Pennsylvania Insurance Department Home - Examination Warrant … · 2018-02-05 · Insurance Department Harrisburg, Pennsylvania . Dear Sir: In accordance with instructions contained

Examination Warrant Numbers 16-0031-11981-R1 16-0031-42390-R1 16-0031-14702-R1 16-0031-31470-R1

Report of Examination of

WestGUARD Insurance Company, AmGUARD Insurance Company,

EastGUARD Insurance Company, and NorGUARD Insurance Company

Wilkes-Barre, Pennsylvania

As of December 31, 2016

GUARD Insurance Group

TABLE OF CONTENTS Subject Page Salutation .........................................................................................................................................1 Scope of Examination ......................................................................................................................1 History..............................................................................................................................................2 Management and Control: Capitalization .............................................................................................................................3 Stockholders ...............................................................................................................................3 Insurance Holding Company System.........................................................................................4 Board of Directors......................................................................................................................6 Committees ................................................................................................................................7 Officers ......................................................................................................................................7 Corporate Records: Minutes ......................................................................................................................................8 Articles of Incorporation ............................................................................................................8 By-Laws .....................................................................................................................................8 Service and Operating Agreements .................................................................................................8 Reinsurance: Pooling Agreement ....................................................................................................................9 Ceded .......................................................................................................................................10 Assumed ...................................................................................................................................12 Territory and Plan of Operation .....................................................................................................12 Significant Operating Ratios and Trends .......................................................................................14 Pending Litigation ..........................................................................................................................16 Financial Statements – WestGUARD Insurance Company: Comparative Statement of Assets, Liabilities, Surplus and Other Funds ................................17 Comparative Statement of Income ...........................................................................................18 Comparative Statement of Capital and Surplus .......................................................................19 Comparative Statement of Cash Flow .....................................................................................20 Financial Statements – AmGUARD Insurance Company: Comparative Statement of Assets, Liabilities, Surplus and Other Funds ................................21 Comparative Statement of Income ...........................................................................................22 Comparative Statement of Capital and Surplus .......................................................................23 Comparative Statement of Cash Flow .....................................................................................24 Financial Statements – EastGUARD Insurance Company: Comparative Statement of Assets, Liabilities, Surplus and Other Funds ................................25 Comparative Statement of Income ...........................................................................................26 Comparative Statement of Capital and Surplus .......................................................................27 Comparative Statement of Cash Flow .....................................................................................28 Financial Statements – NorGUARD Insurance Company: Comparative Statement of Assets, Liabilities, Surplus and Other Funds ................................29 Comparative Statement of Income ...........................................................................................30 Comparative Statement of Capital and Surplus .......................................................................31 Comparative Statement of Cash Flow .....................................................................................32 Summary of Examination Changes ...............................................................................................33


Notes to Financial Statements: Assets: Investments ..............................................................................................................................33 Liabilities: Loss and Loss Adjustment Expense Reserves .........................................................................35 Subsequent Events .........................................................................................................................36 Recommendations: Prior Examination ....................................................................................................................36 Current Examination ................................................................................................................36 Conclusion .....................................................................................................................................37

Harrisburg, Pennsylvania October 11, 2017

Honorable Joseph DiMemmo, CPA Deputy Insurance Commissioner Commonwealth of Pennsylvania Insurance Department Harrisburg, Pennsylvania

Dear Sir:

In accordance with instructions contained in Examination Warrant Numbers 16-0031-11981-R1, 16-0031-42390-R1, 16-0031-14702-R1, and 16-0031-31470-R1, dated June 8, 2016, an examination was made of

WestGUARD Insurance Company, NAIC Code: 11981

AmGUARD Insurance Company, NAIC Code: 42390

EastGUARD Insurance Company, NAIC Code: 14702

NorGUARD Insurance Company, NAIC Code: 31470 Pennsylvania domiciled multi-state, property and casualty insurance companies, hereinafter referred to as “GUARD Insurance Group” or “Companies.” The examination was conducted at the Companies’ home office, located at 16 South River Street, Wilkes-Barre, Pennsylvania 18702.

A report of this examination is hereby respectfully submitted.

SCOPE OF EXAMINATION The Pennsylvania Insurance Department (“Department”) has performed an examination

of the Companies, which were last examined as of December 31, 2011. This examination covered the five-year period from January 1, 2012, through December 31, 2016.

Work programs employed in the performance of this examination were designed to comply with the standards promulgated by the Department and the National Association of Insurance Commissioners (“NAIC”) Financial Condition Examiners Handbook (“Handbook”).

The Companies share the same key processes, systems, and management. The Handbook provides for a group examination of multiple insurers in a holding company group that have similar key processes, systems, and/or management.

The Handbook requires that the Department plan and perform the examination to evaluate the financial condition, assess corporate governance, identify current and prospective risks of the Companies, evaluate system controls and procedures used to mitigate those risks, and review subsequent events. An examination also includes identifying and evaluating significant


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risks that could cause an insurer’s surplus to be materially misstated both currently and prospectively.

All accounts and activities of the Companies 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 statutory 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 Companies’ financial statements.

This examination report includes significant findings of fact, in accordance with 40 P.S. § 323.5(a), and general information about the Companies 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 separately communicated to other regulators and/or the Companies.

For each year of the examination period, the certified public accounting firm of KPMG, LLP (“CPA”) provided an unmodified audit opinion on the Companies’ year-end combined statutory financial statements based on statutory accounting principles. Relevant work performed by the CPA, during its annual audit of the Companies, was reviewed during the examination and incorporated into the examination workpapers.

HISTORY WestGUARD Insurance Company (“WIC”) was incorporated on February 10, 2003,

licensed by the Department on July 16, 2004, and commenced business on or about July 16, 2004.

AmGUARD Insurance Company (“AIC”) was incorporated on June 10, 1982, licensed by the Department on May 18, 1983, and commenced business on or about July 26, 1983.

EastGUARD Insurance Company (“EIC”) was incorporated in the State of Maine on February 23, 1827, and commenced business on or about this date. EIC was licensed by the Department on July 3, 1996. On April 13, 2000, EIC redomesticated from the State of Maine to the Commonwealth of Pennsylvania.

NorGUARD Insurance Company (“NIC”) was incorporated on August 12, 1987, licensed by the Department on March 22, 1988, and commenced business on or about April 1, 1988.

WIC, AIC, EIC, and NIC are each currently authorized to transact those classes of insurance described in 40 P.S. § 382(b)(1) Property and Allied Lines, (b)(2) Inland Marine and Physical Damage, (b)(3) Ocean Marine, (c)(1) Fidelity and Surety, (c)(2) Accident and Health, (c)(3) Glass, (c)(4) Other Liability, (c)(5) Boiler and Machinery, (c)(6) Burglary and Theft, (c)(7) Credit, (c)(8) Water Damage, (c)(9) Elevator, (c)(10) Livestock, (c)(11) Auto Liability, (c)(12) Mine and Machinery, (c)(13) Personal Property Floater, and (c)(14) Workers’ Compensation.


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MANAGEMENT AND CONTROL

CAPITALIZATION As of the examination date, December 31, 2016, WIC’s total capital was $509,189,120,

consisting of 3,000,000 capital shares of issued and outstanding common stock with a par value of $1 per share amounting to $3,000,000; $415,978,291 in paid in and contributed surplus; and $90,210,829 in unassigned funds (surplus).

