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					REPORT OF ASSOCIATION FINANCIAL EXAMINATION         AS OF: DECEMBER 31, 2005




                 Continental Divide Insurance Company

                            7730 E. Belleview Ave
                      Greenwood Village, Colorado 80111




                               Conducted by:

                         DIVISION OF INSURANCE
                          STATE OF COLORADO




                                                                       FIN 07-06
                                 CERTIFICATE OF COPY

I, Marcy Morrison, Commissioner of Insurance of the State of Colorado, do hereby certify that
the attached is a true and correct copy of the Association Financial Examination Report as of
December 31, 2005 for Continental Divide Insurance Company now on file as a record of this
office.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal of office at
the City and County of Denver on this 21st day of May 2007.




                                   Marcy Morrison
                                   Commissioner of Insurance
Report of Association Financial          Continental Divide
Examination as of 12/31/ 2005           Insurance Company        1




                   REPORT OF ASSOCIATION FINANCIAL EXAMINATION


                                             OF


                       CONTINENTAL DIVIDE INSURANCE COMPANY

                                     7730 E. Belleview Ave
                                  Greenwood Village CO 80111


                                            AS OF


                                     DECEMBER 31, 2005
 Report of Association Financial                                     Continental Divide
 Examination as of 12/31/ 2005                                      Insurance Company                                                                       2

                                                            TABLE OF CONTENTS

                                                                                                                                                        Page
SALUTATION .............................................................................................................................................3
SCOPE OF EXAMINATION.......................................................................................................................4
HISTORY AND CAPITAL..........................................................................................................................5
    History ...................................................................................................................................................5
    Capital....................................................................................................................................................5
    Dividends to Shareholders.....................................................................................................................5
    Surplus Debentures................................................................................................................................6
AFFILIATED COMPANIES .......................................................................................................................6
    Organizational Chart..............................................................................................................................6
    Parent, Subsidiaries, and Affiliates........................................................................................................7
    Acquisitions, Mergers or Sales ..............................................................................................................7
    Holding Company Filings .....................................................................................................................7
MANAGEMENT AND CONTROL ............................................................................................................8
    Shareholders Meetings ..........................................................................................................................8
    Board of Directors .................................................................................................................................8
    Officers ..................................................................................................................................................9
    Committees..........................................................................................................................................10
    Conflict of Interest...............................................................................................................................10
    Service and Management Agreements ................................................................................................10
CORPORATE RECORDS .........................................................................................................................11
    Fidelity Bond and Other Insurance......................................................................................................11
    Employees’ and Agents’ Welfare ........................................................................................................12
TERRITORY AND PLAN OF OPERATION ...........................................................................................12
    Territory...............................................................................................................................................12
    Plan of Operation.................................................................................................................................12
GROWTH OF THE COMPANY ...............................................................................................................13
    Premiums by State ...............................................................................................................................13
    Loss and Underwriting Experience .....................................................................................................13
REINSURANCE.........................................................................................................................................14
    Ceded ...................................................................................................................................................14
    Assumed ..............................................................................................................................................14
STATUTORY AND SPECIAL DEPOSITS ..............................................................................................15
ACCOUNTS AND RECORDS ..................................................................................................................15
FINANCIAL STATEMENTS ....................................................................................................................16
  ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS ................................................................ 17
  STATEMENT OF INCOME ..................................................................................................................19
  CAPITAL AND SURPLUS ACCOUNT................................................................................................20
  RECONCILIATION OF CAPITAL AND SURPLUS ...........................................................................21
  ANALYSIS OF EXAMINATION CHANGES......................................................................................22
  COMPARATIVE FINANCIAL STATEMENTS...................................................................................23
NOTES TO THE FINANCIAL STATEMENTS .......................................................................................25
SUMMARY................................................................................................................................................26
RECOMMENDATIONS ............................................................................................................................27
CONCLUSION...........................................................................................................................................28
 Report of Association Financial               Continental Divide
 Examination as of 12/31/ 2005                Insurance Company                                   3

                                                                                     Omaha, Nebraska
                                                                                       March 7, 2007


Honorable Alfred W. Gross, Commissioner
Chair, Financial Condition (E) Committee, NAIC
State Corporation Commission
Bureau of Insurance
Tyler Building
1300 East Main Street
Richmond, Virginia 23219

Honorable D. Kent Michie, Commissioner
Secretary, Western Zone, NAIC
Department of Insurance
State of Utah
State Office Building Room 3110
Salt Lake City, Utah 84114-6901

Honorable Marcy Morrison, Commissioner
Division of Insurance
State of Colorado
1560 Broadway, Suite 850
Denver, Colorado 80202


Commissioners:

Pursuant to your instructions and in compliance with the requirements of Section 10-1-201, et seq.,
C.R.S., an association examination has been made of the financial condition and affairs of:

                                   Continental Divide Insurance Company
                                          Statutory Home Office
                                           7730 E. Bellview Ave
                                           Englewood CO 80111

                           Primary Location of Company’s Books and Records
                                   9290 West Dodge Road, Suite 300
                                     Omaha, Nebraska 68114-3363

and the report thereon is respectfully submitted.

The Continental Divide Insurance Company, hereinafter referred to as the “Company,” was previously
examined as of December 31, 2000, under the Association Plan of the National Association of Insurance
Commissioners “NAIC”. That examination was conducted by Arthur Andersen LLP under the direction
of the Colorado Division of Insurance “DOI”.

This Association financial examination was conducted by the firm INS Regulatory Insurance Services,
Inc. under the direction of the DOI. No other states participated on this examination.

