor and redemption agent for these funds. CBIS-FS is a registered member of the Financial Industry Regulatory Authority and a broker-dealer registered with the SEC. 6

8 Note 2 - Significant Accounting Policies (continued) The Company records its investment in CUIT in accordance with FASB ASC 825, Financial Instruments, which permits entities to choose, at specified election dates, to measure eligible items at fair value (i.e. the fair value option). For the Company, the election date of investments is defined as the date the Company first recognizes eligible items which typically for the Company is the date upon which the Company purchases an interest in each of these investments. The Company reports unrealized gains and losses for which the fair value option has been elected as a component of net income. The fair value option: (a) may be applied instrument by instrument, with certain exceptions; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported on the balance sheets. Fair Value Measurements - The Company measures its cash equivalents and investments at fair value in accordance with FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 focuses on the price that would be received to sell the asset, which is referred to as the exit price. FASB ASC 820 provides guidance on how to measure fair value, when required, under existing accounting standards. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows: Level 1 - Observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date. Level 2 - Inputs to the valuation methodology include: Quoted prices for similar assets in active markets; Quoted prices for identical or similar assets in inactive markets; Inputs other than quoted prices that are observable for the asset; or Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset. Level 3 - Unobservable inputs reflecting the Company s estimates of the assumptions that market participants would use in pricing the asset (including assumptions about risk). The Company has provided details on the fair value levels used to value its cash equivalents and investments in accordance with FASB ASC 820 as further disclosed in Note 3. Premiums Receivable - Premiums receivable are due directly from the Protected Self Insurance Program of the Roman Catholic Diocese of Rockville Centre, a related entity. The Company determines whether an allowance for bad debts should be provided for. Such estimates are based on management s assessment of the aged basis of the receivables, concurrent economic conditions, subsequent cash receipts and historical information. Receivables may be written off against the allowance for doubtful accounts when all reasonable collection efforts have been exhausted. As of December 31, 2014 and 2013, the Company did not record an allowance for doubtful accounts against its premiums receivable balances because management believes they are fully collectible. 7

9 Note 2 - Significant Accounting Policies (continued) Recognition of Premium Revenues - Premiums written are earned on a pro-rata basis over the related policy period. The portion of premiums that will be earned in the future is deferred and reported as unearned premiums. Reinsurance - In the normal course of business, the Company seeks to reduce its loss exposure by reinsuring certain levels of risk with reinsurers. Reinsurance is accounted for in accordance with FASB ASC 944, Financial Services - Insurance. Premiums ceded are expensed over the term of the related policies. Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsurance policy. As these estimates change, the adjustment is recorded in the current period. Unpaid Losses and Loss Adjustment Expenses - The liability for unpaid losses and loss adjustment expenses and the corresponding reinsurance recoverable on unpaid losses and loss adjustment expenses includes case basis estimates of reported losses, plus amounts for incurred but not reported losses calculated based upon loss projections utilizing historical and industry data. In establishing the liability for unpaid losses and loss adjustment expenses and the corresponding reinsurance recoverable on unpaid losses and loss adjustment expenses, the Company utilizes the findings of an independent consulting actuary. Management believes that its aggregate liability for unpaid losses and loss adjustment expenses and corresponding reinsurance recoverable on unpaid losses and loss adjustment expenses at year end represents its best estimate, based upon the available data, of the amount necessary to cover the ultimate cost of losses. Unpaid losses and loss adjustment expenses and the corresponding reinsurance recoverable on unpaid losses and loss adjustment expenses are based upon estimates and the ultimate liability could vary in excess of, or less than, the amount indicated in the financial statements. As adjustments to these estimates become necessary, such adjustments will be reflected in current operations. Deferred Policy Acquisition Costs - Acquisition and renewal costs, which are mainly comprised of premium taxes associated with the underwriting of insurance policies, are amortized over the term of the those related policies. All costs deferred relate directly to the successful placement of insurance contracts. Acquisition costs expensed and included in underwriting expenses during 2014 and 2013 were $20,734 and $18,815, respectively. Deferred Ceding Commission Income - The Company receives commission income from certain reinsurers. These ceding commissions are earned over the term of the related reinsurance agreements. Ceding commissions earned were $0 and $1,367 for the years ended December 31, 2014 and 2013, respectively. Federal Income Taxes - The Company is classified under Section 501(c)(3) and is exempt from income taxes under Section 501(a) of the Internal Revenue Code. Accordingly, no tax provision has been recorded by the Company. The Company accounts for uncertainties in income taxes recognized in the Company s financial statements using a threshold of more likely than not. Income generated from activities unrelated to the Company s exempt purpose is subject to tax. The Company did not have any material unrelated business income tax liability at December 31, 2014 and Premium Deficiency - The Company recognizes premium deficiencies when there is a probable loss on an insurance contract. Premium deficiencies are recognized if the sum of expected losses and loss adjustment expenses, expected policyholder dividends, unamortized deferred acquisition costs, and maintenance costs exceed unearned premiums and anticipated investment income. No premium deficiencies have been recognized for the years ended December 31, 2014 and