WIC’s minimum capital and minimum surplus requirements for the types of business for which it is licensed, pursuant to 40 P.S. § 386, is $2,350,000 in capital and $1,175,000 in surplus. WIC has met the minimum capital and minimum surplus requirements throughout the examination period.

As of the examination date, December 31, 2016, AIC’s total capital was $140,893,084, consisting of 333,000 capital shares of issued and outstanding common stock with a par value of $16 per share amounting to $5,328,000; $32,114,745 in paid in and contributed surplus; and $103,450,339 in unassigned funds (surplus).

AIC’s minimum capital and minimum surplus requirements for the types of business for which it is licensed, pursuant to 40 P.S. § 386, is $2,350,000 in capital and $1,175,000 in surplus. AIC has met the minimum capital and minimum surplus requirements throughout the examination period.

As of the examination date, December 31, 2016, EIC’s total capital was $43,637,347, consisting of 2,500,000 capital shares of issued and outstanding common stock with a par value of $2 per share amounting to $5,000,000; $5,000,000 in paid in and contributed surplus; and $33,637,347 in unassigned funds (surplus).

EIC’s minimum capital and minimum surplus requirements for the types of business for which it is licensed, pursuant to 40 P.S. § 386, is $2,350,000 in capital and $1,175,000 in surplus. EIC has met the minimum capital and minimum surplus requirements throughout the examination period.

As of the examination date, December 31, 2016, NIC’s total capital was $198,394,702, consisting of 150,000 capital shares of issued and outstanding common stock with a par value of $35 per share amounting to $5,250,000; $36,400,000 in paid in and contributed surplus; and $156,744,702 in unassigned funds (surplus).

NIC’s minimum capital and minimum surplus requirements for the types of business for which it is licensed, pursuant to 40 P.S. § 386, is $2,350,000 in capital and $1,175,000 in surplus. NIC has met the minimum capital and minimum surplus requirements throughout the examination period.

STOCKHOLDERS National Indemnity Company (“NICO”), a Nebraska domiciled insurance company,

directly owns all of the issued and outstanding voting common stock of WIC, representing 100% of the voting securities of WIC. WIC directly owns all of the issued and outstanding voting


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common stock of AIC, EIC and NIC, representing 100% of the voting securities of each company.

Based on review of the share registers for the Companies during the examination, it was determined that the Companies’ share registers were not a complete and accurate record of the Companies’ shareholders.

It is recommended that each of the Companies maintain a share register that is a complete and accurate record of shareholders in compliance with 15 Pa. C.S.A. § 1508(a).

During the examination period, the Companies paid to stockholders the following ordinary dividends:

Year Company Amount Dividend Type

2013 AIC $ 9,929,915 Cash EIC $ 3,289,505 Cash NIC $ 15,800,180 Cash

2014 AIC $ 5,997,442 Stock EIC $ 1,799,232 Stock NIC $ 7,196,930 Stock

2015 NIC $ 7,000,000 Cash WIC $ 103,998 Stock

With the exception of the dividends paid in 2013, the Companies reported all dividends to the Department in compliance with 40 P.S. § 991.1404(e). As relates to the dividends paid in 2013, the Department issued a violation letter to the Companies dated June 27, 2013, and the Companies subsequently complied with dividend reporting requirements. There were no extraordinary dividends paid by the Companies during the examination period.

INSURANCE HOLDING COMPANY SYSTEM The Companies meet the requirements for filing an insurance holding company system

annual registration statement (“Annual Registration Statement”), in accordance with 40 P.S. § 991.1404. For each year of the examination period, the Companies filed the required Annual Registration Statement by March 31.

The organizational chart below depicts the Companies’ direct and indirect ownership within its holding company system as of December 31, 2016. The organizational chart does not depict all entities contained within the holding company system due to the size and complexity of the business operations within the holding company system. The holding company system consists of various insurance and non-insurance entities.


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As of December 31, 2016, the sole ultimate controlling person of the holding company

system that includes the Companies is Warren Buffett. Pursuant to the Companies’ 2016 Annual Registration Statement, Mr. Buffett owned 37.92% of Class A common stock and 0.006% of Class B common stock of Berkshire Hathaway, Inc. (“Berkshire”), which represents 32.48% of the aggregate voting power of Berkshire.

Berkshire, a holding company organized under the laws of Delaware, directly owns all of the issued and outstanding common stock of NICO.

As stated previously, NICO directly owns all of the issued and outstanding common stock of WIC, and WIC directly owns all of the issued and outstanding common stock of each AIC, EIC, and NIC.

GUARDCo, Inc., a Delaware business corporation, provides medical management services as relates the Companies’ workers’ compensation claims. GUARD Foundation, a Pennsylvania non-profit stock corporation, provides contributions to community-based charitable organizations. GUARDCo, Inc. and GUARD Foundation are wholly-owned subsidiaries of WIC.

During the examination period on October 25, 2012, the Companies became members of Berkshire’s holding company system when NICO acquired control of the Companies’ indirect parent at this time, Clal U.S. Holdings, Inc. (“CUSH”), in an acquisition transaction approved by the Department (Order No. ID-RC-12-14).

During the examination period in 2014, the Companies’ holding company system reorganized through several transactions approved by the Department (Orders No. ID-RC-13-22, No. ID-RC-14-14, and No. ID-RC-14-16) in order to simplify the Companies’ corporate


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structure to the current structure depicted on Page 5 (hereinafter referred to as “Reorganization”). The following is a summary of the Reorganization:

1. Pursuant to Order No. ID-RC-13-22, the Companies’ direct and indirect parent holding company organizations, CUSH, GUARD Financial Group, Inc. (“GFG”), and GUARD Insurance Group, Inc. (“GIG”) merged. Effective April 4, 2014, CUSH merged with and into its wholly-owned direct subsidiary, GFG. In turn, GFG merged with and into its wholly-owned direct subsidiary, GIG. GIG was the survivor of the merger. As of April 4, 2014, NICO directly owned GIG. GIG directly owned AIC, EIC, and NIC. AIC, EIC, and NIC, together, directly owned WIC.

2. Pursuant to Order No. ID-RC-14-14, AIC, EIC, NIC each distributed, in the form of a dividend to GIG, their total shares of stock of WIC effective September 30, 2014.

As of September 30, 2014, NICO directly owned GIG, which directly owned WIC, AIC, EIC, and NIC.

3. Pursuant to Order No. ID-RC-14-16, GIG merged with and into WIC effective December 31, 2014. Also effective on this date, InterGUARD, Ltd. (“IGL”), an affiliate providing production-related services to the Companies, merged with and into WIC.

As of December 31, 2014, NICO directly owns WIC, which directly owns AIC, EIC, and NIC; this is the Companies’ current structure as depicted on Page 5.

BOARD OF DIRECTORS Management of the Companies is vested in each Companies’ board of directors

(“Board”). The composition of each Companies’ Board is identical and comprised of the following members as of December 31, 2016:

Name and Address Principal Occupation Eitan Ajchenbaum Chief Financial Officer/Treasurer Weehawken, NJ WestGUARD Insurance Company Bruce J. Byrnes Vice President New York, NY National Liability & Fire Insurance Co. Sy Foguel President/Chief Executive Officer New York, NY WestGUARD Insurance Company Carmel M. O'Sullivan Financial Administrator New York, NY Resolute Management, Inc. Peter M. Shelley Vice President Darien, CT National Liability & Fire Insurance Co. Brian G. Snover Vice President Stamford, CT National Liability & Fire Insurance Co. Carl J. Witkowski Executive VP/Chief Operating Officer Duryea, PA WestGUARD Insurance Company


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On December 31, 2016, Bruce J. Byrnes, as listed above, was appointed to each Companies’ Board by Written Consent of the Sole Shareholder to replace Sunil C. Khanna effective December 31, 2016.

