amica mutual insurance company - rhode island … · amica mutual insurance company lincoln, rhode...

Report on Examination

of

AMICA MUTUAL INSURANCE COMPANY

Lincoln, Rhode Island

as of

December 31, 2014

State of Rhode Island and Providence Plantations

Department of Business Regulation

Insurance Division

TABLE OF CONTENTS

Page

SALUTATION ………………………………………………………….…………… 1

SCOPE OF EXAMINATION ……………………………………………………….. 2

COMPANY HISTORY ……..…………………………………………….…………. 3

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

Members….………………………………………………………….……..… 3

Board of Directors …………………………………………………………… 4

Committees ………………………………………………………….……….. 6

Officers …………………………………………………………….………… 7

Organizational Structure……………………………………………………… 8

Inter-Company Agreement……………………………………………...……. 10

TERRITORY AND PLAN OF OPERATION ……………………………………… 11

REINSURANCE …………………………………………………………………….. 13

FINANCIAL STATEMENTS ……………………………………………………….. 18

Comparative Statement of Assets……………………………………………. 19

Comparative Statement of Liabilities, Surplus and Other Funds……………. 20

Statement of Income……………… ……………………………………….... 21

Capital and Surplus Account ……………………………………………….... 22

Reconciliation of Capital and Surplus ……………………………………….. 23

Analysis of Examination Adjustments ………………………………………. 24

ASSETS ……………………………………………………………………………… 25

Bonds ………………………………………………………………………… 25

Common Stocks.....…………………………………………………………… 25

LIABILITIES ………………………………………………………………………… 27

Losses ……….……………………………………………………………….. 27

Loss Adjustment Expenses …..………..……………………………………... 27

POLICYHOLDER SURPLUS…….……………………………………………...…. 28

SUBSEQUENT EVENTS ….……………………………………………………….. 29

CONCLUSION ………………………………………………………………………. 30

1

February 25, 2016

Ms. Elizabeth Kelleher Dwyer

Deputy Director and Superintendent of Banking and Insurance

State of Rhode Island and Providence Plantations

Department of Business Regulation

1511 Pontiac Avenue, Bldg. 69-2

Cranston, Rhode Island 02920

Dear Superintendent Dwyer:

In accordance with your instructions and pursuant to Chapters 13.1 and 35 of Title 27 of the

General Laws of the State of Rhode Island, an examination has been made as of

December 31, 2014, of the financial condition and affairs of


at its home office located at 100 Amica Way, Lincoln, Rhode Island. The report of such

examination is herewith submitted.

Amica Mutual Insurance Company, also referred to within this report as “Amica Mutual,” or

“the Company,” was previously examined as of December 31, 2010. Both the current and

prior examinations have been conducted by Insurance Division of the State of Rhode Island

(“Insurance Division”).

2

SCOPE OF EXAMINATION

The current examination covered the four-year period of January 1, 2011 through

December 31, 2014 and was performed in compliance with the above mentioned sections of

the General Laws of the State of Rhode Island, as amended. We conducted our examination

in accordance with the NAIC Financial Condition Examiners Handbook. The Handbook

requires that we plan and perform the examination 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 Statutory Accounting Principles. 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.

This examination report includes significant findings of fact and general information about the

insurer and its financial condition. There may be other items identified during the examination

that, due to their nature (e.g., subjective conclusions, proprietary information, etc.), are not

included within the examination report but separately communicated to other regulators and/or

the company.

3

The Company owns 100% of the capital stock of Amica Life Insurance Company (“Amica

Life”) and Amica Property and Casualty Insurance Company (“Amica P&C”). Concurrent

examinations were also made of these subsidiaries, and reports thereon are submitted under

separate cover.

COMPANY HISTORY

At the January, 1972 session of the General Assembly of the State of Rhode Island, the charters

of the Automobile Mutual Insurance Company of America (chartered in 1907) and the Factory

Mutual Liability Insurance Company of America (chartered in 1914) were amended and

restated by a special act to enable the two aforementioned companies to consolidate into a

continuing corporation entitled Amica Mutual Insurance Company. The consolidation became

effective on January 1, 1973.

The charter, as amended, grants the Company authority to insure any and all risks except life

and title insurance. Policies can be issued on both an assessable and non-assessable basis. The

charter also gives the Company authority to issue either dividend or non-dividend policies, or

both, as the Board of Directors may determine.

