CAMICO Mutual Insurance Company 2022 Exam Report

REPORT OF EXAMINATION

OF THE

CAMICO MUTUAL INSURANCE COMPANY

AS OF

DECEMBER 31, 2022

Filed on February 20, 2024

TABLE OF CONTENTS

PAGE

SCOPE OF EXAMINATION ............................................................................................ 1

COMPANY HISTORY ..................................................................................................... 2

MANAGEMENT AND CONTROL: .................................................................................. 2

Management Agreements ........................................................................................... 4

TERRITORY AND PLAN OF OPERATION ..................................................................... 4

REINSURANCE: ............................................................................................................. 6

Assumed ...................................................................................................................... 6

Ceded .......................................................................................................................... 6

FINANCIAL STATEMENTS: ........................................................................................... 7

Statement of Financial Condition as of December 31, 2022 ........................................ 8

Underwriting and Investment Exhibit for the Year Ended December 31, 2022 ............ 9

Reconciliation of Surplus as Regards Policyholders from December 31, 2019

through December 31, 2022 ................................................................................ 10

COMMENTS ON FINANCIAL STATEMENT ITEMS: .................................................... 11

Losses and Loss Adjustment Expenses and Unearned Premiums (Death,

Disability and Retirement) .................................................................................... 11

Surplus note .............................................................................................................. 11

SUMMARY OF COMMENTS AND RECOMMENDATIONS: ........................................ 11

Current Report of Examination .................................................................................. 11

Previous Report of Examination ................................................................................ 11

ACKNOWLEDGMENT .................................................................................................. 12

Oakland, California

February 15, 2024

Honorable Ricardo Lara

Insurance Commissioner

California Department of Insurance

Sacramento, California

Dear Commissioner:

Pursuant to your instructions, an examination was made of the

CAMICO MUTUAL INSURANCE COMPANY

(hereinafter also referred to as the Company). The Company’s home office is located at

1800 Gateway Drive, Suite 200, San Mateo, California 94404.

SCOPE OF EXAMINATION

We have performed our multi-state examination of the Company. The previous

examination of the Company was as of December 31, 2019. This examination covered

the period of January 1, 2020 through December 31, 2022.

This examination was conducted in accordance with the National Association of

Insurance Commissioners Financial Condition Examiners Handbook (Handbook). The

Handbook requires the planning and performance of the examination to evaluate the

Company’s financial condition, assess corporate governance, identify current and

prospective risks, and evaluate system controls and procedures used to mitigate those

risks. An examination also included identifying and evaluating significant risks that could

cause the Company’s surplus to be materially misstated both currently and prospectively.

All accounts and activities of the Company were considered in accordance with the risk-

focused examination process. This includes assessing significant estimates made by

management and evaluating management’s compliance with Statutory Accounting

Principles. The examination does not attest to the fair presentation of the financial

statements included herein. If an adjustment was identified during the course of the

examination, the impact of such adjustment would be documented separately following

the Company’s financial statements.

This examination report includes findings of fact and general information about the

Company and its financial condition. There might be other items identified during the

examination that, due to their nature (e.g., subjective conclusions, proprietary information,

etc.), were not included within the examination report but separately communicated to

other regulators and/or the Company.

COMPANY HISTORY

The Company is a mutual insurer owned by its policyholders, who are all certified public

accountants (CPA). The Company has been providing professional liability coverage for

accountants since 1986 and is endorsed and sponsored by eighteen CPA state societies

and accounting associations.

MANAGEMENT AND CONTROL

The Company has one wholly-owned subsidiary, CAMICO Services, Inc. The following

organizational chart depicts the companies within the holding company system as of

December 31, 2022 (all ownership is 100%).

CAMICO Mutual Insurance Company (California)

CAMICO Services, Inc. (California)

The ten-member board of directors, who are elected annually, oversee the business and

affairs of the Company. Following are members of the board and principal officers of the

Company serving at December 31, 2022:

Board of Directors

Name and Location Principal Business Affiliation

Carmen J. Aguiar, CPA

Bellevue, Washington

Chief Executive Officer

The Aguiar Group

Andrew M. Eassa, CPA, CVA

Syracuse, New York

Chairman of the Board

Retired

Robert P. Evans, CPA, CISA

Fort Worth, Texas

President

The Schieffer Group

Deborah D. Lambert, CPA, CGMA, CPCU

(1)

Arlington Heights, Illinois

Retired

Bryan C. Polster, CPA

Las Vegas, Nevada

Retired

Carolyn C. Riticher, CPA

Waleska, Georgia

Retired

Ricardo R. Rosario, CPA, CGMA

San Mateo, California

President and Chief Executive Officer

CAMICO Mutual Insurance Company

Timothy J. Summers

Santa Clara, California

President

Aegis Specialty Insurance Services

James Sunseri

Quincy, Washington

Retired

Stephen M. Tatone, CPA

Lake Oswego, Oregon

Partner Emeritus

Aldrich Services LLP

Principal Officers

Name Title

Ricardo R. Rosario

President and Chief Executive Officer

Jay H. Stewart

(2)

Treasurer and Chief Financial Officer

Suzanne M. Holl

Senior Vice President of Loss Prevention

Services and Secretary

(1)

Deborah D. Lambert retired from the Board of Directors, effective June 14, 2023. Greg

Regan was nominated to fill the vacancy, effective June 13, 2023

(2)

Effective April 5, 2023, Jay H. Stewart retired from the Company. Michael A. Ray was

hired as Treasurer and Chief Financial Officer on February 20, 2023

Management Agreements

Cost Allocation and Reimbursement Agreement: Effective February 24, 1995, the

Company entered into a Cost Allocation and Reimbursement Agreement (Agreement)

with its subsidiary, CAMICO Services, Inc. (CSI). Pursuant to the Agreement, the

Company agrees to provide CSI with services, which may include but are not limited to,

general corporate management, investment advice, strategic planning, product

development, computer services, advertising, marketing, and other related operational

and administrative services. The Agreement provides for reimbursement to the Company

on a cost allocation/reimbursement basis, in accordance with generally accepted

accounting principles. The Agreement was not subject to prior approval as it pre-dates

the California Department of Insurance’s (CDI) prior approval requirement. Total fees

reimbursed to the Company for services rendered to CSI under this Agreement in 2020,

2021, and 2022 were $4,543,111, $5,044,395, and $5,319,966, respectively.

Tax Allocation Agreement: Effective June 19, 1996, the Company entered into a Tax

Allocation Agreement (Agreement) with CSI. The Agreement provides for the federal tax

returns of the parties to be filed on a consolidated basis. Allocation is based on separate

company return calculations with fair compensation to the parties for use of net operating

losses, alternative minimum tax, or tax credits that are used to reduce the consolidated

federal income tax liability of the group. The Agreement was not subject to prior approval

as the agreement pre-dates the CDI’s prior approval requirement. The federal income tax

incurred by the Company was zero in 2020 and 2021, and $287,031 in 2022.

TERRITORY AND PLAN OF OPERATION

The Company provides professional liability insurance on a claims-made and occurrence

basis and employment practices liability insurance to certified public accountants. The

Company also offers first party cybersecurity liability coverage, CyberCPA, as an

endorsement to its professional liability policies. The Company specializes in providing

coverage for small to medium-sized accounting practices with limited or no Securities and

Exchange Commission engagements, initial public offering involvement, or large

company audit work. An extended reporting period coverage endorsement is provided for

policyholders who die, become disabled, or retire. Business is distributed utilizing

agency, direct, and eBusiness channels.

CAMICO Services, Inc. (CSI) is a licensed insurance brokerage and a wholly owned

subsidiary of the Company. Effective October 1, 2014, CSI entered into an agreement to

operate as an agent with Berkley Alliance Managers (BAM). This partnership with BAM

allows the Company and CSI to offer policies and services to the CPA community with

limits in excess of $2 million. In return, BAM pays CSI a commission from which covers

acquisition, underwriting, claims services, and general operating costs. This agreement

was renewed twice on January 1, 2018 and on January 1, 2021, and expires

December 31, 2025.

Effective June 29, 2020, the Company and CSI entered into a Renewal Rights Purchase

Agreement (Agreement) with CPA Mutual Insurance Company of America Risk Retention

Group (CPA Mutual), a risk retention group domiciled in Vermont. In this agreement, CPA

Mutual sold to the Company the renewal rights of its Accountants Professional Liability

Insurance program in force on the date of the agreement. Under the agreement, the

Company has the exclusive right to negotiate with insureds, brokers, and agents for

renewals of the policies, effective January 1, 2021. As consideration for the sale of the

renewal rights, the Company pays CPA Mutual a percentage of net premiums received

during the calendar years 2020 through 2023. The percentage was 7.5% for 2020 and

2021, 5.0% for 2022, and 2.5% for 2023.

As of December 31, 2022, the Company is licensed in 50 states and the District of

Columbia. The Company wrote business in all the states except Wyoming, with majority

of the direct premiums written in California (48.1%). Direct premiums written during 2022

totaled $35.8 million which was comprised of other liability - occurrence (3.7%) and other

liability – claims-made (96.3%).

