DANVILLE MUTUAL FIRE INSURANCE COMPANY
REPORT OF EXAMINATION
AS OF
DECEMBER 31, 2006
TABLE OF CONTENTS
SCOPE OF EXAMINATION ................................................................................................................1
HISTORY AND ORGANIZATION .......................................................................................................2
CORPORATE RECORDS .....................................................................................................................2
MANAGEMENT ....................................................................................................................................2
LINES OF BUSINESS AND TERRITORY ............................................................................................3
FIDELITY BOND .................................................................................................................................3
UNDERWRITING RULES AND PRACTICES ........................................................................................3
REINSURANCE ...................................................................................................................................3
ACCOUNTS AND RECORDS ..............................................................................................................3
FINANCIAL STATEMENTS ................................................................................................................4
EXAMINATION ADJUSTMENTS ........................................................................................................7
NOTES TO FINANCIAL STATEMENTS ..............................................................................................7
COMMENTS AND RECOMMENDATIONS ..........................................................................................8
I hereby certify that the attached report of examination dated March 22, 2007 shows the conditions and affairs of the DANVILLE MUTUAL FIRE INSURANCE COMPANY, Poland, Maine as of December 31, 2006 and has been filed in the Bureau of Insurance as a public document.
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This report has been reviewed.
_______________________
Kendra L. Godbout, CPA, CFE
Director of Financial Analysis
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Dated this ____ day of May, 2007
STATE OF MAINE
BUREAU OF INSURANCE
IT IS HEREBY CERTIFIED THAT THE ANNEXED REPORT OF EXAMINATION FOR
Danville Mutual Fire Insurance Company
has been compared with the original on file in this bureau and that it is a correct transcript therefrom and of the whole of said original.
IN WITNESS WHEREOF,
I have hereunto set my hand and affixed the official seal of this Office at the City of Augusta this
____day of May, 2007
_________________________
Eric A. Cioppa
Acting Superintendent
Bureau of Insurance
May 7, 2007
Eric A. Cioppa, Acting Superintendent
Bureau of Insurance
34 State House Station
Augusta, ME 04333
Dear Sir:
In accordance with your instructions and pursuant to statutory provisions, an examination has been made on the conditions and financial affairs of
DANVILLE MUTUAL FIRE INSURANCE COMPANY
of Poland, Maine hereinafter referred to as the “Company”. The following report is respectfully submitted.
SCOPE OF EXAMINATION
This examination covers the period from January 1, 2004 to the close of business on December 31, 2006.
The examination consisted of a survey of the Company’s business policies, review of the Articles of Incorporation, Bylaws, Minutes of Board of Directors’ meetings, operational practices, verification of assets and determination of liabilities at December 31, 2006 in conformity with the statutory accounting practices, NAIC guidelines, and the laws, rules and regulations prescribed or permitted by the Maine Bureau of Insurance, where applicable.
The prior examination covered the period from January 1, 2001 through December 31, 2003. The Examination Report, dated February 11, 2005, was issued to the Company, but the Company did not respond to the Report Comments. The Company has not provided any documentation that the Report was furnished to the Board of Directors, as required by Title 24-A M.R.S.A. Chapter 3 Section 226 paragraph 5. (See Comments & Recommendations #1.)
HISTORY AND
ORGANIZATION
The Danville Mutual Fire Insurance Company was created by a special act of the legislature on March 20, 1860 and commenced business shortly thereafter. The Company is tax-exempt under Internal Revenue Code Section 501 (c) (15).
CORPORATE
RECORDS
The Company’s Articles of Incorporation, Bylaws, and Minutes of the Board of Directors’ meetings held during the period under examination were reviewed.
MANAGEMENT
Management of the Company is vested in a Board of Directors. The following are the duly elected members of the Board of Directors and the Officers serving as of December 31, 2006.
| Directors |
| Gaylon Richards |
Margaret Anderson |
| Thelma Redman |
William Stiles |
| Laurent Comeau |
Lionel C. Ferland, Jr. |
| Officers |
| William Stiles |
President |
| Lionel C. Ferland Jr. |
Vice President |
| Lionel C. Ferland Sr. |
Secretary/Treasurer |
LINES OF BUSINESS
AND TERRITORY
The Company issues fire and lightning policies in the State of Maine.
FIDELITY
BOND
The Company is protected as a named insured under a fidelity bond in the amount of $20,000. The bond amount was tested with regard to NAIC standards and was determined to be adequate.
UNDERWRITING
RULES AND PRACTICES
The Company issues fire and lightning policies for a three-year period under an assessment plan. The Company requires every insured to provide a premium note to the Company. The amount of the note is determined based on risk and is currently 14% - 20% of the insured amount. The Company charges a premium based on the promissory note.
The Company’s retention per risk is limited by M.R.S.A. Title 24-A Chapter 51 § 3623 to 10% of surplus and 8% of outstanding premium notes. The amount of retention is also limited to $5,000 per risk by one of the Company’s reinsurance agreements.
