Logan, Iowa May 10, 2004 HONORABLE THERESE M. VAUGHAN by RodneySooialo


									                                                                         Logan, Iowa
                                                                        May 10, 2004

Commissioner of Insurance
State of Iowa
Des Moines, Iowa

Commissioner Vaughan:

     In accordance with your instructions and pursuant to Iowa statutory provisions,
an examination has been made of the


                               HARRISON COUNTY, LOGAN, IOWA

                                 AS OF DECEMBER 31, 2003

at its Home Office, 312 East Seventh Street, Logan, Iowa. The report, containing
applicable comments and financial data, is presented herein.

                                   SCOPE OF EXAMINATION

     This examination covers the period from December 31, 2000 to December 31, 2003.
The examination was conducted in accordance with the procedures established by the
Insurance Division of Iowa and generally accepted insurance examination standards.


     The Association was incorporated in 1887 for the purpose of insuring the
property of its members against hazards and risks as permitted by Chapter 518, Code
of Iowa. The corporate existence was made perpetual in 1950.

                                  MANAGEMENT AND CONTROL


    The membership consists of those persons or organizations having insurance
written by the Association which is in full force and effect.

     The annual meeting of the members is held at Logan, Iowa on the second Tuesday
in February at 2:00 p.m. Special meetings may be called by the Board of Directors as
provided in the Articles of Incorporation. Due notice of the time and place of
special meetings shall be given the membership. Each member present is entitled to
one vote on any question to be decided. Voting by proxy is not permitted. Ten
members present constitute a quorum for any membership meeting.


     The corporate powers of the Association are vested in a Board of nine
directors, each elected by a majority vote at the annual meeting of the members for
terms of three years. Any vacancy on the Board may be filled for the unexpired term
by a majority vote of the remaining directors.
       Directors serving at December 31, 2003 were:

Name                                      Address                      Term Expires

Gary Argotsinger                   Portsmouth, Iowa                       2004
Larry Watson                       Persia, Iowa                           2004
Duane Deitering                    Modale, Iowa                           2004
Larry Ramsey                       Woodbine, Iowa                         2005
Dwight Reep                        Logan, Iowa                            2005
Robert Willard                     Logan, Iowa                            2005
Dan Hoyt                           Missouri Valley, Iowa                  2006
Gary Altwegg                       Logan, Iowa                            2006
Alvin R. Dinkel                    Logan, Iowa                            2006

     The annual meeting of the Board is held immediately following the annual
meeting of the members, and thereafter on the call of the Secretary. A majority
present constitutes a quorum for the transaction of business.

       Directors receive a fee of $50 for each meeting attended.


     At its annual meeting, the Board of Directors elects for a term of one year a
President, Vice President, Treasurer and Secretary, who, when so designated by the
Board, may also serve as Treasurer and such additional officers as it deems

       Officers serving at December 31, 2003 were:

Name                                       Office                            Salary

Dwight Reep                          President                           $
Larry Watson                         Vice President
Alvin R. Dinkel                      Secretary-Treasurer                  13,372

                                  CONFLICT OF INTEREST

     Conflict of interest statements were signed annually by all officers, directors
and key employees. No conflicts were disclosed.

                                    CORPORATE RECORDS

     The Articles of Incorporation were not amended or substituted during the period
covered by this examination.

     The Bylaws were amended in February 2003, by adding an Assistant Secretary. The
duties of this officer include performing the duties of the Secretary in his absence
and such other duties as may be assigned by the Board of Directors.

     The recorded minutes of the membership and Board of Directors meetings were
read and noted. The minutes of the Board of Directors reflected that the Examination
Report as of December 31, 2000 was reviewed and accepted at the February 12, 2002
Board meeting.


     The Association is protected by a blanket bond in the amount of $50,000 for any
one loss occurrence. The bond is written for an annual period and the indemnity is

    Policies for other coverages are as follows:

            Workers’ compensation and employers’ liability
            Professional liability
            Officers’ and directors’ liability
            Building and contents
            General liability

     Adequate insurance is placed with authorized insurers except professional
liability and officers’ and directors’ liability which is written by a surplus lines
insurer permitted to write in Iowa.