10 Note 3 - Investments The following table presents the fair value hierarchy of investments as of December 31, 2014: Quoted Significant Significant Prices in Observable Unobservable Active Markets Inputs Inputs (Level 1) (Level 2) (Level 3) CUIT Funds: Short Bond Fund $ - $ 4,109,043 $ - Opportunistic Bond Fund Class B - 5,120,263 - Intermediate Diversified Bond Fund Class B - 5,339,377 - Balanced Fund - 4,268,588 - Total $ - $ 18,837,271 $ - The following table presents the fair value hierarchy of investments as of December 31, 2013: Quoted Significant Significant Prices in Observable Unobservable Active Markets Inputs Inputs (Level 1) (Level 2) (Level 3) CUIT Funds: Short Bond Fund $ - $ 4,053,382 $ - Opportunistic Bond Fund Class B - 5,055,824 - Intermediate Diversified Bond Fund Class B - 5,046,259 - Balanced Fund - 3,923,506 - Total $ - $ 18,078,971 $ - As of December 31, 2014 and 2013, investments in money market funds of $6,117,451 and $5,025,519, respectively, were recorded using Level 1 fair values based on observable quoted market prices from national securities exchanges. Investments in money market funds are included in cash and cash equivalents. Investments in the CUIT funds were recorded using Level 2 fair values as these funds are not traded on a national securities exchange. Investments in CUIT funds are sold and redeemed at net asset value (NAV). There are no sales or redemption charges or restrictions associated with investments in CUIT funds. FASB ASC 820 permits, as a practical expedient, an entity holding investments that calculate NAV per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. 9

11 Note 3 - Investments (continued) Ecclesia Assurance Company The Company has applied this practical expedient measure in determining the fair value of its investment in CUIT as of December 31, 2014 and A description of the CUIT funds invested in by the Company are as follows: Short Bond Fund - The Fund seeks to preserve capital while providing current income in excess of cash market yields. The Fund invests primarily in U.S. government, agency, corporate, asset-backed and mortgage-backed securities with an average maturity of less than five years. Opportunistic Bond Fund Class B - The Fund seeks current income and long-term capital appreciation, with an enhanced ability to contend with rising interest rates. The Fund invests primarily in U.S. government, agency, corporate and mortgage-backed securities rated between BBB to AAA. Intermediate Diversified Bond Fund Class B - The Fund seeks current income and long-term capital appreciation by investing primarily in U.S. government, agency, corporate and mortgage-backed securities rated between BBB to AAA. Balanced Fund - The Fund seeks long-term capital appreciation and current income while maintaining, on average, a 60% equity and 40% fixed income allocation. Equity investments consist primarily of largecap U.S. companies diversified among industry sectors. Fixed income securities include corporate, U.S. government and agency bonds, asset-backed and mortgage-backed securities. Note 4 - Insurance Activity Effective for the 2011 through 2014 policy years, the Company offered primary liability insurance with limits of $750,000 per occurrence and in the aggregate in excess of a $250,000 self insured retention. One line had no aggregate limit while the other lines had aggregate limits ranging from $750,000 to $2,250,000. Except for one line with limits of $750,000 excess of $250,000, all other lines had full, but non concurrent, reinsurance protection. For policy years 2008 through 2014, the Company provided excess liability insurance, offering various liability lines of coverage. Coverage ranged from $1,000,000 to $9,000,000 per occurrence and in the aggregate. Reinsurance protection was procured for all lines of coverage for the 2008 and 2009 policy periods for 75% of the limit of coverage provided, except for a line with limits of $3,000,000 excess of $1,000,000. Reinsurance protection was procured for all lines of coverage for the 2010 through 2014 policy periods for 100% of the limit of coverage provided except for a line with limits of $1,000,000 excess of $1,000,000. Effective September 1, 2006, the Company assumed pre-existing specific excess workers compensation losses in the layer of $100,000 excess of $250,000 per occurrence after a $300,000 annual aggregate is reached for each of the four years, covering risks retained by the Diocese for the four-year period from September 1, 1996 to September 1, For policy years 2009 through 2014, the Company provided primary property coverage for limits of $99,750,000 excess of $250,000 per occurrence. For the policy year 2009 through 2010, the Company provided excess property coverage for limits of $200,000,000 excess of $300,000,000 per occurrence. The Company provided excess property coverage for limits of $200,000,000 excess of $100,000,000 per occurrence from 2010 through 2011 and $100,000,000 excess of $100,000,000 per occurrence from 2012 through All these coverages were 100% reinsured. 10