REINSURANCE
During the period of examination, the Company had two reinsurance contracts in-force. The Company has a reinsurance agreement with another mutual fire assessment company where the Company cedes up to a maximum of $5,000 after retaining the first $5,000. The second agreement is a facultative agreement where the Company cedes all risk over the limit of the first contract, or $10,000.
ACCOUNTS
AND RECORDS
The Company maintains its books and records on a manual basis, and they are in the care of the Treasurer at the Treasurer’s home. The books are kept on a cash basis, and the Annual Statement was reported on a cash basis, which is not materially different than on an accrual basis.
FINANCIAL
STATEMENTS
The following financial statements show the results of the Company’s operations for the year ending December 31, 2006 as determined by this examination.
BALANCE SHEET
DECEMBER 31, 2006
| Assets |
|
| Cash and Investments (Note 1) |
$ 115,589 |
| Total Assets |
$ 115,589 |
| |
|
| Liabilities and Surplus |
|
| Unearned Premium Reserve (Note 2) |
$ 357 |
| Other Liabilites - Sinking Fund (Note 3) |
5,000 |
| Total Liabilities |
$ 5,357 |
| Surplus as Regards to Policyholders |
110,232 |
| Total Liabilities and Surplus |
$ 115,589 |
INCOME STATEMENT
DECEMBER 31, 2006
| Income |
|
| Net Premium Income |
$ 261 |
| Net Assessment Income |
685 |
| Interest Income |
3,515 |
| Dividend Income |
2,242 |
| Income from other sources |
40 |
| Total Revenue |
$ 6,743 |
| |
|
| |
|
| Expenses |
|
| Agents' Commissions |
$ 95 |
| Salaries & Fees |
2,100 |
| Health Insurance |
2,018 |
| Fidelity Bond |
729 |
| Rent |
600 |
| Taxes, Licenses & Fees |
212 |
| Reinsurance |
233 |
| Miscellaneous |
97 |
| Total Expenses |
$ 6,084 |
| |
|
| Net Income |
$ 659 |
EXAMINATION
ADJUSTMENTS
Policyholders’ surplus as reported by the Company at December 31, 2006 was $115,232. As a result of this examination, the following adjustments were made and are presented here showing the affects on surplus:
| Surplus Per Company |
$ 115,232 |
| |
Record Sinking Fund Reserve |
(5,000) |
| |
|
Surplus Per Examination |
$110,232 |
NOTES TO FINANCIAL
STATEMENTS
| Note 1 - Cash and Certificates of Deposit |
$115,589 |
The balance on the Financial Statements consists of the following:
| Cash and Money Market Accounts |
$ 6,948 |
| Certificates of Deposit |
88,101 |
| Mutual Funds |
20,540 |
| Total Cash and Investments |
$ 115,589 |
| Note 2 – Unearned Premium Reserve |
$ 357 |
Title 24-A M.R.S.A. Chapter 51 § 3624 requires mutual assessment companies to maintain an unearned premium reserve equal to 50% of net premiums and net assessments on its policies in-force.
| Note 3 - Sinking Fund Reserve |
$ 5,000 |
The Company’s Bylaws in Article VIII Section 4 require a “Sinking Fund” reserve in the amount of $5,000 for use in emergencies as prescribed by the Directors. The Company did not establish a liability for this fund on its Annual Statement. (See Comment and Recommendation #2)
- Comment: The Company did not respond to the prior Examination Report Comments, nor was any documentation provided that the Report was furnished to the Board of Directors. Title 24-A M.R.S.A Chapter 3 Section 226 Paragraph 5 requires the Examination Report be presented at a meeting of the Board of Directors within thirty (30) days following receipt of the Examination Report. Acceptance of the Examination Report was due to the Bureau on May 13, 2005. Although several notices were sent to the Company requesting this information, the Company is still not in compliance with this statute.
Recommendation: The Company should call a Special Board of Directors Meeting to review and accept the Examination Report within 30 days of receipt of the Report, as instructed on the cover letter accompanying the Report.
- Comment: As discussed in Note 4 - Sinking Fund Reserve, the Company is not booking this liability as its Bylaws require.
Recommendation: The Company should abide by its Bylaws and report this reserve.
STATE OF MAINE
COUNTY OF KENNEBEC, SS
Michael R. Nadeau, CPA, CFE, CISA, AES being duly sworn according to law, deposes and says that, in accordance with the authority vested in him by Eric A. Cioppa, Acting Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, has made an examination on the conditions and affairs of
DANVILLE MUTUAL FIRE INSURANCE COMPANY
of Poland, Maine as of December 31, 2006 and that the foregoing report of examination, subscribed to by him, is true to the best of his knowledge and belief.
_________________________
Michael R. Nadeau, CPA, CFE, CISA, AES
Examiner in Charge
Subscribed and sworn to before me
This ____ day of May, 2007
_________________________
Patricia A. Galouch, Notary Public
My Commission Expires:
