Government of the District of Columbia · 2020. 6. 19. · Government of the District of Columbia Department of Insurance, Securities and Banking 1050 First Street, NE, Suite 801

Government of the District of Columbia

Department of Insurance, Securities and Banking

1050 First Street, NE, Suite 801 • Washington, DC 20002 • Tel: 202-727-8000 • disb.dc.gov

Karima Woods Acting Commissioner

BEFORE THE INSURANCE COMMISSIONER OF

THE DISTRICT OF COLUMBIA

Re: Report on Examination – Health Care Casualty Risk Retention Group, Inc., as of December 31, 2018

ORDER

In accord with the authority established by D.C. Official Code § 31-1402, an examination of Health Care Casualty Risk Retention Group, Inc., (the “Company”), as of December 31, 2018 has been conducted by the District of Columbia Department of Insurance, Securities and Banking (“Department”). The Department reported on the financial condition of the Company in the attached Report on Examination (“Financial Condition Examination Report”). In accord with the provisions of D.C. Official Code § 31-1404(c), it is hereby ordered, on this 3rd day of June 2020, that the attached Financial Condition Examination Report be adopted and filed as an official record of the Department. Pursuant to D.C. Official Code § 31-1404(d)(1), this Order is considered a final administrative decision, and may be appealed. Pursuant to D.C. Official Code § 31-1404(d)(1), the Company shall, within 30 days of the issuance of the adopted Financial Condition Examination Report, file affidavits executed by each of the Directors of the Company wherein each of the Directors shall state under oath that they have received a copy of the adopted Financial Condition Examination Report and this order. Pursuant to D.C. Official Code § 31-1404(e)(1), the Department will continue to hold the content of the above-referenced report as private and confidential information for a period of 10 days from the date of this Order.

_____________________________ Dana Sheppard

Acting Deputy Commissioner and Associate Commissioner

Dana Sheppard

GOVERNMENT OF THE DISTRICT OF COLUMBIA

DEPARTMENT OF INSURANCE, SECURITIES AND BANKING

REPORT ON EXAMINATION

HEALTH CARE CASUALTY

RISK RETENTION GROUP, INC.

AS OF

DECEMBER 31, 2018

NAIC NUMBER 12236

TABLE OF CONTENTS

Salutation .........................................................................................................................................1

Scope of Examination ......................................................................................................................1

Summary of Significant Findings ....................................................................................................2

Status of Prior Examination Findings ..............................................................................................2

History..............................................................................................................................................2

General .................................................................................................................................2

Membership .........................................................................................................................3

Dividends and Distributions ................................................................................................4

Management and Control .................................................................................................................4

Board of Directors and Officers ...........................................................................................4

Committees ..........................................................................................................................4

Conflicts of Interest..............................................................................................................4

Corporate Records ...............................................................................................................5

Captive Manager ..................................................................................................................5

Affiliated Parties and Transactions ......................................................................................5

Territory and Plan of Operation .......................................................................................................5

Reinsurance ......................................................................................................................................5

Financial Statements ........................................................................................................................7

Balance Sheet .......................................................................................................................8

Assets .............................................................................................................................8

Liabilities, Surplus and Other Funds .............................................................................9

Statement of Income ..........................................................................................................10

Capital and Surplus Account .............................................................................................11

Analysis of Examination Changes to Surplus ....................................................................11

Notes to Financial Statements ........................................................................................................12

Subsequent Events .........................................................................................................................12

Summary of Recommendations .....................................................................................................13

Signatures .......................................................................................................................................14

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Washington, D.C.

May 7, 2020

Honorable Karima Woods

Acting Commissioner

Department of Insurance, Securities and Banking

Government of the District of Columbia

1050 First Street, NE, Suite 801

Washington, D.C. 20002

Dear Acting Commissioner Woods:

In accordance with Section 31-3931.14 of the District of Columbia Official Code (“Code”),

and with Chapter 14 of Title 31 of the Code, we have examined the financial condition and

activities of

Health Care Casualty Risk Retention Group, Inc.

hereinafter referred to as the “Company” or “HCCR”.

SCOPE OF EXAMINATION

This full-scope examination, covering the period from January 1, 2014 through December 31,

2018, including any material transactions and/or events noted occurring subsequent to December

31, 2018, was conducted by the District of Columbia Department of Insurance, Securities and

Banking (the “Department”). The last examination was completed as of December 31, 2013 by the

Department.

We conducted our examination in accordance with the NAIC Financial Condition Examiners

Handbook (“Handbook”) and the policies and standards established by the Department. The

Handbook requires that we plan and perform the examination to evaluate the financial

condition, assess corporate governance, identify current and prospective risks of the Company

and evaluate system controls and procedures used to mitigate those risks. An examination

also includes identifying and evaluating significant risks that could cause an insurer’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 may include assessing significant estimates made by

management and evaluating management’s compliance with Generally Accepted Accounting

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

included herein. If, during the course of the examination an adjustment is identified, the impact

of such adjustment will be documented separately following the Company’s financial statements.

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This examination report includes significant findings of fact, pursuant to Section 31-1404(a)

of the District of Columbia Official Code and general information about the insurer and its

financial condition. There may be other items identified during the examination that, due to

their nature (e.g., subjective conclusions, proprietary information, etc.), are not included within

the examination report but are separately communicated to other regulators and/or the Company.

The Company was audited by an independent public accounting firm for certain years during

the examination period. The firm expressed unqualified opinions on the Company's financial

statements for the calendar years 2014, 2015, 2016 and 2018. (The Company was granted a waiver

from filing its audited financial statement for year 2017.*) We placed substantial reliance on the

audited financial statements for calendar years 2014 through 2016, and consequently performed

only minimal testing for those periods. We concentrated our examination efforts on the year ended

December 31, 2018. We obtained and reviewed the working papers prepared by the independent

public accounting firm related to the audit for the year ended December 31, 2018. We placed

reliance on the work of the auditor and directed our efforts, to the extent practical, to those areas

not covered by the firm's work papers.

*Section 31-312 of the Code allows for a waiver from the requirement to file an audited

financial statement under certain conditions. The Company ceased writing new and renewal

business in 2016 and no premium was written in 2017. Based on this, the Company applied

for, and was granted, a waiver from filing an audited financial statement for year 2017.

SUMMARY OF SIGNIFICANT FINDINGS

The results of this examination disclosed no material adverse findings, significant findings of

non-compliance, or material changes in financial statements.

STATUS OF PRIOR EXAMINATION FINDINGS

A full scope examination was conducted by the Department as of December 31, 2013, which

covered the period of January 1, 2009 through December 31, 2013. There were no material adverse

findings, significant findings of non-compliance, or material changes in financial statements.

HISTORY

General:

HCCR was incorporated as an association captive insurance company operating as a risk

retention group under the captive laws of the District of Columbia on December 10, 2004 and

commenced operations in January 2005. HCCR ceased writing new and renewal business on

August 1, 2016 and is currently in voluntary run-off.

The Company provided professional liability insurance coverage to practice groups, physicians

and allied health providers affiliated with the five hospital members of the Company. The

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Company also offered excess medical professional and general liability coverage for the hospital

members.

Membership:

HCCR is owned by its members, which originally included five hospitals and affiliated practice

groups and physicians of those hospitals. Only hospitals that were shareholders of the Company’s

affiliated reinsurer, Health Care Casualty Insurance Ltd. (“HCCI”), a Cayman Islands domiciled

captive insurance company, were initially eligible to be members of the Company. (Four of the

five original hospital members are multi-hospital systems. For purposes of this report, all single

hospital members and multi-hospital members are referred to commonly as “hospital” or

“hospitals”). In 2010, one of the Company’s five original members, Touro Infirmary (“Touro”),

did not renew its policy due to the hospital being acquired by another hospital group. Upon

eventual liquidation of HCCR, the par value of Touro’s class A shares as well as its capital note

(class A shares and capital note are discussed below) are expected to be returned to the former

policyholder.

During 2014, one of the Company’s four remaining original members, Unity Health System

(UHS), merged with Rochester General Health System of Rochester, New York, (currently

Rochester Regional Health). The Department approved this merger transaction on August 1, 2014.

UHS remained as the named member/shareholder. In addition to UHS, the Company is owned by

Health First, Inc. (Rockledge, Florida), Tallahassee Memorial HealthCare, Inc. (Tallahassee,

Florida), and Moses Cone Health System (Greensboro, North Carolina).

The Company’s articles of incorporation authorize the issuance of voting common stock (class

A) and non-voting common stock (classes B and C). Class A shares of voting common stock have

voting rights with one vote per share and are only issued to hospital members. Class B shares of

non-voting common stock are issued to practice groups or physicians affiliated with a hospital

member and do not have voting rights. Class C shares of non-voting common stock have never

been issued. Class A common stock has a par value of $250 per share, Class B non-voting common

stock has a par value of $0.01 per share, and Class C non-voting common stock has a par value of

$250 per share.