MANAGEMENT AND CONTROL

Members

In accordance with the charter, each person, firm, association, and corporation insured by the

Company is a member of the Company during the life of the policy, but no longer, and at all

meetings of the Company shall be entitled to one (1) vote either in person or by proxy.

4

The bylaws provide that the annual meeting of the members of the Company shall be held at

its office in Lincoln, Rhode Island on the second Thursday in February each year, for the

election of directors, and for the transaction of such other business as may be brought before

the meeting. Special meetings of the members of the Company may be convened by the

President, or shall be called upon the written request of 1/2 of 1% of the members of the

Company, or of five (5) of the directors, addressed to the Secretary, setting forth the subjects

thereof.

At all meetings of the members of the Company, seven (7) members shall be necessary to

constitute a quorum. All questions except amendments to the bylaws shall be decided by a

majority vote of those present in person or by proxy. The bylaws may be amended or repealed

in whole or in part by the affirmative vote of three-fifths (3/5) of all members present in person

or by proxy at any meeting, notice of the proposed action having been given in the call for the

meeting.

Board of Directors

The charter provides that the management of the business and affairs of the Company shall be

vested in a Board of Directors (“Board”), to be elected by the policyholders, the number of

which shall be fixed from time to time by the bylaws, subject to a maximum of fifteen (15)

board members. The bylaws, as amended, stipulate that the Board shall consist of twelve (12)

members. The term of office of each director is five (5) years, with the directors being divided

into five (5) classes, so that the term of office of one-fifth (1/5) of the whole number of directors

shall expire each year. The Company’s charter, as amended, requires that the bylaws establish

5

a mandatory retirement age for directors. The bylaws specify that directors shall retire no later

than the annual meeting following their 72nd birthday.

The bylaws provide that the Board of Directors shall hold a meeting within ten days after each

annual meeting of the Company for the election of officers and committees, and for the

transaction of any other business that may come before the meeting. The directors shall hold

as many meetings during the year as they shall prescribe. Special meetings of the directors

shall be called at any time by the Secretary upon request in writing of the President or any three

(3) directors.

Five (5) members of the Board shall constitute a quorum and a majority vote of the members

in attendance at any meeting of the Board shall, in the presence of a quorum, decide its actions.

The members of the Board of Directors serving at December 31, 2014 were as follows:

Name

Business Affiliation

Term

Expires

Robert A. DiMuccio, Chairman Chairman, President and Chief Executive Officer Amica Mutual Insurance Company

2019

Jeffrey P. Aiken Attorney-at-law

2018

Debra A. Canales Executive Vice President/Chief People &

Experience Officer

Providence Health & Services

2015*

Patricia W. Chadwick President Ravengate Partners, LLC

2017

Edward F. DeGraan Retired – Vice Chairman The Gillette Company

2016

Barry G. Hittner Attorney-at-law

2015*

Michael D. Jeans President (Retired)

New Directions, Inc.

2017

Ronald K. Machtley President 2019

6

Bryant University

Richard A. Plotkin Certified Public Accountant 2018

Donald J. Reaves Retired Chancellor and Professor Winston-Salem State University

2016

Cheryl W. Snead President and Chief Executive Officer Banneker Industries, Inc.

2015*

Thomas A. Taylor Retired – President and Chief Executive Officer

Amica Mutual Insurance Company

2019**

* Director subsequently re-elected for the term of 2015 – 2020.

**Director subsequently retired in February 2015. Jill J. Avery (Senior Lecturer – Harvard Business School)

elected to Mr. Taylor’s unexpired term.

Committees

The bylaws provide that the Board of Directors may elect, from their own number, an executive

committee, a finance committee, an investment committee, a compensation committee, a

nominating committee, an audit committee, and such other committees as they may see fit to

which certain powers and responsibilities may be delegated.

The Governance and Nominating Committee nominates members to the Compensation

Committee, the Audit Committee, the Investment Committee and the Governance and

Nominating Committee. The Governance and Nominating Committee will also nominate the

chairperson for the compensation, audit, governance and nominating, and investment

committees.