REINSURANCE

Assumed

The Company did not assume any reinsurance during the examination period.

Ceded

The following is a summary of principal reinsurance agreements in effect as of

December 31, 2022:

Type of Contract

Reinsurer(s)

Participation

Company’s

Retention

Reinsurer’s Limit

Contingency Excess

of Loss

Authorized:

Various Lloyd’s

Syndicates (50%)

Hannover Ruck SE (25%)

The Cincinnati Insurance

Company (5%)

Convex Re Limited (5%)

Unauthorized:

Chaucer Insurance

Company DAC (15%)

$2 million each

and every claim,

each and every

policy

$5.0 million in excess of

$2.0 million each and every

claim, each and every

policy.

The liability of the reinsurer

shall not exceed $125

thousand each claim with

respect to potential claim

expenses.

Loss Ratio

Protection Cover

Authorized:

Renaissance Reinsurance

U.S. Inc. (40%)

Validus Re America o/b/o

Validus Reinsurance

(Switzerland) Ltd. (20%)

The Cincinnati Insurance

Company (5%)

Unauthorized:

Hannover Re (Ireland)

DAC (35%)

68.0% of subject

written premium

Over and above an initial

ultimate net loss equal to

68.0% of the subject written

premium, subject to a limit

of liability to the reinsurer of

an amount of ultimate net

loss equal to 25.0% of the

subject written premium.

Type of Contract

Reinsurer(s)

Participation

Company’s

Retention

Reinsurer’s Limit

Employment

Practices Liability

Quota Share

Authorized:

General Reinsurance

Corporation

50.0% of each net

loss under each

policy

50.0% of each net loss

under each policy, not to

exceed 50.0% of the policy

limit.

Limits of liability of the

Company with respect to

any one policy not to

exceed $1 million each

claim with a $2 million

aggregate limit.

Cyber Liability Quota

Authorized:

General Reinsurance

Corporation

50.0% share of all

cyber liability

business

50.0% of the ultimate net

loss subject to a limit of

liability of the reinsurer of

$10.0 million with respect to

all ultimate net losses.

FINANCIAL STATEMENTS

The following financial statements are based on the statutory financial statements filed by

the Company with the California Department of Insurance for the period ending December

31, 2022. The accompanying comments to the amounts in the financial statements should

be considered an integral part of the financial statements. No adjustments were made to

the statutory financial statements reported by the Company.

Statement of Financial Condition as of December 31, 2022

Underwriting and Investment Exhibit for the Year Ended December 31, 2022

Reconciliation of Surplus as Regards Policyholders from December 31, 2019

through December 31, 2022

Statement of Financial Condition

as of December 31, 2022

Assets

Ledger and

Nonledger Assets

Assets Not

Admitted

Net Admitted

Assets

Notes

Bonds

$ 84,629,831

$ None

$ 84,629,831

None

Common stocks

4,032,576

None

4,032,576

None

Cash, cash equivalents, and short-term investments

4,375,376

None

4,375,376

None

Other invested assets

1,456,702

None

1,456,702

None

Investment income due and accrued

559,290

None

559,290

None

Uncollected premiums and agents’ balances in the

course of collection

4,834,873

64,263

4,770,610

None

Amounts recoverable from reinsurers

651,899

None

651,899

None

Net deferred tax asset

2,305,299

64,263

2,060,812

None

Guaranty fund receivable or on deposit

14,542

None

Electronic data processing equipment and software

373,940

25,982

347,958

None

Furniture and equipment, including health care

delivery assets

315,751

None

Receivables from parent, subsidiaries and affiliates

1,685,748

None

Aggregate write-ins for other than invested assets

826,035

737,311

88,724

None

Total assets

$ 106,061,863

$ 1,387,794

$ 104,674,069

None

Liabilities, Surplus, and Other Funds

None

Notes

Losses

None

$ 19,959,725

(1)

Loss adjustment expenses

None

15,334,597

(1)

Other expenses

None

6,625,619

None

Taxes, licenses, and fees

None

193,385

None

Current federal and foreign income taxes

None

287,031

None

Unearned premiums

None

11,414,969

None

Advance premiums

None

3,844,685

None

Ceded reinsurance premiums payable (net of ceding commissions)

None

323,445

None

Funds held by company under reinsurance treaties

None

9,779

None

Amounts withheld or retained by company for account of others

None

2,279,042

None

Remittances and items not allocated

646,205

Provision for reinsurance

None

67,800

None

Total liabilities

None

58,752,323

None

Surplus note

$ 8,000,000

(2)

Unassigned funds (surplus)

