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					REPORT OF ASSOCIATION FINANCIAL EXAMINATION        AS OF: DECEMBER 31, 2001




           Peak Property and Casualty Insurance Corporation

                        9300 Arrowpoint Boulevard
                       Charlotte, North Carolina 28273




                               Conducted by:

                        DIVISION OF INSURANCE
                         STATE OF COLORADO




                                                                      FIN 03-14
Association Financial Examination as of        Peak Property and Casualty
December 31, 2001                                Insurance Corporation      1




                             COLORADO DIVISION OF INSURANCE

                    REPORT OF ASSOCIATION FINANCIAL EXAMINATION
                                         OF




               PEAK PROPERTY AND CASUALTY INSURANCE CORPORATION
                              9300 Arrowpoint Boulevard
                            Charlotte, North Carolina 28273




                                                AS OF

                                          DECEMBER 31, 2001




                                           CONDUCTED BY

                                    DIVISION OF INSURANCE
                                     STATE OF COLORADO
Association Financial Examination as of    Peak Property and Casualty
December 31, 2001                            Insurance Corporation                 2

                                      TABLE OF CONTENTS

                                                                                 Page
SALUTATION…………………………………………………………………….…………………...                                     3
SCOPE OF EXAMINATION………………………………………………………………………….                                   4
 HISTORY AND CAPITAL…………………………………………………………………………..                                  5
   History……………………………………………………………………………………………...                                    5
   Capital ……………………………………………………………………………………………...                                   5
   Dividends to Shareholders ………………………………………………………………………..                          5
 AFFILIATED COMPANIES…………………………………………………………………………                                   5
   Parent, Subsidiaries and Affiliates………………………………………………………………….                    5
   Acquisitions, Mergers or Sales……………………………………………………………………..                       6
   Holding Company Filings………………………………………………………………………….                             6
   Organizational Chart………………………………………………………………………………..                             7
 MANAGEMENT AND CONTROL………………………………………………………………….                                  10
   Shareholder Meetings ……………………………………………………………………………...                           10
   Board of Directors………………………………………………………………………………….                              10
   Officers……………………………………………………………………………………………..                                   12
   Committees…………………………………………………………………………………………                                    13
   Conflict of Interest………………………………………………………………………………….                            14
   Service and Management Agreements …………………………………………………………….                      14
 CORPORATE RECORDS……………………………………………………………………………                                    15
 FIDELITY BOND AND OTHER INSURANCE ……………………………………………………                            16
   Fidelity Bond……………………………………………………………………………………….                                 16
   Other Insurance …………………………………………………………………………………….                               16
 EMPLOYEES’ AND AGENTS’ WELFARE AND PENSION PLANS ……………………………                      16
 TERRITORY AND PLAN OF OPERATION………………………………………………………..                            17
   Territory…………………………………………………………………………………………….                                   17
   Plan of Operation…………………………………………………………………………………...                             17
 GROWTH OF THE COMPANY ……………………………………………………………………                                  18
 PREMIUMS BY STATE……………………………………………………………………………..                                  19
 LOSS AND UNDERWRITING EXPERIENCE……………………………………………………..                            20
 REINSURANCE……………………………………………………………………………………...                                    20
   Ceded……………………………………………………………………………………………….                                      20
   Assumed……………………………………………………………………………………………                                      20
  STATUTORY AND SPECIAL DEPOSITS…………………………………………………………                             20
  ACCOUNTS AND RECORDS……………………………………………………………………...                                21
FINANCIAL STATEMENTS…………………………………………………………………………                                   23
   Statement of Assets, Liabilities, Surplus and Other Funds ………………………………………..     24
   Statement of Income………………………………………………………………………………..                             26
   Capital and Surplus Account……………………………………………………………………….                         27
   Reconciliation of Capital and Surplus …..………………………………………………………...               28
   Analysis of Examination Changes………………………………………………………………….                       29
   Comparative Financial Statement…………………………………………………………………..                      30
NOTES TO FINANCIAL STATEMENTS……………………………………………………………                               32
SUMMARY…………………………………………………………………………………………….                                        33
RECOMMENDATIONS ………………………………………………………………………………                                     34
CONCLUSION………………………………………………………………………………………...                                     36
Association Financial Examination as of             Peak Property and Casualty
December 31, 2001                                     Insurance Corporation                            3

                                                                           Charlotte, North Carolina
                                                                           May 5, 2003


Honorable Alfred W. Gross, Commissioner
Chairman, Financial Condition (E) Committee, NAIC
State Corporation Commission
Bureau of Insurance
Commonwealth of Virginia
PO Box 1157
Richmond, VA 23218

Honorable John Morrison, Commissioner
Secretary, Western Zone, NAIC
Montana Department of Insurance
840 Helena Avenue
Helena, MT 59601

Honorable Doug Dean, 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 examination has been made of the financial condition and affairs of:

                 PEAK PROPERTY AND CASUALTY INSURANCE CORPORATION
                                9300 Arrowpoint Boulevard
                               Charlotte, North Carolina 28273

and the report thereon is respectfully submitted.

Peak Property and Casualty Insurance Corporation, hereinafter referred to as the “Company,” was last
examined as of December 31, 1998, under the Association Plan of the National Association of Insurance
Commissioners (NAIC). That examination was conducted by the Division of Insurance, State of
Colorado. The current examination was also conducted under the Association Plan of the NAIC. No
other states participated on this examination.

All recommendations included in the prior examination have been adequately addressed by the Company.
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                               4

                                      SCOPE OF EXAMINATION

This examination covers the period from January 1, 1999 through December 31, 2001. During the course
of this examination, assets were verified and valued and all known liabilities were established as of
December 31, 2001. 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 Examiners Handbook published by the NAIC.
The extent of review on any given account or activity was based on the results of a prescribed 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
examination period, 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
utilized herein.

The examination did not address market conduct issues relating to policy forms, rates, policyholder
treatment and claims settlement practices. These issues are addressed in separate market conduct
examinations performed by the Colorado Division of Insurance.

This examination was conducted concurrently with the financial condition examinations of the
Company’s parent, Guaranty National Insurance Company, and affiliate, Viking Insurance Company of
Wisconsin, both of which are domiciled in Colorado.
Association Financial Examination as of            Peak Property and Casualty
December 31, 2001                                    Insurance Corporation                                 5

HISTORY AND CAPITAL

History

The Company was incorporated in the State of North Carolina on August 16, 1985, as “General Electric
Residential Mortgage Corporation” and commenced business on August 29, 1985. The Company’s
current name was adopted on July 10, 1991.

On November 16, 1993, the Company was acquired from GE Capital Mortgage Corporation, a Delaware
corporation, by Guaranty National Insurance Company (GNIC), an insurance company domiciled in the
State of Colorado, and became a wholly owned subsidiary of GNIC. The acquisition was approved
pursuant to an order dated November 10, 1993. As part of the acquisition, the company re-domiciled
from the State of North Carolina to the State of Colorado.

With the approval of the Colorado Division of Insurance and other concerned jurisdictions, Royal & Sun
Alliance Insurance Group plc (RSA) purchased Orion Capital Corporation and all of its subsidiaries,
including GNIC and its subsidiaries, on November 16, 1999. RSA is an international insurance group,
which writes most of the major classes of property, casualty and life insurance.

Per the articles of incorporation, the Company is organized to engage in all forms of insurance and
reinsurance business, to provide all types of insurance and underwriting services, to engage in all other
activities incidental thereto or connected therewith, as permitted or authorized by law, and to transact all
lawful business for which corporations may be incorporated pursuant to the Colorado Corporation Code.

Capital

The articles of redomestication and the articles of amendment, dated November 2, 1993, established the
current authorized capital stock at 10,000 shares with a par value of $1,000 per share, or $10,000,000.

Changes in capital paid up and gross paid-in and contributed surplus since redomestication follow:

                                                                                          Gross Paid-in and
                                         Shares            Par            Capital           Contributed
       Year & Description                Issued           Value           Paid Up             Surplus
1993 Initial Re-domestication              3,000        $1,000.00       $3,000,000                $2,847,824
1994 Parent Contribution                                                                             600,000
     Totals December 31, 2001              3,000                        $3,000,000                $3,447,824

Dividends to Stockholders

The Company did not declare or pay any dividends to its sole shareholder, Guaranty National Insurance
Company, during the examination period.