At December 31, 2014 the Investment Committee was comprised of all members of the Board

of Directors with Robert A. DiMuccio serving as Chairman. The other existing committees

consisted of the following members at December 31, 2014:

7

Governance and Nominating

Committee

Compensation

Committee

Audit

Committee

Jeffrey P. Aiken, Chair Barry G. Hittner, Chair Ronald K. Machtley,

Chair

Donald J. Reaves Patricia W. Chadwick Michael D. Jeans

Edward F. DeGraan Cheryl W. Snead Richard A. Plotkin

Debra A. Canales

Thomas A. Taylor

Officers

Officers with the rank of Vice President or higher are designated as Senior Officers. The Board

of Directors elects Senior Officers, as well as all other officers. The Senior Officers serving at

December 31, 2014 were as follows:

Robert A. DiMuccio Chairman, President and Chief Executive Officer

Paul A. Pyne

Executive Vice President and Chief Operations

Officer

James P. Loring

Senior Vice President, Chief Financial Officer and

Treasurer

Suzanne E. Casey Senior Assistant Vice President and Secretary

Robert K. Benson Senior Vice President and Chief Investment Officer

Robert P. Suglia Senior Vice President and General Counsel

Jill H. Andy Senior Vice President

James A. Bussiere Senior Vice President

Theodore C. Murphy Senior Vice President

Alicia E. Charles Vice President

Peter E. Moreau Senior Vice President and Chief Information Officer

Lisa M. DeCubellis Vice President

Sean F. Welch Vice President

Peter F. Drogan Vice President and Chief Actuary

8

The Company implemented a mandatory retirement policy effective January 1, 1991, for all

employees at the level of Vice President and higher, whose employment history includes

service for two years prior to retirement in either a bona fide executive or high policy making

capacity, and who are eligible to receive a Company provided retirement benefit of at least

$44,000, exclusive of social security. These employees must retire by the end of the calendar

year in which they reach age 65.

¹ At the Annual Meeting of the Policyholders of Amica Mutual Insurance Company held in

February 2016, minor changes were approved to the By-Laws regarding the number and

retirement age of directors. These changes will be filed with the DBR and/or the Secretary of

State’s office as appropriate.

Organizational Structure

Amica Mutual is the ultimate parent in the Amica Mutual Group Insurance Holding Company

System. At December 31, 2014, the Company owned 100% of the outstanding stock of Amica

Life Insurance Company, Amica Property and Casualty Insurance Company and Amica

Lloyd’s of Texas, Inc. The Company also owns 100% of the outstanding stock of Amica

General Agency, Inc. and Amica General Insurance Agency of California, Inc.

Amica Lloyd’s of Texas, Inc. was organized as an attorney-in-fact to manage Amica Lloyd’s

of Texas, a Texas-domiciled insurer formed in 1998 to leverage the group’s competitive

position in the Texas insurance market. Through its ownership in Amica Lloyd’s of Texas,

Inc., the Company is the ultimate controlling entity of Amica Lloyd’s of Texas. Effective

9

January 1, 2014, business previously written by Amica Lloyd’s of Texas was written by the

Company upon renewal. Amica Lloyd’s operations will continue in 2015 to settle outstanding

losses and other liabilities. Management is evaluating the future plans of Amica Lloyd’s as it

continues to run off, with a final decision expected in 2015 (See Subsequent Events section

regarding 2015 liquidation of Amica Lloyds).

On January 1, 2013, the Company made a non-cash investment in the Amica P&C totaling

$19.1 million. This was done to facilitate the January 1, 2013 change in the quota share rate

of the reinsurance contract between the Company and Amica P&C from 80% to 100% and was

for settlement of the Amica P&C’s December 31, 2012 reserve balances for losses, loss

adjustment expenses, and unearned premiums net of ceding commission.

The following presentation of the holding company system as of December 31, 2014 reflects

the identities and interrelationships between the Company and its subsidiaries:

10

Inter-Company Agreements

The Company and its affiliates have entered into a Cost Allocation Agreement whereby the

Company provides personnel, office space, equipment and facilities to its affiliated companies.

Under the terms of the agreement, the affiliates will reimburse the Company on a monthly

basis for the cost of the services provided, including staff compensation, overhead, and other

specified expenses. Such costs shall be fair and reasonable in accordance with Amica

standards and generally accepted accounting practices. The monthly compensation due to a

party shall be paid by the owing party within fifty-five (55) days of the end of the month to

which it applies.