Two thousand Class A stock shares were authorized and 500 were issued and outstanding at

December 31, 2018. Upon joining the RRG, each of the original five hospitals contributed

$100,000 in cash in exchange for 100 shares of Class A common stock, and also contributed

$100,000 in the form of a capital contribution note. As of December 31, 2018, capital contribution

notes totaled $600,000. This included five notes from original member hospitals for $100,000

each, and one note from the Company’s affiliated reinsurer, HCCI, for $100,000. These notes are

non-interest bearing and are payable to the Company upon demand. The Department has approved

these capital contribution notes as admitted assets and surplus as regards policyholders.

Ten thousand Class B stock shares were authorized and 180 were issued and outstanding at

December 31, 2018. Class B common stock shareholders contribute $100 in exchange for 10

shares of stock. As of December 31, 2018, none of the two thousand authorized class C common

stock shares were issued or outstanding.

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Dividends and Distributions:

The Company did not declare or pay any dividends or other distributions during the period

under examination.

MANAGEMENT AND CONTROL

Board of Directors and Officers:

The Company’s directors serving as of December 31, 2018 were as follows:

Name and State of Residence Principal Occupation

G. Mark O’Bryant, President and Chief Executive Officer

Florida Tallahassee Memorial HealthCare, Inc.

Eric L. Bieber, M.D. President and Chief Executive Officer

New York Rochester Regional Health

Terrence B. Akin President and Chief Executive Officer

North Carolina Moses Cone Health System

Steven P. Johnson President and Chief Executive Officer

Florida Health First, Inc.

The following persons were serving as the Company’s officers as of December 31, 2018:

Name Position

G. Mark O’Bryant President

William H. Howe Secretary

Joseph R. Herman Vice President and Treasurer

B. Frederick Becker Assistant Secretary

Committees:

As of December 31, 2018, the Company’s board of directors had not established any

committees. The Company designated its full board of directors to serve as the audit committee.

Conflicts of Interest:

The Company has an established procedure for the disclosure of any material interests or

affiliations on the part of its directors and officers. Our review of the conflict of interest statements

signed by the Company’s directors and officers for the period under examination disclosed no

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conflicts that would adversely affect the Company. Furthermore, no additional conflicts of interest

were identified during our examination.

Corporate Records:

We reviewed the minutes of the meetings of the board of directors and members for the period

under examination. Based on our review, it appears that the minutes have documented the review

and approval of the Company's significant transactions and events.

Captive Manager:

Clarity Group, Inc. (“Clarity”) acted as the Company’s captive manager from inception until

December 31, 2018, at which time Arthur J. Gallagher Risk Management Services, Inc. (“AJG”)

became the captive manager.

Affiliated Parties and Transactions:

The Company is a member of a holding company group. As previously mentioned in the

“Membership” section of this report, the Company is currently owned equally by four hospitals,

Health First, Inc., Unity Health System, Tallahassee Memorial HealthCare, Inc., and Moses Cone

Health System.

The Company’s hospital members are also the owners of the Company’s affiliated reinsurer,

HCCI. Shares of Class A voting common stock in the Company are only issued to hospitals that

are shareholders of HCCI. The Company is in run-off and has not ceded premiums to HCCI since

2016.

TERRITORY AND PLAN OF OPERATION

HCCR ceased writing new and renewal business on August 1, 2016 and as of December 31,

2018 is in voluntary run-off and continues to run off its policy and tail policy liabilities. The

Company provided professional liability insurance to practices groups, physicians and allied health

providers affiliated with the four hospital members of the Company. The Company also offered

excess medical professional insurance and general liability coverage as well as cyber liability

coverage to its hospital members. As of December 31, 2018, the Company was licensed in the

District of Columbia, and registered as a risk retention group in Florida, Louisiana, New York and

North Carolina.

The Company has no employees and its daily business operations are managed by its captive

manager.

REINSURANCE

From inception through December 31, 2016, the Company was party to an excess of loss

reinsurance agreement with HCCI covering physicians’ professional liability policies and was

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party to a separate facultative reinsurance agreement with HCCI to cover one hundred percent

(100%) of the excess medical professional and general liability policies for the hospital members.

In addition, through December 31, 2016, the Company was a party to a reinsurance treaty with

certain Lloyds of London syndicates to fully reinsure its cyber coverages. Effective January 1,

2017, the Company has not entered into or renewed any of its reinsurance treaties.

As of December 31, 2018, the Company reported “Amounts recoverable from reinsurers”

totaling $440,247 (representing amounts recoverable on paid losses) and reported approximately

$3,609,000 in reinsurance recoverable on unpaid losses and loss adjustment expenses. If the

reinsurers are not able to meet their obligations under the treaties, the Company would be liable

for any defaulted amounts. The Company retains a letter of credit from HCCI in the amount of

$4,000,000 at December 31, 2018 as security for amounts due from HCCI. In December 2019, the

HCCI LOC was increased to $5,000,000.