All recommendations contained in the prior examination report have been addressed.
 Report of Association Financial              Continental Divide
 Examination as of 12/31/ 2005               Insurance Company                                          4

                                      SCOPE OF EXAMINATION

This examination encompasses the period from January 1, 2001 through December 31, 2005. During the
course of the examination, assets were verified and valued and all known liabilities were established as of
December 31, 2005. Accounting and other pertinent records were reviewed to the extent deemed
appropriate. The work performed was in accordance with statutory requirements and followed procedures
prescribed in the Colorado Examiners Handbook and the NAIC Financial Condition Examiners
Handbook. The extent of review on any given account or activity was based on the results of a planning
process that included an evaluation of the Company’s internal controls, as well as other factors, which
included an analytical review of financial data, the Company's financial performance during the period
under examination, prior examination findings and materiality. Consideration was also given to the use
of audit work performed by the Company’s independent accounting firm and, where appropriate, has been
used herein. All phases of the examination were conducted to determine compliance with the insurance
laws and regulations of the State of Colorado. Specific details pertaining to the various phases of the
examination are set forth under the appropriate caption in subsequent sections of this report.

The determination to reflect financial adjustments in the financial statements was dependent upon the
materiality of a particular adjustment when compared to surplus and/or operating results and when
combined in the aggregate, with all other adjustments, the materiality of the total adjustments when
compared to surplus and/or operating results.

This examination does not address market conduct issues related to policy forms or rates, policyholder
treatment and claims settlement practices. These issues are addressed in separate market conduct
examinations conducted periodically by the DOI.
 Report of Association Financial                 Continental Divide
 Examination as of 12/31/ 2005                  Insurance Company                                            5

                                          HISTORY AND CAPITAL

History

The Company was incorporated under the laws of the State of Colorado as a capital stock corporation on
September 7, 1978. The Company received a Certificate of Authority to transact business as a multiple-
line insurance company on November 16, 1978. The objectives and purposes of the corporation, and the
nature and extent of the business to be carried on by it pursuant to its Articles of Incorporation, are as
follows:

    •     To effect all types and forms of insurance and reinsurance permitted by the Colorado Insurance
          Code, and other applicable provisions of law, now in existence and as hereafter amended, on any
          risk, hazard and liability, and to transact insurance business of every kind other than life and title
          insurance;

    •     To contract for and issue bonds, certificates, policies, and other insurance instruments, and
          reinsure all or any part of any insured risk in any manner as permitted by applicable law in
          conformity with certificates of authority, licenses, or other permits heretofore or hereafter granted
          or issued to it by the appropriate regulatory agencies of the State of Colorado and other
          authorities having jurisdiction of its insurance business;

    •     To acquire by purchase or otherwise, hold for investment or otherwise, and dispose of for profit
          or otherwise, any interest in or species of personal or real property wherever located;

    •     To undertake any commercial or other venture for which a corporation may be organized under
          the Colorado Corporation Code now in existence or as may hereafter be amended, to the extent
          appropriate, convenient, incidental or necessary to its insurance business.

Capital

The Company’s initial authorized capital was $1,000,000 consisting of 10,000 shares of $100 par value
common stock. As of December 31, 2005, the total authorized and outstanding capital was $1,250,000
consisting of 12,500 shares of $100 par value common stock. No changes to authorized or outstanding
capital stock have been made during the examination period. All stock is voting stock.

Capital and contributed surplus during the examination period are summarized as follows:

                                                                                                 Paid in and
                                                    Shares         Par           Capital         Contributed
           Date                 Description         Issued        Value          Paid in          Surplus

January 1, 2001             Beginning Capital       12,500          $100       $1,250,000          $2,025,000

December 31, 2005           Ending Capital          12,500          $100       $1,250,000          $2,025,000

Dividends to Shareholders

During the examination period, the Company paid no dividends.
 Report of Association Financial              Continental Divide
 Examination as of 12/31/ 2005               Insurance Company                                          6

Surplus Debentures

The Company issued no surplus debentures during the examination period.


                                      AFFILIATED COMPANIES

Organizational Chart

An abbreviated organizational chart depicting the Company’s relationship with its parent and affiliates, as
of December 31, 2005 is depicted as follows:

Berkshire Hathaway, Inc.
        OBH, Inc.
                Brookwood Insurance Company
                Central States of Omaha Companies, Inc. (1)
                Cypress Insurance Company
                National Fire and Marine Insurance Company
                        Redwood Fire and Casualty Company
                National Indemnity Insurance Company
                        Berkshire Hathaway International Insurance Limited
                        Berkshire Hathaway Life Insurance Company of Nebraska
                                 BHG Life Insurance Company
                                 Cornhusker Casualty Company
                                 First Berkshire Hathaway Life Insurance Company
                                 Oak River Insurance Company
                        Continental Divide Insurance Company
                        GEICO Corporation (2)
                                 GEICO Indemnity Company
                                         GEICO Casualty Company
                                 Government Employees Insurance Company
                                         GEICO General Insurance Company
                                         Insurance Counselors, Inc.
                                         Insurance Counselors, of Texas, Inc.
                        National Indemnity Company of the South
                        National Indemnity Company of Mid-America
                National Liability and Fire Insurance Company
        U.S. Investment Corporation
                United States Liability Insurance Company
                        Mount Vernon Fire Insurance Company
                                 U.S. Underwriters Insurance Company

        (1) More than 80% ownership but less than 100%
        (2) 99.2% owned by National Indemnity and .8% owned by Cypress Insurance Company
 Report of Association Financial              Continental Divide
 Examination as of 12/31/ 2005               Insurance Company                                         7

Parent, Subsidiaries and Affiliates

The Company is wholly owned by National Indemnity Company, a Nebraska multiple line insurer.
National Indemnity Company is wholly owned by OBH, Inc., which in turn is wholly owned by Berkshire
Hathaway, Inc. “Berkshire”, a Delaware corporation. Berkshire is a holding company owning
subsidiaries engaged in a number of diverse business activities. As of year end 2005, the Company was
controlled by a 38.3% voting stock ownership interest held by Warren E. Buffett and family of Omaha,
Nebraska, who, pursuant to Section 10-3-801(3), C.R.S. are the ultimate controlling persons. Berkshire is
a publicly traded company and is listed on the New York Stock Exchange. As of December 31, 2005,
Berkshire had assets of $198,325 million, liabilities of $106,025 million, and equity of $91,484 million,
with a minority interest of $816 million and net income of $8,528 million in its Form 10-K, filed with the
United States Securities and Exchange Commission for 2005.