11

The Company and all of its subsidiaries (excluding Amica Life Insurance Company) have also

entered into a Consolidated Federal Income Tax Agreement. Under the terms of the agreement,

allocation is made in accordance with Section 1552(a)(2) of the Internal Revenue Code, and is

based upon separate return calculations with current credit for losses. The inter-company

estimated tax balances are settled at least quarterly during the tax year with a final settlement

during the month following the filing of the consolidated income tax return.

Prior to January 1, 2014, the Company was party to a Capital Maintenance Agreement with its

wholly-owned subsidiaries, Amica Property and Casualty Insurance Company and Amica

Lloyd’s of Texas. The terms of the agreement stated that when the ratio of net premiums

written to surplus for the Company is above an agreed upon ratio, Amica Mutual would infuse

capital to restore surplus. Management elected not to renew the Capital Maintenance

Agreements for 2014. The decision was made because neither Amica Lloyd’s nor Amica P&C

were expected to have significant net written premiums; Lloyd’s is no longer underwriting

business and Amica P&C now has a 100% quota share reinsurance contract.

TERRITORY AND PLAN OF OPERATION

Amica Mutual Insurance Company is licensed to transact business in all states and the District

of Columbia. Amica is a mutual company. The Company Charter grants the power to write

both assessable and non-assessable policies, however, it issues only non-assessable policies.

The Charter also allows the Company to insure any and all risks except life and title insurance,

however, the Company’s writings are confined to fire, allied lines, homeowners, inland marine,

12

ocean marine, earthquake, workers’ compensation (as it relates to domestic employees),

liability other than automobile, automobile liability, and automobile physical damage. The

homeowners and automobile lines of business comprise the majority of the Company’s

writings.

The Company has no policy writing agents, except as required by the Commonwealth of

Massachusetts. Business is acquired by the Company primarily through the mail, telephone

and internet. Company employees are appointed as agents in any state where the Company is

licensed to write property and casualty insurance. In certain states, resident agents are

appointed if the countersigning of policies is required.

Amica currently has thirty-eight (38) service offices that handle sales, claims, underwriting

and other service related matters for client accounts. In addition to its service offices, the

Company maintains three call centers for after-hours customer service and three sales centers

to focus on new business development. The call centers are located in Lincoln, Rhode Island,

Carmel, Indiana, and Spokane, Washington. The sales centers are located in Lincoln, Rhode

Island, Henderson, Nevada, and Austin, Texas. The processing of premiums and the payment

of all large losses are handled at the Company’s Corporate Office in Lincoln, Rhode Island.

The Company issues both participating (dividend) and non-participating (non-dividend)

policies. These non-participating policies are generally less expensive up front, but

policyholders receive no dividend at expiration. The dividend rates for participating policies

are voted by the Board of Directors.

13

Effective January 1, 2014 and upon policy renewal, approximately 65% of the business

previously written by Amica P&C was written by the Company. In addition, effective July 1,

2014, Amica P&C began writing New York auto policies. New auto business in New York

will be written by either the Company or Amica P&C based on set underwriting criteria.

REINSURANCE

Ceded Reinsurance

At December 31, 2014, the Company’s ceded reinsurance portfolio consisted primarily of a

Property Catastrophe Excess (“CAT”) program. The following is a summary of the primary

provisions of the CAT program in effect at December 31, 2014:

Property Catastrophe Excess Reinsurance

The CAT program consists of one contract providing three layers of coverage totaling

$700,000,000 coverage in excess of $200,000,000. The contract became effective on January

1, 2014 and is administered by two separate reinsurance intermediaries. Amica Lloyd’s of

Texas and Amica Property and Casualty Insurance Company are both named insured’s under

the CAT program.

Under the terms of the CAT program, the reinsurers agree to reinsure the excess liability which

may accrue to the Company under policies, contracts and binders of insurance or reinsurance

in force at the effective date of the contract, or issued or renewed on or after that date, and

classified as fire, allied lines, earthquake, homeowners multiple peril (property perils only),

14

inland marine, auto physical damage (comprehensive only) and ocean marine (pleasure

watercraft). The CAT program applies to losses occurring within the territorial limits of the

Company’s policies.