AFFILIATED COMPANIES

Parent, Subsidiaries and Affiliates

Upon acquisition in 1993, the Company became a wholly owned insurance subsidiary of Guaranty
National Insurance Company (GNIC), a multiple line insurer domiciled in Colorado. At the time GNIC
acquired the Company, it was licensed in 39 states, which allowed GNIC to further expand the marketing
of its commercial lines of business. In 2001, the Company reported direct written premiums of
$21,773,108, of which $11,329,662 was written in the State of Florida. The Company reinsures all of its
net business writings with GNIC.
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                 6


GNIC is a wholly owned subsidiary of OrionAuto, Inc., a Colorado corporation. GNIC is an indirect
wholly owned subsidiary of Royal & SunAlliance USA, Inc., a Delaware Corporation. The ultimate
parent is Royal & Sun Alliance Insurance Group plc (RSA), a UK company. RSA is an international
insurance group, which writes most of the major classes of property, casualty and life insurance. RSA
was created in 1996 through the merger of two of Britain’s largest insurance companies, Royal Insurance
and Sun Alliance.

In addition to the Company, GNIC has six other insurance subsidiaries: Landmark American Insurance
Company, Atlantic Indemnity Company, UNISUN Insurance Company, Carolina American Insurance
Company, Atlantic Security Insurance Company and Guaranty National Insurance Company of
Connecticut. GNIC is also a member of the Royal Indemnity Reinsurance Pool.

Generally, all of GNIC’s insurance subsidiaries have obtained excess of loss, catastrophe and facultative
reinsurance coverages through unaffiliated reinsurers. The net business remaining after unaffiliated
reinsurance is reinsured by GNIC. While the subsidiaries write nonstandard private passenger and/or
commercial automobile business, some also write specialty lines, such as professional liability,
commercial liability and automobile collateral protection.

The Company is affiliated with Viking Insurance Company of Wisconsin (Viking), a multiple line insurer
domiciled in Colorado, through common ownership in the RSA holding company system. Viking
maintains full control of Viking County Mutual Insurance Company (Viking Mutual), which is domiciled
in the State of Texas. Viking is a monoline company, which writes nonstandard private passenger
automobile coverage. Viking Mutual writes nonstandard private passenger and commercial automobile
coverages, but also writes collateral protection coverage on automobiles. Viking Mutual cedes its
nonstandard private passenger business to Viking and the remaining business to its affiliate, Landmark
American Insurance Company. While Viking is licensed in 33 states throughout the West and Midwest
regions of the United States, Viking Mutual is licensed only in the State of Texas.

Acquisitions, Mergers or Sales

On November 16, 1999, Royal & Sun Alliance Insurance Group plc became the ultimate controlling
person via the acquisition and merger of Orion Capital Corporation into NTG Acquisition Corp., a wholly
owned US subsidiary, with Orion Capital Corporation being the surviving corporation. Consequently,
Orion Capital Corporation became an indirect wholly owned subsidiary of RSA. The change of control
was approved by the Colorado Division of Insurance in accordance with Section 10-3-803, C.R.S.

Holding Company Filings

Pursuant to Section 10-3-801(4), C.R.S., the Company is a member of an insurance holding company
system and is therefore subject to the registration requirements of Section 10-3-804, C.R.S., and Colorado
insurance Regulation 3-4-1.

Pursuant to Section 10-3-801(3), C.R.S., the ultimate controlling person, as of December 31, 2001, is
RSA. RSA is a publicly held corporation organized under the laws of the United Kingdom. Its common
stock is traded on the London and New York Stock Exchanges and no one person holds a controlling
interest (10% or more of the outstanding common stock) in RSA.

During the examination period, the Company filed the annual forms B and C, and amendments thereto, as
required by Section 10-3-804, C.R.S., and Colorado Insurance Regulation 3-4-1. The filings contain the
required information pertaining to transactions, relationships and agreements with affiliates.
                       Association Financial Examination as of                                                           Peak Property and Casualty
                       December 31, 2001                                                                                   Insurance Corporation                                                                                                 7

                       Organizational Chart

                       An organizational chart for the RSA holding company system is presented as follows:


                                                                                                                     Royal & Sun Alliance Insurance Group plc
     Royal & Sun Alliance - USA                                                                                                         (UK)


                                                                                                                              Royal Insurance Holdings plc
                                                                                                                                           (UK)


                                                                                                                         Royal & Sun Alliance Insurance plc
                                                                                                                                         (UK)


                                                                                                                  Royal International Insurance Holdings Limited
                                                                                                                                         (UK)


                                      Sun Alliance and London Insurance plc                                            The Globe Insurance Company Limited                                                    Sun Alliance Insurance Overseas Limited
                                                        (UK)                                                                            (UK)                                                                                     (UK)



                                    RSA Overseas (Netherlands) BV                       RSA Overseas Holdings Ireland (No. 1)                            RSA Overseas Holdings Ireland (No. 2)                       Tariff Reinsurances Limited
                                                                                                                                                                                                                                  (UK)

                                    RSA Overseas (Netherlands) BV
                                                                                                                      Arrowpoint General Partnership                                                                             Tariff
                                    Codan A/S (Denm (71.65%
                                                   ark)    )                                                                   (Delaware)                                                                                    Reinsurances
                                                                                                                                                                                                                                Lim ited
                                                                                                                                                                                                                             (U.S. Branch)
                                                                                                                       Royal & SunAlliance USA, Inc.
                                      Trygg-Hansa Forsakring AB                                                                                                                                                               (New York)
                                                                                                                                (Delaware)

                              Trygg-Hansa Insurance Company Ltd.,                                                               Royal Group, Inc.
                                     (U.S. Branch) New York                                                                        (Delaware)




                       Royal                  The Royal &           Royal Specialty    Sun Alliance               Royal                Royal Global                Century            ***Orion Capital                                  Royal
                      Holdings,               SunAlliance            Underwriting,         USA                 Investm ent             Managem  ent,              Insurance              Corporation                                  Indemnity
                        Inc.                   Insurance                  Inc.         Services Inc.          Management                   Inc.                    Com pany                                                           Com pany
                                            Foundation, Inc.                                                     Com pany                                       (Bermuda) Ltd.          (Delaware)
                   (North Carolina)         (North Carolina)           (Georgia)        (New York)              (Michigan)              (New York)                (Bermuda)              (see page 2 for                             (Delaware)
                                                                                                                                                                                        subsidiary details)




                                                                                                                                                                                                                                        Marine
                     R.S.S., Inc.             RSA Surplus              Financial           Royal               Am erican                   Marine                Safeguard                 Globe
                                                                                                                                                                                                                                      Indem nity
                                            Lines Insurance           Structures        Insurance             and Foreign                Indem nity              Insurance               Indemnity
                                                                                                                                                                                                                                      Insurance
                                             Services, Inc.             Limited        Company of              Insurance               (Holdings) Inc.           Com  pany               Com pany
                                                                                                                                                                                                                                     Company of
                                                                                         America               Com  pany
                                                                                                                                                                                                                                       Am erica
                   (North Carolina)            (Delaware)             (Bermuda)          (Illinois)           (Delaware)                (Delaware)              (Connecticut)           (Delaware)
                                                                                                                                                                                                                                     (New York)



                                                                                                                 Royal &                                                                                                             *******Royal
     Risk          Royal W arranty          FSL Group, Inc.            Financial       Royal Surplus                                      Phoenix                 Charlotte                                   Lloyd's Inc.
                                                                                                               SunAlliance                                                                 B.E.I.                                     Lloyd's of
 Innovations        Services, Inc.                                   Structures       Lines Insurance                                    Assurance               Lloyds, Inc.
                                                                                                                 Personal                                                              Services, Inc.                                    Texas
   Service &                                                          Insurance          Com  pany                                      Com pany of
                                                                                                                Insurance
Consulting, Inc.                                                       Company                                                           New York
                                                                                                                Company                                                                 (Delaware)
  (Delaware)           (Florida)            (North Carolina)         (New York)        (Connecticut)                                  (New Ham pshire)             (Texas)                                      (Texas)
                                                                                                               (New York)                                                                                                              (Texas)