Within the group are other insurers including the property and casualty insurance business conducted on
both a direct and reinsurance basis through a number of subsidiaries collectively referred to as the
Berkshire Hathaway Insurance Group.

Insurance subsidiaries of Berkshire write multiple lines primarily of commercial casualty insurance
coverage. The market focus for the majority of business is upon specific geographical and product
market segments. Subsidiaries that were formed to primarily underwrite standard multiple line property
and casualty insurance in their domiciliary states include Cornhusker Casualty Company, Oak River
Insurance Company and Continental Divide Insurance Company. Cypress Insurance Company
underwrites workers’ compensation risks. Central States Indemnity Company of Omaha offers credit
card insurance to individuals through credit card issuers nationwide.

Subsidiaries involved in writing in multiple states and reinsurance assumed activities include General
Reinsurance Corporation, GEICO Corporation, National Indemnity Company, Redwood Fire and
Casualty Insurance Company, Columbia Insurance Company, and Wesco-Financial Insurance Company.
The reinsurance division of National Indemnity Company in Stamford, Connecticut provides treaty
reinsurance and is one of the leading providers of finite risk reinsurance and property catastrophe
retrocession protection.

The Company had no subsidiaries during the period of examination.

Acquisition, Mergers, or Sales

During the examination period, the Company was not a party to any corporate acquisitions, mergers or
sales.

Holding Company Filings

The Company is a member of an insurance holding company system and is subject to the registration
requirements of Section 10-3-804, C.R.S. and Colorado Insurance Regulation 3-4-1. Warren E. Buffett
and family hold ultimate control of the holding company system. The annual holding company
registration statements and amendments thereto for the years under review have been filed with the DOI
on a timely basis as provided in Colorado Insurance Regulation 3-4-1.
 Report of Association Financial               Continental Divide
 Examination as of 12/31/ 2005                Insurance Company                                          8

                                   MANAGEMENT AND CONTROL

Shareholders Meetings

The by-laws provide that the annual meeting of shareholders be held on the third Monday of March of
each year for the election of directors and the transaction of other business as may come before the board.
At such meetings, directors shall be elected, reports of affairs of the corporation shall be considered and
any other business may be transacted which is within the power of the shareholders.

Special meetings of shareholders may be called at the discretion of the president or the board of directors.
The purpose of such meeting shall be provided by written or printed notice. The board may designate any
place for annual and special meetings, either within or outside the State of Colorado, if a waiver of notice
is signed by all shareholders entitled to vote. If no designation is made, the place of meeting shall be the
registered office of the Company in Colorado.

Two-thirds of the outstanding shares represented in person or by proxy constitutes a quorum for the
transaction of business. Each outstanding share is entitled to one vote on any matter brought before the
meeting. Cumulative voting is not allowed in the election of officers.
An annual meeting of shareholders was held each year during the period under review, as prescribed by
the by-laws. A quorum was present at each meeting and the meetings were in compliance with provisions
concerning proxies. Examination procedures included reviewing the minutes of all meetings and the
nomination, election and appointment of members of the board of directors. There were no special
meetings of the shareholders during the period under examination.

Board of Directors

The by-laws of the Company provide that the interests, business and transactions of the Company are to
be managed and conducted by a board of directors that will consist of three members. Directors are
elected at the annual meeting of shareholders to hold office until the next succeeding annual meeting or
until their successors are duly elected and qualified. Directors shall be removable, with or without
recourse, in the manner provided by the laws of the State of Colorado.

A regular meeting of the board of directors shall be held immediately after and at the same place as the
annual meeting of shareholders. The board of directors may provide, by resolution, the time and place,
either within or outside Colorado, for additional regular meetings. Special meetings of the board of
directors may be called by the president or by any two directors. A majority of the number of directors
fixed by the by-laws shall constitute a quorum for the transaction of business at any meeting of the board
of directors.

Company by-laws provide that any action required or permitted to be taken at a meeting of the directors
may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed
by all of the directors entitled to vote with respect to the subject matter thereof. Such consent shall have
the same force and effect as a unanimous vote of the directors and may be stated as such in any articles or
documents filed with the Secretary of State of Colorado under Colorado Corporation Code.

A regular meeting of the board of directors was held each year during the period under review for the
purpose of electing officers and such other business as came before the board. Consents in Lieu of
Special Board of Director meetings were used to ratify and approve resolutions of the board during the
period under examination. A quorum was present at all board meetings and was held in compliance with
the Articles of Incorporation and by-laws.
 Report of Association Financial               Continental Divide
 Examination as of 12/31/ 2005                Insurance Company                                          9


Directors serving on the board as of December 31, 2005, together with their state of residence and
principal business affiliations, are as follows:

Name and Address                       Business Affiliations

Michael A. Goldberg                    President
Nebraska                               Berkshire Hathaway Credit Corporation
Rodney D. Eldred                       President
Nebraska                               Continental Divide Insurance Company
Tom Rowley                             Retired Former Vice President
Nebraska                               Continental Divide Insurance Company

On March 20, 2006 Joseph G. Casaccio replaced Tom Rowley on the board of directors.

Officers

The operations of the Company and general supervision of its business affairs are under the direction of
the corporate officers. The by-laws provide that the board of directors elect a president, vice president,
secretary, and treasurer. In addition, the board may annually elect other officers and assistant officers as
may be deemed necessary. One person may hold any two offices, except no person may simultaneously
hold the office of president and secretary.

