EXAMINATION REPORT OF
LE MARS INSURANCE COMPANY
LE MARS, IOWA
AS OF DECEMBER 31, 2014
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Le Mars, Iowa
April 8, 2016
Honorable Nick Gerhart
Commissioner of Insurance
State of Iowa
Des Moines, Iowa
Commissioner:
In accordance with your authorization and pursuant to Iowa statutory provisions,
an Examination has been made of the records, business affairs and financial
condition of
LE MARS INSURANCE COMPANY
LE MARS, IOWA
AS OF DECEMBER 31, 2014
at the administrative office of its ultimate parent, Donegal Mutual Insurance Company,
located at 1195 River Road, Marietta, PA 17547, and the following Examination Report is
submitted.
SCOPE OF EXAMINATION
This is the regular risk-focused financial examination of Le Mars Insurance
Company, hereinafter referred to as the “Company”. The last examination covered the
period of January 1, 2006 through December 31, 2010. This examination, covering the
period from January 1, 2011 to the close of business on December 31, 2014, including
any material transactions and/or events occurring and noted subsequent to the
examination period, was conducted by examiners of the Iowa Insurance Division.
The examination was coordinated with the examination of the Company’s parent,
Donegal Mutual Insurance Company, conducted by the Pennsylvania Insurance Department,
as well as the examinations of the Company’s affiliated insurance companies, with the
Pennsylvania Insurance Department functioning as the lead state in the coordinated
examination. The Examination Reports of Donegal Mutual Insurance Company and the
affiliated insurance companies will be issued by the respective domiciliary insurance
departments under separate cover.
The examination was conducted in accordance with the NAIC Financial Condition
Examiners Handbook. The Handbook requires that the examination be planned and performed
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.
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All accounts and activities of the Company were considered in accordance with the
risk-focused examination process. This included 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 was identified,
the impact of such adjustment will be documented separately following the Company’s
financial statements later in this Report.
This Examination Report includes 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.
SUMMARY OF SIGNIFICANT FINDINGS
The examination included a review to determine the current status of the exception
condition regarding the maintenance of the complaint register that was commented upon
in our preceding Examination Report, dated January 4, 2012, which covered the period
from January 1, 2006 through December 31, 2010. We determined that the Company had
satisfactorily addressed this finding. There are no findings or recommendations being
made in this Report as a result of the current examination.
HISTORY
The Company was incorporated on February 18, 1901, as a mutual assessment
association called the German Mutual Insurance Association.
The name of the Company was changed to the Le Mars Mutual Insurance Association
on October 18, 1918.
The Articles of Incorporation were amended and substituted and new Bylaws
adopted on February 14, 1957 permitting the Company perpetual existence and authorizing
the issuance of non-assessable policies and the transaction of business under Chapter
515, Code of Iowa. In addition, the Company adopted the name of Le Mars Mutual Insurance
Company of Iowa.
In June of 2002, the Company consummated an affiliation with Donegal Mutual
Insurance Company (Donegal Mutual). As part of the affiliation, Donegal Mutual
entered into a management agreement with and made a $4,000,000 surplus note
investment in the Company. During 2003, the Company’s board of directors adopted a
plan of conversion to convert to a stock insurance company. Following policyholder
and regulatory approval of the plan of conversion, Donegal Group, Inc. acquired all
of the outstanding common stock of the company as of January 1, 2004 in exchange for
payment of the surplus note and accrued interest to Donegal Mutual. Donegal Group,
Inc. (DGI) contributed additional capital in the amount of $8,200,000 on January 2,
2004 to maintain the Company’s surplus position following the issuance of surplus
payments to policyholders pursuant to the plan of conversion. As part of the
demutualization process, the Articles of Incorporation and the Bylaws were amended
and restated and the Company changed its name to Le Mars Insurance Company.
3
CAPITAL STOCK
Authorized capital of the Company shall be 10,000,000 shares of common stock,
with a par value of $1.00 per share. Issued and outstanding capital consists of
4,392,740 shares with paid in and contributed surplus of $8,287,436.
The Company did not pay any stock dividends during any of the years covering
the examination period.
INSURANCE HOLDING COMPANY SYSTEM
The Company is a member of a Holding Company System as defined by Chapter 521A,
Code of Iowa. The appropriate forms, as mandated under the Iowa Code regarding
insurance holding company systems, were filed for each year under review.
An organization chart is depicted below:
Domicile
Donegal Mutual Insurance Company PA
Southern Mutual Insurance Company^ GA
Commonwealth Insurance Services, Inc.
Conestoga Title Insurance Company PA
Abstracting Company of Berks County
Lancaster Title Abstracting Company
Donegal Financial Services Corporation*
Union Community Bank
Donegal Group, Inc. DE
Atlantic States Insurance Company PA
Southern Insurance Company of Virginia VA
Le Mars Insurance Company IA
The Peninsula Insurance Company MD
Peninsula Indemnity Company MD
Sheboygan Falls Insurance Company WI
Michigan Insurance Company MI
^Donegal Mutual is a Surplus Note Holder and controls the Board
*Ownership is 52% Donegal Mutual Insurance Company and 48% Donegal Group, Inc.
MANAGEMENT AND CONTROL
SHAREHOLDERS
The Bylaws state each shareholder shall have such rights and privileges as a
Shareholder as are prescribed by law for shareholders under the laws of the State of
Iowa, the Amended and Restated Articles of Incorporation of the Corporation as the
same may be in effect from time to time and these Bylaws as the same may be in effect
from time to time.
The regular annual meeting of the Shareholders shall be held at the Home Office
Corporation in Le Mars, Iowa, at 9:00 a.m. on the third Friday of April of each year.
Special meetings of the Shareholders may be called by the Chief Executive Officer and
shall be called upon the written request of a majority of the members of the Board of
Directors or upon the written request of one-fifth of the shareholders entitled to
vote thereat.
4
At all meetings of the Shareholders, a Shareholder entitled to vote may vote in
person or by proxy appointed in writing within 120 days prior to the meeting and
limited to 30 days subsequent to the meeting date.
BOARD OF DIRECTORS
The Amended and Restated Articles of Incorporation stipulate that the business
and affairs of the Company shall be managed by a Board of Directors of no less than
five nor more than twelve members.
Directors shall be elected by one of four classes for a period of four years
and shall hold office until their successors are elected and qualified or until his
or her death, resignation or removal. Nominations for membership on the Board of
Directors shall not be considered unless presented in writing, signed by the
shareholder(s) and filed with the Nominating Committee of The Board of Directors at
least 90 days prior to the date of the annual meeting at which said nominations are
to be voted on.
The members of the Board of Directors serving as of December 31, 2014 were as
follows:
Name and Address Principal Affiliation Term Expires
Larry D. Heemstra
Le Mars, Iowa
Vice President Finance/HR Quattro
Composites-Tec Industries
2015
Dennis J. Bixenman
Le Mars, Iowa
Retired 2015
Matthew J. Ahlers
Le Mars, Iowa
President
Primebank
2016
Patricia A. Gilmartin
Marietta, Pennsylvania
Retired
2016
Richard D. Wampler, II
Harrisburg, Pennsylvania
Retired 2016
Philip H. Glatfelter, II
Columbia, Pennsylvania
Retired 2017
Kevin M. Kraft, Sr.
Columbia, Pennsylvania
Chief Executive Officer
Clyde W. Kraft Funeral Home
2017
Frederick W. Dreher, III
Gladwyne, Pennsylvania
Counsel
Duane Morris LLP
2018
Donald H. Nikolaus
Silver Spring, Pennsylvania
President & Chief Executive Officer
Donegal Mutual Insurance Company
2018
Directors shall be compensated and reimbursed for their expenses of attendance
at meetings as authorized by the Board of Directors. A fixed fee is paid of $900 per
regular and special meetings of the Board.
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COMMITTEES
The Board of Directors may from time to time designate committees of the Board
of Directors as provided in the Bylaws.
Executive Committee
Donald H. Nikolaus, Chairman
Philip H. Glatfelter, II
Dennis J. Bixenman
Richard D. Wampler, II
Nominating Committee Compensation Committee
Frederick W. Dreher, Chairman Dennis J. Bixenman, Chairman
Philip H. Glatfelter, II Philip H. Glatfelter, II
Richard D. Wampler, II Richard D. Wampler, II
Donald H. Nikolaus, ex officio Donald H. Nikolaus, ex officio
OFFICERS
The Articles provide that the officers of the Company shall be elected annually
by the Board of Directors and shall consist of a Chief Executive Officer, a
President, a Secretary and a Treasurer. The Board of Directors may also elect one or
more Vice Presidents and such other officers as it shall deem necessary. The offices
of Chief Executive Officer, Secretary and Treasurer must be held by different
persons.
The officers appointed and serving as of December 31, 2014 were as follows:
Name Title
Donald H. Nikolaus President and Chief Executive Officer
Jeffrey D. Miller Senior Vice President & Chief Financial Officer
Kevin G. Burke Executive Vice President
Robert G. Shenk Senior Vice President, Claims
Daniel J. Wagner Senior Vice President & Treasurer
Richard A. Mason, Jr. Sr. Vice President, Director of Marketing & Sales
Cyril J. Greenya Vice President, Underwriting
Robert R. Long, Jr. Vice President, House Counsel
Sanjay Pandey Vice President, Information Technology
Jerry W. Demastus Vice President & Assistant Treasurer
Connie M. Sudtelgte Corporate Secretary & Accounting Manager
Vincent A. Viozzi Senior Vice President & Chief Investment Officer
Jason M. Crumbling Vice President & Controller
Mark D. Floy Assistant Vice President, Research & Development
Daniel F. Hystad Assistant Vice President & Claims Manager
Sheri O. Smith Assistant Secretary
Renae D. Strand Vice President, Personal Lines Underwriting
Officers compensation is disclosed in Exhibit A, attached to this report.
CONFLICT OF INTEREST STATEMENTS
The Company required annual conflict of interest statements from the Board of
Directors and appropriate officers. The review of the statements disclosed that the
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Company’s President and Chief Executive Officer, Mr. Donald H. Nikolaus, is a partner
in the law firm of Nikolaus & Hohenadel, which has provided legal services to Donegal
Group in the past. No additional potential conflicts of interest were noted during the
examination.
CORPORATE RECORDS
The minutes of the shareholder, Board of Directors and Committee meetings
held during the period covered by this examination were reviewed. All the minutes
under review were signed by the Secretary and President of the Company.
The minutes of the meeting of the Board of Directors held April 20, 2012
reflected the approval of the Examination Report of the Iowa Insurance Division (IID)
as of December 31, 2010.
The Bylaws were amended effective April 18, 2014 and filed with the IID
on October 22, 2015. The amendment named the Audit Committee of Donegal Group Inc.,
the sole shareholder, as the Audit Committee of the Company.
SERVICES AGREEMENT
Effective June 12, 2002, the Company entered into a services agreement with
Donegal Mutual Insurance Company, Donegal Group, Inc. and the then existing insurance
subsidiaries of Donegal Group, Inc. The agreement has been amended several times
since, to include companies acquired by Donegal Mutual. The current Amended and Restated
Services Allocation Agreement, was amended on December 1, 2010, to include the acquired
Michigan Insurance Company. The Board of Directors approved the amendment
during its regular meeting on April 29, 2011. Per the agreement, Donegal Mutual
shall provide the following services:
Underwriting Personnel and Professional Services
Claims Financial Reporting
Reinsurance Management Tax Administration
Investment Management Accounting Services
Information Services Policyholder Services
Actuarial Services Internal Audit and Compliance Services
Marketing, Sales, and Advertising
The Company shall pay for its own operating costs and expenses. In addition,
the Company shall pay Donegal Mutual for all costs and expenses incurred in providing
the named services. Direct expenses of the Company that are paid by
Donegal Mutual will be reimbursed based upon the actual costs incurred. Services
shall be reimbursed at the actual cost incurred by Donegal Mutual plus an administrative
fee.
FIDELITY BONDS AND OTHER INSURANCE
The Donegal Group, Inc. and named affiliates, including the Company, are
protected by a $2,000,000 financial institution bond, which meets the NAIC’s suggested
minimum amount of coverage.
Other insurable interests of the Company appear to be adequately protected
through coverage afforded by policies in force with admitted insurers.
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EMPLOYEES’ WELFARE
The Company does not have employees. All operations of the Company are provided
by Donegal Mutual under the Services Allocation Agreement. Eligible employees
are provided with the following core benefits by Donegal Mutual:
• Medical, Dental and Vision Benefits
• Flexible Spending Account – Health and Dependent Care
• Basic Life and Accidental Death & Dismemberment Insurance
• Voluntary Life Insurance
• Short and Long Term Disability Benefits
• 401(k) Plan - 100% Company Match of 3% pre-tax, 50% Company Match on additional
6% pre-tax
• Stock Purchase Plan
• Cash Incentive Plan
• Educational Program
• Paid Time Off
• Paid Sick Days
• Wellness Programs
REINSURANCE
The Company relies on reinsurance to limit its maximum net loss from large single
catastrophic risks or excess of loss risks in areas where it may have a concentration
of policyholders, and to increase its capacity to write insurance.
Pursuant to the Services Allocation Agreement, Donegal Mutual is responsible for
the review, negotiation, monitoring and coordination of all reinsurance contracts and
placements, including the determination of the amounts, terms, types and structure
of reinsurance to be obtained, and the selection of the reinsurers. The reinsurance
strategy of the company includes the purchasing of both treaty and facultative
reinsurance.
Le Mars’ reinsurance program consists of both agreements entered into as a member
of the Donegal insurance group and as a stand-alone entity. In addition, the Company
has reinsurance agreements in place with its parent company, Donegal Mutual.
As a member company of the Donegal insurance group, Le Mars is party to third
party reinsurance contracts including:
• Excess of Loss Reinsurance: Losses are automatically reinsured, through a series
of contracts, over a set retention (generally $1,000,000).
• Property Catastrophe Reinsurance: Through a series of reinsurance agreements,
the member companies can recover 100% of the accumulation of many losses from
a single catastrophe event, over a set retention ($5,000,000) and after
exceeding an annual aggregate deductible.
As a stand-alone entity, Le Mars has a separate reinsurance program that provides
certain coverage, in addition to the coverage that the Donegal insurance group provides,
that is appropriate for the Company’s size and exposures. Also, Le Mars purchases
facultative reinsurance to cover exposures from property and casualty losses that exceed
limits provided by the Donegal insurance group’s treaty reinsurance.
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In addition, Le Mars has a workers’ compensation excess of loss reinsurance
agreement and a catastrophe reinsurance agreement with Donegal Mutual. The purpose of
the reinsurance agreements with the parent company is to lessen the effects of a single
large loss, or an accumulation of smaller losses arising from a single event, to levels
that are appropriate with Le Mars’ size, underwriting profile, and amount of surplus.
The reinsurance programs and strategy are approved by Donegal Mutual’s Board
of Directors each year and are reviewed by the Company’s Board of Directors. The most
recent review prior to the examination date by the Company’s Board of Directors was
at the April 18, 2014 Board meeting.
CEDED
Multiple Line Excess of Loss
This agreement was in place during the previous examination. For each year
covering the current examination period, the agreement has been renewed on an annual
basis. In addition, the terms of agreement relating to reinsurance coverages are
consistent with prior arrangements with the exception of changes made to the composition
of reinsurers in 2013.
The contract covers business classified as Homeowners, Farm Owners, Commercial
Multiple Peril, Business Owners, Inland Marine, Fire and Allied Lines, Commercial
Automobile Physical Damage (Fleet only), Automobile Liability business (including
but not limited to Uninsured/ Underinsured Motorists, No-Fault and other statutorily
required coverages), Garage Keepers Legal Liability, Other Liability, General
Liability and Workers' Compensation and Employer's Liability business. The contract
through broker Holborn Corporation was effective on October 1, 2014. The reinsurers
to the contract and portion of accepted risk are Hannover Ruck SE, (50%), Mutual
Reinsurance Bureau, comprised of Church Mutual Insurance Company (9.375%), Employers
Mutual Casualty Company (9.375%), Kentucky Farm Bureau Mutual Insurance Company
(9.375%), and Motorists Mutual Insurance Company (9.375%), and Toa Reinsurance Company
of America (12.50%).
Coverage A – Property: $1,650,000 all risks per occurrence and $550,000 in
excess of $450,000 retention of the ultimate net loss each risk, each loss.
Coverage B – Casualty: $550,000 in excess of $450,000 retention of the ultimate
net loss each occurrence.
Coverage C – Property and Casualty: $450,000 in excess of $450,000 retention
per occurrence. Recoveries under Coverage A and B shall inure to the benefit of
Coverage C.
Workers’ Compensation and Employers Liability Excess of Loss
This agreement was in place during the previous examination. For each year
covering the current examination period, the agreement has been renewed on an annual
basis. In addition, the terms of agreement relating to reinsurance coverages are
consistent with prior arrangements.
The reinsurer shall be liable for Workers' Compensation coverage in excess of
the Multiline treaty limits. The Company is included in the external $9,000,000
excess of $1,000,000 treaty covering Donegal Mutual and other companies within the
Donegal insurance group.
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Cyber Coverage Quota Share
The contract for the Donegal insurance group of companies to cede to BF Re
Underwriters, LLC on behalf of Berkley Insurance Company was effective on June 1,
2013. The contract covers all business classified as Cyber Coverage underwritten by
the Company. The reinsurer shall be liable for an amount equal to 90% quota
share of the Company’s ultimate net liability under new and renewal cyber coverage
policies, up to a maximum limit of $1,000,000.
Liability Quota Share
The contract with Swiss Reinsurance America Corporation was effective September
1, 2002 and amended on August 18, 2008 to add the Company to the list of companies.
The contract covers personal, farm and commercial umbrella liability policies, excess
liability on business owners policies and commercial general liability quota share
cover.
Exhibit A - The Company shall cede 85% Quota Share of the first $1,000,000, and
100% Quota Share of the next $9,000,000 of the Company's Ultimate Net Liability, each
Loss Occurrence on all Commercial Umbrella Policies reinsured under this Agreement
and 100% Quota Share of the next $4,000,000 of the Company’s Ultimate Net Liability,
each loss Occurrence on all Farm Umbrella Policies reinsured under this agreement.
However, the Reinsurer's liability hereunder shall not exceed 85% of the first
$1,000,000 nor 100% of the next $9,000,000, as respects all Commercial Umbrella
Policies, nor 100% of the next $4,000,000, as respects all Farm Umbrella Policies,
each Loss Occurrence and in the aggregate where applicable.
Exhibit B - The Company shall cede 85% Quota Share of the first $1,000,000, and
100% Quota Share of the next $4,000,000 of the Company's Ultimate Net Liability, each
Loss Occurrence on all Personal Umbrella Policies reinsured under this Agreement.
However, the Reinsurer's liability hereunder shall not exceed 85% of the first
$1,000,000 and 100% of the next $4,000,000 each Loss Occurrence and in the aggregate
where applicable.
Exhibit C - The Company shall cede 0% Quota Share of the first $1,000,000, and
100% Quota Share of the next $1,000,000 of the Company's Ultimate Net Liability, each
Loss Occurrence on all Business Owners Policies reinsured under this Agreement.
However, the Reinsurer shall have no liability hereunder as respects the first
$1,000,000 and the Reinsurer’s liability shall not exceed 100% of the next $1,000,000
each Loss Occurrence and in the aggregate where applicable.
Exhibit D - The Company shall cede 0% Quota Share of the first $1,000,000, and
100% Quota Share of the next $1,000,000 of the Company's Ultimate Net Liability, each
Loss Occurrence on all Commercial General Liability coverages under all Commercial
Package Policies reinsured under this Agreement. However, the Reinsurer shall have no
liability hereunder as respects the first $1,000,000 and the Reinsurer’s liability
shall not exceed 100% of the next $1,000,000 each Loss Occurrence and in the
aggregate where applicable.
Catastrophe Excess of Loss
The contract with Donegal Mutual was effective June 1, 2004. The contract covers
business classified as property, multi-peril and automobile policies. The reinsurer
shall be liable for $500,000 of the ultimate net loss, each risk, each loss, in excess
of $500,000 retention. The limit of the reinsurer’s liability relating to each loss was
changed from $500,000 to $750,000 in 2014.
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Workers Compensation Excess of Loss
The contract with Donegal Mutual was effective January 1, 2013. The contract
covers business classified as workers compensation policies. The reinsurer shall be
liable for 100% of the ultimate net loss, each risk, each loss, up to an annual limit
of $1,000,000 in total loss.
Property Catastrophe Excess of Loss
This agreement was in place during the previous examination. For each year
covering the current examination period, the agreement has been renewed on an annual
basis. During the examination period, there was one change made to terms of the
agreement relating to reinsurance coverages.
The contract covers business classified as Fire and Allied Lines, Inland Marine,
Section I of Homeowners, Farm Owners, and Business Owners, Commercial Multiple Peril
(property coverage only), Commercial Automobile Physical Damage (comprehensive
coverage only), and Personal Automobile Physical Damage (comprehensive coverage only).
The most recent renewal of the contract through broker Guy Carpenter & Company LLC
was effective January 1, 2014.
First Excess: From 2011-2012, the insurer was liable for $1,000,000 of the
ultimate net loss per occurrence in excess of $1,000,000 in retention, not to exceed
an annual aggregate limit of $2,000,000. In 2013, the terms of reinsurance coverage
changed to that the reinsurer shall be liable for $750,000 of the ultimate net loss
per occurrence in excess of $1,250,000 retention, not to exceed an annual
aggregate limit of $1,500,000.
Second Excess: The reinsurer shall be liable for $3,000,000 of the ultimate net
loss per occurrence in excess of $2,000,000 retention, not to exceed an annual
aggregate limit of $6,000,000.
Equipment Breakdown Coverage
The contract cedes to The Hartford Steam Boiler Inspection and Insurance
Company 100% of the Equipment Breakdown liability of the Company, effective as
respects Accidents. The contract was effective January 1, 2000 and amended to add
the Company to the contract on August 1, 2005. The agreement was renewed in April
of 2013. The reinsurer’s limit of liability
for any one accident is $50,000,000.
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Property Per Risk Excess of Loss Reinsurance Contract
The contract, through broker Guy Carpenter & Company LLC, was effective January
1, 2014 covering the property portion of Multi-Peril Policies. This agreement was
in place during the previous examination. For each year covering the current examination
period, the agreement has been renewed on an annual basis. During the examination
period, there were a few changes made to terms of the agreement relating to reinsurance
coverages. The contract limits and retentions are outlined in the following sections.
SECTION A: No claim shall be made upon the Reinsurer unless and until the
Reinsured shall have first sustained an Ultimate Net Loss in excess of $1,000,000
any one risk, each and every loss and then the Reinsurer shall be liable for one
hundred percent (100%) of the Ultimate Net Loss sustained by the Reinsured in excess
of $1,000,000 any one risk in respect of each such loss. The limit of liability of
the Reinsurer in respect of any risk any one such loss shall be $4,000,000 (a change
from 2010 amount of $1,500,000), subject to a Loss Occurrence limit of $12,000,000 (a
change from 2010 amount of $3,000,000).
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SECTION B: Three hundred thousand dollars ($300,000) each risk excess of five
million dollars ($5,000,000) each risk as respects Excess of Original Policy Limits,
Extra Contractual Obligations and Loss Adjustment Expenses, including Declaratory
Judgment Expenses, for risks with Policy limits of five million dollars ($5,000,000)
or less. The current retention limit of $5,000,000 represented a change from $2,500,000
noted in the 2010 agreement.
Liquor Liability
The contract for the Donegal insurance group of companies to cede to BF Re
Underwriters, LLC on behalf of Berkley Insurance Company was effective on November
6, 2009. The contract covers the liquor liability policies or endorsements written
by the Company. The reinsurer shall be liable for an amount equal to 85% of the
policy limits up to $1,000,000 each common cause and $2,000,000 aggregate. The
reinsurer shall also be liable for an amount equal to 85% of the original policy
limit, but not to exceed a total of $850,000 each occurrence, for extra contractual
obligations and loss in excess of original policy limits combined.
ASSUMED
Quota Share Reinsurance Agreement
The Company assumes from Donegal Mutual 100% of the net liability for loss
and loss expense for all binders, policies and contracts issued or entered into by
the reinsured. The contract was effective as of November 1, 2009.
The agreement was amended on May 1, 2011 to include Atlantic State Insurance
Company as a named reinsured party.
In addition, due to Le Mars’ recent conversion onto Donegal’s mainframe system,
the agreement was amended to exclude policies written under other companies on the
Donegal mainframe from Le Mars’ financial results. The amendment was effective as of
June 1, 2014.
STATUTORY DEPOSIT
The statement value of securities held in a custodial account, and vested in
the Iowa Commissioner of Insurance for the benefit of all policyholders, totaled
$1,705,616.
TERRITORY AND PLAN OF OPERATION
The Company is a multi-line carrier. Primary lines written include private
passenger automobile liability, auto physical damage, homeowners and commercial
multi-peril coverages. The Company is authorized to transact business in the states
of Illinois, Iowa, Nebraska, North Dakota, Oklahoma, South Dakota, and Wisconsin. During
2014, the Company wrote business in the states of Iowa, Nebraska, Oklahoma, and South
Dakota. However, in October of 2014, Le Mars withdrew from the State of Oklahoma.
The Company uses an independent agency system to solicit business. At
December 31, 2014, 1,830 producers associated with 189 agencies are authorized on
behalf of Le Mars. The agents are compensated on a commission basis, which varies
depending on the line of business written. Either party may terminate the agency
agreement at any time by giving written notice to the other party as provided for in
the agreement.
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GROWTH OF COMPANY
The following information was obtained from filed annual statements.
Net Investment
Admitted
Surplus to
Premiums
Net Losses
Income
Year Assets
Policyholders Earned
Incurred Earned
2011
$51,820,463
$24,720,327
$26,158,490
$19,133,908
$1,461,094
2012
56,298,356
26,803,140
25,937,572
13,857,075
1,440,167
2013
59,663,223
27,627,914
28,555,587
18,010,020
1,443,507
2014
61,685,494
27,251,245
29,810,202
19,793,179
1,448,782
ACCOUNTS AND RECORDS
The Company’s general ledgers are maintained on an electronic accrual basis.
Trial balances were prepared for all the years of the examination period.
KPMG, an independent CPA who has audited the Company’s financials on a
statutory basis since 2002, conducted reviews on the general ledger, nonstandard
journal entries, and entries to prepare the annual statements as of December 31, 2014
for DGI and all its subsidiaries. Utilizing work performed by the
external auditor, amounts from the general ledger accounts were reconciled
and found to be in agreement with balances reported on filed annual statements
for assets, liabilities, income or disbursements.
During the course of the examination, no differences with the amounts in the
financial statements as presented in the annual statement at December 31, 2014 were
noted.
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F I N A N C I A L S T A T E M E N T S
A N D C O M M E N T S T H E R E O N
NOTE: Except as otherwise stated, the
financial statements immediately following
reflect only the transactions for the period
ending December 31, 2014 and the assets and
liabilities as of this date. Schedules may not
add or tie precisely due to rounding.
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STATEMENT OF ASSETS AND LIABILITIES
Assets
Ledger
Not Admitted
Admitted
Bonds
$43,169,633
$
$43,169,633
Common stocks
207,261
207,261
Real Estate
Properties occupied by the company
494,207
494,207
Cash & Short term investments
4,301,344
4,301,344
Other invested assets
115,072
115,072
0
Investment income due and accrued
290,549
290,549
Premiums and considerations:
Uncollected premiums
9,079,379
132,534
8,946,845
Deferred premiums
43,127
43,127
Reinsurance
Amounts recoverable
997,526
997,526
Funds held
457
457
Current federal taxes
762,334
762,334
Net deferred tax asset
4,069,543
1,626,396
2,443,147
EDP
64,562
35,498
29,064
Furniture and equipment
64,670
64,670
0
Total assets
$63,659,664
$1,974,170
$61,685,494
Liabilities, Surplus and Other Funds
Losses
$13,741,505
Reinsurance payable on paid losses and loss adjustment expenses
9,517
Loss adjustment expenses
1,993,000
Commissions payable
375,000
Other expenses
511,086
Taxes, licenses and fees
238,348
Unearned premiums
14,889,102
Advance premium
137,210
Ceded reinsurance premium payable
442,694
Remittances and items not allocated
146,022
Drafts outstanding
1,950,765
Total Liabilities
$34,434,249
Common capital stock
$4,392,740
Gross paid in and contributed surplus
8,287,436
Unassigned funds (surplus)
14,571,069
Surplus as regards policyholders
$27,251,245
Total liabilities, surplus and other funds
$61,685,494
15
STATEMENT OF INCOME
ONE-YEAR PERIOD ENDING DECEMBER 31, 2014
Underwriting income
Premiums earned
$29,810,202
Deductions
Losses incurred
$19,793,179
Loss adjustment expenses incurred
3,227,967
Other underwriting expenses incurred
9,490,102
Total underwriting deductions
32,511,248
Net underwriting gain (loss)
$(2,701,046)
Investment income
Net investment income earned
$1,448,782
Net realized capital gains (losses)
58,129
Net investment gain (loss)
1,506,911
Other revenue
Finance and service charges not included in premium
$244,997
Miscellaneous income
5,725
Total other income
250,722
Net income (loss) before dividends and federal
income tax
$(943,413)
Dividends to policyholders
415,169
Net income (loss) after dividends and before
federal income tax
$(1,358,582)
Federal & foreign income taxes
(767,340)
Net income (loss)
$(591,242)
16
Capital and Surplus Account
Surplus as regards policyholders, December 31, 2013
$27,627,914
Gains and (Losses) in Surplus
Net Income
$(591,242)
Change in net unrealized capital gains
16,884
Change in net deferred income tax
(80,131)
Change in nonadmitted assets
193,186
Aggregate Write-ins for gains and losses in surplus
84,634
Change in surplus as regards policyholders for the year
$(376,669)
Surplus as regards policyholders, December 31, 2014
$27,251,245
CASH FLOW
Cash from Operations
Premiums collected net of reinsurance
$28,285,072
Net investment income
1,511,473
Miscellaneous income
250,722
Total
$30,047,267
Benefit and loss related payments
$18,350,645
Commissions, expenses paid and aggregate write-ins
12,216,040
Dividends paid to policyholders
415,169
Federal income taxes paid (recovered)
(31,064)
Total
30,950,790
Net cash from operations
$(903,523)
Cash from investments
Proceeds from investments sold, matured or repaid:
Bonds
$6,203,724
Stocks
5,672,450
Other invested assets
21,663
Total investment proceeds
$11,897,837
Cost of investments acquired (long-term only):
Bonds
$11,263,513
Real Estate
30,028
Total investments acquired
$11,293,541
Net cash from investments
$604,296
Cash from Financing and Miscellaneous Sources
Cash provided (applied):
Other cash provided (applied)
$373,476
Net cash from financing and miscellaneous
sources
$373,476
RECONCILIATION OF CASH AND SHORT-TERM INVESTMENTS
Net change in cash and short-term investments
$74,249
Cash and short-term investments:
Beginning of year
4,227,095
End of year
$4,301,344
17
STATEMENT OF INCOME
FOUR-YEAR PERIOD ENDING DECEMBER 31, 2014
Underwriting income
Premiums earned
$110,461,851
Deductions
Losses incurred
$70,794,182
Loss adjustment expenses incurred
9,698,538
Other underwriting expenses incurred
36,306,345
Total underwriting gain (loss)
116,799,065
Net underwriting gain (loss)
$(6,337,214)
Investment income
Net investment income earned
$5,793,550
Net realized capital gains (losses)
450,182
Net investment gain (loss)
6,243,732
Other income
Finance and service charges not included in
premiums
$1,269,501
Miscellaneous income
22,170
Total other income
1,291,671
Net income before dividends and federal income tax
$1,198,189
Dividends to policyholders
763,747
Net income after dividends and before federal
income tax
$434,442
Federal and foreign income taxes
(526,361)
Net income
$960,803
CAPITAL AND SURPLUS ACCOUNT
Surplus as regards policyholders, December 31, 2010
$25,539,580
Gains and (Losses) in Surplus
Net income
$960,803
Change in unrealized capital gains
54,776
Change in net deferred income tax
257,636
Change in nonadmitted assets
57,894
Aggregate write-ins for gains and losses in surplus
380,556
Change in surplus as regards policyholders for the period
$1,711,665
Surplus as regards policyholders, December 31, 2014
$27,251,245
18
ADJUSTMENTS/RECLASSIFICATIONS TO THE FINANCIAL STATEMENTS
There were no adjustments of the financial statements required as a result of this
examination.
SUBSEQUENT EVENTS
Based upon review of the Company’s general ledgers as subsequent to December 31,
2014, there did not appear to be any unusual transactions that would materially impact
the financial statements subsequent to the examination date.
Le Mars’ reinsurance agreements were appropriately extended and renewed for years
2015 and 2016. No significant changes were made to the contracts with the exception of
the Property Catastrophe Reinsurance Contract. In 2015, when the agreement was renewed,
the Company’s retention limit, the reinsurer’s per occurrence limit, and the reinsurer’s
annual limit for the First Excess changed from $1,250,000 to $1,500,000, from $750,000
to $500,000, and from $1,500,000 to $1,000,000, respectively.
SUMMARY OF RECOMMENDATIONS
During the examination, the examiners did not identify any material/significant
findings or have any recommendations for the insurer. However, 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.
CONCLUSION
The cooperation and assistance extended by the officers and employees of the
Company is hereby acknowledged.
In addition to the undersigned, the following participated in the examination
and preparation of this Report: Lester C. Schott, CPA, CFE and Changyi Song, from
Baker Tilly Virchow Krause LLP, representing the Iowa Insurance Division.
Respectfully submitted,
/s/ James B. Morris
James B. Morris, CPA, CFE
Examiner in Charge
Baker Tilly Virchow Krause LLP on
behalf of the Iowa Insurance
Division