                                                                      **The Sea                                 Crown &                Investigative               Shield               Protected
                                                                      Insurance            *RSA
                                                                                                               Shield, Inc.             Resources               Management,            Settlements,
                                                                                         Financial
                                                                     Com pany of                                                        Global, Inc.                Inc.                    Inc.
                                                                       Am erica        Services, Inc.
                                                                                        (Delaware)
                                                                     (New York)                             (North Carolina)         (North Carolina)            (New York)          (North Carolina)
                Association Financial Examination as of                                        Peak Property and Casualty
                December 31, 2001                                                                Insurance Corporation                                                                                8




    Royal & Sun Alliance - USA                                                             Royal & Sun Alliance Insurance Group plc




                                                                                             Arrowpoint General Partnership
                                                                                                         (Delaware)

                                                                                               Royal & SunAlliance USA, Inc.
                                                                                                         (Delaware)

                                                                                                       Royal Group, Inc.
                                                                                                          (Delaware)

                                                                                                 ***Orion Capital Corporation
                                                                                                           (Delaware)




                  EBI Indemnity      Clarke &      The Connecticut     Connecticut               Orion Insurance                 Design         Employee             Security
                    Company        Towner, Inc.       Indemnity          Specialty                   Company                 Professionals       Benefits           Insurance
                                                       Company          Insurance                                              insurance        Insurance          Company of
                                                                        Company                                                 Company          Company             Hartford
                  (Connecticut)    (Connecticut)    (Connecticut)     (Connecticut)                (Connecticut)             (Connecticut)    (Connecticut)       (Connecticut)



                                    The Fire and
JABAWWAT,         ****OrionAuto,                                                                  Orion Capital                                  Grocers         SecurityRe, Inc.   EBI Consulting           Security
                                      Casualty
    INC.                 Inc.                                                                    Companies, Inc.                                                                     Services, Inc.         Insurance
                                     Insurance                                                                                                  Insurance
                                    Company of                                                                                                  Group, Inc.                                               Company, U.K.
                                    Connecticut                                                                                                                                                                 Ltd
 (Delaware)         (Colorado)                                                                     (Connecticut)                                 (Oregon)         (Connecticut)       (California)             (UK)
                                   (Connecticut)



EFC Property                          Grocers      Orion Specialty    ****** Alternative          EBI Companies,                 DPIC            Groc ers
Management,                         Insurance        Group, Inc.       Risk Transfer                    Inc.                Companies, Inc.     Insurance
     Inc.                            Company                              Insurance                                                            Agency, Inc.
                                                                      Strategies, Inc.
 (California)                        (Oregon)       (Connecticut)      (Connecticut)               (Connecticut)              (California)       (Oregon)




                       Viking        Guaranty          Premium        Orion Warranty                  Intercon                    DPIC         Grocers Risk
                     Insurance       National       Payment Plan,         Services                    General                 Management       Services, Inc.
                   Company of       Insurance             Inc.           Company                    Agency, Inc.                Services
                    Wisconsin        Company                                                                                  Corporation
                    (Colorado)      (Colorado)     (North Carolina)      (Colorado)                   (Texas)                (Connecticut)        (Oregon)



                                                                         Guaranty                      Atlantic
                    *****Viking      Landmark       Peak Property                                                                Atlantic          Unisun             OrionAuto      Atlantic Claims
                                                                         National                     Security
                  County Mutual       American      and Casualty                                                               Indemnity         Insurance             General        Service, Inc.
                                                                        Insurance                    Insurance
                    Insurance        Insurance        Insurance                                                                Company            Company            Agency, Inc.
                                                                       Company of                     Company
                     Company          Company        Corporation       Connecticut
                      (Texas)       (Oklahoma)        (Colorado)                                                           (North Carolina)   (South Carolina)         (Florida)     (North Carolina)
                                                                      (Connecticut)              (North Carolina)



                                                                                                                                                  Carolina
                                                                                                                                                  American
                                                                                                                                                 Insurance
                                                                                                                                                  Company
                                                                                                                                              (South Carolina)
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                                 9

Royal & SunAlliance – USA


               Ownership of the RSA companies is 100% except for the following:

               *RSA Financial Services, Inc.:

                             Royal Indemnity Company – 42.9%
                             Royal Insurance Company of America – 23.8%
                             Globe Indemnity Company – 13.6%
                             Safeguard Insurance Company – 12.3%
                             American and Foreign Insurance Company – 7.4%

               ** The Sea Insurance Company of America:
                             Royal Insurance Company of America – 40.0%
                             Royal Indemnity Company –37.0%
                             Safeguard Insurance Company – 10.0%
                             American and Foreign Insurance Company – 7.0%
                             Globe Indemnity Company – 6.0%

               ***Orion Capital Corporation:
                            Royal Group, Inc. – 89.4%
                            EFC Property Management, Inc.- 2.4%
                            Royal Insurance Company of America – 1.8%
                            Connecticut Indemnity Company – 1.5%
                            SecurityRe, Inc. – 1.4%
                            Royal Indemnity Company –1.2%
                            The Fire and Casualty Insurance Company of Connecticut – 0.6%
                            Globe Indemnity Company – 0.6%
                            Security Insurance Company of Hartford – 0.4%
                            JABAWWAT, Inc. – 0.3%
                            American and Foreign Insurance Company – 0.2%
                            Safeguard Insurance Company – 0.2%

               ****OrionAuto, Inc.:
                           Security Insurance Company of Hartford – 32.2%
                           Royal Indemnity Company – 31.4%
                           Royal Insurance Company of America – 19.9%
                           American and Foreign Insurance Company – 6.6%
                           Safeguard Insurance Company – 6.3%
                           The Fire and Casualty Insurance Company of Connecticut – 3.6%

               *****Viking County Mutual Insurance Company:
                           Owned by the policyholders; managed by Viking Insurance Company of Wisconsin

               ******Alternative Risk Transfer Insurance Strategies, Inc.:
                            Orion Capital Companies, Inc. 80.0%
                            Royal Group, Inc. – 20.0%

               *******Royal Lloyd’s of Texas
                           Association of Underwriters; Globe Indemnity has Trust Agreements with the Underwriters
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                                 10

MANAGEMENT AND CONTROL

The business and affairs of the Company are managed by a board of directors, which consists of eight
members. The board is assigned the power to exercise general supervision over the business affairs of the
Company.

Shareholder Meetings:

Pursuant to the Company’s By-laws, shareholder(s) are required to meet on the last Wednesday in April
at an hour fixed by the directors, unless it is a holiday, whereas the meeting will be the next day.

Special meetings may be called by Directors, the Chairman of the Board, or by the President. It must be
called by the Corporate Secretary upon the written request of holders of at least 25% of voting stock
outstanding, and business must be limited to that called for in the notice. The Board shall designate the
place(s) of special meetings. Written notice shall be given to the voting shareholders for all meetings,
special or annual, with the written notice stating the date, time, place and purpose for the meeting.

At any shareholders meeting, holders of a majority of the issued and outstanding stock shall constitute a
quorum. Meetings shall adjourn if there is no quorum, until requisite shares are presented or represented.

The minutes of the annual meeting of the sole shareholder and the minutes of the Board of Directors do
not show a record of the resignation/removal of director Raymond W. Jacobsen. The April 25, 2001
minutes of the annual meeting of the sole shareholder and the Board of Directors show the election of
director Jacobsen, but the subsequent minutes fail to show his resignation/removal.

RECOMMENDATION:

No. 1

It is recommended that the minutes of the meetings of the sole shareholder and the Board of Directors
adequately disclose all significant events and changes to the directors.


During the examination period three annual meetings and nine special meetings were held by the
shareholder in accordance with the By-laws.

Board of Directors

During the period under review, the Board of Directors held three annual meetings, as required by the
Company’s By-laws. Nine special meetings were also held during the examination period. A quorum is
one-third of the number of directors fixed by the Board. All of the meetings were held in accordance
with the requirements provided in the By-laws.