The officers of the Company shall be elected by the board of directors annually at the first meeting of the
board held after each annual meeting of the shareholders. Each officer shall hold office until the first of
the following occurs: his successor shall have been duly elected and qualified; or by the officer’s death,
resignation or removal from office in the manner provided for in the By-laws.

Officers of the Company serving on December 31, 2005, are as follows:

Name                                             Title

Rodney D. Eldred                                 President
Jackie L. Perry                                  Secretary and Assistant Treasurer

Both of the above officers were serving as of the date of this examination report.

It was noted in the by-laws that the Company shall elect, in addition to the president and secretary, a
treasurer and a vice president.

 RECOMMENDATION No. 1:

 It is recommended that the Company elect a treasurer and vice president to comply with the
 Company’s by-laws.
 Report of Association Financial               Continental Divide
 Examination as of 12/31/ 2005                Insurance Company                                           10

Committees

The board of directors may designate committees, which shall have such authority as the board shall
determine. No such delegation of authority shall operate to relieve the board or any member of the board
from any responsibility imposed by law.

The board of directors appointed an investment committee at the annual meeting of the board held March
21, 2005. Those appointed and serving on the investment committee as of December 31, 2005 were:
                Rodney D. Eldred
                Jackie L. Perry

Ms. Perry is not a member of the board of directors.

 RECOMMENDATION No. 2:

 It is recommended that the board of directors either approve Ms. Perry as a member of the
 board of directors or else appoint another member of the board to the investment committee.


There were no minutes to record any investment committee meetings held during the period under
examination

Conflict of Interest

The Company has established a procedure for the disclosure of any material interest that might conflict
with the respective duties of directors and officers. All directors, officers and key employees are to
execute an affidavit annually disclosing any material interest or affiliation that is likely to cause any
conflict.

A review of the affidavits confirmed that the Company was in compliance with its policy concerning
conflict of interest.

Service and Management Agreements

Service Agreement:
    The Company executed a written Inter-company Service Agreement between five affiliates on
    November 23, 1994. The five affiliates which are a party to the original agreement include:
    Continental Divide Insurance Company, Cornhusker Casualty Company, Oak River Insurance
    Company, Redwood Fire and Casualty Insurance Company and Cypress Insurance Company.
    Effective December 23, 1999, the agreement was amended to include Brookwood Insurance
    Company. The agreement provides for the joint performance of certain administrative and special
    services and the shared use of certain property, equipment and facilities in order to achieve operating
    economies of scale and improve services for the mutual benefit of all group members. All charges for
    services and the use of facilities incurred are to reflect actual costs and are to be arrived at in a fair
    and equitable manner. Expenses were charged to the Company in accordance with this agreement.
    The Company paid $153,000 for services rendered under this agreement for the year ending
    December 31, 2005.
 Report of Association Financial              Continental Divide
 Examination as of 12/31/ 2005               Insurance Company                                         11

Tax Agreement:
   The Company executed a written Consolidated Federal Income Tax Allocation Agreement with
   Berkshire Hathaway, Inc. “Berkshire” effective January 1, 1994. The agreement provides for the
   allocation of the consolidated tax liability based on each member that generates net tax benefits. All
   settlements under the agreement are to be made within thirty days of the filing of the estimated or
   actual consolidated Federal corporate income tax return. In the event a refund is due to Berkshire,
   Berkshire may defer payment to the Company to a date that is not more than thirty days after the
   receipt of the refund. All settlements are to be in cash or securities eligible as investments for the
   Company.


                                       CORPORATE RECORDS

The Articles of Incorporation, by-laws, and minutes of meetings of the shareholders, the board of
directors and committees were reviewed for the period under examination. The minutes indicate that the
meetings were held in accordance with the Articles of Incorporation and the by-laws.

The board of directors approves a formal investment policy on an annual basis. The investment policy
provides that investments are required to be reviewed and approved annually. The investment
transactions are approved by the board of directors at the annual meeting of the board for each year during
the period under examination. The investments have not been ratified or approved at least quarterly as
required under Section 10-3-234 C.R.S.

 RECOMMENDATION No. 3:

 It is recommended that the board of directors approve the Company’s investments at least
 quarterly as required under Section 10-3-234 C.R.S.


Fidelity Bond and Other Insurance

In accordance with Colorado Insurance Regulation 3-1-1, the Company is required to maintain fidelity
bond coverage of at least $225,000. The Company’s fidelity bond affords protection up to a $150,000
single loss limit, after a $10,000 single loss deductible. The Company is underinsured by $75,000 and
does not meet the minimum amount of coverage required under Colorado Insurance Regulation 3-1-1.

RECOMMENDATION No. 4:

It is recommended that the Company comply with Colorado Insurance Regulation 3-1-1 with
regard to fidelity bond coverage.

The Company maintains various insurance policies as a named insured on coverage carried by their
parent, National Indemnity Company. Coverage includes general liability, commercial auto, commercial
umbrella liability, and workers’ compensation. All policies are written through insurance companies
authorized by the State of Colorado.
 Report of Association Financial                Continental Divide
 Examination as of 12/31/ 2005                 Insurance Company                                           12

Employees’ and Agents’ Welfare

The Company offers various group insurance benefits to all regular full-time employees working a
minimum of thirty hours per week. Group insurance offered consists of: health insurance, term life
insurance, dependent life insurance, short and long term disability coverage and an accidental death and
dismemberment plan. The Company offers employees Section 125 benefit plans entitled: Flex-Choice
Plan Health Care and Dependent Care Reimbursement Account.

The National Indemnity Company Employee Retirement and Savings Plan hereafter referred to as “the
Plan” is a qualified defined contribution plan available to employees of the Company. The Plan provides
for either before or after tax payroll deductions from 2% to 50% of salary. The Company contributes
matching contributions up to 5% of salary. Employees are eligible upon the first day of any calendar
quarter following the later of their hire date or their 21st birthday. Employees are eligible for participation
each calendar year if they work a minimum of 750 hours. Vesting occurs with 20% increases annually
until 100% vestment occurs after seven years of participation. All moneys deposited in the Plan are in
self-direct accounts invested in four unique portfolio funds managed by the Plan trustee, Well Fargo Bank
Nebraska, N.A.