The following summarizes the CAT program structure at December 31, 2014:

Layer Limit and Retention Percent Placed /

Coverage

Co-Participation

Underlying Excess $200,000,000 0% 100%

First Layer $200,000,000 in excess of

$200,000,000

51.27% (coverage

of $102,550,000)

48.73%

Second Layer $400,000,000 in excess of

$400,000,000

70.01% (coverage

of $280,052,000)

29.99%

Third Layer $100,000,000 in excess of

$800,000,000

52.23% (coverage

of $52,230,000)

47.77%

The Company also maintains coverage through the Florida Hurricane Catastrophe Fund

(“FHCF”), recoveries under which shall inure to the benefit of Amica. For purposes of the

CAT program, such FHCF coverage shall be 90% of $93,000,000 in excess of $38,000,000 for

each loss occurrence commencing during the term of the CAT contract.

The CAT program stipulates that, in the event all or any portion of the reinsurance under any

excess layer of reinsurance coverage is exhausted by loss, the amount so exhausted shall be

reinstated immediately from the time the loss occurrence commences. For each amount

reinstated, the Company agrees to pay additional premium equal to the product of the

following:

1) The percentage of the occurrence limit for the excess layer reinstated; times

15

2) The earned reinsurance premium for the excess layer reinstated for the term of the

contract.

The CAT program contains a provision for profit sharing which states that the Company will

receive a portion of the broker’s annual brokerage fees when certain thresholds are exceeded.

The Company received $515,244 under this provision in 2014.

Excess of Loss Reinsurance:

The company has not purchased Excess of Loss Reinsurance coverage since

December 31, 2005.

Assumed Reinsurance

Amica Lloyd’s of Texas

The Company participates in the following three reinsurance agreements with its wholly

owned subsidiary, Amica Lloyd’s of Texas (“Amica Lloyd’s”):

Multi-Line Excess of Loss Reinsurance Contract

Property Catastrophe Excess Reinsurance Contract

Quota Share Reinsurance Contract.

Under the terms of the Multi-Line Excess of Loss Reinsurance Contract, Amica Mutual

provides coverage of $3,000,000 ($3,500,000 for Section A below) in excess of $1,000,000

for all business written by Amica Lloyd’s and classified as follows:

Section A:

Homeowners Multiple Peril (Section II)

16

Ocean Marine (Protection and Indemnity)

Workers’ Compensation and Employers’ Liability

Other Liability (including Personal Umbrella)

Auto Liability (including No-Fault Benefits and Medical Payments Benefits)

Section B-1:

Fire

Allied Lines

Homeowners Multiple Peril (Section I)

Inland Marine (including Personal Articles Floaters)

Earthquake

Section B-2:

Ocean Marine (Yachts and/or Boats in storage locations)

The Property Catastrophe Excess Reinsurance Contract provides coverage of $13,000,000 in

excess of $2,000,000, for all business written by Amica Lloyd’s. All business classified by

Amica Lloyd’s as Fire, Allied Lines, Earthquake, Homeowners Multiple Peril (property perils),

Inland Marine, Automobile Physical Damage (Comprehensive only) and Ocean Marine

(Pleasure Watercraft) is covered under the contract.

Under the terms of the Quota Share Reinsurance Contract, Amica Lloyd’s cedes an 80% share

of its net liability on risks under all policies covered. In return, Amica Mutual pays Amica

Lloyd’s a 20% ceding commission on all premiums ceded by Amica Lloyd’s.

Amica Property and Casualty Insurance Company

The Company participates in a Quota Share Reinsurance Agreement with its wholly owned

subsidiary, Amica Property and Casualty Insurance Company (“Amica P&C”). Under the

17

terms of the Quota Share Reinsurance Agreement, Amica P&C shall cede and Amica Mutual

shall accept a 100% quota share participation of Amica P&C’s net liability on risks under all

binders, policies, contracts, certificates and other obligations of insurance or reinsurance.

From the Amica P&C’s inception of business to December 31, 2012, the quota share

participation rate was 80%; however, the rate was amended to 100% effective January 1, 2013.

The Company also assumes business from various pools and associations where it is necessary

to meet residual market obligations in states with auto and/or property facilities. The Company

also participates in pools where it is necessary to meet statutory obligations.

18

FINANCIAL STATEMENTS

The results of the examination are set forth in the following exhibits and schedules:

Comparative Statement of Assets

December 31, 2014 and December 31, 2010

Comparative Statement of Liabilities, Surplus and Other Funds


Statement of Income

Year ended December 31, 2014

Capital and Surplus Account

December 31, 2013 to December 31, 2014

Reconciliation of Surplus


Analysis of Examination Adjustments

December 31, 2014

19


Comparative Statement of Assets


December 31, December 31, Increase

2014 2010 (Decrease)

Bonds $2,139,191,419 $1,807,633,338 $331,558,081

Common stocks 1,955,114,973 1,519,554,771 435,560,202

Real estate 47,007,414 54,128,504 (7,121,090)

Cash and Cash Equivalents 151,400,232 12,858,187 138,542,045

Short-term investments 20,670,203 69,685,596 (49,015,393)

Other invested assets 138,274,299 110,790,517 27,483,782

Investment income due and accrued 21,732,529 23,240,835 (1,508,306)

Uncollected premiums and agents’ balances

in the course of collection 78,877,357 60,428,641 18,448,716

Deferred premiums, agents’ balances and

installments booked but deferred and not

yet due 425,392,386 343,275,472 82,116,914

Amounts recoverable from reinsurers 1,240,105 1,481,266 (241,161)

Current federal and foreign income tax

recoverable and interest thereon 100,095 12,596,389 (12,496,294)

Net deferred tax asset 0 19,012,765 (19,012,765)

Receivable from parent, subsidiaries and

affiliates 3,382,882 0 3,382,882

Amica Companies Supplemental Retirement

Trusts 53,500,550 34,516,394 18,984,156

Equities and deposits in pools and

associations 24,234,146 18,157,461 6,076,685

Receivable for Lexington 10,147 23,992 (13,845)

Receivable for other surcharges 807,796 1,234,548 (426,752)

Miscellaneous receivable 717,896 470,035 247,861

Total Assets $5,061,654,429 $4,089,088,711 $972,565,718

20


Comparative Statement of Liabilities, Surplus and Other Funds


December 31, December 31, Increase

2014 2010 (Decrease)

Losses $912,285,623 $707,741,999 $204,543,624

Reinsurance payable on paid loss and loss

adjustment expenses 12,402,534

10,289,406

2,113,128

Loss adjustment expenses 166,637,959 176,713,482 (10,075,523)

Other expenses 54,530,564 31,209,627 23,320,937

Taxes, licenses and fees 12,914,079 9,166,788 3,747,291

Current federal and foreign income taxes 3,059,491 41,000 3,018,491

Net deferred tax liability 42,548,013 0 42,548,013

Borrowed money 0 421,543 (421,543)

Unearned premiums 959,627,673 754,136,516 205,491,157

Advance premium 10,041,294 8,029,957 2,011,337

Dividends declared and unpaid: policyholders 9,602,623 8,063,929 1,538,694

Ceded reinsurance premiums payable 817,799 63,548 754,251

Amounts withheld or retained by company for

account of others 3,743,030

2,416,065

1,326,965

Remittances and items not allocated 1,078,019 1,008,022 69,997

Provision for reinsurance 1,000 0 1,000

Payable to parent, subsidiaries and affiliates 0 1,241,183 (1,241,183)

Payable for securities 24,454,541 0 24,454,541

Reserve for non-funded pensions and deferrals 53,500,550 34,516,394 18,984,156

Reserve for unassessed insolvencies 2,960,000 3,700,000 (740,000)

Post-retirement medical transition liability 31,694,151 0 31,694,151

Total Liabilities 2,301,898,943 1,748,759,459 553,139,484

Guaranty fund 3,000,000 3,000,000 0

Voluntary reserve 3,000,000 3,000,000 0

Unassigned funds (surplus) 2,753,755,486 2,334,329,252 413,426,234

Surplus as regards policyholders 2,759,755,486 2,340,329,252 413,426,234

Total Liabilities, Surplus and Other Funds $5,061,654,429 $4,089,088,711 $972,565,718

21


Statement of Income

Year Ended December 31, 2014

UNDERWRITING INCOME

Premiums earned $1,789,321,870

DEDUCTIONS

Losses incurred 989,575,508

Loss expenses incurred 196,874,706

Other underwriting expenses incurred 436,968,243

Total underwriting deductions 1,623,418,457

Net underwriting gain or (loss) 165,903,413

INVESTMENT INCOME

Net investment income earned 108,843,116

Net realized capital gains or (losses) 60,327,262

Net investment gain or (loss) 169,170,378

OTHER INCOME

Net gain or (loss) from agents’ or premium balances charged off (5,295,267)

Finance and service charges not included in premiums 6,451,957

Discount earned on accounts payable 37,866

Penalties of regulatory authorities (53,150)

Total other income 1,141,406

Net income before dividends to policyholders, after capital gains tax

and before all other federal and foreign income taxes 336,215,197

Less: Dividends to policyholders 133,878,921

Net income, after dividends to policyholders, after capital gains tax

and before all other federal and foreign income taxes 202,336,276

Less: Federal and foreign income taxes incurred (16,827,210)

Net Income $185,509,066

22


Capital and Surplus Account


Surplus as regards policyholders, December 31, 2013 $2,649,700,527

Net income 185,509,066

Change in net unrealized capital gains or (losses) 9,842,227

Change in net deferred income tax 16,092,547

Change in nonadmitted assets 72,312,137

Cumulative effect of changes in accounting principles (15,560,189)

Change in Amica Companies Supplemental Retirement Trust 1,707,896

Miscellaneous surplus adjustment 823,386

Change in retiree medical overfunded asset 6,330,993

Change in Amica Companies Supplemental Retirement Trust (4,889,441)

Change in Pension Overfunded Asset (162,113,663)

Change in surplus as regards policyholders for the year 110,054,959

Surplus as regards policyholders, December 31, 2014 $2,759,755,486

23


Reconciliation of Capital and Surplus


Capital and Surplus, December 31, 2010 $2,340,329,252

Gains Losses

Net Income $461,802,822

Change in net unrealized capital gains

or(losses) less capital gains tax 168,202,359

Change in deferred income tax 69,762,178

Change in non-admitted assets 52,365,536

Change in provision for reinsurance $1,000

Cumulative effect of changes in

accounting principals 174,904,194

Change in Amica companies supplemental

retirement trust 10,217,633

Miscellaneous surplus adjustment 7,346,989

Change in retiree medical overfunded asset 6,330,993

Unrecognized loss on non-qualified

pensions 4,889,441

Change in pension overfunded asset 162,113,663

768,681,521 349,255,287

Net (decrease) in capital and surplus 419,426,234

Capital and surplus December 31, 2014 $2,759,755,486

24


Analysis of Examination Adjustments

December 31, 2014

The examination of the Company, performed as of December 31, 2014, did not disclose any

material misstatements to the financial statements contained in its 2014 Annual Statement

filing. Accordingly, the amounts reported by the Company have been accepted for purposes

of this report.

25

ASSETS

Bonds $2,139,191,419

The above amount is the net admitted value of bonds held by the Company and is the same as

that reported in its 2014 Annual Statement. The majority of the bonds are held under the terms

of a custodial agreement with a third party. Approximately 0.17% ($3,621,674) of the bond

portfolio is held by various states in the form of special deposits.

One hundred percent (100%) of all bonds in the Company’s portfolio at December 31, 2014,

were rated as Class 1 or Class 2, based upon evaluation methods established by the National

Association of Insurance Commissioners Securities Valuation Office. Securities rated as Class

1 and Class 2 are considered “highest” and “high quality” respectively.

The amortized book value of bonds owned at December 31, 2014, represents 42.3% of the

Company’s total admitted assets. The actual cost, fair value, par value, and book/adjusted

carrying value of the bond portfolio at December 31, 2014, are as follows:

Actual Cost

Fair Value

Par Value

Book/Adjusted

Carrying Value

$2,153,492,104 $2,238,117,309 $2,065,086,283 $2,139,191,419

Common Stocks $1,955,114,973

The above amount is the net admitted value of common stocks held by the Company at

December 31, 2014, and is the same as that reported in its 2014 Annual Statement. The

majority of the Company’s common stocks are held with a third party under the terms of a

custodial agreement. Mutual funds, which make up approximately 20% of the stock portfolio,

26

are held by the fund issuer. The common stocks of affiliates are held directly by the Company

in a vault located at the home office.

The book value, fair value, and cost of the Company’s investment in common stocks at

December 31, 2014, are as follows:

Book Value Fair Value Actual Cost

$1,955,684,469 $1,955,684,469 $1,012,770,518

Stocks are valued in accordance with the procedures and values published by the Securities

Valuation Office (“SVO”) of the NAIC.

The Company’s subsidiaries, Amica Life and Amica P&C, are valued based on the statutory

equity method, and all other subsidiaries are valued on a GAAP equity basis in accordance

with SVO guidelines. As stated under the ‘Scope of Examination’ caption of this report, an

examination of Amica Life and Amica P&C were performed concurrently with the

examination of Amica Mutual. There was no adjustment to the value of either Amica Life or

Amica P&C as a result of the examination.