During 2014, 2015, and 2016, the Company issued novation endorsements to six hospital

policies, thereby transferring all of the liabilities and obligations of the Company under the policies

to HCCI, resulting in HCCI being substituted for the Company as the issuer and releasing the

Company from any and all obligations under the policies. As a result of these novations, the

Company reduced its loss and loss adjustment expense reserves and its reinsurance recoverables

by the same amounts. There was no gain or loss on the novation transactions, which were approved

by the Department.

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FINANCIAL STATEMENTS

The following financial statements are based on the Annual Statement filed by the Company

with the Department and present the financial condition of the Company for the period ending

December 31, 2018. The financial statements were prepared in accordance with Generally

Accepted Accounting Principles (“GAAP”) prescribed or permitted by the Department.

Management is responsible for the preparation and fair presentation of these financial statements.

The accompanying comments on financial statements reflect any examination adjustments to the

amounts reported in the annual statement and should be considered an integral part of the financial

statements.

STATEMENT PAGE

Balance Sheet: 8

Assets 8

Liabilities, Surplus and Other Funds 9

Statement of Income 10

Capital and Surplus Account 11

Analysis of Examination Changes to Surplus 11

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BALANCE SHEET

ASSETS

December 31, 2018

Bonds 2,211,610$

Cash 3,500,173

Subtotal cash and invested assets 5,711,783$

Investment income due and accrued 15,580

Amounts recoverable from reinsurers 440,247

Net deferred tax asset 6,298

Deferred acquisition costs 4,318

Capital contribution receivable (NOTE 1) 600,000

Prepaid expenses 22,399

Total 6,800,625$

9

LIABILITIES, SURPLUS AND OTHER FUNDS

December 31, 2018

Losses (NOTE 2) 2,170,000$

Loss adjustment expenses (NOTE 2) 1,595,715

Other expenses (excluding taxes, licenses and fees) 54,443

Taxes, licenses and fees 47,581

Current federal and foreign income taxes 4,465

Unearned premiums (NOTE 3) 91,003

Total liabilities 3,963,207$

Common capital stock 125,000$

Aggregate write-ins for other-than-special surplus funds 600,000

Gross paid in and contributed surplus 376,800

Unassigned funds 1,735,618

Surplus as regards policyholders 2,837,418$

Total 6,800,625$

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STATEMENT OF INCOME

December 31, 2018

UNDERWRITING INCOME

Premiums earned (NOTE 3) 173,367$

DEDUCTIONS

Losses incurred (231,000)

Loss adjustment expenses incurred (216,174)

Other underwriting expenses incurred 295,576

Total underwriting deductions (151,598)$

Net underwriting gain 324,965$

INVESTMENT INCOME

Net investment income earned 93,741$

Net realized capital loss (484)

Income before dividends and taxes 418,222$

Federal and foreign income taxes incurred (5,048)

Net income 423,270$

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CAPITAL AND SURPLUS ACCOUNT

Surplus as regards policyholders, December 31, 2013 1,881,466$

Net income, 2014 144,612

Change in net unrealized capital gains (losses) (17,167)

Net change in surplus as regards policyholders, 2014 127,445


Net income, 2015 166,798




Net loss, 2016 (36,512)

Change in net unrealized capital gains (losses) 1,276

Net change in surplus as regards policyholders, 2016 (35,236)


Net income, 2017 283,181

Change in net unrealized capital gains (losses) 4,057



Net income, 2018 423,270




ANALYSIS OF EXAMINATION CHANGES TO SURPLUS

There were no changes to the Company’s surplus as a result of our examination.

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NOTES TO FINANCIAL STATEMENTS

NOTE 1 – Capital Contribution Notes:

At December 31, 2018, the Company’s assets and surplus as regards policyholders included

$600,000 in capital contribution notes issued to the Company by the Company’s five initial

hospital members (one of original five hospital members has been inactive since 2010) and its

affiliated reinsurer, HCCI. There are six notes outstanding of $100,000 each. These notes are non-

interest bearing and payable to the Company upon demand. As part of the approval of the

Company’s application for licensure and of the Company’s business plan, the Department granted

approval to the Company to allow these capital contribution notes as admitted assets and surplus

as regards policyholders. Inclusion of the notes as assets and surplus as regards policyholders is

not in accordance with GAAP.

NOTE 2 – Loss and Loss Adjustment Expense Reserves

The Company reported “Losses” and “Loss adjustment expenses” reserves net of reinsurance

totaling $2,170,000 and $1,595,715, respectively. These reserves represent management’s best

estimate of the amounts necessary to pay all claims and related expenses that have been incurred

but are still unpaid as of December 31, 2018.

The methodologies utilized by the Company to compute reserves, and the adequacy of the loss

and loss adjustment expense reserves as of December 31, 2018 were reviewed as part of our

examination. As part of our review, we relied on the Company’s actuary, who concluded that the

reserves appeared to be sufficient. In addition, as part of our review, the Department utilized an

examination actuary to review the methods employed, assumptions relied upon, and conclusions

reached by the Company’s actuary. The examination actuary concluded that the methodologies

and assumptions utilized by the Company’s independent actuary to compute the reserves, and the

amount of the loss reserves reported by the Company as of December 31, 2018, were reasonable

and adequate.

NOTE 3 – Unearned Premiums and Premiums Earned:

“Unearned premiums” and “Premiums earned” reported by the Company are related to tail

policies being run off by the Company.

SUBSEQUENT EVENTS

As previously indicated in this report, the Company has ceased writing business and is in

voluntary run-off. According to management, the members of the Company have authorized

management to take steps necessary to dissolve the Company. The dissolution process, expected

to be completed during 2020, will include transferring, with member approval, all remaining

insurance liabilities of the Company to insurers or reinsurers approved by the Department. No

other significant subsequent events that have not already been noted in this report were noted as

of the date of this report.

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SUMMARY OF RECOMMENDATIONS

During the examination, no issues warranting recommendations in this examination report

were noted.

Government of the District of Columbia Department of Insurance, Securities and Banking


Karima Woods

Acting Commissioner

Via E-mail

May 28, 2020

G. Mark O’Bryant


C/o Clarity Group, Inc.

8725 West Higgins Road, Suite 810

Chicago, IL 60631

RE: Examination of Health Care Casualty Risk Retention Group, Inc. as of December 31, 2018

Dear Mr. O’Bryant:

Pursuant to the provisions of Section 31-1404 of the D.C. Official Code, enclosed is a draft copy

of the Report on Examination (“Report”) of the affairs and financial condition of Health Care

Casualty Risk Retention Group, Inc, (the “Company”) as of December 31, 2018.

Please submit, to my attention, a written response calling attention to any errors or omissions. In

addition, if this Report contains a section entitled “Summary of Recommendations” that discloses

certain areas requiring action, the Company shall submit a statement covering the corrective

measures which will be taken. If the Company’s position on any of these points is contrary to the

Examiner’s findings, an explanation should be submitted covering each contested comment

and/or recommendation.

If there are no errors or omissions to be brought to our attention, and there is no “Summary of

Recommendations” requiring a response, please submit a statement that the Company accepts

the Report.

The response must be in writing and shall be furnished to this Department by June 18, 2020. The

signed response should be on the Company’s letterhead and sent electronically via e-mail to me,

in an adobe “pdf” format, to [email protected].

Sincerely,

Sean O’Donnell

Director of Financial Examination,

Risk Finance Bureau

Enclosure

mailto:[email protected]

Government of the District of Columbia Department of Insurance, Securities and Banking


Karima Woods

Acting Commissioner

June 3, 2020

G. Mark O’Bryant, President


C/o Clarity Group, Inc.

8725 West Higgins Road, Suite 810

Chicago, IL 60631

RE: Examination of Health Care Casualty Risk Retention Group, Inc., as of December 31, 2018

Dear Mr. O’Bryant:

We are in receipt of your response, dated May 28, 2020, regarding the Report on Examination of

Health Care Casualty Risk Retention Group, Inc. (the “Company”), as of December 31, 2018. The

response is deemed adequate.

The adopted Report (which includes a copy of this letter), and the Order evidencing such adoption

are enclosed. Pursuant to Section 31-1404(e)(1) of the District of Columbia Official Code, the

adopted Report will be held private and confidential for a period of 10 days from the date of the

Order evidencing such adoption. After this 10-day period has passed, the Report will be publicly

available.

Pursuant to Section 31-1404(d)(1) of the District of Columbia Official Code, within 30 days of the

date of the above-mentioned Order, affidavits executed by each of the Company’s directors stating

under oath that he or she has received a copy of the adopted examination Report and related Order

shall be filed with this Department. Please send these affidavits to my attention at the Department.

Please contact me at 202-442-8153 if you have any questions.

Sincerely,

Sean O’Donnell

Director of Financial Examination

Risk Finance Bureau

Enclosures

Documents

Government of the District of Columbia · 2020. 6. 19. · Government of the District of Columbia Department of Insurance, Securities and Banking 1050 First Street, NE, Suite 801