The Company offers a Profit Sharing Agreement to agents that provide additional compensation to the
agent in the form of a share of the net underwriting profit realized by the Company on business written by
the agent, subject to certain conditions. The profit sharing formula is based on the annual written
premiums of the agency and the average underwriting profit experienced by the Company, expressed as a
percentage.


                               TERRITORY AND PLAN OF OPERATION

Territory

The Company is licensed in Colorado, Nebraska, Oregon, Tennessee and Wisconsin and authorized to
transact business as a multiple line insurance company. During the period under review, all business
written was in Colorado.

Plan of Operation

The Company is a multiple line insurer specializing in writing commercial insurance in the state of
Colorado. Primary lines of business include commercial multiple peril, commercial automobile and
workers' compensation. The Company no longer writes personal auto liability. Business is conducted
through agents located throughout Colorado. The Company is reinsured 100% for all written premiums
and losses. At the present time, the Company has no plans to expand operations beyond the state of
Colorado.

Agents are considered independent contractors and produce business for the Company on a commission
basis. Agents can increase their earnings through a profit sharing arrangement based on a formula that
takes into account several factors, including premiums written and losses incurred.
 Report of Association Financial                     Continental Divide
 Examination as of 12/31/ 2005                      Insurance Company                                    13

                                       GROWTH OF THE COMPANY

The growth of the Company since the date of the last examination is depicted below using amounts from
filed copies of the Company's Annual Statements: The 2005 amounts were verified upon examination.

    Year              Admitted assets                 Liabilities           Capital          Surplus

    2001                 $ 7,566,737                 $ 2,406,465          $ 1,250,000      $ 3,910,272
    2002                   7,597,895                   1,965,737            1,250,000        4,382,158
    2003                   8,725,249                   2,760,038            1,250,000        4,715,211
    2004                   9,319,372                   2,884,914            1,250,000        5,184,458
    2005                  11,064,732                   3,596,008            1,250,000        6,218,724

A schedule of direct premiums written, reinsurance assumed and ceded and net premiums written and
earned follows:

                 Direct                                                            Net           Net
               premiums              Reinsurance            Reinsurance         premiums      premiums
  Year          written               assumed                  ceded             written       earned

  2001       $ 10,359,636             $     7,481           $10,367,117               $0         $0
  2002         14,135,704                  20,193            14,155,897                0          0
  2003         16,493,651                  84,591            16,578,242                0          0
  2004         18,123,117                  44,918            18,168,035                0          0
  2005         16,818,129                 275,305            17,093,434                0          0

Premiums by State

Property premiums are allocated based on the location of the insured. Casualty premiums are allocated
by the address of the insured or where the vehicle, if any, is principally garaged or in the state where
coverage is applicable. During the examination period, all direct premiums written were in the state of
Colorado.

Loss and Underwriting Experience

Effective January 1, 1984, the Company reinsured 100% of all business and ceded all written premium,
loss reserves and unearned premium. As such, the Company's underwriting exhibit shows zero amounts.

                                                                                            Net income
               Total                                           Net            Investment       before
             operating          Total operating            underwriting        and other     dividends
 Year         income              deductions                 gain/loss          income       and taxes

2001            $ 0              $    (55,094)               $  55,094         $ 207,108    $ 262,202
2002              0                  (486,388)                 486,388            95,174       581,562
2003              0                  (621,130)                 621,130            88,427       709,557
2004              0                (1,094,498)               1,094,498            77,302     1,171,800
2005              0                  (954,363)                 954,363           112,538     1,066,901
 Report of Association Financial             Continental Divide
 Examination as of 12/31/ 2005              Insurance Company                                        14

The reason for the negative figures in the Total operating deductions column is that the Company receives
reimbursement from its reinsurers for commission and brokerage expenses that exceed the total operating
expenses of the Company.


                                           REINSURANCE

Ceded

Effective January 1, 1984, the Company entered into a reinsurance agreement with its parent, National
Indemnity Company, to reinsure 100% of the net insurance business written by the Company after ceding
facultative reinsurance. This contract was terminated effective January 1, 1992, and the Company entered
into a 100% quota-share reinsurance agreement with an affiliate, Redwood Fire and Casualty Insurance
Company. The Company cedes 100% of the net insurance business written after ceding facultative
reinsurance. Under the agreement, Redwood Fire and Casualty Insurance Company pays the Company
100% of the net loss plus 100% of the net direct loss adjustment expenses after ceding facultative
reinsurance.

The agreement provides that the Company shall cede 100% of the written premiums on all policies issued
or renewed on or after January 1, 1992 and 100% of the net unearned premiums to Redwood Fire and
Casualty Insurance Company. The amount ceded is net of 37% of written premium ceding commission
retained by the Company. Redwood Fire and Casualty Insurance Company pays any premium for
property excess reinsurance and/or catastrophe reinsurance coverage maintained by the Company. The
Company pays the premium for facultative reinsurance that is provided through affiliate and non-affiliate
reinsurers. All reinsurers are authorized reinsurers with the exception of three. The Cypress Insurance
Company, an affiliate, was not properly reported on the 2005 annual statement as an unauthorized
reinsurer. This error was corrected on the 2006 annual statement. The amount of insurance ceded to the
unauthorized reinsurers during the period under review was not material.

The reinsurance agreements reviewed during examination comply with the provisions of the referenced
statute and regulation with the exception of the agreement with Cypress Insurance Company, which does
not contain an insolvency clause and does not indicate that the agreement is subject to the laws of
Colorado.