Directors duly elected and serving at December 31, 2001, together with their states of residence and
principal business affiliations, are presented as follows:

Name                                            Business Affiliation

Terry Broderick, Board Chairman                 Company President & CEO
Charlotte, NC                                   Director and Officer for numerous subsidiaries
                                                of Royal & SunAlliance USA, Inc.
Association Financial Examination as of       Peak Property and Casualty
December 31, 2001                               Insurance Corporation                               11

Joseph F. Fisher                              Senior VP & Chief Financial Officer
Charlotte, NC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Ernest C. Frohboese                           Senior VP & Chief Investment Officer
Charlotte, NC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Stephen M. Mulready                           Senior Vice President
Wethersfield, CT                              Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Daniel A. Reppert                             Senior Vice President
Fort Mill, SC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Paul H. Stewman                               Executive Vice President
Charlotte, NC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

John Tighe                                    Senior Vice President
Charlotte, NC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Joyce W. Wheeler                              Senior VP, CCO, & General Counsel
Charlotte, NC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

All Directors were employed by Royal & SunAlliance USA, Inc. As a result of a restructuring plan
during 2002, the Directors serving as of the date of this examination are as follows:

Name                                          Business Affiliation

Stephen M. Mulready, Board Chairman           Company President & CEO
Wethersfield, CT                              Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Joseph F. Fisher                              Senior VP & Chief Financial Officer
Charlotte, NC                                 Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Laura S. Lawrence                             Senior VP & Chief Administrative Officer & General
Charlotte, NC                                 Counsel, Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Joseph J. Mistretta                           Senior Vice President and Chief Claims Officer
Enfield, CT                                   Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.

Vincent N. Pugliese                           Senior Vice President
Glastonbury, CT                               Director and Officer for numerous subsidiaries
                                              of Royal & SunAlliance USA, Inc.
Association Financial Examination as of           Peak Property and Casualty
December 31, 2001                                   Insurance Corporation                                 12

Jack F. Reddy                                     Senior Vice President and Chief Human Resource Officer
West Hartford, CT                                 Director and Officer for numerous subsidiaries
                                                  of Royal & SunAlliance USA, Inc.

Daniel A. Reppert                                 Senior Vice President
Fort Mill, SC                                     Director and Officer for numerous subsidiaries
                                                  of Royal & SunAlliance USA, Inc.

John Tighe                                        Senior Vice President and Chief Risk Officer
Charlotte, NC                                     Director and Officer for numerous subsidiaries
                                                  of Royal & SunAlliance USA, Inc.

Officers

Pursuant to the Amended and Restated By-laws, adopted on May 9, 2000, the officers shall consist of a
Chairman of the Board, a President, one or more Vice Presidents, any one or more of which may be
designated Executive Vice President or Senior Vice President, a Secretary and a Treasurer. The Board of
Directors may appoint such other officers, assistant officers and agents, as it shall deem necessary. With
the exception of the President and Corporate Secretary, the same person may hold two or more offices.

The officers of the corporation shall hold office until their successors have been elected and qualified, or
until their resignation or removal from office.

The senior officers elected during 2001 and serving at December 31, 2001 were as follows:

           Name                             Title
           Terry Broderick                  President & Chief Executive Officer
           Paul H. Stewman                  Executive Vice President
           Joseph F. Fisher                 Senior Vice President & Chief Financial Officer
           Ernest C. Frohboese              Senior Vice President & Chief Investment Officer
           Michael J. McGinley              Senior Vice President & Chief Claims Officer
           Stephen M. Mulready              Senior Vice President
           Daniel A. Reppert                Senior Vice President
           John Tighe                       Senior Vice President
           Joyce W. Wheeler                 Senior VP, Chief Corporate Officer & General Counsel
           Gwyn Fuller                      Treasurer
           Judy S. Spitzer                  Corporate Secretary

As a result of a restructuring plan during 2002, the officers as of the date of this examination are as
follows:

           Name                             Title
           Stephen M. Mulready              President & Chief Executive Officer
           Joseph F. Fisher                 Senior Vice President & Chief Financial Officer
           Laura S. Lawrence                Senior Vice President & Chief Administrative Officer &
                                                General Counsel
           Joseph J. Misretta               Senior Vice President & Chief Claims Officer
           Vincent N. Pugliese              Senior Vice President
           Jack F. Reddy                    Senior Vice President
           Daniel A. Reppert                Senior Vice President
           John Tighe                       Senior VP, Chief Risk Officer
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                                 13

        Gwyn Fuller                        Treasurer
        Linda Y. Pettigrew                 Corporate Secretary

It was determined that, during the examination period, the Company had not filed notification of changes
in its executive officers and directors with the Colorado Division of Insurance, as required by Section 10-
3-112(2), C.R.S.

RECOMMENDATION:

No. 2

It is recommended that the Company make appropriate notifications of changes in its executive officers
and directors, as required by Section 10-3-112(2), C.R.S.


Committees

In accordance with the Company’s By-laws, the Executive Committee shall consist of three or more
members of the Board of Directors, the number to be determined by the Board. The Board of Directors,
by the affirmative vote of a majority of the directors, shall designate the members of the Executive
Committee, one of whom may be designated as Chairman of the committee. During intervals between
the meetings of the Board, the Executive Committee shall have, and may exercise, all the powers and
authority of the Board of Directors in the management of the business and affairs of the Company
(including the declaration of policyholder dividends) in all cases in which specific directions shall not
have been given by the Board of Directors, except as limited by the statutes of the State of Colorado.
Meetings may be called by the Chairman or any two of its members and a majority of the members fixed
by the Board shall constitute a quorum.

The Executive Committee is authorized to exercise all the powers of the Board of Directors while the
Board is not in session, subject to the limitations contained in the By-laws.

Directors serving on the Executive Committee as of December 31, 2001 were:

                    Terry Broderick, Chairman
                    Joseph F. Fisher
                    Ernest C. Frohboese

Other committees of at least three directors may be designated, and their functions and duties prescribed,
by the Board of Directors. Each committee fixes its own rules, must keep regular minutes of its meetings
and report all actions taken to the Board. Other committees formed by the Board cover the business areas
of Investment, Policyholder Dividends and Conflict of Interest.

The Investment Committee has the authority to establish the investment program of the Company,
administer the investments and cash funds, delegate such activities and authority, as it deems appropriate,
and appoint responsible custodians of the Company's investments.

Directors serving on the Investment Committee as of December 31, 2001 were:

                    Terry Broderick
                    Joseph F. Fisher
                    Ernest C. Frohboese, Chairman
                    Joyce W. Wheeler
Association Financial Examination as of            Peak Property and Casualty
December 31, 2001                                    Insurance Corporation                                14


The members of the Policyholder Dividend Committee as of December 31, 2001 were as follows:

                       Joseph F. Fisher
                       Raymond W. Jacobsen
                       Kathy Meudder
                       Stephen M. Mulready
                       Paul H. Stewman
                       John Tighe
                       Gregory M. Vezzosi

The members of the Committee on Conflict of Interest as of December 31, 2001 were as follows:

                       Terry Broderick, Chairman
                       Ernest C. Frohboese
                       Linda Y. Pettigrew
                       Joyce W. Wheeler
                       John Tighe

Conflict of Interest

The Company has an established procedure for the disclosure of any material interest or affiliation that
might conflict with the respective duties of all directors, officers and responsible employees. Conflict of
Interest statements were completed by all directors, officers and responsible employees during the
examination period.

Based on a review of the conflict of interest statements completed during the examination period, no
material conflicts of interest were disclosed.

Service and Management Agreements:

As of December 31, 2001, the Company had the following service agreements in effect with its parent
and affiliates:

    •   A “Tax Allocation Agreement” effective December 31, 1999 between the Company, Arrowpoint
        General Partnership (AGP), Royal & SunAlliance USA, Inc. (RSUSA), Royal Group, Inc. (RGI),
        and the various subsidiaries of AGP. AGP owns, directly or indirectly, 100% of the outstanding
        capital stock of RSUSA, RGI and subsidiaries, and AGP is the common parent of an affiliated
        group of corporations. The agreement provides for AGP, RSUSA, RGI and subsidiaries to
        allocate the federal income tax liability of the affiliated group among them, as well as certain
        related matters, with special provisions applicable to certain insurance group members, so as to
        be in compliance with the requirements of the New York State Insurance Department Circular
        Letter No. 33 and other applicable state laws. The agreement provides that each subsidiary
        contribute to the taxes payable, computed hypothetically on a separate company basis, with RGI
        acting as the settlement intermediary and RSUSA acting as the payment intermediary for the
        affiliated group. The taxes were allocated in accordance with the agreement.