Members of the Board are elected annually at the Companies’ annual stockholder meetings to serve as directors until successors are duly elected and qualified.

Berkshire’s Code of Business Conduct and Ethics policy applies to all Berkshire’s directors, officers, and employees, as well to all directors, officers, and employees of each subsidiary of Berkshire, which includes the Companies. The policy requires disclosure of conflicts or potential conflicts of interest by directors, officers, and employees.

COMMITTEES As of the examination date, December 31, 2016, each Companies’ Board appointed the

following committees, which are serving in accordance with each Companies’ by-laws: Executive Committee Audit, Nominating, and Compensation Committees Bruce J. Byrnes Bruce J. Byrnes Sy Foguel Sy Foguel Peter M. Shelley Peter M. Shelley Investment Committee Policy Dividend Committee Bruce J. Byrnes Eitan Ajchenbaum Sy Foguel Bruce J. Byrnes Peter M. Shelley Sy Foguel

Peter M. Shelley

The Companies have interlocking directorates with affiliated insurance and non-insurance entities to centralize various governance functions and gain efficiencies performing overlapping Board processes.

Pursuant to 40 P.S. § 991.1405(c)(5), the requirements of 40 P.S. § 991.1405(c)(3), (4) and (4.1) do not apply to the Companies as its indirect parent, Berkshire, maintains a board of directors and committees thereof which already meet the requirements of paragraphs (3), (4), and (4.1).

OFFICERS As of the examination date, December 31, 2016, the following officers were appointed

and serving in accordance with each Companies’ by-laws: Name Title Peter M. Shelley Chairperson of the Board Sy Foguel President and Chief Executive Officer Carl J. Witkowski Chief Operating Officer and Executive Vice President Eitan Ajchenbaum Chief Financial Officer and Treasurer Allan A. Kerin Chief Actuary and Executive Vice President Marshall I. Kornblatt Executive Vice President of Insurance Operations Daniel R. Brennan Senior Vice President of Claims


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Michael J. Dulin Vice President, General Counsel and Secretary Lyle S. Hitt Executive Vice President of Property & Liability Insurance

CORPORATE RECORDS

MINUTES A compliance review of each Companies’ corporate minutes revealed the following:

• The annual meetings of the Companies’ stockholders were held in compliance with the by-laws.

• The stockholders elected directors at such meetings in compliance with the by-laws.

• Meetings of the Companies’ Board were held in compliance with by-laws.

• The Companies’ Investment Committee regularly approved investment transactions.

ARTICLES OF INCORPORATION There have been no amendments to the articles of incorporation of WIC, AIC, or NIC during the examination period. There have been no amendments to the articles of domestication of EIC during the examination period.

BY-LAWS There have been no amendments to the by-laws of WIC, AIC, EIC or NIC during

examination period.

SERVICE AND OPERATING AGREEMENTS The Companies are party to various service and operating agreements, including several intercompany and related-party agreements. The following significant agreements were in place during the examination period:

1. An Administrative Services Agreement between WIC and Affiliated Agency Operations Co. (“AAOC”), effective January 1, 2016; the agreement sets forth administrative services to be provided by WIC to AAOC, and sets forth services to be provided by AAOC to WIC, including payment terms.

2. An Intercompany Services and Cost Sharing Agreement between the Companies, dated January 1, 2015; the agreement sets forth services to be provided by WIC to AIC, EIC, and NIC, and sets forth expenses to be shared along with payment terms. Each Companies’ Board approved the agreement on October 6, 2014. The agreement replaced a services and cost sharing agreement between the Companies and GIG prior to the Reorganization.


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3. An Administrative Services Agreement between GUARDCo, Inc. and IGL, predecessor in interest to WIC, dated January 1, 1997, and Addendum dated January 1, 2015; the agreement and addendum set forth administrative services to be provided by GUARDCo, Inc. to WIC, and sets forth compensation and payment terms. The addendum amends the parties of the agreement due to the Reorganization.

4. A Service Agreement between GIG, predecessor to WIC, and Cypress Insurance Company (“Cypress”), dated November 1, 2013, and Addendum dated December 31, 2014; the agreement sets forth services to be provided by WIC to Cypress in the development of a software application, and sets forth allocation of expenses and payment terms. The addendum amends the parties of the agreement due to the Reorganization.

5. A Service Agreement between IGL, predecessor to WIC, and National Liability & Fire Insurance Company (“NLF”), dated July 1, 2014, and Addendums dated December 31, 2014, and March 1, 2015; the agreement and addendums set forth services to be provided by WIC to NLF to assist with administration of NLF’s workers’ compensation business, permits NLF access to WIC’s software and sets forth payment terms. The 2014 addendum amends the parties to the agreement due to the Reorganization, amends the term and adds provisions to include timely settlements. The 2015 addendum expands the services provided by WIC.

6. A Service Agreement between WIC and Berkshire Hathaway Direct Insurance Co. (“BHDIC”), successor in interest to American Centennial Insurance Company, dated July 6, 2015, and Addendum effective October 1, 2016; the agreement and addendum sets forth services to be provided by WIC to assist BHDIC with its program and sets forth compensation and payment terms. The addendum reduces the fee for services performed by WIC and provides for BHDIC to reimburse WIC directly for expenses of certain services formally included within the fee for services.

7. Four separate Tax Allocation Agreements between Berkshire and each of the Companies dated October 26, 2012; the agreements set forth the terms of calculation of the federal tax liability to be paid to Berkshire, and payment terms. Each Companies’ Board approved its agreement on November 28, 2012. The agreements replaced a prior tax allocation agreement between the Companies and its other subsidiaries.

REINSURANCE

POOLING AGREEMENT The Companies entered into an Intercompany Pooling Agreement effective July 1, 2004,

for the pooling of workers’ compensation business written by the Companies. Amendment No. 1 to the Intercompany Pooling Agreement effective October 8, 2008, amends the agreement to provide for quarterly accountings and timeliness of payments. Amendment to the Intercompany Pooling Agreement effective July 1, 2015, amends the agreement to apply to all authorized lines


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of business of the Companies (agreement and all amendments are hereinafter referred to as “Pooling Agreement”).

Pursuant to the Pooling Agreement, premiums and losses, as defined in the agreement, are allocated to the Companies based on each Companies’ assigned percentage of the total pool.

Intercompany pooling agreements between the Companies adopted prior to July 1, 2004, are in run-off.

A summary of the intercompany pooling percentages are as follows:

Accident Periods WIC AIC EIC NIC 12/31/2000 and prior 0% 52% 11% 37% 1/1/2001 to 6/30/2004 0% 45% 10% 45%

7/1/2004 to current 5% 35% 10% 50%

CEDED

Since being owned by Berkshire, the Companies predominantly place reinsurance with its parent, NICO, with the exception of a few smaller reinsurance agreements as described below.

National Indemnity Company The Companies entered into three reinsurance contracts with NICO, which has an AM

Best rating of A++ (Superior). The following are summaries of the Companies’ reinsurance programs with NICO as of December 31, 2016: Loss Portfolio Agreement of Reinsurance: Type of Contract: Loss Portfolio Transfer Business Covered: All lines of insurance written Effective Date: December 31, 2012 Term: In-force until the obligations have been discharged Company Retention: 50% of aggregate ultimate net loss paid Reinsurance Limits: Aggregate limit of liability of three times the loss transfer payment Quota Share Agreement of Reinsurance: Type of Contract: Quota Share Business Covered: All lines on in-force, new, and renewal policies Effective Date: January 1, 2013 Term: Until terminated Company Retention: 50% of Net Loss Reinsurance Limits: Aggregate limit of liability for all occurrences in any one calendar

accident year equal to three times the net earned premium ceded that calendar accident year.

Excess of Loss/Catastrophe Combined Reinsurance Agreement: Type of Contract: Excess of Loss/Catastrophe Combined


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Business Covered: In-force policies Effective Date: July 1, 2016 Term: One year Company Retention: $1,500,000 retention per loss occurrence and aggregate deductible

for all loss occurrences of 2.473% of gross net earned premium Reinsurance Limits: losses in excess of retention and aggregate deductible up to

10.881% of gross net earned premium The Hartford Steam Boiler Inspection and Insurance Company

The Companies entered into two 100% quota-share reinsurance agreements with The Hartford Steam Boiler Inspection and Insurance Company (“HSB”), which is licensed and domiciled in the United States with an AM Best rating of A++ (Superior). The following are summaries of the Companies’ reinsurance programs with HSB as of December 31, 2016:

Equipment Breakdown Coverage Reinsurance Agreement: Type of Contract: Quota Share Business Covered: Equipment breakdown liability under business owners’ policies Effective Date: January 1, 2008 Term: Continues in force until terminated Company Retention: $0 Reinsurance Limits: $25,000,000 for any one accident, any one policy Data Compromise Reinsurance Agreement: Type of Contract: Quota Share Business Covered: Data compromise coverage form attaching to new or renewal

policies Effective Date: January 1, 2015 Term: Continues in force until terminated Company Retention: $0 Reinsurance Limits: $1,000,000 annual aggregate per policy for response expenses and

$1,000,000 annual aggregate per policy for defense and liability Minnesota Workers’ Compensation Reinsurance Association

The NIC, AIC, and EIC became members of the Minnesota Workers’ Compensation Reinsurance Association (“MNWCRA”), which handles workers’ compensation reinsurance for the state. All writers of workers’ compensation in Minnesota are required to be MNWCRA members. The following is a summary of the Companies’ reinsurance program as of December 31, 2016:

Type of Contract: Excess of Loss Business Covered: Workers’ compensation in Minnesota Effective Date: January 1, 2011 Term: As long as the Companies write business in Minnesota Company Retention: $2,000,000 per occurrence


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Reinsurance Limits: None

Illinois Mine Subsidence

AIC entered into a Reinsurance Agreement with the Illinois Mine Subsidence Insurance Fund, a non-governmental tax paying entity created by the Illinois General Assembly. Under the agreement AIC cedes 100% of mine subsidence insurance written to the fund. The purpose of the fund is to ensure financial resources are available to owners of property damaged by mine subsidence. The following is a summary of the Companies’ reinsurance program as of December 31, 2016:

Type of Contract: Quota Share Business Covered: Property owners mine subsidence coverage Effective Date: July 1, 2015 Term: 5 years or upon repeal of the related statute Company Retention: 0% Reinsurance Limits: None

The Companies’ ceded reinsurance contracts transfer risk as required by SSAP No. 62R. All of the contracts contained the appropriate arbitration and insolvency clauses.

The Companies do not use a reinsurance intermediary broker.

ASSUMED Aside from assumed reinsurance under the Pooling Agreement (see “Pooling Agreement”

on Page 10), the Companies have assumed premiums from mandatory pool participation primarily from the National Workers Compensation Reinsurance Pool. The assumed premiums from mandatory pools do not represent a significant portion of the Companies’ net premiums.

TERRITORY AND PLAN OF OPERATION As of December 31, 2016, WIC is licensed in New York, Pennsylvania, and West

Virginia and AIC, EIC, and NIC are licensed in all states, excluding Wyoming and including the District of Columbia. The Companies specialize in providing commercial property and casualty insurance particularly for small- to mid-sized businesses. In addition, the Companies act as a workers’ compensation servicing carrier in several states.

During the examination period, the Companies continued implementing its strategy of increased diversification and established itself as a nationwide carrier through expansion of its product lines, geographical footprint, and distribution network.

The Companies’ business is primary produced through a network of insurance producers and through independent payroll processors.

The following charts illustrate the direct and assumed and ceded premium amounts by line of business for each of the Companies as of December 31, 2016:


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WestGUARD Insurance Company Directand Assumed Ceded Net Written Percentage

Line of Business Premium Premium Premium of Total

December 31, 2016Fire 127$ 63$ 64$ 0.0%Commercial multiple peril 11,178,823 5,589,411 5,589,412 24.2%Earthquake 2,688 1,344 1,344 0.0%Group accident and health 307,541 153,771 153,770 0.7%Workers' compensation 34,802,177 17,957,391 16,844,786 73.3%Other liability - occurrence 299,377 149,688 149,689 0.7%Other liability - claims-made 71,754 35,877 35,877 0.2%Commercial auto liability 300,154 150,077 150,077 0.7%Auto physical damage 92,733 46,367 46,366 0.2%Totals 47,055,374$ 24,083,989$ 22,971,385$ 100.0%

AmGUARD Insurance Company Directand Assumed Ceded Net Written Percentage


December 31, 2016Fire 10,391$ 9,948$ 443$ 0.0%Commercial multiple peril 290,536,633 251,412,254 39,124,379 24.2%Earthquake 72,809 63,403 9,406 0.0%Group accident and health 8,303,618 7,227,223 1,076,395 0.7%Workers' compensation 539,078,271 421,164,773 117,913,498 73.3%Other liability - occurrence 6,127,306 5,079,487 1,047,819 0.7%Other liability - claims-made 1,942,130 1,690,992 251,138 0.2%Commercial auto liability 8,132,035 7,081,496 1,050,539 0.7%Auto physical damage 2,512,714 2,188,148 324,566 0.2%Totals 856,715,907$ 695,917,724$ 160,798,183$ 100.0%

EastGUARD Insurance Company Directand Assumed Ceded Net Written Percentage


December 31, 2016Fire 253$ 127$ 126$ 0.0%Commercial multiple peril 22,357,646 11,178,823 11,178,823 24.2%Earthquake 5,375 2,688 2,687 0.0%Group accident and health 615,083 307,541 307,542 0.7%Workers' compensation 96,523,702 62,834,131 33,689,571 73.3%Other liability - occurrence 598,753 299,377 299,376 0.7%Other liability - claims-made 143,508 71,754 71,754 0.2%Commercial auto liability 600,308 300,154 300,154 0.7%Auto physical damage 185,467 92,733 92,734 0.2%Totals 121,030,095$ 75,087,328$ 45,942,767$ 100.0%


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SIGNIFICANT OPERATING RATIOS AND TRENDS The underwriting ratios summarized below are shown on an earned/incurred basis, and

encompass the five-year period covered by this examination.