 RECOMMENDATION No. 5:

 It is recommended that the Company comply with Section 10-3-118 C.R.S. and with Colorado
 Insurance Regulation 3-3-2 with regard to its reinsurance agreements.

Assumed

Premiums written and losses incurred through the Colorado Commercial Auto Insurance Plan are
recorded as assumed premiums and losses. The Company assumes reinsurance from an affiliate for one
commercial policy issued in Missouri and one multiple peril policy in Arizona where the Company is not
licensed. The assumed premiums and losses are reinsured through the 100% quota share reinsurance
agreement with Redwood Fire and Casualty Insurance Company.
 Report of Association Financial               Continental Divide
 Examination as of 12/31/ 2005                Insurance Company                                       15

                               STATUTORY AND SPECIAL DEPOSITS

In compliance with various statutory and special deposit requirements, the Company maintained the
following deposits as of December 31, 2005:

Special Deposits (Not held for the protection of all policyholders):

Location             Type of security          Par value             Statement value     Market value

Oregon            US Treasury Note             $ 275,000               $ 275,028          $ 274,571
Tennessee         US Treasury Note               200,000                 199,943            197,906

Total                                          $ 475,000               $ 474,971          $ 472,477


All Other Deposits (Held for the protection of all policyholders):

Location              Type of security              Par value          Statement value   Market value

Colorado         U.S. Treasury Note               $ 2,200,000            $ 2,199,372     $ 2,176,966

The securities on deposit were reconciled to the Company’s records and conform to Section 10-3-201,
C.R.S., regarding the amount of the required statutory deposit. The above deposit with the DOI complies
with the provisions of Sections 10-3-201, 10-3-206 and 10-3-210, C.R.S., as well as Colorado Insurance
Regulation 3-1-2.


                                        ACCOUNTS AND RECORDS

The Company's accounting records are maintained and generated on an electronic data processing system
shared with several affiliate insurance companies. A general ledger, trial balance, accounting journal,
sub-journals, loss and premium data, and other supporting documents are prepared monthly. Other
detailed supporting documents are prepared manually as necessary.

A trial balance was extracted from the general ledger for the year ended December 31, 2005 and traced to
the appropriate assets, liabilities, and income and expense exhibits of the annual statement. The
Company's trial balances for 2001 through 2004 were also reviewed, and selected asset and liability
amounts were traced to the respective annual statements. A review of income and disbursements and
other postings to the general ledger was made for selected periods under review. Test checks of postings
from original documents to the general ledger revealed no material errors.

In accordance with Colorado Insurance Regulation 3-1-3, a firm of consulting actuaries has been
employed to certify reserve balances. The Company has filed the actuarial opinions for the examination
period, as required by the regulation.

In accordance with Colorado Insurance Regulation 3-1-4, the Company has engaged a firm of
independent certified public accountants to perform annual audits. The Company has filed the audit
reports as required by the regulation. The audit work papers for the examination period were made
available and utilized in the course of performing examination procedures where possible.
 Report of Association Financial             Continental Divide
 Examination as of 12/31/ 2005              Insurance Company                                       16

The Company’s securities are held in safekeeping by a custodian, Wells Fargo Bank, which is a member
of the Federal Reserve System. The custodial agreements are not in compliance with the requirements set
forth in Colorado Insurance Regulation 3-1-6. The Company’s custodial agreement for one account does
not contain the standard indemnity clause, which provides that Wells Fargo shall be obligated to
indemnify the Company if Wells Fargo loses the Company’s securities. In addition, it was noted that the
custodial agreement did not provide that written notification should be sent to the Colorado
Commissioner in the event that the custodial agreement has been terminated or if 100% of the account
assets in any one custody account is withdrawn.

 RECOMMENDATION No. 6:

 It is recommended the Company revise its custody agreements with the Wells Fargo Bank to
 comply with the provisions of Colorado Insurance Regulation 3-1-6.


                                     FINANCIAL STATEMENTS

The following pages present a statement of Assets, Liabilities, Surplus and Other Funds as of December
31, 2005. Supporting statements and reconciliations presented in the following order follow this
statement:

        Statement of Income, for the Year Ended December 31, 2005

        Capital and Surplus Account, for the Year Ended December 31, 2005

        Reconciliation of Capital and Surplus, December 31, 2000 through December 31, 2005

        Analysis of Examination Changes, as of December 31, 2005

        Comparative Financial Statements, as of December 31, 2000 and December 31, 2005
Report of Association Financial              Continental Divide
Examination as of 12/31/ 2005               Insurance Company                             17

                     ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS
                                   DECEMBER 31, 2005
                                               ASSETS

                                                                                           Net
                                                                          Assets        admitted
                                                           Assets      not admitted      assets
Bonds                                                   $ 2,874,286   $         0     $ 2,874,286
Cash, cash equivalents and short-term investments         2,516,047             0       2,516,047
Investment income due and accrued                            18,300             0          18,300
Uncollected premiums and agents' balances in the
   course of collection                                   3,786,350       14,882        3,771,468
Deferred premiums, agents' balances and
   installments booked but deferred and not yet due         797,223            0          797,223
Amounts receivable from reinsurers                        1,087,208            0        1,087,208
Net deferred tax asset                                       68,187       68,187                0
Guaranty funds receivable or on deposit                         200            0              200
Electronic data processing equipment and software             3,968        3,968                0
Furniture and equipment, including health care
  delivery assets                                            77,416       77,416               0

Total assets                                            $11,229,185   $ 164,453       $11,064,732
Report of Association Financial               Continental Divide
Examination as of 12/31/ 2005                Insurance Company                             18

               ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS (CONTINUED)
                                     DECEMBER 31, 2005
                            LIABILITIES, SURPLUS AND OTHER FUNDS