    •   An “Investment Management Services Agreement” between the Company and affiliate, Royal
        Investment Management Company (RIMCO), effective January 1, 2000, is to remain in effect
        until terminated. In accordance with the terms of the agreement, RIMCO shall, at its sole
        discretion, purchase, invest in or otherwise, acquire, sell, transfer, exchange or dispose of, and
        generally deal in and with any and all forms of investments on behalf of the Company’s
        investment portfolio, provided that the transactions are in compliance with the Company’s formal
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                  15

        investment policy, which is reviewed and updated periodically. The entire board reviews all
        investment transactions on a quarterly basis and documents its review through a board resolution.

        The Company pays RIMCO a quarterly fee equal to four basis points (.0004) of the ledger value
        of the Company’s account as of the closing date of the previous quarter. Fees are to be paid by
        the Company within 30 days of the invoice date.

        The agreement was amended on September 11, 2000 to revise the methodology used to
        determine and pay the management fee under the contract, so that the investment management
        fees are now established annually and paid quarterly.

    •   An “Administrative Services and Expense Sharing Agreement” between the Company and
        members of the Royal Indemnity Company (RIC), effective January 1, 2001. The agreement is
        for a term of one year, unless otherwise cancelled at any time by agreement of the companies.
        The agreement shall automatically renew for four consecutive one-year terms. At the end of the
        fifth year, the agreement will be terminated, at which time a new agreement may be entered into
        by the companies.

        In accordance with the terms of the agreement, RIC will pay expenses and allocate expenses to
        the companies, based on the actual cost of the service received and used by each company, or
        they will be pro-rated, based on a pre-set formula using premium and other factors, such as time
        spent. The allocation of expenses will be no greater than that which a company would expend in
        providing services for itself.

        Each company shall reimburse RIC within 30 days following the preceding quarter, in an amount
        equal to the expenses paid by RIC for that quarter.

Upon examination, it was noted that the Tax Allocation Agreement and the September 11, 2000
Amendment to the Investment Management Services Agreement were not filed with the Colorado
Division of Insurance, as required pursuant to Section 10-3-805(4), C.R.S.

RECOMMENDATION:

No. 3

It is recommended that the Company make all appropriate filings, as required pursuant to Section 10-3-
805(4), C.R.S.


CORPORATE RECORDS

The Articles of Incorporation, By-laws, and all amendments thereto, and minutes of the meetings of the
sole shareholder and Board of Directors were reviewed for the period under examination. Based on the
review of the minutes, meetings were well attended and the minutes adequately record the deliberations
and determinations made, except as mentioned in the previous section.

The Articles of Incorporation were amended on July 13, 2000, and approved for filing by the Colorado
Division of Insurance on August 3, 2000. Article VIII provides that, “The number of directors shall be
fixed by, or in the manner provided in, the By-laws of the Corporation.” The Company was found to be
in compliance with the By-laws during the examination period.

The Company has a formal investment policy, which is reviewed and updated periodically. The board
delegates the authority to make investment decisions to an investment committee, comprised of three
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                 16

board members. The entire board reviews all investment transactions on a quarterly basis and documents
the review through a board resolution.

Review of the Investment Committee minutes indicated that investment transactions are ratified each
quarter. In addition, the Company had a written Agreement for Management Investment Services,
approved by the board via a special meeting held December 7, 1999. The Company’s investment
procedures were determined to be in compliance with Section 10-3-234, C.R.S.

FIDELITY BOND AND OTHER INSURANCE

Fidelity Bond

Royal & SunAlliance USA, Inc., has obtained fidelity coverage through a Financial Institution Bond, as
well as a First and Second Excess Follow Form Bond for additional coverage. The underlying bond
provides fidelity protection with a single loss liability limit of $5,000,000 and an aggregate limit of
$10,000,000, with a single loss deductible amount of $500,000, against loss resulting from dishonest or
fraudulent acts of directors, officers and employees. A First Excess Follow Form Bond covers a single
loss limit of $5,000,000 and an aggregate loss limit of $10,000,000, with a single loss deductible amount
of $500,000. A Second Excess Follow Form Bond covers a single loss limit of $40,000,000 and an
$80,000,000 aggregate in excess of the $10,000,000 single loss limit and a $20,000,000 aggregate limit,
with an excess deductible of $500,000.

It is noted that the group coverage does not allocate any part of the bond coverage nor the $500,000
deductible amount specifically to the Company, so it was not possible to determine whether the Company
is in compliance with the requirements of Colorado Insurance Regulation 3-1-1. The amount of coverage
required to be held by the Company per the regulation is $300,000.

RECOMMENDATION:

No. 4

It is recommended that Royal & SunAlliance USA, Inc., amend its group fidelity bond to allocate a
specific portion of the coverage to the Company, to be in compliance with the minimum coverage
required by Colorado Insurance Regulation 3-1-1.


Other Insurance

The Company does not have any direct employees or own any real property; however, it benefits from the
group’s other insurance coverage extending to its parent companies and subsidiaries thereof. The costs
related to these coverages are allocated to the Company through the Administrative Services and Expense
Sharing Agreement.

EMPLOYEES’ AND AGENTS’ WELFARE AND PENSION PLANS

All operational functions of the Company are performed by employees of Royal Indemnity Company,
with costs being shared through the Administrative Services and Expense Sharing Agreement. The
Company does not provide any benefits to its agents.
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                                 17

TERRITORY AND PLAN OF OPERATION

Territory

As of December 31, 2001, the Company was licensed to transact business in the following states and the
District of Columbia:

               Alabama                      Kentucky             Ohio
               Alaska                       Louisiana            Oklahoma
               Arizona                      Maryland             Oregon
               Arkansas                     Massachusetts*       Rhode Island
               Colorado                     Minnesota            South Carolina
               Connecticut                  Mississippi          South Dakota
               Delaware                     Missouri             Tennessee
               District of Columbia         Montana              Texas
               Florida                      Nebraska             Utah
               Georgia                      Nevada               Virginia
               Idaho                        New Mexico           Washington
               Indiana                      North Carolina       West Virginia
               Iowa                         North Dakota         Wisconsin
               Kansas
* - The Company was licensed for reinsurance only in the Commonwealth of Massachusetts.

Certificates of Authority and/or other evidence of permission to do business in the respective states were
reviewed and found to be in proper order and effect.

Schedule T of the 2001 Annual Statement incorrectly indicates that the Company is only licensed in the
State of Texas. Schedule T of the 2002 Annual Statement properly reflects the licensing of the states.

RECOMMENDATION:

No. 5

It is recommended that accurate information be reported in the Company’s annual statements, in
accordance with the NAIC Annual Statement Instructions, as required by Section 10-3-208, C.R.S.


Plan of Operation

The Company is licensed as a multiple line property and casualty company and primarily writes
commercial and private automobile coverages. During 2001, approximately 96% of the Company’s
direct written premiums were in the States of Florida, Oregon, South Carolina and Washington.

Documentation regarding the agency system indicates that an MGA contract utilized by the Company was
assigned to OrionAuto General Agency, in violation of Section 10-2-1004(1)(e), C.R.S.

RECOMMENDATION:

No. 6

It is recommended that the Company’s MGA contract be re-executed in order to comply with Section 10-
2-1004(1)(e), C.R.S.
Association Financial Examination as of        Peak Property and Casualty
December 31, 2001                                Insurance Corporation                                 18


The Company’s business is 100% reinsured with its immediate parent, Guaranty National Insurance
Company (GNIC), under an approved reinsurance agreement, effective July 28, 1994. There were no
new agreements or amendments to the standing agreement during the examination period.

Marketing and underwriting activities for the holding company system are organized into three business
units: the consumer division, the custom risks division and the commercial division. Some companies
within the holding company system write all lines of business and some may specialize in either personal
or commercial lines.

A summary of the operational units within the holding company system is as follows:

Consumer Division:
   The Consumer Division provides a broad array of customized insurance coverages for targeted
   personal insurance and small business customers. Businesses within this division include: Personal
   Insurance, including non-standard, standard and preferred auto lines, homeowners, boat, umbrella and
   motor home; Programs, which provide custom-designed coverages for selected customer segments
   through wholesale administrators or direct retail relationships; Financial Services, including credit-
   related insurance programs for banks, credit unions and leasing/finance companies; and Flood for
   commercial and residential real estate.

