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Examination Warrant Number 18-00000-56766-R1

Report of Examination of

The Most Excellent Assembly of the Artisans Order of Mutual Protection

Philadelphia, Pennsylvania

As of December 31, 2018


TABLE OF CONTENTS Subject Page Salutation .........................................................................................................................................1 Scope of Examination ......................................................................................................................1 History..............................................................................................................................................2 Management and Control: Capitalization .............................................................................................................................2 Insurance Holding Company System.........................................................................................2 Board of Directors......................................................................................................................2 Committees ................................................................................................................................3 Officers ......................................................................................................................................4 Corporate Records: Minutes ......................................................................................................................................4 Charter........................................................................................................................................4 By-Laws .....................................................................................................................................4 Service and Operating Agreements .................................................................................................5 Reinsurance: Ceded .........................................................................................................................................5 Assumed .....................................................................................................................................5 Territory and Plan of Operations .....................................................................................................5 Significant Operating Trends ...........................................................................................................6 Pending Litigation ............................................................................................................................6 Financial Statements: Comparative Statement of Assets, Liabilities, Surplus and Other Funds ..................................8 Comparative Statement of Income .............................................................................................9 Comparative Statement of Capital and Surplus .......................................................................10 Comparative Statement of Cash Flow .....................................................................................11 Summary of Examination Changes ...............................................................................................12 Notes to Financial Statements: Assets: Investments ..............................................................................................................................12 Liabilities: Policyholder and Claim Reserves ............................................................................................13 Subsequent Events .........................................................................................................................13 Recommendations: Prior Examination ....................................................................................................................14 Current Examination ................................................................................................................14 Conclusion .....................................................................................................................................15

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Harrisburg, Pennsylvania March 13, 2020

Honorable Joseph DiMemmo, CPA Deputy Insurance Commissioner Commonwealth of Pennsylvania Insurance Department Harrisburg, Pennsylvania Dear Sir:

In accordance with instructions contained in Examination Warrant Number 18-00000-56766-R1, dated August 14, 2018, an examination was made of

The Most Excellent Assembly of the Artisans Order of Mutual Protection, NAIC Code:56766

a Pennsylvania domiciled, multi-state fraternal benefit society, hereinafter referred to as the “Society” or “Company.” The examination was conducted at the Society’s home office, located at 8100 Roosevelt Boulevard, Philadelphia, Pennsylvania 19152.

A report of this examination is hereby respectfully submitted.

SCOPE OF EXAMINATION The Pennsylvania Insurance Department (“Department”) has performed an examination

of the Society, which was last examined as of December 31, 2013. This examination covered the five-year period from January 1, 2014 through December 31, 2018.

Work programs employed in the performance of this examination were designed to comply with the standards promulgated by the Department and the National Association of Insurance Commissioners (“NAIC”) Financial Condition Examiners Handbook (“Handbook”).

The Handbook requires that the Department plan and perform the examination to evaluate the financial condition, assess corporate governance, identify current and prospective risks of the Company, evaluate system controls and procedures used to mitigate those risks, and review subsequent events. 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. Statements were prepared by management and are therefore the responsibility of management. 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, in accordance with 40 P.S. § 323.5(a), and general information about the Company and its financial condition. There may be


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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.

For each year during the period under examination, the certified public accounting firm of Cunningham, Porter and Phillips (“CPA”) has provided an unmodified audit opinion on the Company’s year-end financial statements based on statutory accounting principles. Relevant work performed by the CPA, during its annual audit of the Society, was reviewed during the examination and incorporated into the examination workpapers.

HISTORY The Society was incorporated on November 20, 1874, licensed by the Department on or

about that date and commenced business on May 1, 1873. The Society is currently authorized to transact those classes of insurance described in 40

P.S. § 991.2431, (a)(1) Death benefits, (a)(2) Endowment benefits, (a)(3) Annuity benefits, (a)(4) Temporary or permanent disability benefits, (a)(5) Hospital, medical or nursing benefits, (a)(6) Other benefits which are authorized for insurers licensed to write life, accident and health insurance and which are inconsistent with this sub article.

MANAGEMENT AND CONTROL

MEMBERSHIP Management is by the members of the Society who meet through a representative delegation to the Most Excellent Assembly (“Assembly”) in the month of February of every second year.

INSURANCE HOLDING COMPANY SYSTEM The Society is not part of an insurance holding company system.

BOARD OF DIRECTORS Management of the Society is vested in its Board of Directors (“Board”), which was

comprised of the following members as of the examination date, December 31, 2018:

Name and Address Principal Occupation Tod A. Davies, Sr. Facilities Manager Philadelphia, Pennsylvania Medical Products Labs Ronald W. Davis Retired Bensalem, Pennsylvania Thomas A. DiLauro Real Estate Agent Delran, New Jersey Lamon Associates


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Patrick A. Ennis Field Technician Philadelphia, Pennsylvania Diebold Harry J. Flanagan Retired Philadelphia, Pennsylvania Ralph E. Geary Retired Philadelphia, Pennsylvania Theresa A. Ludwig Manager Lansdowne, Pennsylvania Wildman Arms Condo Association Barry L. Spindler Retired Philadelphia, Pennsylvania David M. Szafran Retired Philadelphia, Pennsylvania Carla J. Werner Police Officer Philadelphia, Pennsylvania Philadelphia Police Department Bryan C. Werner CEO Philadelphia, Pennsylvania Artisans Order of Mutual Protection

Members of the Board are elected at the Assembly to staggered four-year terms, with the exception of the Most Excellent Master Artisan, Most Excellent Superintendent and Most Excellent Inspector who are members of the Board of Directors by virtue of their office and are elected every two years at the Assembly.

COMMITTEES The Society appoints numerous committees to oversee both insurance and fraternal

activities. As of the examination date, December 31, 2018, the following committees impacting the insurance operations were appointed by the Board and serving in accordance with the Society’s by-laws:

By-Law Committee Ronald W. Davis Theresa A. Ludwig Dave M. Szafran Bryan C. Werner Finance Committee Ronald W. Davis Thomas A. DiLauro Dave M. Szafran Insurance and Claims Committee Ronald W. Davis Thomas A. DiLauro


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Bryan C. Werner Membership/Merger Committee Thomas A. DiLauro Harry J. Flanagan Theresa A. Ludwig Mortgage Committee Theresa A. Ludwig Dave M. Szafran Bryan C. Werner

OFFICERS As of the examination date, December 31, 2018, the following officers were appointed

and serving in accordance with the Society’s by-laws:

Name Title Patrick A. Ennis President Bryan C. Werner Treasurer and Secretary Barry L. Spindler Vice President Carla J. Werner Vice President

CORPORATE RECORDS

MINUTES A compliance review of corporate minutes revealed the following:

• The Biannual Meetings of the Society’s members were held in compliance with its by-laws.

• The members elect directors at such meetings in compliance with the by-laws.

• Quorums were present at all directors’ meetings.

• The Society’s investment transactions are approved regularly by the Finance Committee.

• All directors attend Board meetings regularly.

CHARTER There were no changes to the Society’s Charter for the period under examination.

BY-LAWS The Society amended its by-laws on February 1, 2014, reducing the number of directors

to seven and clarifying the definition of “member”. The Society amended its by-laws on


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February 6, 2016, clarifying officer and director liability. The Society amended its by-laws on February 3, 2018, redefining the position of Most Excellent Recorder. All by-law amendments were reported to the Department.

SERVICE AND OPERATING AGREEMENTS The Society is party to various service and operating agreements. The following

significant agreements were in place during the examination period: The Society entered into an agreement with Computer Programming & Systems, Inc.

(“CP&S Inc.”) effective June 15, 2019, in which CP&S Inc. agrees to provide information technology support. The agreement outlines the services provided and responsibilities of parties, and establishes terms for billings, non-disclosure/confidentiality/ownership of materials, and termination of agreement.

The Society entered into an agreement with CPS Actuaries (“CPS”) effective January 1, 2020, in which CPS provides actuarial and accounting services to complete and file the Society’s annual and quarterly statements. The agreement outlines the obligations of both parties, covenants and warranties which includes confidentiality of information, termination of services, and compensation for each service.

REINSURANCE

CEDED The Society does not cede any business.

ASSUMED The Society does not assume any business.

TERRITORY AND PLAN OF OPERATIONS The Society is licensed in Pennsylvania and New Jersey. As of the examination date, it

writes Life Insurance and Single Annuities. There has been no change in the Society’s marketing philosophy since the last examination. The following table shows the premium distribution by line of business, as of December 31, 2018.

Directand Assumed Ceded Net Percentage

Line of Business Premium Premium Premium of Total

December 31, 2018Life Insurance 114,115$ 0$ 114,115$ 31.0%Individual annuities 253,448 0 253,448 69.0%Totals 367,563$ 0$ 367,563$ 100.0%


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The Society writes whole life insurance, single premium whole life insurance, whole life

insurance with various set payment options, level-term life policies and juvenile term policies to its members. It also offers a flexible premium annuity to its members.

New policies are solicited from its members.

SIGNIFICANT OPERATING TRENDS The following table indicates the changes in key financial statement balances of the

Society during the period covered by this examination:

Since the prior examination, the Society has experienced the following changes in its

total number of certificates in-force, the overall amount of insurance in-force, and the average amount of insurance in-force per policy:

The Society’s policies continue to decline as it attempts to attract new members.

PENDING LITIGATION The Society was no involved in any active litigation and was not aware of any threatened

litigation that could have a material adverse effect on its financial conditions as of the date of this examination report.

2018 2017 2016 2015 2014

Admitted Assets 15,253,393$ 15,481,080$ 15,510,802$ 15,969,533$ 16,050,514$ Liabilities 10,713,679$ 10,838,432$ 10,850,401$ 11,124,988$ 11,115,253$ Surplus 4,539,714$ 4,642,648$ 4,660,401$ 4,844,545$ 4,935,261$ Net Premiums Written 367,563$ 176,205$ 357,590$ 465,947$ 492,475$ Benefits to Members 1,302,060$ 946,284$ 1,183,790$ 1,474,414$ 1,506,636$ Net Investment Income 851,467$ 835,073$ 825,742$ 835,549$ 837,965$ Net Income (5,652)$ 8,697$ (175,308)$ (50,878)$ (184,659)$

Certificates Insurance Average Policy In Force In Force In Force

Ordinary LifeDecember 31, 2018 4,855 13,931,000$ 2,869$ December 31, 2013 6,074 17,463,000 2,875 Net Increase/(decrease) (1,219) (3,532,000)$ (6)$

Individual AnnuitiesDecember 31, 2018 180 5,470,592$ 30,392$ December 31, 2013 157 5,391,233 34,339 Net Increase/(decrease) 23 79,359$ (3,947)$


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FINANCIAL STATEMENTS The financial condition of the Society, as of December 31, 2018, and the results of its

operations for the five-year period under examination, are reflected in the following statements*: Comparative Statement of Assets, Liabilities, Surplus and Other Funds; Comparative Statement of Income; Comparative Statement of Capital and Surplus; Comparative Statement of Cash Flow *Note: Some financials shown in this report may contain immaterial differences to those

reported in the Company’s filed Annual Statements due to rounding errors.


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Comparative Statement of Assets, Liabilities, Surplus and Other Funds As of December 31,

2018 2017 2016 2015 2014

Bonds 11,513,752$ 11,255,819$ 11,424,394$ 11,821,945$ 12,265,695$ Preferred stocks 1,553,600 1,765,964 1,863,244 1,836,444 1,442,044 Common stocks 463,390 0 128,385 123,456 123,664 Mortgage loans on real estate 352,479 369,612 397,536 422,044 446,984 Real estate 914,141 953,331 951,842 977,668 997,546 Cash, cash equivalents and short-term investments 184,353 868,250 471,158 481,273 466,751 Contract loans 104,603 102,376 105,134 113,287 110,327 Subtotal, cash and invested assets 15,086,318 15,315,352 15,341,693 15,776,117 15,853,011 Investment income due and accrued 162,874 160,219 161,968 164,909 174,639 Electronic data processing equipment and software 4,201 3,928 364 783 781 Receivable from parent, subsidiaries and affiliates 0 0 0 27,724 22,083 Aggregate write-ins for other than invested assets 0 1,581 6,777 0 0 Total 15,253,393$ 15,481,080$ 15,510,802$ 15,969,533$ 16,050,514$