Loss adjusting expenses                                                          $    687,938
Commissions payable, contingent commissions and
  similar charges                                                                     502,683
Other expenses                                                                        166,461
Taxes, licenses and fees                                                              221,378
Current federal and foreign income taxes                                               37,442
Ceded reinsurance premiums payable                                                    945,562
Amounts withheld or retained by company for
  account of others                                                                    60,179
Provision for reinsurance                                                              47,000
Drafts outstanding                                                                    724,124
Payable to parent, subsidiaries and affiliates                                        165,293
Deferred rent                                                                          37,948
Total liabilities                                                                $   3,596,008

Common capital stock                                               $ 1,250,000
Gross paid in and contributed surplus                                2,025,000
Unassigned funds (Surplus)                                           4,193,724
Total capital and surplus (Note 3)                                                   7,468,724

Total liabilities, surplus and other funds                                       $ 11,064,732
 Report of Association Financial             Continental Divide
 Examination as of 12/31/ 2005              Insurance Company                                    19

                                   STATEMENT OF INCOME
                           FOR THE YEAR ENDED DECEMBER 31, 2005

Underwriting income
Premiums earned                                                                  $         0

Deductions
Loss expenses incurred                                            $ 296,644
Other underwriting expenses incurred                              (1,251,007)
Total deductions                                                                     (954,363)
Net underwriting gain                                                            $ 954,363

Investment income
Net investment income                                                                  79,334

Other income
Net gain (loss) from agents’ or premiums balances charged off     $   (13,943)
Finance and service charges not included in premiums                   47,147
Total other income                                                                     33,204

Net income before federal income taxes                                           $1,066,901
Federal and foreign income taxes incurred                                           369,604


Net income                                                                       $ 697,297
Report of Association Financial              Continental Divide
Examination as of 12/31/ 2005               Insurance Company                                20

                              CAPITAL AND SURPLUS ACCOUNT
                           FOR THE YEAR ENDED DECEMBER 31, 2005

Capital and surplus, December 31, prior year                                      $   6,434,458

Net income                                                        $    697,297
Change in net deferred income tax                                       (2,694)
Change in non-admitted assets                                         344,662
Change in provision for reinsurance                                     (5,000)
Net change in capital and surplus for the year                                        1,034,265

Capital and surplus, December 31, current year                                    $   7,468,723
 Report of Association Financial          Continental Divide
 Examination as of 12/31/ 2005           Insurance Company                                    21

                          RECONCILIATION OF CAPITAL AND SURPLUS
                        DECEMBER 31, 2000 THROUGH DECEMBER 31, 2005

                              2001          2002            2003            2004           2005
Capital and surplus,
 December 31, prior
  year                     $5,053,719    $5,160,272      $5,632,158     $5,965,211      $6,434,458

Net income                 $ 184,398     $ 364,789       $ 450,844      $ 756,396       $ 697,297
Change in net deferred
 Income tax                    (1,070)          963            8,190          3,444         (2,694)
Change in nonadmitted
 Assets                     (136,128)       106,134         (70,981)      (303,593)        344,663
Change in provision for
 reinsurance                         0             0        (55,000)        13,000          (5,000)
Cumulative effect of
 changes in accounting
 principles                    59,353              0               0               0               0

Net change in capital
 and surplus for the
 year                      $ 106,553     $ 471,886       $ 333,053      $ 469,247       $1,034,266

Capital and surplus,
 December 31, current
 year                      $5,160,272    $5,632,158      $5,965,211     $6,434,458      $7,468,724

The above amounts were compiled from the Company’s filed annual statements. The 2005 balances were
determined by this examination.
 Report of Association Financial            Continental Divide
 Examination as of 12/31/ 2005             Insurance Company                                        22

                             ANALYSIS OF EXAMINATION CHANGES
                                     DECEMBER 31, 2005

                                                                                        Surplus
                                                  Per annual                            increase
Admitted assets                                   statement      Per examination       (decrease)


Total assets                                  $ 11,064,732       $ 11,064,732      $            0

Liabilities & Surplus


Total liabilities                             $   3,596,008      $   3,596,008     $            0


Total surplus                                 $   7,468,724      $   7,468,724     $            0

Net change per examination                                                         $            0

Capital and surplus per annual statement                                           $   7,468,724
Net change per examination                                                                     0

Capital and surplus per examination                                                $   7,468,724
 Report of Association Financial            Continental Divide
 Examination as of 12/31/ 2005             Insurance Company                                 23

                           COMPARATIVE FINANCIAL STATEMENTS
                               DECEMBER 31, 2000 AND 2005
                                      ADMITTED ASSETS

                                                                 December 31,    December 31,
                                                                    2000            2005

Bonds                                                            $   2,660,671   $   2,874,286
Cash and short-term investments                                      1,405,883       2,516,047
Investment income due & accrued                                         15,449          18,300
Uncollected premiums and agents’ balances
  In the course of collection                                        1,601,086       3,771,468
Deferred premiums, agents’ balances and installments
  booked but deferred and not yet due                                 428,250          797,223
Amounts recoverable from reinsurer                                    222,732        1,087,208
Guaranty funds receivable or on deposit                                     0              200
Aggregate write-ins for other than invested assets                         50                0

   Total assets                                                  $   6,334,121   $ 11,064,732


The 2000 and the 2005 amounts were determined by examination.
 Report of Association Financial          Continental Divide
 Examination as of 12/31/ 2005           Insurance Company                                  24

                              COMPARATIVE FINANCIAL STATEMENTS
                                  DECEMBER 31, 2000 AND 2005

                            LIABILITIES, SURPLUS AND OTHER FUNDS

                                                                December 31,    December 31,
                                                                   2000            2005

Loss adjustment expenses                                        $    618,373    $    687,938
Commissions payable, contingent commissions and
  other similar charges                                              215,361         502,683
Other expenses                                                             0         166,461
Taxes, licenses and fees                                             138,608         221,378
Federal income taxes                                                  31,938          37,442
Ceded reinsurance premiums payable                                         0         945,562
Amounts withheld for account of others                                31,728          60,179
Provision for reinsurance                                                  0          47,000
Drafts outstanding                                                   194,971         724,124
Payable to parent, subsidiary and affiliates                          74,430         165,293
Deferred rent                                                              0          37,948
Total liabilities                                               $   1,305,409   $   3,596,008

