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  • NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES

    REPORT ON EXAMINATION

    OF THE

    NATIONAL INTEGRITY LIFE INSURANCE COMPANY

    CONDITION: DECEMBER 31, 2010

    DATE OF REPORT: MAY 4, 2012

  • NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES

    REPORT ON EXAMINATION

    OF THE

    NATIONAL INTEGRITY LIFE INSURANCE COMPANY

    AS OF

    DECEMBER 31, 2010 DATE OF REPORT: MAY 4, 2012 EXAMINER: WILLIAM MICHAEL, CFE

  • TABLE OF CONTENTS

    ITEM PAGE NO.

    1. Scope of examination 5

    2. Description of Company 7

    A. History 7

    B. Holding company 7

    C. Organizational chart 8

    D. Service agreements 9

    E. Management 10

    3. Territory and plan of operations 13

    A. Statutory and special deposits 13

    B. Direct operations 13

    C. Reinsurance 14

    4. Significant operating results 15

    5. Financial statements 17

    A. Independent accountants 17

    B. Net admitted assets 17

    C. Liabilities, capital and surplus 18

    D. Condensed summary of operations 19

    E. Capital and surplus account 20

    6. Market conduct activities 21

    A. Sales activities 21

    B. Underwriting and policy forms 21

    C. Treatment of policyholders

    D. Complaints

    21

    24

    7. Prior report summary and conclusions 27

    8. Summary and conclusions 28

  • AndrewM.Cuomo BenjaminM.LawskyGovernor Superintendent

    May 11, 2012 Honorable Benjamin M. Lawsky Superintendent of Financial Services New York, New York 10004

    Sir:

    In accordance with instructions contained in Appointment No. 30694, dated March 17,

    2011 and annexed hereto, an examination has been made into the condition and affairs of

    National Integrity Life Insurance Company, hereinafter referred to as the Company, at its

    home office located at 15 Matthews Street, Suite 200, Goshen, NY 10924 and its main

    administrative office located at 400 Broadway, Cincinnati, OH 45202..

    Wherever Department appears in this report, it refers to the New York State

    Department of Financial Services.

    On October 3, 2011, the Insurance Department merged with the Banking Department to

    create the New York State Department of Financial Services.

    The report indicating the results of this examination is respectfully submitted.

    25 BEAVER STREET , NEW YORK , NY 10004 2319 | WWW.DFS .NY .GOV

  • 5

    1. SCOPE OF EXAMINATION

    The examination of the Company was a full scope examination as defined in the NAIC

    Financial Condition Examiners Handbook, 2011 Edition (the Handbook). The examination

    covers the three-year period from January 1, 2008 through December 31, 2010. The examination

    was conducted observing the guidelines and procedures in the Handbook and, where deemed

    appropriate by the examiner, transactions occurring subsequent to December 31, 2010 but prior

    to the date of this report (i.e., the completion date of the examination) were also reviewed.

    In the course of the examination, a review was also made of the manner in which the

    Company conducts its business and fulfills its contractual obligations to policyholders and

    claimants. The results of this review are contained in item 6 of this report.

    The examination was conducted on a risk focused basis in accordance with the provisions

    of the Handbook published by the National Association of Insurance Commissioners (NAIC).

    The Handbook guidance provides for the establishment of an examination plan based on the

    examiners assessment of risk in the insurers operations and utilizing that evaluation in

    formulating the nature and extent of the examination. The examiner planned and performed the

    examination to evaluate the current financial condition as well as identify prospective risks that

    may threaten the future solvency of the insurer. The examiner identified key processes, assessed

    the risks within those processes and evaluated the internal control systems and procedures used

    to mitigate those risks. The examination also included assessing the principles used and

    significant estimates made by management, evaluating the overall financial statement

    presentation, and determining managements compliance with New York statutes and

    Department guidelines, Statutory Accounting Principles as adopted by the Department, and

    annual statement instructions.

    Information about the Companys organizational structure, business approach and control

    environment were utilized to develop the examination approach. The Companys risks and

    management activities were evaluated incorporating the NAICs nine branded risk categories.

    These categories are as follows:

    Pricing/Underwriting Reserving Operational

  • 6

    Strategic Credit Market Liquidity Legal Reputational

    The Company was audited annually, for the years 2008 through 2010, by the accounting

    firm of Ernst & Young LLP. The Company received an unqualified opinion in all years. Certain

    audit workpapers of the accounting firm were reviewed and relied upon in conjunction with this

    examination. The Company has an internal audit department which was responsible for

    assessing the internal control structure and compliance with the NAICs Model Audit Rule

    (MAR). Where applicable, the Companys MAR workpapers and reports were reviewed and

    portions were relied upon for this examination.

    The examiner reviewed the corrective actions taken by the Company with respect to the

    comments contained in the prior report on examination. The results of the examiners review are

    contained in item 7 of this report.

    This report on examination is confined to financial statements and comments on those

    matters which involve departure from laws, regulations or rules, or which require explanation or

    description.

  • 7

    2. DESCRIPTION OF COMPANY

    A. History

    The Company was incorporated under the name Merchants Life Insurance Company

    (Merchants), as a stock life insurance company, under the laws of New York on November 22,

    1968. It was licensed and commenced business on December 30, 1968. Initial resources of

    $3,000,000 consisting of common capital stock of $1,000,000 and paid in and contributed

    surplus of $2,000,000, were provided through the sale of 100,000 shares of common stock (with

    a par value of $10 each) for $30 per share.

    Capital was increased to $1,100,000 in 1972 as a result of the issuance of 10,000

    additional shares of stock. Monumental Life Insurance Company acquired the Company in July

    1981 and the name was changed to Monumental National Life Insurance Company of New

    York. The Equitable Life Assurance Society of the United States (Equitable) purchased the

    Company from Monumental Life Insurance Company in November 1985. In 1985, capital was

    increased to $2,000,000 as a result of the issuance of 90,000 additional shares of stock. The

    Company adopted its present name on January 21, 1986. In September 1988, Equitable sold the

    Company to National Mutual Life Association of Australasia. In November 1993, ARM

    Financial Group acquired the Company and its immediate parent, Integrity Life Insurance

    Company (Integrity) from National Mutual Life Association of Australasia. The Western and

    Southern Life Insurance Company (WSLIC) acquired Integrity and the Company in March

    2000 from ARM Financial Group.

    Due to capital contributions received from Integrity prior to and during the examination

    period, capital and gross paid in and contributed surplus were $2,000,000 and $312,227,768,

    respectively, as of December 31, 2010.

    B. Holding Company

    The Company is a wholly owned subsidiary of Integrity, an Ohio life insurance company.

    As of December 31, 2001, Integrity was owned by WSLIC, an Ohio life insurance company,

    which in turn is a wholly owned subsidiary of Western-Southern Financial Group, Inc.

    (WSFG), a diversified group of financial services companies offering life and health insurance,

    annuities, mutual funds, and a variety of other investment management products and services.

    The ultimate parent of the Company is Western-Southern Mutual Holding Company,

    (WSMHC), an Ohio mutual holding company.

  • 8

    C. Organizational Chart

    An organization chart reflecting the relationship between the Company and significant

    entities in its holding company system as of December 31, 2010 follows:

    Western Southern Mutual Holding Company

    Western & Southern Financial Group, Inc.

    Western Southern Life Insurance Company

    Columbus Life Insurance Company

    Western - Southern Life Assurance Company

    Touchstone Securities, Inc.

    Western Southern Holdings, LLC.

    Fort Washington Investment Advisors

    Integrity Life Insurance Company

    National Integrity Life Insurance Company

    IFS Financial Services, Inc.

  • 9

    D. Service Agreements

    The Company had six service agreements in effect with affiliates during the examination

    period.

    Type of Agreement and

    Department File Number

    Effective Date

    Provider(s) of

    Service(s)

    Recipient(s) of

    Service(s)

    Specific Service(s) Covered

    Income/ (Expense)* For

    Each Year of the Exami