NorGUARD Insurance Company Directand Assumed Ceded Net Written Percentage


December 31, 2016Fire 2,530$ 1,898$ 632$ 0.0%Commercial multiple peril 224,174,375 168,280,261 55,894,114 24.2%Earthquake 53,752 40,314 13,438 0.0%Group accident and health 6,150,828 4,613,121 1,537,707 0.7%Workers' compensation 677,589,111 509,141,256 168,447,855 73.3%Other liability - occurrence 6,003,747 4,506,864 1,496,883 0.7%Other liability - claims-made 1,435,078 1,076,309 358,769 0.2%Commercial auto liability 6,003,081 4,502,311 1,500,770 0.7%Auto physical damage 1,854,667 1,391,000 463,667 0.2%Totals 923,267,169$ 693,553,334$ 229,713,835$ 100.0%

WestGUARD Insurance Company Amount PercentagePremiums earned 58,052,594$ 100.0 %Losses incurred 27,843,984$ 48.0 %Loss expenses incurred 5,413,213 9.3 %Other underwriting expenses incurred 15,911,022 27.4 %Aggregate write-ins for underwriting deductions 1,714 0.0 %Net underwriting gain or (loss) 8,882,661 15.3 %Totals 58,052,594$ 100.0 %

AmGUARD Insurance Company Amount PercentagePremiums earned 432,314,205$ 100.0 %Losses incurred 199,412,105$ 46.1 %Loss expenses incurred 43,869,956 10.2 %Other underwriting expenses incurred 148,696,568 34.4 %Net underwriting gain or (loss) 40,335,576 9.3 %Totals 432,314,205$ 100.0 %

EastGUARD Insurance Company Amount PercentagePremiums earned 112,537,689$ 100.0 %Losses incurred 50,663,138$ 45.0 %Loss expenses incurred 10,524,158 9.4 %Other underwriting expenses incurred 32,844,833 29.2 %Net underwriting gain or (loss) 18,505,560 16.4 %Totals 112,537,689$ 100.0 %


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The Companies reported the following net underwriting, investment, and other gains or losses during the examination period:

NorGUARD Insurance Company Amount PercentagePremiums earned 569,131,530$ 100.0 %Losses incurred 260,829,155$ 45.8 %Loss expenses incurred 53,084,251 9.3 %Other underwriting expenses incurred 166,618,025 29.3 %Net underwriting gain or (loss) 88,600,099 15.6 %Totals 569,131,530$ 100.0 %

WestGUARD Insurance Company 2016 2015 2014 2013 2012

Admitted assets 954,998,882$ 780,524,866$ 607,060,078$ 35,066,237$ 41,959,413$ Liabilities 445,809,762$ 349,626,641$ 298,009,440$ 20,424,354$ 28,640,782$ Surplus as regards policyholders 509,189,120$ 430,898,225$ 309,050,638$ 14,641,883$ 13,318,631$ Gross premium written 47,055,374$ 38,903,995$ 24,830,781$ 19,987,288$ 14,253,509$ Net premium written 22,971,385$ 18,979,662$ 11,904,148$ 6,187,861$ 3,071,943$ Underwriting gain/(loss) 2,975,228$ 3,403,011$ 1,350,042$ 1,341,965$ (187,585)$ Investment gain/(loss) 3,661,233$ 2,115,424$ 643,819$ 499,578$ 1,014,886$ Other gain/(loss) 2,203,102$ 1,594,830$ 0$ 0$ 0$ Net income 1,569,715$ 288,088$ 1,178,716$ 1,436,989$ 1,076,504$

AmGUARD Insurance Company 2016 2015 2014 2013 2012

Admitted assets 600,335,289$ 478,904,863$ 419,651,716$ 358,794,710$ 415,790,969$ Liabilities 459,442,205$ 361,542,102$ 309,692,970$ 255,719,376$ 316,491,819$ Surplus as regards policyholders 140,893,084$ 117,362,761$ 109,958,746$ 103,075,334$ 99,299,150$ Gross premium written 856,715,907$ 642,236,961$ 477,170,172$ 371,716,016$ 284,728,251$ Net premium written 160,798,183$ 96,963,079$ 117,340,354$ 59,092,024$ 24,043,339$ Underwriting gain/(loss) 20,500,242$ 11,779,030$ 5,534,190$ 8,831,478$ (6,309,364)$ Investment gain/(loss) 3,831,642$ 5,928,939$ 7,238,176$ 5,998,514$ 9,733,186$ Other gain/(loss) (475,848)$ 76,117$ 5,707$ 106,804$ 38,040$ Net income 12,328,765$ 12,421,979$ 7,208,803$ 12,282,192$ 4,242,124$

EastGUARD Insurance Company 2016 2015 2014 2013 2012

Admitted assets 136,007,482$ 109,330,036$ 92,661,846$ 81,715,857$ 104,182,453$ Liabilities 92,370,135$ 72,953,112$ 57,253,923$ 48,845,116$ 71,287,408$ Surplus as regards policyholders 43,637,347$ 36,376,924$ 35,407,923$ 32,870,741$ 32,895,045$ Gross premium written 121,030,095$ 103,924,110$ 75,657,350$ 64,398,909$ 62,173,429$ Net premium written 45,942,767$ 37,859,480$ 23,808,296$ 12,535,372$ 2,676,231$ Underwriting gain/(loss) 5,888,760$ 5,792,960$ 2,780,158$ 2,907,433$ 1,136,249$ Investment gain/(loss) 716,292$ 1,627,683$ 1,577,186$ 1,348,260$ 2,247,338$ Other gain/(loss) (132,449)$ 0$ 1,107$ 17,253$ 0$ Net income 3,530,775$ 4,273,618$ 2,825,568$ 3,420,368$ 3,112,817$

NorGUARD Insurance Company 2016 2015 2014 2013 2012

Admitted assets 760,653,411$ 615,676,389$ 482,712,339$ 426,874,298$ 511,775,115$ Liabilities 562,258,709$ 449,455,369$ 320,321,927$ 275,920,502$ 363,227,556$ Surplus as regards policyholders 198,394,702$ 166,221,020$ 162,390,412$ 150,953,796$ 148,547,559$ Gross premium written 923,267,169$ 759,749,342$ 483,088,600$ 393,194,505$ 311,256,920$ Net premium written 229,713,835$ 188,330,540$ 121,264,560$ 62,551,214$ 17,860,263$ Underwriting gain/(loss) 29,693,654$ 27,273,516$ 13,989,431$ 14,136,382$ 3,507,116$ Investment gain/(loss) 5,086,539$ 7,102,676$ 7,313,886$ 7,850,164$ 13,407,246$ Other gain/(loss) (1,012,617)$ 0$ 4,580$ 30,232$ 34,181$ Net income 18,416,037$ 19,781,561$ 12,082,286$ 17,789,803$ 15,800,180$


-16-

PENDING LITIGATION The Companies are involved in litigation arising in and out of the normal course of

business. The Companies are not party to any current or pending litigation that might have a material, adverse impact on the financial position of the Companies through the date of this examination report.

FINANCIAL STATEMENTS The financial condition of the Companies, as of December 31, 2016, and the results of its

operations for the five-year period under examination, are reflected in the following statements*:

Comparative Statement of Assets, Liabilities, Surplus and Other Funds; Comparative Statement of Income; Comparative Statement of Capital and Surplus; and Comparative Statement of Cash Flow

*Note: Some financials shown in this report may contain immaterial differences to those reported in the Company’s filed Annual Statements due to rounding errors.