Custom Risks Division
   The Custom Risks Division is targeted toward commercial customers that require more sophisticated
   risk management techniques and products. This division’s businesses include: Risk Management &
   Global, which offers customized program service, risk management and sophisticated business
   solutions; Royal Specialty Underwriting Inc., which provides excess and surplus lines insurance
   coverages through wholesale intermediaries; Asia Operations, which offers U.S. insurance services
   for multinational accounts of Japanese insurers; Marine, which provides coverage for international
   cargo, commercial hull and property and liability; Profin, which covers directors and officers,
   employment practices, fiduciary, crime, kidnap/ransom/extortion liability; World Assurance, which
   includes international property, liability and workers compensation; and Financial Enhancements,
   which provides insurance products to banks, consumers and other lenders.

Commercial Division
     The Commercial Division is focused primarily on middle market commercial customers in
     selected segments where the Company can leverage its loss mitigation strengths, as well as its
     specific underwriting expertise for chosen segments. The division’s businesses include:
     Commercial segments (middle market), including technology, healthcare, grocers, and architects
     and engineers; ARTIS (Alternative Risk Transfer Insurance Strategies, Inc.), which structures
     alternative options for insureds, producers and groups who wish to assume a portion of the risk;
     and REMI (Royal Equipment Maintenance Insurance), which consolidates a customer’s
     equipment maintenance contracts into a single insurance program.

GROWTH OF COMPANY

The growth of the Company for the years under examination is presented as follows:

                      Admitted
    Year               Assets                Liabilities              Capital             Surplus Funds

    1999                $8,464,104               $222,983             $3,000,000              $5,241,120
    2000                 8,735,726                342,789              3,000,000               5,392,937
    2001                12,905,889              3,736,681              3,000,000               6,169,208
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                                 19


A summary of direct written premiums, reinsurance activity and net premiums is presented as follows:

              Direct                       Reinsurance      Reinsurance          Net           Net
            Premiums       Reinsurance      Ceded to         Ceded to         Premiums      Premiums
  Year       Written        Assumed         Affiliates     Non-Affiliates      Written       Earned

  1999       $9,667,301          $3,307     $9,408,108          $262,500              $0                 $0
  2000       11,351,305             222     11,211,384           140,143               0                  0
  2001       21,773,108               0     21,221,047           552,061               0                  0


The above amounts for 1999 and 2000 were obtained from the Company’s filed annual statement. The
amounts for 2001 were established or verified in connection with this examination.

Premiums writings increased during 2001 due to increased writings in the states of Florida, Oregon and
Washington.

The Company cedes 100% of its business after external reinsurance to its parent, Guaranty National
Insurance Company, therefore the Company reports no net written premiums earned or net losses or loss
adjustment expenses.

PREMIUMS BY STATE

The Company’s 2001 direct written premiums were allocated by state as follows:

                                                       Direct
                                  State               Premium
                          Colorado                       $52,940
                          Delaware                          5,424
                          District of Columbia              5,342
                          Florida                     11,329,662
                          Georgia                        202,163
                          Massachusetts                   (3,044)
                          Minnesota                      128,646
                          Oklahoma                       376,788
                          Oregon                       2,911,844
                          Rhode Island                     10,738
                          South Carolina               2,712,968
                          Washington                   4,039,629
                          Total                      $21,773,108

The above amounts were obtained from the Company’s 2001 Annual Statement. Premiums are allocated
based on the location of the risk. The results of testing performed on a sample of premium transactions
indicated that the premiums were properly allocated in accordance with the Company’s stated
methodology.
Association Financial Examination as of        Peak Property and Casualty
December 31, 2001                                Insurance Corporation                                  20

LOSSES AND UNDERWRITING EXPERIENCE

Losses, loss adjustment expenses and underwriting expenses incurred, along with the ratio to premiums
earned, is presented in the following schedule:

                 Net          Loss and Loss       Underwriting
              Premiums          Expense             Expense              Loss and Loss        Underwriting
 Year          Earned           Incurred            Incurred              Exp Ratio              Ratio

 1999                  $0                 $0                   $0            N/A                  N/A
 2000                   0                  0                    0            N/A                  N/A
 2001                   0                  0            (715,245)            N/A                  N/A

The above amounts for 1999 and 2000 were compiled from the Company’s filed annual statements. For
2001, the amounts were determined per this examination.

REINSURANCE

The following exhibit presents the extent of the Company’s reinsurance program by an overview of the
total premiums as of December 31, 2001:

                   Direct Business                                            $21,773,108
                   Reinsurance Assumed – Affiliates                                     0
                   Reinsurance Assumed – Non Affiliates                                 0
                   Subtotal                                                   $21,773,108

                   Reinsurance Ceded – Affiliates                             $21,221,047
                   Reinsurance Ceded – Non Affiliates                             552,061
                   Total                                                               $0

Ceded

All risks are ceded to non-affiliates or to the Company’s parent, Guaranty National Insurance Company,
pursuant to a 100% quota share agreement. The quota share agreement does have a provision that limits
cessions to 90% for business written in Virginia, but no business was produced in Virginia during the
examination period. No new non-affiliated agreements were entered into during the period under
examination. All of the agreements were reviewed and determined to comply with the requirements of
Section 10-3-118, C.R.S., and Colorado Insurance Regulation 3-3-2.

Assumed

The Company has no assumed reinsurance at December 31, 2001.

STATUTORY AND SPECIAL DEPOSITS

As of December 31, 2001, the Company maintained the following special deposits not held for the
protection of all policyholders.

                                                                                Statement           Market
   Location                 Type of Security                 Par Value            Value             Value
Arkansas            U.S. Treasury Note                         $200,000            $200,000         $200,000
Georgia             Special Revenue & Assessment                 50,000              51,294           51,294
                    Obligation
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                  21

Louisiana           U.S. Treasury Note                            75,000             75,209            75,209
Massachusetts       Special Revenue & Assessment                 125,000            128,235           128,235
                    Obligation
New Mexico          U.S. Treasury Note                           340,000           340,000          340,000
North Carolina      U.S. Treasury Note                            80,000            80,223           80,223
South Carolina      States, Territories, & Possessions           255,000           259,566          259,566
Tennessee           U.S. Treasury Note                           100,000           100,278          100,278
                                                                 500,000           501,391          501,391
   Subtotal                                                   $1,725,000        $1,736,196       $1,736,196

As of December 31, 2001, the following deposits were held for the protection of all policyholders.

                                                                                Statement            Market
  Location                   Type of Security                 Par Value           Value              Value
Alaska            Special Revenue & Assessment
                  Obligation                                    $125,000          $128,235           $128,235
Arizona           States, Territories, & Possessions              30,000            30,176             30,176
Colorado          States, Territories, & Possessions             800,000           833,041            833,041
                  Special Revenue & Assessment
                  Obligation                                     185,000            189,787            189,787
                  States, Territories, & Possessions              45,000             45,806             45,806
                  U.S. Treasury Note                           1,020,000          1,022,838          1,022,838
Nebraska          Special Revenue & Assessment
                  Obligation                                      25,000             25,647            25,647
Rhode Island      Special Revenue & Assessment
                  Obligation                                      75,000            76,941           76,941
Texas             U.S. Treasury Note                             125,000           125,348          125,348
  Subtotal                                                    $2,430,000        $2,477,819       $2,477,819

  TOTAL                                                       $4,155,000        $4,214,014       $4,214,014

The Statutory Deposit held with the State of Colorado complies with the provisions of Sections 10-3-201,
10-3-206, 10-3-210 and 10-3-211, C.R.S., as well as Colorado Insurance Regulation 3-1-2.

ACCOUNTS AND RECORDS

The Company reports all financial accounting transactions on an Oracle General Ledger (OGL). The
OGL is part of the new Royal Financial System (RFS), which has replaced the previous financial systems
used by RIC (GEAC), Orion Capital Corporation (Oracle) and OrionAuto (Lawson). RFS resides in a
client/server environment that uses an Oracle database for information storage. The major components of
RFS are three modules of Oracle applications: Oracle General Ledger, Oracle Accounts Payable and
Oracle Fixed Assets. OGL is the official book of records for all financial accounting operations.