37,921,746

Surplus as regards policyholders

None

45,921,746

None

Total liabilities, surplus, and other funds

None

$ 104,674,069

None

Underwriting and Investment Exhibit

for the Year Ended December 31, 2022

Statement of Income

Underwriting Income

None

Premiums earned

None

$ 32,002,337

None

Deductions:

None

Losses incurred

$ 10,379,958

None

Loss adjustment expenses incurred

8,584,510

None

Other underwriting expenses incurred

13,036,110

Aggregate write-ins for underwriting deductions

(39,114)

None

Total underwriting deductions

None

31,961,464

None

Net underwriting gain

None

40,873

None

Investment Income

None

Net investment income earned

$ 1,363,766

None

Net realized capital gains

47,104

None

Net investment gain

None

1,410,870

None

Other Income

None

Net loss from agents’ or premium balances charged off

$ (3,461)

None

Aggregate write-ins for miscellaneous income

3,700

None

Total other income

None

239

None

Net income after dividends to policyholders, after capital gains tax, and

before all other federal and foreign income taxes

None

1,451,982

None

Federal and foreign income taxes incurred

None

274,510

None

Net income

None

$ 1,177,472

None

Capital and Surplus Account

Surplus as regards policyholders, December 31, 2021

None

$ 46,398,406

None

Net income

$ 1,177,472

None

Change in net unrealized capital losses

(342,705)

None

Change in net deferred income tax

6,641

None

Change in nonadmitted assets

(252,668)

None

Change in provision for reinsurance

(65,400)

None

Change in surplus notes

(1,000,000)

None

Change in surplus as regards policyholders for the year

None

(476,660)

None

Surplus as regards policyholders, December 31, 2022

None

$ 45,921,746

None

Reconciliation of Surplus as Regards Policyholders

from December 31, 2019 through December 31, 2022

Surplus as regards policyholders,

December 31, 2019

None

$ 43,549,818

None

Gain in

Surplus

Loss in

Surplus

None

Net income

$ 5,677,449

$ None

None

Change in net unrealized capital gains or

(losses)

185,108

None

Change in net deferred income tax

881,034

Change in nonadmitted assets

541,795

None

Change in surplus notes

2,000,000

Change in provision in reinsurance

67,800

None

Total gains and losses

$ 5,862,557

$ 3,490,629

None

Net increase in surplus as regards

policyholders

None

2,371,928

None

Surplus as regards policyholders,

December 31, 2022

None

$ 45,921,746

None

COMMENTS ON FINANCIAL STATEMENT ITEMS

(1) Losses and Loss Adjustment Expenses and Unearned Premiums (Death, Disability

and Retirement)

A Casualty Actuary from the California Department of Insurance (CDI) reviewed the

Analysis of Unpaid Loss and Loss Adjustment Expenses (LAE) as of December 31, 2022,

and the Provision for Future Utilization of Death, Disability and Retirement (DD&R) as of

December 31, 2022 prepared by the Company’s independent actuary and concurred with

the actuary’s conclusion that the Company’s reserves for Loss, LAE, and DD&R as of

December 31, 2022 were reasonable and have been accepted for purposes of this

examination.

(2) Surplus Note

In June 2005, the Company issued the surplus note in the amount of $10,000,000 to First

Tennessee Bank, N.A and Preferred Term Securities XVII, Ltd. Under the terms of the

surplus note, the Company pays quarterly interest at a fixed annual rate of 7.65% for the

first five years or until June 03, 2010, and quarterly interest at 3-month LIBOR plus 3.15%

from July 1, 2010 until maturity at June 03, 2035. The Company made a principal

repayment of $1,000,000 each in 2021 and 2022 towards the surplus note. The

repayments were approved by the CDI. The surplus note balance at December 31, 2022

was $8,000,000.

SUMMARY OF COMMENTS AND RECOMMENDATIONS

Current Report of Examination

None.

Previous Report of Examination

None.

ACKNOWLEDGMENT

Acknowledgment is made of the cooperation and assistance extended by the Company’s

officers and employees during the course of this examination.

Respectfully submitted,

___________________________

Christian Mitterholzer, CFE

Examiner-In-Charge

Senior Insurance Examiner, Specialist

Department of Insurance

State of California

___________________________

Li Lim, CFE

Senior Insurance Examiner, Supervisor

Department of Insurance

State of California

Mitterholzer,

Christian

Digitally signed by Mitterholzer,

Christian

Date: 2024.02.20 08:13:13

-08'00'

Li Lim

Digitally signed by Li Lim

Date: 2024.02.20

08:20:35 -08'00'