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Comparative Statement of Assets, Liabilities, Surplus and Other Funds As of December 31,

WestGUARD Insurance Company2016 2015 2014 2013 2012

Bonds 11,828,361$ 13,202,923$ 17,071,535$ 20,857,733$ 28,374,049$ Common stocks 529,536,294 456,243,385 316,433,603 2,510,211 0 Real estate 5,255,265 5,617,274 5,916,829 0 0 Cash, cash equivalents, and short term investments 41,170,559 28,544,466 58,068,957 4,466,974 8,344,103 Subtotals, cash and invested assets 587,790,479 503,608,048 397,490,924 27,834,918 36,718,152 Investment income due and accrued 178,912 189,877 220,991 214,272 289,412 Premiums and agents' balances due 351,837,398 260,315,577 199,112,598 5,006,078 3,290,308 Amounts recoverable from reinsurers 2,278,703 1,588,554 1,164,528 988,610 52,120 Current federal and foreign income tax recoverable and interest thereon 438,048 1,038,508 0 304,068 762,612 Net deferred tax asset 0 0 4,892,507 718,291 844,300 Electronic data processing equipment and software 1,301,207 1,016,701 919,455 0 0 Receivable from parent, subsidiaries and affiliates 9,719,008 11,381,956 2,062,049 0 2,509 Aggregate write-ins for other than invested assets 1,455,127 1,385,645 1,197,026 0 0 Total 954,998,882$ 780,524,866$ 607,060,078$ 35,066,237$ 41,959,413$

Losses 21,016,584$ 17,170,860$ 13,475,289$ 11,365,645$ 9,603,142$ Reinsurance payable on paid loss and loss adjustment expenses 762,313 737,856 224,127 248,471 82,951 Loss adjustment expenses 3,312,848 2,515,201 1,916,605 1,594,140 1,175,074 Commissions payable, contingent commissions and other similar charges 22,994,262 17,333,141 15,773,520 0 0 Other expenses 33,619,425 22,831,575 12,788,494 16,834 12,366 Taxes, licenses and fees 515,868 338,758 90,383 66,146 55,877 Current federal and foreign income taxes 0 0 2,981,614 0 0 Net deferred tax liability 12,650,582 12,925,154 0 0 0 Unearned premiums 10,716,606 8,003,013 5,230,352 4,212,509 6,895,305 Advance premium 5,741,244 5,315,406 4,123,282 0 0 Ceded reinsurance premiums payable (net of ceding commissions) 4,553,844 2,257,753 2,167,431 1,780,109 7,554 Funds held by company under reinsurance treaties 35,985 34,272 32,642 31,088 29,605 Amounts withheld or retained by company for account of others 1,422,141 20,536 20,559 0 0 Provision for reinsurance 2,285 0 0 0 0 Payable to parent, subsidiaries and affiliates 43,981 0 0 24,565 0 Payable for securities 0 0 0 1,084,847 0 Aggregate write-ins for liabilities 328,421,794 260,143,116 239,185,142 0 10,778,908 Total liabilities 445,809,762 349,626,641 298,009,440 20,424,354 28,640,782 Common capital stock 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 Gross paid in and contributed surplus 415,978,291 415,978,291 290,894,891 2,250,000 2,250,000 Unassigned funds (surplus) 90,210,829 11,919,934 15,155,747 9,391,883 8,068,631 Surplus as regards policyholders 509,189,120 430,898,225 309,050,638 14,641,883 13,318,631 Totals 954,998,882$ 780,524,866$ 607,060,078$ 35,066,237$ 41,959,413$


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Comparative Statement of Income For the Year Ended December 31,

WestGUARD Insurance CompanyUnderwriting Income 2016 2015 2014 2013 2012

Premiums earned 20,257,792$ 16,207,001$ 10,886,305$ 8,870,657$ 1,830,839$

Deductions: Losses incurred 10,059,346 8,324,308 5,943,426 5,031,028 (1,514,124) Loss expenses incurred 1,875,068 1,397,495 938,420 986,221 216,009 Other underwriting expenses incurred 5,346,436 3,082,187 2,654,417 1,511,443 3,316,539 Aggregate write-ins for underwriting deductions 1,714 0 0 0 0 Total underwriting deductions 17,282,564 12,803,990 9,536,263 7,528,692 2,018,424 Net underwriting gain or (loss) 2,975,228 3,403,011 1,350,042 1,341,965 (187,585)

Investment IncomeNet investment income earned 3,836,254 2,115,424 643,788 462,810 896,158

Net realized capital gains or (losses) (175,021) 0 31 36,768 118,728 Net investment gain or (loss) 3,661,233 2,115,424 643,819 499,578 1,014,886

Other IncomeNet gain or (loss) from agents' or premium balances charged off (79,021) 0 0 0 0

Finance and service charges not included in premiums 2,282,123 1,608,711 0 0 0

Aggregate write-ins for miscellaneous income 0 (13,881) 0 0 0 Total other income 2,203,102 1,594,830 0 0 0 Net income before dividends to policyholders and before federal and foreign income taxes 8,839,563 7,113,265 1,993,861 1,841,543 827,301 Dividends to policyholders 124,255 67,984 98,570 82,593 107,955 Federal and foreign income taxes incurred 7,145,593 6,757,193 716,575 321,961 (357,158) Net income 1,569,715$ 288,088$ 1,178,716$ 1,436,989$ 1,076,504$


-19-

Comparative Statement of Capital and Surplus

For the Year Ended December 31,

WestGUARD Insurance Company 2016 2015 2014 2013 2012Surplus as regards policyholders,

December 31, previous year 430,898,225$ 309,050,638$ 14,641,883$ 13,318,631$ 12,468,527$ Net income 1,569,715 288,088 1,178,716 1,436,989 1,076,504 Net unrealized capital gains or (losses) 71,301,598 13,843,416 192,457 7,976 (32,600) Change in net deferred income tax 4,763,819 (16,934,694) 103,025 (117,935) (364,800) Change in nonadmitted assets 658,048 152,377 (13,890,072) (3,778) 171,000 Change in provision for reinsurance (2,285) 0 0 0 0 Surplus adjustments: Paid in 0 125,083,400 288,644,891 0 0 Dividends to stockholders 0 (103,998) 0 0 0 Aggregate write-ins for gains and losses in surplus 0 (481,002) 18,179,738 0 0 Change in surplus as regards policyholder for the year 78,290,895 121,847,587 294,408,755 1,323,252 850,104 Surplus as regards policyholders, December 31, current year 509,189,120$ 430,898,225$ 309,050,638$ 14,641,883$ 13,318,631$


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Comparative Statement of Cash Flow For the Year Ended December 31,

WestGUARD Insurance Company 2016 2015 2014 2013 2012Cash from Operations

Premiums collected net of reinsurance (65,084,102)$ (40,704,751)$ 56,147,996$ 6,244,646$ 3,346,527$ Net investment income 4,385,351 2,713,847 851,384 933,031 953,732 Miscellaneous income 2,203,102 1,594,830 0 0 0 Total income (58,495,649) (36,396,074) 56,999,380 7,177,677 4,300,259 Benefit and loss related payments 6,879,314 4,539,034 4,034,044 4,039,495 6,331,192 Commissions, expenses paid and aggregate write-ins for deductions (10,200,511) (7,969,991) 3,247,169 2,063,861 4,294,750 Dividends to policyholders 124,255 67,984 98,570 82,593 107,955 Federal and foreign income taxes paid (recovered) 6,450,891 10,777,314 (218,570) (116,786) 598,078 Total deductions 3,253,949 7,414,341 7,161,213 6,069,163 11,331,975 Net cash from operations (61,749,598) (43,810,415) 49,838,167 1,108,514 (7,031,716)