                                 EMPLOYEES’ WELFARE

     Alvin Dinkel and his wife Judy, receive fifty percent compensation for family
health insurance. The other fifty percent is paid by Strong Insurance Agency. No
pension plan is available to employees. They have a profit sharing program which
rewards all employees one percent of increase in surplus over $30,000. Alvin Dinkel,
Secretary of the Association, receives two percent.

                          TERRITORY AND PLAN OF OPERATION

     The Association is authorized to transact business in Harrison County and
contiguous counties. It was noted, from a review of numerous applications of
policies in force, that risks appeared to be located within the authorized

     Policies are written or renewed for a five-year period with premiums payable
monthly, quarterly, semi-annually or annually. The Association underwrites these
policies every five years.

    At the present time, business is produced by seven licensed agents.

                                UNDERWRITING EXPERIENCE

                       THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

Classification                                   2001          2002       2003       Total

Premiums earned                                $227,156    $228,515   $238,862      $ 694,533

Incurred deductions:
  Losses                                       $156,422   $152,071    $ 85,233     $ 393,726
  Loss adjustment expenses                       12,756     22,841       7,803        43,400
  Commissions                                    29,933     37,811      41,462       109,206
  Salaries                                       41,185     40,471      40,376       122,032
  Taxes, licenses and fees                       10,178      9,993      16,885        37,056
  Other underwriting expenses                    32,710     28,163      34,744        95,617

    Total deductions                           $283,184    $291,350   $226,503      $ 801,037

Underwriting gain (loss)                       $(56,028) $(62,835) $ 12,359         $(106,504)

    Expressed in ratios of expenses incurred to premiums earned, the percentages
would be:

                                                        2001      2002      2003      Total

Incurred deductions:
  Losses                                            68.86%       66.55%    35.68%     56.69%
  Loss adjustment expenses                           5.62        10.00      3.27       6.25
  Commissions                                       13.18        16.55     17.36      15.72
  Salaries                                          18.13        17.71     16.90      17.57
  Taxes, licenses and fees                           4.47         4.37      7.07       5.33
  Other underwriting expenses                       14.40        12.32     14.55      13.77

    Total deductions                               124.66%      127.50%    94.83%    115.33%

Underwriting gain (loss)                           (24.66%) (27.50%)        5.17%    (15.33%)


     The Association has reinsurance contracts in force as of December 31, 2003 with
an authorized insurer which provide the following:

Individual Occurrence of Loss Excess

    Fire, Lightning and Extended Coverage (Other Than Windstorm and Hail)
      One hundred percent in excess of $75,000 at one location, arising out of one
      event, insured on one or more policies, up to the limit stated in the
      coverage schedule.

    Windstorm and Hail (Excluding Hail on Growing Crops)
      One hundred percent in excess of $75,000 at one location, arising out of one
      windstorm or hailstorm, insured on one or more policies; and/or the total of
      losses occurring on items insured on one policy at multiple locations arising
      out of one windstorm or hailstorm.

Aggregate Excess of Loss

    Fire, Windstorm and Extended Coverages:
      One hundred percent of the amount in excess of $163,300 for the net aggregate
      loss occurring during the 2003 contract year subject to the following

      Livestock confinements: including swine, poultry,
      dairy, beef and veal operations                            $500,000

      Public property: including community halls, schools
      and churches                                               $500,000

      Farm outbuildings: excluding livestock operations          $750,000

      Dwellings and contents                                     $500,000

Facultative Quota Share

      Risks in excess of the Association’s reinsurance contract limits may be ceded
      on a facultative basis.

      The Association’s facultative cessions did not appear to be unreasonable.

Reinsurance - General

      Reinsurance attachments appear to be in compliance with Iowa statutes.


     From a review of numerous claims, it appeared that the Association made prompt
and equitable settlements which were in keeping with the terms of the policy

                                 AFFILIATED AGENCY

    The Association owns its Home Office building and shares a portion of the space
with Keith E. Strong Insurance Agency, Inc.

     The agency is 100 percent owned by Judy Dinkel, the Secretary-Treasurer’s wife
and Mary Lynn Espenmiller, the adjuster’s wife.

     Judy Dinkel is an employee of the Association and was paid a salary of $8,516
in 2003.

    The Association paid the agency $34,964 in commissions for 2003.

     The agencies pay $75 rent per month, one-half of the telephone expense and all
of its own advertising, and all office supplies and other expenses appeared to be
allocated appropriately. There is no written expense allocation agreement between
the Association and the agency. The agency produced approximately 82.5 percent of
the Association’s business during 2003.

                               ACCOUNTS AND RECORDS

     Office copies of the filed annual statements for the years under review were
found to be in agreement with or reconciled to the general ledger balances of
assets, liabilities, income and disbursements.

     Cash receipts recorded during the period were checked and traced to the
Association’s depository. Checks paid during selected months were compared to the
disbursement records and were scrutinized as to payees, amounts, authorized
signatures and proper endorsements. Cash receipts and disbursements were proven by
comparison and reconciliation to the monthly bank statements.

     In February 2003, John Espenmiller was appointed by the Board as Assistant
Secretary to perform all the duties required by the Board in the absence of the
current Secretary.

     The Association was in compliance with the Commissioner’s Bulletin 97-6 at
December 31, 2003 relative to security custodial requirements.



                                               Ledger     Nonledger   Admitted   Admitted

Bonds                                          $438,210   $           $          $438,210
Stocks                                          198,053    22,200                 220,253
Bank balances:
  Subject to check                             108,695                           108,695
  On interest                                   45,299                    299     45,000
Real estate                                     20,837                            20,837
Unpaid premiums:
  Due before November 1                                     1,496      1,496
  Due after November 1                                      2,620                   2,620
Accrued interest                                            4,389                   4,389
Investment receivable                            15,953                            15,953

    Total                                      $827,047   $30,705     $1,795     $855,957

                                LIABILITIES AND SURPLUS

Losses                                                                           $ 32,192
Unpaid adjusting expenses                                                           3,298
Ceded reinsurance balances payable                                                  7,670
Amounts withheld for the account of others                                          2,263
Taxes payable                                                                       7,309
Other unpaid expenses                                                                 386
Premiums collected for other companies - not remitted                               2,030
Premiums received in advance                                                        7,395
Unearned premium reserve                                                          135,371

    Total liabilities                                                            $197,914

Surplus as regards policyholders                                                 658,043

    Total liabilities and surplus                                                $855,957

                              INCOME AND DISBURSEMENTS
                          RECONCILIATION OF LEDGER ASSETS

Ledger assets, December 31, 2002                                      $   827,831


Net premiums and fees                                                 $  246,981
Net interest received on bonds                                            13,679
Increase (Decrease) by adjustment - bonds                                    147
Dividends received                                                         7,120
Interest received on bank deposits                                         1,189
Profit on sale of investments                                             15,775
Rents received                                                             2,309
Premiums collected for other companies                                    40,445
     Total income                                                     $ 327,645
     Total assets and income                                          $1,155,476


Losses paid                                                           $   114,467
Operating Expense
Adjusting expense                                           $14,770
Commissions                                                  41,462
Advertising                                                   2,351
Boards, bureaus and associations                              1,731
Inspection and loss prevention                                3,346
Salaries of officers                                         13,311
Officers’ expenses                                            1,067
Salaries of office employees                                 27,065
Employee welfare                                              5,869
Insurance                                                     5,094
Directors’ compensation                                         300
Rent and rent items                                           1,200
Equipment                                                     4,506
Printing, stationery and supplies                             1,503
Postage, telephone, telegraph and exchange                    3,128
Legal and auditing                                            3,610
State insurance taxes                                         7,357
Insurance Division licenses and fees                            135
Payroll taxes                                                 4,308
Real estate expenses                                          5,084
Real estate taxes                                             1,224
Annual and agent meeting expense                                185
Donations                                                       128
     Total operating expense                                              148,734
Non-Operating Expense
Depreciation on real estate                                                   559
Loss on sale of investments                                                18,317
Federal income tax                                                          5,500
Premium collections transmitted to other companies                         32,598
Commissions paid agents for other companies                                 8,253
     Total disbursements                                              $   328,428

Balance - ledger assets, December 31, 2003                            $   827,048


                      ONE YEAR PERIOD ENDED DECEMBER 31, 2003

                                   STATEMENT OF INCOME

Underwriting Income
Premiums earned                                                            $238,862

Losses incurred                                                 $ 85,233
Loss expenses incurred                                             7,803
Other operating expenses incurred                                133,467
     Total underwriting deductions                                         226,503

    Net underwriting gain (loss)                                           $ 12,359

Investment Income
Net investment income earned                                                16,090

Other Income
Premiums collected for other companies (net)                                  (459)

    Net income before Federal income tax                                   $ 27,990

Federal income tax incurred                                                  2,006

    Net income                                                             $ 25,984

                               CAPITAL AND SURPLUS ACCOUNT

Surplus as regards policyholders, December 31, 2002                        $577,416

Gains and (Losses) in Surplus
Net income                                                                 $ 25,984
Change in not admitted assets                                                   260
Change in net unrealized gains/losses                                        54,383

Change in surplus as regards policyholders for the year                    $ 80,627

Surplus as regards policyholders, December 31, 2003                        $658,043


                      THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

                                   STATEMENT OF INCOME

Underwriting Income
Premiums earned                                                              $ 694,533

Losses incurred                                                   $393,726
Loss expenses incurred                                              43,400
Other operating expenses incurred                                  363,911
     Total underwriting deductions                                            801,037

    Net underwriting gain (loss)                                             $(106,504)

Investment Income
Net investment income earned                                                   75,380

Other Income
Premiums collected for other companies (net)                                     (888)

    Net income before Federal income tax                                     $ (32,012)

Federal income tax incurred                                                    27,591

    Net income                                                               $ (59,603)

                               CAPITAL AND SURPLUS ACCOUNT

Surplus as regards policyholders, December 31, 2000                          $ 713,287

Gains and (Losses) in Surplus
Net income                                                                   $ (59,603)
Change in not admitted assets                                                    1,706
Change in net unrealized gains/losses                                            2,653

Change in surplus as regards policyholders for the period                    $ (55,244)

Surplus as regards policyholders, December 31, 2003                          $ 658,043

                            SURPLUS AS REGARDS POLICYHOLDERS

     The changes which resulted in the net increase are shown in the following
statement of differences:

                                                Association    Examination    Surplus
                                                   Annual       Financial     Increase
Classification                                   Statement      Statement    (Decrease)

Bank balances on interest                          $45,299      $45,000      $    (299)
Accrued interest                                     3,623        4,389            766

Losses                                             38,300        32,192           6,108
Unpaid adjusting expense                            3,558         3,298             260
Unpaid salaries and commissions                     1,094                         1,094
Amounts withheld for others                         2,189         2,263             (74)
Taxes, other                                        1,053         3,241          (2,188)
Other unpaid expenses                                  93           386            (293)

Net change to surplus                                                        $   5,374

Surplus per Association                                                       652,669

Surplus per examination                                                      $658,043

     During the period under review, surplus funds decreased $55,244 from the amount
of $713,287 as shown in the last previous examination report. An operating statement
reflecting that decrease is contained in the financial section.


     The major changes in the Association’s financial statement were due to the

Accrued interest                                                                  $4,389

     This asset was increased $766 due to recalculation of accrued interest. The
Association did not accrue interest on Certificates of Deposit.

Losses                                                                           $32,192

    This liability was decreased $6,108 to reflect the actual amount of unpaid
claim liability at the end of 2003.

Unpaid salaries and commissions                                                     $-0-

    This liability was decreased $1,094. All salaries and commissions were paid by
year end 2003.

Taxes, other                                                                      $3,241

     This liability was increased $2,188 to reflect actual taxes owed to the Federal
government and to the state of Iowa for fourth quarter taxes due.


     The cooperation and assistance extended by the officers and personnel of the
Association is hereby acknowledged.

                                        Respectfully submitted,

                                        C. DALE VANDE KROL
                                        Insurance Division
                                        State of Iowa

Revised 6/04


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