The corporate merger in 1999, the software conversion referred to above, and the repooling of accounts in
2001 created major challenges for the financial reporting cycles. Several annual statement balance sheet
items were not reconciled and contained significant known errors as of December 31, 2001. The accounts
most notably affected are Receivable from/Payable to Parent, Subsidiaries and Affiliates, Aggregate
Write-Ins for Other Than Invested Assets, Aggregate Write-Ins for Liabilities and Equities and Deposits
in Pools and Associations. The Company and its affiliates were mandated by the UK parent, Royal & Sun
Alliance Insurance Group plc, to initiate and complete a reconciliation process. The Company devoted
significant time and resources to the reconciliation effort, bringing in outside consultants to assist the
Company in correcting the problems within the systems. Adjusting entries, resulting from this
reconciliation process, were booked in 2002 and included in the 2002 financial statements. Even though
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                                   22

there were numerous problems, the receivable for Peak was settled in a timely manner. Also, upon review
of the adjusting entries to date, it was determined that the net impact on the Company’s surplus was not
material for the purposes of this examination.

A trial balance was provided for the year ending December 31, 2001 and balances were traced to the
appropriate asset, liability and income and expense exhibits of the 2001 Annual Statement.

The Company’s financial statements are audited annually by an independent auditor, in accordance with
Colorado Insurance Regulation 3-1-4. The auditor’s workpapers for the year ending December 31, 2001
were made available and used on a limited basis. As required by Colorado Insurance Regulation 3-1-4,
the Company filed an audited financial report for the years under examination. The Company also filed
actuarial opinions, in accordance with Colorado Insurance Regulation 3-1-3.

The Company’s securities are held in safekeeping by a custodian, which is a member of the Federal
Reserve System, and which satisfies the definition of “custodian,” as set forth in Colorado Insurance
Regulation 3-1-6(III). However, upon review, it was noted that the custodial agreement does not
adequately address all of the requirements set forth in Colorado Insurance Regulation 3-1-6 governing
such agreements. The agreement does not specifically address the following provisions:

•   The custodian shall provide, upon written request from an appropriate officer of the company, an
    appropriate affidavit, on a form prescribed by the Commissioner, with respect to the company
    securities held, either by possession or in book entry form, by the custodian.

•   The custodian shall secure and maintain insurance protection in an adequate amount covering the
    custodian’s duties and activities as custodian for insurer’s assets, and shall state in the custody
    agreement that protection is in compliance with the requirements of the custodian's banking regulator.
    The Commissioner may determine whether the type of insurance is appropriate and the amount of
    coverage is adequate.

•   In the event that the custodian gains entry in a clearing corporation or in the Federal Reserve book-
    entry system through an agent, there shall be an agreement between the custodian and the agent under
    which the agent shall be subject to the same liability for loss of custodied securities as the custodian.
    However, if the agent shall be subject to regulation under the laws of a jurisdiction that is different
    from the jurisdiction the laws of which regulate the custodian, the Commissioner of Insurance of the
    state of domicile of the insurance company may accept a standard of liability applicable to the agent
    that is different from the standard of liability applicable to the custodian.

Subsequent to year-end, the Company transferred its securities to a new custodian, which is a member of
the Federal Reserve System, and which satisfies the definition of “custodian,” as set forth in Colorado
Insurance Regulation 3-1-6(III). The new custodial agreement entered into adequately addresses the
requirements set forth in Colorado Insurance Regulation 3-1-6.

A review of the Company’s records indicates that it routinely escheats unclaimed property to the
appropriate jurisdictions.
Association Financial Examination as of        Peak Property and Casualty
December 31, 2001                                Insurance Corporation                               23

                                     FINANCIAL STATEMENTS

The following pages present a Statement of Assets, Liabilities, Surplus and Other Funds as of December
31, 2001, as determined by this examination. This statement is followed by supporting statements and
reconciliations, presented in the following order:

                           Statement of Assets, Liabilities, Surplus and Other Funds,
                           December 31, 2001

                           Statement of Income, for the Year 2001

                           Capital and Surplus Account, for the Year 2001

                           Reconciliation of Capital and Surplus,
                           December 31, 1998 through December 31, 2001

                           Analysis of Examination Changes, December 31, 2001

                           Comparative Financial Statement,
                           December 31, 1998 and December 31, 2001
       Association Financial Examination as of       Peak Property and Casualty
       December 31, 2001                               Insurance Corporation                           24

                  STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS

                                                 December 31, 2001

                                                     ASSETS

                                                     Ledger           Assets Not        Net Admitted
                                                     Assets           Admitted             Assets
Bonds                                                $4,890,462                    $0     $4,890,462
Cash and short-term Investments                         854,192                     0        854,192
Premiums and agents’ balances in course of
 collection                                           3,835,597             13,584         3,822,013
Reinsurance recoverable on loss
  and loss adjustment expenses                           71,031                  0            71,031
Deferred Tax Asset                                      398,395            343,656            54,739
Guaranty funds receivable or on deposit                     762                  0               762
Interest, dividends and real estate income due
 and accrued                                             92,702                    0          92,702
Receivable from parent, subsidiaries and              3,006,864                    0       3,006,864
affiliates
Premium tax recoverables                                 62,052                    0          62,052
Funds held for others                                    48,372                    0          48,372
Miscellaneous receivables                                 2,700                    0           2,700

                  Total Assets                      $13,263,129           $357,240       $12,905,889
Association Financial Examination as of           Peak Property and Casualty
December 31, 2001                                   Insurance Corporation                    25


    STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS (continued)

                                          December 31, 2001

                          LIABILITIES, SURPLUS AND OTHER FUNDS




Losses (Note 1)                                                                         $0
Loss adjustment expenses (Note 1)                                                        0
Commissions payable                                                               (16,961)
Taxes, licenses and fees                                                           136,277
Federal and foreign income taxes                                                   251,315
Ceded reinsurance premiums payable                                                      33
Provision for reinsurance                                                           39,000
Drafts outstanding                                                                  94,061
Amounts withheld-affiliated reinsurance                                          3,188,463
Miscellaneous payables                                                              44,493
                    Total liabilities                                           $3,736,681

Common capital stock                                           $3,000,000
Gross paid in and contributed surplus                           3,447,823
Unassigned surplus                                              2,721,385
      Surplus as regards policyholders (Note 2)                                  9,169,208
      Total Liabilities, Surplus and Other Funds                               $12,905,889
Association Financial Examination as of     Peak Property and Casualty
December 31, 2001                             Insurance Corporation                    26

                          UNDERWRITING AND INVESTMENT EXHIBIT

                                      STATEMENT OF INCOME

                                           YEAR 2001

Underwriting Income
Premiums earned                                                                  $0

Deductions:
 Losses incurred                                                     $0
 Loss expenses incurred                                               0
 Other underwriting expenses                                  (715,245)
     Total underwriting deductions                                        $(715,245)

Underwriting gain or (loss)                                                $715,245

Investment Income

Net investment income earned                                  $216,802
Net realized capital gains (losses)                             29,897
     Net investment gain                                                   $246,699

Other Income
Finance and service charges not
    included in premium income                                             $660,706
Aggregate write-ins for
    miscellaneous income                                                   (660,706)
    Total other income                                                            $0

Net income before dividends to
  policyholders and before federal
  income taxes                                                             $961,945
Dividends to policyholders                                                        0
Federal income taxes incurred                                               251,648

Net Income                                                                 $710,297
Association Financial Examination as of        Peak Property and Casualty
December 31, 2001                                Insurance Corporation                    27

                         UNDERWRITING AND INVESTMEN EXHIBIT

                               CAPITAL AND SURPLUS ACCOUNT

                                             YEAR 2001


Surplus as regards policyholders
  December 31, 2000                                                          $8,392,935

Net income                                                       $710,297
Change in deferred income tax                                     (64,605)
Change in non-admitted assets                                     (34,419)
Change in provision for reinsurance                               (12,000)
Cumulative effect of change in accounting principles               177,000
Change in surplus as regards
   policyholders for current year                                             $776,273