Cash from Investments

Proceeds from investments sold, matured or repaid: Bonds 1,200,852 3,675,223 3,571,880 7,177,348 8,956,097 Stocks 2,228,677 7,085,000 0 0 0 Net gain or (loss) on cash and short-term investments 0 0 48 452 0 Miscellaneous proceeds 0 0 0 1,084,847 0 Total investment proceeds 3,429,529 10,760,223 3,571,928 8,262,647 8,956,097

Cost of investments acquired (long-term only): Bonds 0 0 0 0 14,053,732 Stocks 0 132,084,400 5,870,224 2,497,940 0 Real estate 2,413 74,365 0 0 0 Miscellaneous applications 0 0 1,084,847 0 0 Total investments acquired 2,413 132,158,765 6,955,071 2,497,940 14,053,732 Net cash from investments 3,427,116 (121,398,542) (3,383,143) 5,764,707 (5,097,635)

Cash from Financing and Miscellaneous Services

Other cash provided (applied): Capital and paid in surplus, less treasury stock 0 125,083,400 0 0 0 Dividends to stockholders (paid) 0 103,998 0 0 0 Other cash provided or (applied) 70,948,575 10,705,064 7,146,959 (10,750,350) 10,784,506 Net cash from financing and miscellaneous sources 70,948,575 135,684,466 7,146,959 (10,750,350) 10,784,506

Reconciliation of cash and short-term investments:

Net change in cash and short-term investments 12,626,093 (29,524,491) 53,601,983 (3,877,129) (1,344,845) Cash and short-term investments: Beginning of the year 28,544,466 58,068,957 4,466,974 8,344,103 9,688,948 End of the year 41,170,559$ 28,544,466$ 58,068,957$ 4,466,974$ 8,344,103$


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AmGUARD Insuarnce Company2016 2015 2014 2013 2012

Bonds 91,908,587$ 107,175,513$ 118,272,197$ 121,098,424$ 196,124,276$ Preferred stocks 0 513,750 527,500 522,500 445,625 Common stocks 79,651,623 70,780,398 85,099,660 40,982,048 5,734,561 Mortgage loans on real estate 0 0 0 10,000 51,667 Cash, cash equivalents, and short term investments 115,724,459 64,017,233 24,666,330 56,102,479 79,173,335 Other invested assets 2,697,415 3,207,213 4,091,875 10,987,021 16,871,070 Receivable for securities 0 0 0 11,682 12,033 Subtotals, cash and invested assets 289,982,084 245,694,107 232,657,562 229,714,154 298,412,567 Investment income due and accrued 750,183 1,085,668 1,193,228 1,021,399 1,720,539 Premiums and agents' balances due 264,273,940 189,755,685 158,150,242 104,304,812 99,847,194 Amounts recoverable from reinsurers 37,026,027 31,584,473 19,996,969 16,710,129 5,011,337 Funds held by or deposited with reinsured companies 233,200 146,481 92,327 49,942 35,589 Current federal and foreign income tax recoverable and interest thereon 0 0 0 730,904 3,471,860 Net deferred tax asset 7,677,714 10,440,460 7,383,217 6,149,596 7,267,900 Guaranty funds receivable or on deposit 4,885 4,885 378 23,640 15,499 Receivable from parent, subsidiaries and affiliates 127,190 0 0 84,742 0 Aggregate write-ins for other than invested assets 260,066 193,104 177,793 5,392 8,484 Total 600,335,289$ 478,904,863$ 419,651,716$ 358,794,710$ 415,790,969$

Losses 155,719,760$ 129,095,621$ 127,702,403$ 106,608,324$ 92,476,964$ Reinsurance payable on paid loss and loss adjustment expenses 5,313,310 4,827,606 1,657,571 1,595,847 524,531 Loss adjustment expenses 24,009,741 18,635,570 17,882,201 14,604,216 11,367,162 Commissions payable, contingent commissions and other similar charges 4,538,819 2,683,162 635,015 0 0 Other expenses 98,868 280,026 250,204 313,148 207,106 Taxes, licenses and fees 15,627,706 12,755,169 13,305,630 14,161,584 13,557,905 Current federal and foreign income taxes 1,009,041 3,500,723 7,284,716 0 0 Unearned premiums 75,015,565 56,021,914 54,294,677 41,362,122 63,567,980 Advance premium 1,730,830 1,583,944 1,948,562 0 0 Dividends declared and unpaid: Policyholders' 0 0 19,371 0 0 Ceded reinsurance premiums payable (net of ceding commissions) 168,148,533 123,652,295 79,786,047 57,425,247 25,857,919 Funds held by company under reinsurance treaties 2,397,190 2,471,510 3,329,673 3,277,123 3,290,530 Amounts withheld or retained by company for account of others 1,145,736 340,633 180,325 0 0 Provision for reinsurance 523,564 28,026 28,026 22,969 22,969 Payable to parent, subsidiaries and affiliates 4,163,542 5,182,241 869,651 0 1,360,660 Payable for securities 0 0 0 16,081,566 0 Aggregate write-ins for liabilities 0 483,662 518,898 267,230 104,258,093 Total liabilities 459,442,205 361,542,102 309,692,970 255,719,376 316,491,819 Common capital stock 5,328,000 5,328,000 5,328,000 5,328,000 5,328,000 Gross paid in and contributed surplus 32,114,745 32,114,745 25,114,745 25,114,745 25,114,745 Unassigned funds (surplus) 103,450,339 79,920,016 79,516,001 72,632,589 68,856,405 Surplus as regards policyholders 140,893,084 117,362,761 109,958,746 103,075,334 99,299,150 Totals 600,335,289$ 478,904,863$ 419,651,716$ 358,794,710$ 415,790,969$


-22-


AmGUARD Insurance CompanyUnderwriting Income 2016 2015 2014 2013 2012

Premiums earned 141,804,532$ 95,235,842$ 104,407,799$ 81,297,882$ 9,568,150$

Deductions: Losses incurred 70,848,401 42,285,530 58,850,310 47,586,555 (20,158,691) Loss expenses incurred 12,959,718 8,345,766 10,705,623 9,231,820 2,627,029 Other underwriting expenses incurred 37,496,171 32,825,516 29,317,676 15,648,029 33,409,176 Total underwriting deductions 121,304,290 83,456,812 98,873,609 72,466,404 15,877,514 Net underwriting gain or (loss) 20,500,242 11,779,030 5,534,190 8,831,478 (6,309,364)

Investment IncomeNet investment income earned 5,350,033 5,614,146 5,334,495 4,221,347 7,582,615

Net realized capital gains or (losses) (1,518,391) 314,793 1,903,681 1,777,167 2,150,571 Net investment gain or (loss) 3,831,642 5,928,939 7,238,176 5,998,514 9,733,186