Aggregate reserve for life contracts 9,729,598$ 9,871,377$ 9,991,090$ 10,326,443$ 10,316,860$ Contract claims: Life 89,939 95,463 101,851 81,189 86,340 Premiums and annuity considerations received in advance 4,029 5,165 5,533 7,945 5,797 Contract liabilities not included elsewhere: Interest maintenance reserve 250,214 361,331 266,625 274,161 294,257 Commissions to fieldworkers due or accrued 0 0 271 432 0 General expenses due or accrued 16,900 10,000 19,743 4,472 17,000 Taxes, licenses and fees due or accrued 25,000 0 0 0 0 Amounts withheld or retained by Society as agent or trustee 228,899 144,031 144,406 146,661 137,315 Remittances and items not allocated 13,200 0 0 0 0 Miscellaneous liabilities: Asset valuation reserve 355,900 351,065 320,882 283,685 257,684 Total liabilities 10,713,679 10,838,432 10,850,401 11,124,988 11,115,253 Unassigned funds (surplus) 4,539,714 4,642,648 4,660,401 4,844,545 4,935,261 Surplus 4,539,714 4,642,648 4,660,401 4,844,545 4,935,261 Totals 15,253,393$ 15,481,080$ 15,510,802$ 15,969,533$ 16,050,514$


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Comparative Statement of Income For the Year Ended December 31,

2018 2017 2016 2015 2014

Premiums and annuity considerations for life and A&H contracts 367,563$ 176,205$ 357,590$ 465,947$ 492,475$ Net investment income 851,467 835,073 825,742 835,549 837,965 Amortization of interest maintenance reserve (IMR) 54,121 52,107 49,596 48,392 44,630 Miscellaneous Income: Aggregate write-ins for miscellaneous income 114,275 22,782 15,070 17,110 31,666 Totals 1,387,426 1,086,167 1,247,998 1,366,998 1,406,736

Death benefits 209,041 166,448 116,835 189,224 181,935 Matured endowments 8,009 9,968 16,191 2,596 3,072 Annuity benefits 530,808 350,336 760,641 487,614 212,618 Disability benefits and benefits under accident and health contracts 317 780 1,020 900 1,200 Surrender benefits and withdrawls for life contracts 44,633 65,323 32,562 47,290 43,781 Increase in aggregate reserves for life and A&H policies and contracts (141,778) (119,713) (335,354) 9,583 310,712 Totals 651,030 473,142 591,895 737,207 753,318 Commissions on premiums, annuity considerations & deposit-type funds (direct) 10,375 10,142 22,385 22,400 102

General insurance expenses and fraternal expenses 667,316 592,081 793,106 640,753 793,567 Insurance taxes, licenses and fees 37,649 14,415 15,920 17,516 54,555 Totals 1,366,370 1,089,780 1,423,306 1,417,876 1,601,542 Net gain from operations after refunds to members and before realized capital gains or (losses) 21,056 (3,613) (175,308) (50,878) (194,806) Net realized capital gains or (losses) less capital gains tax (excluding gains/losses transferred to the IMR) (26,708) 12,310 0 0 10,147 Net income (5,652)$ 8,697$ (175,308)$ (50,878)$ (184,659)$


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Comparative Statement of Capital and Surplus For the Year Ended December 31,

2018 2017 2016 2015 2014

Surplus, December 31, previous year 4,642,651$ 4,660,401$ 4,844,543$ 4,935,261$ 5,250,333$