27

LIABILITIES

Losses $912,285,623

Loss Adjustment Expenses 166,637,959

The reserves for losses and loss adjustment expenses as reflected above are the same as that

reported by the Company in its 2014 Annual Statement. The Company’s recorded reserves

were reviewed for adequacy by INS Consultants, Inc. (“INS”), the consulting actuaries for the

Rhode Island Insurance Division. On the basis of the review performed by INS, the

Company’s recorded reserves were found to be computed in accordance with accepted loss

reserving standards and principles and make a reasonable provision for all unpaid loss and loss

adjustment expense obligations under the terms of its policies and agreements. The

Company’s appointed actuary, KPMG LLP (“KPMG”), also concluded that the reported

reserves make reasonable provision, in the aggregate, for all unpaid loss and loss expense

obligations of the Company under the terms of its policies and agreements.

In assisting INS with their analysis, the examiners either independently performed or relied

upon the procedures performed by the Company’s independent accounting firm to verify the

integrity of the underlying claims data, including completeness testing. A combination of

subjective and statistical sampling techniques was utilized in testing the claims data, as deemed

appropriate.

28

POLICYHOLDERS’ SURPLUS

Policyholders' Surplus $2,759,755,486

The above balance is the same as that reported by the Company in its 2014 Annual Statement

and consists of the following:

Voluntary Reserve $3,000,000

Guaranty Fund 3,000,000

Unassigned Funds (Surplus) 2,753,755,486

Surplus as Regards Policyholders $2,759,755,486

The Voluntary Reserve was established by vote of the Board of Directors in 1973 after the

consolidation of the Automobile Mutual Insurance Company of America and Factory Mutual

Liability Insurance Company of America. This reserve is merely a segregation of surplus and

has been presented as such in this report.

The Guaranty Fund is also a segregation of surplus funds that was established by vote of the

Board of Directors in 1973 after consolidation of the two insurance companies discussed

previously in this report.

29

SUBSEQUENT EVENTS

Inquiry was made of the Company’s management regarding subsequent events. Based upon

our inquiry, the following transactions were disclosed.

On December 22, 2015, Amica Lloyds of Texas was converted to a stock Company, Amica

Texas Insurance Company. Then on December 31, 2015, Amica Texas Insurance Company

merged with Amica Property and Casualty Insurance Company, with Amica Property and

Casualty Insurance Company continuing as the surviving entity of the merger. As a result of

the merger, Amica Property and Casualty Insurance Company assumed all remaining assets

and liabilities of Amica Texas Insurance Company as of December 31, 2015, as well its surplus

of $75,030,293.

Immediately subsequent to the aforementioned merger and also occurring on

December 31, 2015, Amica Property and Casualty Insurance Company paid a dividend of

$23,000,000 to the Amica Mutual Insurance Company. The dividend was deemed

extraordinary and was approved by the Rhode Island Division of Insurance on December 30,

2015.

Effective December 31, 2015, Amica Lloyd’s of Texas, Inc., an attorney-in-fact and a wholly-

owned subsidiary of Amica Mutual Insurance Company, was dissolved.

30

CONCLUSION

We have applied verification procedures to the data and information contained in this report

using sampling techniques and other examination procedures as deemed appropriate. While

sampling and other examination procedures do not give complete assurance that all errors and

irregularities will be detected, had any been detected during the course of this examination,

such errors and/or irregularities would have been disclosed in this report. Other than what has

been noted in the body of this report, we were not informed of, and did not become aware of

any errors or irregularities that could have a material effect on the financial condition of the

Company as presented in this report.

Acknowledgment is made of the services rendered by INS Consultants, Inc., the Rhode Island

Insurance Division’s consulting actuaries.

Assisting in the examination with the undersigned were John Tudino Jr., CFE, CIE, CFSA,

Insurance Examiner-In-Charge, Theodore J. Hurley, CPA, CFE, Insurance Examiner-In-

Charge, Debra Almeida, CFE, Senior Insurance Examiner, and Anthony Humphrey, Insurance

Examiner.

Respectfully submitted,

Louis A. Gabriele, CPA, CFE

Insurance Examiner-In-Charge

Rhode Island Insurance Division

amica mutual insurance company - rhode island … · amica mutual insurance company lincoln, rhode...

Documents