Common capital stock                                            $   1,250,000   $   1,250,000
Gross paid in and contributed surplus                               2,025,000       2,025,000
Unassigned funds (surplus)                                          1,753,712       4,193,724
Surplus as regards policyholders                                $   5,028,712   $   7,468,724

Total liabilities, capital and surplus                          $   6,334,121   $ 11,064,732

The 2000 and the 2005 amounts were determined by examination.
 Report of Association Financial              Continental Divide
 Examination as of 12/31/ 2005               Insurance Company                                     25

                            NOTES TO THE FINANCIAL STATEMENTS

Note 1 – Losses and Loss Adjustment Expenses

As of December 31, 2005, INS Consultants, Inc. “INS” performed an analysis of the Company’s book of
business on a gross basis for loss reserves, Defense and Cost Containment “DCC” expenses. An
independent analysis was performed by Beneficial Consultants for Adjusting and Other “A&O" expense
reserves as of December 31, 2005. Based upon this analysis, INS determined that the gross loss and Loss
Adjustment Expense “LAE” reserves should be $17 million which is $4.4 million less than the
Company’s booked gross loss and LAE reserves of $21.4 million as of December 31, 2005. The
Company ceded 100% of its gross premium and gross loss and LAE reserves to affiliates.

Note 2 – Leases

The Company leases office space located in Colorado under a non-cancelable operating lease agreement.
The lease was amended in May 2006, subsequent to the examination period, extending the term of the
lease to September 2012. The lease is subject to an escalation clause over the term of the lease. The
Company’s future minimum rental payments are as follows:

       Year Ending December 31                    Operating Lease
              2006                                  $ 92,000
              2007                                   122,000
              2008                                   124,000
              2009                                   126,000
              2010                                   128,000
              2011                                   130,000
              2012                                     99,000

Note 3 – Surplus as Regards Policyholders:

In accordance with Section 10-3-201, C.R.S., the Company is required to maintain capital and surplus
levels in an amount equal to $2,000,000 or an amount consistent, with the risk-based capital (RBC)
requirements of Colorado Insurance Regulation 3-1-11. The Company Action level RBC as of December
31, 2005 was $116,598. As such, the minimum capital and surplus required by the Company was
$2,000,000. As of December 31, 2005, the Company’s adjusted capital and surplus of $7,468,724, per
examination, exceeded the minimum requirement by $5,468,724.
 Report of Association Financial             Continental Divide
 Examination as of 12/31/ 2005              Insurance Company                                       26

                                             SUMMARY

The results of this examination disclosed that as of December 31, 2005, the Company had admitted assets
of $11,064,732, liabilities of $3,596,008, gross paid in and contributed surplus of $1,250,000, and
unassigned funds of $6,218,724. As a result of this examination, capital and surplus, as reported in the
Company’s 2005 Annual Statement, was not adjusted.
 Report of Association Financial              Continental Divide
 Examination as of 12/31/ 2005               Insurance Company                                        27

                                        RECOMMENDATIONS

Recommendations made as a result of this examination follow:

                                             Rec.    Page
                 Issue                       No.     No.                  Recommendation
 The by-laws indicate that the Company        1       9        It is recommended that the Company
 shall elect a treasurer and a vice                            elect a treasurer and vice president to
 president.                                                    comply with the Company’s by-laws.

 The board of directors nominated a            2      10       It is recommended that the board either
 person to the investment committee who                        approve the person currently on the
 is not a member of the board                                  investment committee to the board of
                                                               directors or else nominate a person
                                                               currently on the board of directors to the
                                                               investment committee.

 The investments are not approved by the       3      11       It is recommended that the board of
 board of directors as least quarterly.                        directors approve the Company’s
                                                               investments at least quarterly as
                                                               required under Section 10-3-234 C.R.S.

 The limits of liability of the Company’s      4      11       It is recommended that the Company
 fidelity bond do not meet the minimum                         comply with Colorado Insurance
 amount of coverage required under                             Regulation 3-1-1 with regard to its
 Colorado Insurance Regulation 3-1-1.                          fidelity bond coverage.

 The reinsurance agreement with Cypress        5      14       It is recommended that the Company
 Insurance Company does not contain an                         comply with Section 10-3-118 C.R.S.
 insolvency clause and does not indicate                       and with Colorado Insurance Regulation
 the agreement is subject to the laws of                       3-3-2 with regard to its reinsurance
 Colorado.                                                     agreements.

 The one of the custodial agreements did       6      16       It is recommended the Company revise
 not contain an indemnity clause and the                       its custody agreements with the Wells
 required notification to the Colorado                         Fargo Bank to comply with the
 Insurance Commissioner in the event                           provisions of Colorado Insurance
 the agreement is terminated or the assets                     Regulation 3-1-6.
 are withdrawn.
 Report of Association Financial            Continental Divide
 Examination as of 12/31/ 2005             Insurance Company                                     28

                                          CONCLUSION

The courtesy, assistance and cooperation extended by the officers of the Company and by the employees
of the management company during the course of this examination are greatly appreciated.

Kelli S. Jones, ACAS, of INS Consultants, Inc. conducted the actuarial phase of this examination. INS
Services, Inc. completed the information systems control review for this examination.

In addition to the undersigned, Barry Armstrong, CFE of INS Regulatory Insurance Services, Inc.
participated in this examination.




                                              Respectfully Submitted,



                                              Larry V. Elson, CFE
                                              Examiner-in-Charge
                                              INS Regulatory Insurance Services, Inc.
                                              For the Division of Insurance
                                              State of Colorado

				
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