Net income (5,652) 8,697 (175,308) (50,878) (184,659) Change in net unrealized capital gains or (losses) (93,515) 2,720 27,769 (5,808) (44,938) Change in nonadmitted assets and related items 1,064 1,385 591 1,440 6,509 Change in reserve on account of changes in valuation basis (increase) or decrease 0 0 0 0 (177,815) Change in asset valuation reserve (4,835) (30,183) (37,197) (26,001) 83,947 Aggregate write-ins for gains and losses in surplus (47) (369) 3 (9,471) 1,884 Net change in surplus for the year (102,985) (17,750) (184,142) (90,718) (315,072) Surplus, December 31, current year 4,539,666$ 4,642,651$ 4,660,401$ 4,844,543$ 4,935,261$


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Comparative Statement of Cash Flow For the Year Ended December 31,

2018 2017 2016 2015 2014

Cash from OperationsPremiums collected net of reinsurance 366,427$ 175,837$ 355,178$ 468,095$ 492,823$ Net investment income 917,625 895,625 876,334 901,682 879,177 Miscellaneous Income 114,275 22,782 15,070 17,110 31,666 Total 1,398,327 1,094,244 1,246,582 1,386,887 1,403,666 Benefit and Loss related Payments 798,332 599,243 906,587 732,775 434,874 Commissions, expenses paid and aggregate write-ins for deductions 684,500 626,652 812,579 696,487 831,224 Total deductions 1,482,832 1,225,895 1,719,166 1,429,262 1,266,098

Net Cash from Operations (84,505) (131,651) (472,584) (42,375) 137,568

Cash from InvestmentsProceeds from investments sold, matured or repaid: Bonds 1,438,931 1,618,904 813,607 865,880 1,517,185 Stocks 721,231 903,509 9,932 0 0 Mortgage loans 17,133 27,923 24,508 24,940 19,092 Real estate 0 75,137 (14,004) (19,951) 0 Total investment proceeds 2,177,295 2,625,473 834,043 870,869 1,536,277

Cost of investments acquired (long-term only): Bonds 1,777,108 1,319,190 385,540 405,245 1,759,932 Stocks 1,092,475 662,814 13,892 400,000 300,000 Mortgage loans 0 0 0 0 70,000 Real estate 6,375 119,687 0 19,951 0 Total investments acquired 2,875,958 2,101,691 399,432 825,196 2,129,932 Net increase (decrease) in policy loans and premium notes 2,227 (2,758) (8,153) 2,960 2,688 Net cash from investments (700,890) 526,540 442,764 42,713 (596,343)

Cash from Financing and Miscellaneous SourcesCash provided (applied): Other cash provided or (applied) 101,498 2,203 19,705 14,184 27,001 Net cash from financing and miscellaneous sources 101,498 2,203 19,705 14,184 27,001

Reconciliation of cash, cash equivalents, and short-term investments:Net change in cash, cash equivalents, and short-term investments (683,897) 397,092 (10,115) 14,522 (431,774) Cash, cash equivalents, and short-term investments: Beginning of the year 868,250 471,158 481,273 466,751 898,525 End of the year 184,353$ 868,250$ 471,158$ 481,273$ 466,751$


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SUMMARY OF EXAMINATION CHANGES There were no examination changes to the preceding financial statements as filed with

regulatory authorities over the review period.

NOTES TO FINANCIAL STATEMENTS

ASSETS

INVESTMENTS As of December 31, 2018, the Society’s invested assets were distributed as follows:

The Society’s bond and short-term investment portfolio had the following quality and maturity profiles:

As of December 31, 2018, the Society reported $11,513,752 in Bonds which represents

76.3% of invested assets. Of this amount, 77.6% possess a NAIC-1 or NAIC-2 rating. The remainder of the Society’s invested assets are in Preferred and Common Stocks, Mortgage loans,

Amount PercentageBonds 11,513,752$ 76.3 %Preferred stocks 1,553,600 10.3 %Common stocks 463,390 3.1 %Mortgage loans on real estate 352,479 2.3 %Real estate occupied by Company 914,141 6.1 %Cash 184,353 1.2 %Contract loans 104,603 0.7 %Totals 15,086,318$ 100.0 %

NAIC Designation Amount Percentage1 - highest quality 2,493,041$ 21.7 %2 - high quality 6,431,143 55.9 %3 - medium quality 947,845 8.2 %4 - low quality 848,147 7.4 %5 - lower quality 793,576 6.8 %Totals 11,513,752$ 100.0 %

Years to Maturity Amount Percentage1 year or less 49,983$ 0.4 %2 to 5 years 1,390,426 12.1 %6 to 10 years 2,813,361 24.4 %11 to 20 years 4,115,231 35.7 %over 20 years 3,144,751 27.4 %Totals 11,513,752$ 100.0 %


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Real Estate, Cash and Contract Loans with illiquid assets of Mortgage Loans, Real Estate, and Contract Loans comprising 9.1% of invested assets.