Surplus as regards policyholders
   December 31, 2001                                                         $9,169,208
Association Financial Examination as of      Peak Property and Casualty
December 31, 2001                              Insurance Corporation                         28




                        RECONCILIATION OF CAPITAL AND SURPLUS

                            December 31, 1998 through December 31, 2001


                                                      1999                2000        2001

Surplus as regards policyholders
 December 31, previous year                         $7,790,125       $8,241,119      $8,392,935

Net income                                             624,095              38,185     710,297
Change in deferred income tax                                0                   0     (64,605)
Change in non-admitted assets                         (15,046)            (17,424)     (34,419)
Change in provision for reinsurance                  (158,055)             131,055     (12,000)
Cumulative effect of change in accounting
 principles                                                  0                   0     177,000

Change in surplus as regards
 policyholders for current year                        450,994            151,816      776,273

Surplus as regards policyholders
 December 31, current year                          $8,241,119       $8,392,935      $9,169,208
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation      29

                            ANALYSIS OF EXAMINATION CHANGES

                                          December 31, 2001


There were no financial changes made as a result of this examination.
Association Financial Examination as of          Peak Property and Casualty
December 31, 2001                                  Insurance Corporation                       30

                           COMPARATIVE FINANCIAL STATEMENTS

                                  December 1998 and December 2001

                                                 ASSETS


                                                              December 31,     December 31,
                                                                 1998*            2001*
Bonds                                                             $4,701,836      $4,890,462
Cash and short-term Investments                                    1,178,366         854,192
Receivable for securities                                              4,250               0
Premiums and agents’ balances in
 course of collection                                               166,825        3,822,013
Reinsurance recoverable on loss
 and loss adjustment expenses                                       439,676          71,031
Deferred Tax Asset                                                                   54,739
Guaranty funds receivable or on deposit                                                 762
Interest, dividends and real estate income due
 and accrued                                                         77,127           92,702
Receivable from parent, subsidiaries and affiliates                 773,844        3,006,864
Premium tax recoverables                                                  0           62,052
Funds held for others                                                     0           48,372
Miscellaneous receivables                                                 0            2,700

  Total Assets                                                    $7,341,924     $12,905,889



* = Per Examination
Association Financial Examination as of      Peak Property and Casualty
December 31, 2001                              Insurance Corporation                    31

                      COMPARATIVE FINANCIAL STATEMENTS (continued)

                                 December 1998 and December 2001

                          LIABILITIES, SURPLUS AND OTHER FUNDS




                                                   December 31,       December 31,
                                                      1998*              2001*
Losses                                                         $0                  $0
Loss adjustment expenses                                        0                   0
Commissions payable                                        87,287            (16,961)
Taxes, licenses and fees                                 (24,664)             136,277
Federal and foreign income taxes                                0             251,315
Ceded reinsurance premiums payable                              0                  33
Provision for reinsurance                                       0              39,000
Drafts outstanding                                              0              94,061
Amounts withheld-affiliated reinsurance                         0           3,188,463
Miscellaneous payables                                          0              44,493
          Total liabilities                              $62,623           $3,736,681



Common capital stock                                  $3,000,000           $3,000,000
Gross paid in and contributed surplus                  3,447,824            3,447,823
Unassigned surplus                                       831,477            2,721,385
 Surplus as regards policyholders                     $7,279,301           $9,169,208

Total Liabilities, Surplus and Other Funds            $7,341,924          $12,905,889




* = Per Examination
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                32

                               NOTES TO FINANCIAL STATEMENTS


Note 1 – Losses and Loss Adjustment Expenses

INS Consultants, Inc. (INS), performed an analysis of the Company’s book of business on a gross basis
for Loss and Allocated Loss Adjustment Expense (ALAE) reserves. INS also performed an independent
analysis of Unallocated Loss Adjustment Expense (ULAE) reserves on an all lines basis as of December
31, 2001.

Based on the above analyses, INS determined that the gross Loss and LAE reserves were adequate as of
December 31, 2001. All of the Company’s business is ceded to its parent, Guaranty National Insurance
Company.

Note 2 – Surplus as Regards Policyholders

As determined by this examination, the Company’s total adjusted capital and surplus, under the risk-
based capital calculation, is $9,169,208, which is 6,284% of authorized control level as of December 31,
2001.
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                 33

                                              SUMMARY

The results of this examination determined that as of December 31, 2001, the Company had admitted
assets of $12,905,889, liabilities of $3,736,681 and surplus as regards policyholders of $9,169,208. There
were no changes made to the Company’s reported surplus as regards policyholders as a result of this
examination.
Association Financial Examination as of       Peak Property and Casualty
December 31, 2001                               Insurance Corporation                                 34

                                       RECOMMENDATIONS

                                             Rec.   Page
                   Issue                     No.    No.                 Recommendation

Management and Control

The minutes of the annual meeting of the      1      10    It is recommended that the minutes of the
sole shareholder and the minutes of the                    meetings of the sole shareholder and the
Board of Directors do not show a record of                 Board of Directors adequately disclose all
the resignation/removal of director                        significant events and changes to the
Raymond W. Jacobsen. The April 25,                         directors.
2001 minutes of the annual meeting of the
sole shareholder and the Board of
Directors show the election of director
Jacobsen, but the subsequent minutes fail
to show his resignation/removal.


Management and Control

It was determined that, during the            2      13    It is recommended that the Company make
examination period, the Company had not                    appropriate notifications of changes in its
filed notification of changes in its                       executive officers and directors, as required
executive officers and directors with the                  by Section 10-3-112(2), C.R.S.
Colorado Division of Insurance, as
required by Section 10-3-112(2), C.R.S.


Service and Management Agreements

Upon examination, it was noted that the       3      15    It is recommended that the Company make
Tax Allocation Agreement and the                           all appropriate filings, as required pursuant
September 11, 2000 Amendment to the                        to Section 10-3-805(4), C.R.S.
Investment Management Services
Agreement were not filed with the
Colorado Division of Insurance, as
required pursuant to Section 10-3-805(4),
C.R.S.
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                35

                                               Rec.   Page
                   Issue                       No.    No.                 Recommendation

Fidelity Bond and Other Insurance

It is noted that the group coverage does not    4      16    It is recommended that Royal &
allocate any part of the bond coverage, nor                  SunAlliance USA, Inc., amend its group
the $500,000 deductible amount,                              fidelity bond to allocate a specific portion
specifically to the Company, so it was not                   of the coverage to the Company, to be in
possible to determine whether the                            compliance with the minimum coverage
Company is in compliance with the                            required by Colorado Insurance Regulation
requirements of Colorado Insurance                           3-1-1.
Regulation 3-1-1. The amount of coverage
required to be held by the Company per the
regulation is $300,000.



Territory and Plan of Operation

Schedule T of the 2001 Annual Statement         5      17    It is recommended that accurate
incorrectly indicates that the Company is                    information be reported in the Company’s
only licensed in the State of Texas.                         annual statements, in accordance with the
                                                             NAIC Annual Statement Instructions, as
                                                             required by Section 10-3-208, C.R.S.


Territory and Plan of Operation

Documentation regarding the agency              6      17    It is recommended that the Company’s
system indicates that an MGA contract was                    MGA contract be re-executed in order
assigned to OrionAuto General Agency, in                     comply with Section 10-2-1004(1)(e),
violation of Section 10-2-1004(1)(e),                        C.R.S.
C.R.S.
Association Financial Examination as of         Peak Property and Casualty
December 31, 2001                                 Insurance Corporation                                36

                                            CONCLUSION

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

David J. Macesic, ACAS, MAAA, Actuary for INS Consultants, Inc., performed the actuarial review for
the Company.

INS Services, Inc., performed a review of the Information Systems Controls for the Company and James
F. Boswell, CCP for INS Consultants, assisted in the electronic data processing phase of the examination.

In addition to the undersigned, Don Hollier, CFE, Don Batchelder, CFE, Richard McKnight, CFE, and
Kati Watson, AFE, examiners with INS Regulatory Insurance Services, Inc., participated in this
examination.



                                                             Respectfully submitted,


                                                             _____________________
                                                             Lu Ann D. Therrell, CFE
                                                             Insurance Examiner
                                                             INS Regulatory Insurance Services, Inc.
                                                             For the Division of Insurance
                                                             State of Colorado

				
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