12 Note 4 - Insurance Activity (continued) Ecclesia Assurance Company In 2004, the Company began issuing a surety bond to an affiliate of the Diocese for the purpose of providing coverage in the event that the subsidiary does not repay funds that it is holding for third parties. Effective August 20, 2013, this bond was canceled. For policy years 2009 through 2014, the Company provided coverage for certified terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 (TRIA) and the subsequent 2007 extension of TRIA. TRIA provides for a system of shared public and private compensation for insured losses resulting from certified acts of terrorism. TRIA protection is only triggered if there is a certified act of terrorism and losses reach an industry insured loss trigger of $100 million. The coverage provided by the Company is eligible under TRIA for 85% co-insurance protection provided by the U.S. Treasury subject to a deductible equal to 20% of the Company s prior year direct earned premiums. The Company retains both the deductible and its remaining 15% share of certified terrorism losses. The 2007 extension of the TRIA program expired on December 31, On January 12, 2015, the President of the United States signed the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) into law extending TRIA through December 31, TRIPRA increases the industry insured loss trigger for the federal share of compensation for certified acts of terrorism by $20 million annually beginning January 1, 2016 until it reaches $200 million on January 1, Finally, under TRIPRA, the federal government s co-insurance protection gradually decreases from 85% to 80%, dropping one percent annually beginning on January 1, Reinsurance contracts reduce the Company s exposure to large losses by permitting recovery of a portion of losses and loss adjustment expenses. Reinsurance contracts do not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers through periodic review of each reinsurer s AM Best rating and periodic review of the audited financial statements for those reinsurers not rated. One reinsurer is not rated, all others are rated A or better by AM Best. Of those rated, 54% of the reinsurance recoverable is due from one reinsurer; 46% of the reinsurance recoverable is due from the reinsurer that is not rated. The Company records an impairment for credit losses when the Company believes that it will be unable to collect amounts due. As of December 31, 2014 and 2013, the Company did not record an impairment for credit losses against reinsurance recoverables on unpaid losses and loss adjustment expenses. There can be no assurance that reinsurance will continue to be available to the Company to the same extent, and at the same cost, as it has in the past. The Company may choose in the future to re-evaluate the use of reinsurance to increase or decrease the amount of risk it cedes to reinsurers. During 2014 and 2013, the Company recorded ceded paid loss recoveries of $1,340,048 and $3,769,363, respectively. The change in estimated recoveries recorded within incurred losses amounted to $143,129 and $3,472,547 for the years ended December 31, 2014 and 2013, respectively. 11

13 Note 4 - Insurance Activity (continued) Ecclesia Assurance Company The following is a reconciliation of direct to net premiums on both a written and earned basis for the years ended December 31, 2014 and 2013: Premium Written Premium Earned Direct premiums $ 5,038,347 $ 4,951,590 $ 4,950,381 $ 4,936,954 Premiums ceded (3,129,082) (3,131,560) (3,076,742) (3,186,663) Net premiums $ 1,909,265 $ 1,820,030 $ 1,873,639 $ 1,750,291 Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows for the years ended December 31, 2014 and 2013: Balance at beginning of year $ 11,099,493 $ 13,436,044 Less: reinsurance recoverable on unpaid losses (4,776,807) (5,742,156) Net balance at beginning of year 6,322,686 7,693,888 Incurred related to: Current year 419, ,641 Prior years (455,961) (1,453,040) Total incurred (36,075) (1,166,399) Paid related to: Current year - - Prior years (346,394) (204,803) Total paid (346,394) (204,803) Net balance at end of year 5,940,217 6,322,686 Add: reinsurance recoverable on unpaid losses 3,460,583 4,776,807 Balance at end of year $ 9,400,800 $ 11,099,493 For the years ended December 31, 2014 and 2013, the provision for prior year unpaid losses and loss adjustment expenses decreased by $455,961 and $1,453,040, respectively, primarily due to favorable loss development on the workers compensation and general liability lines of business. 12

14 Note 5 - Related Party Transactions Ecclesia Assurance Company In 2014, the Company amended their contract with the Diocese for management and consulting services related to the Company, increasing the maximum annual service fee to $110,000. In 2014 and 2013, management fees expensed under this agreement were $56,557 and $30,000, respectively. Note 6 - Stockholder s Equity The State of New York captive insurance statutes require $250,000 in minimum surplus to be maintained by a single parent captive insurance company. No dividends were declared or paid during 2014 and There were no reconciling items between the audited financial statements and the Company s Annual Statement as filed with the New York State Insurance Department as of December 31, 2014 and Note 7 - Subsequent Events Subsequent events have been evaluated through April 21, 2015, which is the date the financial statements were available to be issued. Management believes there are no subsequent events having a material impact on the financial statements. 13