The Society has a custodial agreement; however, as of the report date, it is not in compliance with 31 Pa. Code § 148a.3.

It is recommended that the Company bring its custodial agreement in compliance with 31 Pa Code § 148a.3.

The Society has a written investment policy as required by 40 P.S. § 504.1(c); however, the investment policy was not reviewed and approved on an annual basis by the Board during the examination period. Subsequent to the examination period, the Society’s Board began annually approving the investment policy in compliance with 40 P.S. § 504.1(c).

It is recommended that the Company continue to comply with 40 P.S. § 504.1(c) by having the Board authorize its investment plan annually.

The Society was following its investment policy as of December 31, 2018.

LIABILITIES

POLICYHOLDER AND CLAIM RESERVES The Society reported $9,729,598 in aggregate reserve for life contracts and $89,939 in

contract claims for life in its December 31, 2018 Annual Statement. Allan Ferrone, FSA, MAAA, of CPS was the Society’s appointed actuary for each year

during the examination. The Department’s life actuarial staff performed the following procedures related to the

Society’s reserves: analysis of in-force changes, auditing of valuation details submitted, verification of adequacy of valuation bases and accuracy of calculations, analysis of Actuarial Opinion, and Analysis of Actuarial Memorandum. The appointed actuary determined that the Society needed to hold $500,000 of asset adequacy reserves at December 31, 2018. Based upon these procedures, there were no material recommendations or adjustments concerning the reported reserves at December 31, 2018.

The Department concurred with the appointed actuary’s conclusion that the Society’s December 31, 2018 reserves (including the $500,000 asset adequacy reserves) make an adequate provision for all actuarial reserves and related actuarial values which ought to be established.

SUBSEQUENT EVENTS On April 23, 2019, and subsequent to the examination period, the Society amended its

by-laws to add the Nominating Committee’s responsibility of assessing qualifications of candidates of the Board.

The Department is monitoring the impact of the COVID-19 global pandemic. The Department recognizes that COVID-19 could have a significant financial and operational impact on all of its domestic insurers, including the Company. As such, the Department will continue to


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monitor and share information with the Company as appropriate related to COVID-19 developments.

RECOMMENDATIONS

PRIOR EXAMINATION The prior examination report resulted in no recommendations.

CURRENT EXAMINATION As a result of the current examination, the following recommendations are being made: 1. It is recommended that the Society bring its custodial agreement in compliance

with 31 Pa. Code § 148a.3. 2. It is recommended that the Society continue to comply with 40 P.S. § 504.1(c) by

having the Board authorize its investment plan annually.


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CONCLUSION As a result of this examination, the financial condition of The Most Excellent Assembly

of the Artisans Order of Mutual Protection, as of December 31, 2018, was determined to be as follows:

Since the previous examination, made as of December 31, 2013, the Society’s assets decreased by $701,058, its liabilities increased by $9,561, and its surplus decreased by $710,619.

This examination was conducted by Elizabeth McGarry, CFE.

Respectfully,

Melissa L. Greiner Director Bureau of Financial Examinations

Robert Woronko, CFE, CPA, CISA Examination Manager, CFE

Elizabeth McGarry, CFE Examiner-in-Charge

The CFE designation has been conferred by an organization not affiliated with the federal or any state government. However the CFE designation is the only designation recognized by the NAIC

for the purposes of directing statutory Association examinations of insurance companies.

Amount PercentageAdmitted assets 15,253,393$ 100.0 %Liabilities 10,713,679$ 70.2 %Capital and Surplus 4,539,714 29.8 %Total liabilities, capital and surplus 15,253,393$ 100.0 %

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