Aggregate write-ins for miscellaneous income (96,046) 76,117 5,707 106,804 38,040 Total other income (475,848) 76,117 5,707 106,804 38,040 Net income before dividends to policyholders and before federal and foreign income taxes 23,856,036 17,784,086 12,778,073 14,936,796 3,461,861 Dividends to policyholders 869,783 475,866 689,989 578,151 756,045 Federal and foreign income taxes incurred 10,657,488 4,886,241 4,879,281 2,076,453 (1,536,308) Net income 12,328,765$ 12,421,979$ 7,208,803$ 12,282,192$ 4,242,124$


-23-

Comparative Statement of Capital and Surplus For the Year Ended December 31,

AmGUARD Insurance Company 2016 2015 2014 2013 2012Surplus as regards policyholders,

December 31, previous year 117,362,761$ 109,958,746$ 103,075,334$ 99,299,150$ 93,527,581$ Net income 12,328,765 12,421,979 7,208,803 12,282,192 4,242,124 Net unrealized capital gains or (losses) 9,398,898 (9,798,884) 159,885 563,758 2,504,007 Change in net deferred income tax 2,355,092 (1,722,245) (967,681) (1,482,358) (1,896,800) Change in nonadmitted assets (56,894) (496,835) 2,287,393 2,342,507 892,801 Change in provision for reinsurance (495,538) 0 (5,057) 0 29,437 Surplus adjustments: Paid in 0 7,000,000 0 0 0 Dividends to stockholders 0 0 (5,997,442) (9,929,915) 0 Aggregate write-ins for gains and losses in surplus 0 0 4,197,511 0 0 Change in surplus as regards policyholder for the year 23,530,323 7,404,015 6,883,412 3,776,184 5,771,569 Surplus as regards policyholders, December 31, current year 140,893,084$ 117,362,761$ 109,958,746$ 103,075,334$ 99,299,150$


-24-


AmGUARD Insurance Company 2016 2015 2014 2013 2012Cash from Operations

Premiums collected net of reinsurance 130,836,333$ 108,805,112$ 87,761,901$ 86,187,381$ 12,900,138$ Net investment income 6,200,689 6,235,296 5,811,548 6,225,769 8,978,087 Miscellaneous income (475,848) 76,117 5,707 106,804 38,040 Total income 136,561,174 115,116,525 93,579,156 92,519,954 21,916,265 Benefit and loss related payments 49,180,112 49,309,781 40,981,347 44,082,671 56,676,131 Commissions, expenses paid and aggregate write-ins for deductions 40,534,682 38,894,912 37,005,934 20,941,216 39,112,807 Dividends to policyholders 869,783 495,237 670,618 578,151 756,045 Federal and foreign income taxes paid (recovered) 12,331,575 8,839,738 (2,111,278) 292,440 2,132,991 Total deductions 102,916,152 97,539,668 76,546,621 65,894,478 98,677,974 Net cash from operations 33,645,022 17,576,857 17,032,535 26,625,476 (76,761,709)


Proceeds from investments sold, matured or repaid: Bonds 17,695,126 15,885,025 20,269,261 76,251,546 55,742,546 Stocks 27,258,095 0 6,564,754 68,578 40,417,339 Other invested assets 623,599 941,672 8,099,259 8,252,715 2,345,821 Net gain or (loss) on cash and short-term investments 474 0 1,530 2,967 81 Miscellaneous proceeds 0 0 11,682 16,081,917 7,871 Total investment proceeds 45,577,294 16,826,697 34,946,486 100,657,723 98,513,658

Cost of investments acquired (long-term only): Bonds 2,368,522 5,490,256 17,952,260 801,421 76,258,053 Stocks 24,015,822 0 44,776,275 33,490,794 9,069,936 Other invested assets 165,019 126,581 174,230 685,337 3,229,166 Miscellaneous applications 0 0 16,081,566 0 0 Total investments acquired 26,549,363 5,616,837 78,984,331 34,977,552 88,557,155 Net cash from investments 19,027,931 11,209,860 (44,037,845) 65,680,171 9,956,503


Other cash provided (applied): Capital and paid in surplus, less treasury stock 0 7,000,000 0 0 0 Dividends to stockholders (paid) 0 0 5,997,442 9,929,915 0 Other cash provided or (applied) (965,727) 3,564,186 1,566,603 (105,446,588) 104,265,651 Net cash from financing and miscellaneous sources (965,727) 10,564,186 (4,430,839) (115,376,503) 104,265,651


Net change in cash and short-term investments 51,707,226 39,350,903 (31,436,149) (23,070,856) 37,460,445 Cash and short-term investments: Beginning of the year 64,017,233 24,666,330 56,102,479 79,173,335 41,712,890 End of the year 115,724,459$ 64,017,233$ 24,666,330$ 56,102,479$ 79,173,335$


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EastGUARD Insurance Company2016 2015 2014 2013 2012

Bonds 19,537,677$ 25,077,232$ 31,924,211$ 38,961,800$ 60,269,439$ Common stocks 26,133,960 26,610,030 27,465,636 1,726,649 1,563,207 Cash, cash equivalents, and short term investments 49,004,644 26,577,280 4,944,001 20,454,218 19,058,330 Other invested assets 61,971 163,782 185,981 232,399 418,217 Subtotals, cash and invested assets 94,738,252 78,428,324 64,519,829 61,375,066 81,309,193 Investment income due and accrued 134,731 264,413 348,679 309,588 486,260 Premiums and agents' balances due 33,863,744 25,281,771 22,903,556 16,303,308 20,909,002 Amounts recoverable from reinsurers 4,630,432 1,192,107 2,885,088 1,621,562 (632,803) Funds held by or deposited with reinsured companies 28,985 26,364 18,721 18,957 11,430 Current federal and foreign income tax recoverable and interest thereon 0 0 0 59,518 245,291 Net deferred tax asset 2,595,396 4,117,243 1,503,013 1,481,153 1,751,700 Guaranty funds receivable or on deposit 11,715 11,715 15,114 13,375 6,525 Receivable from parent, subsidiaries and affiliates 4,227 0 459,753 525,030 95,654 Aggregate write-ins for other than invested assets 0 8,099 8,093 8,300 201 Total 136,007,482$ 109,330,036$ 92,661,846$ 81,715,857$ 104,182,453$

Losses 43,993,296$ 36,394,048$ 29,322,720$ 25,408,144$ 22,372,067$ Reinsurance payable on paid loss and loss adjustment expenses 1,519,852 1,400,657 468,302 464,496 153,472 Loss adjustment expenses 6,809,236 5,260,071 4,103,393 3,459,233 2,652,028 Commissions payable, contingent commissions and other similar charges 155,335 172,160 0 0 0 Other expenses 1,364 65,033 21,100 63,383 (72,847) Taxes, licenses and fees 1,543,513 1,115,696 1,078,100 1,966,248 3,117,558 Current federal and foreign income taxes 1,222,630 364,473 72,048 0 0 Unearned premiums 21,273,562 15,846,375 10,301,054 8,265,369 13,471,312 Dividends declared and unpaid: Policyholders' 93,735 64,929 124,563 0 0 Ceded reinsurance premiums payable (net of ceding commissions) 14,569,482 11,194,844 10,897,309 8,443,479 3,362,655 Funds held by company under reinsurance treaties 829,358 789,865 752,255 716,433 704,631 Amounts withheld or retained by company for account of others 95,994 49,889 0 0 0 Provision for reinsurance 194,413 11,281 11,281 0 0 Payable to parent, subsidiaries and affiliates 68,365 168,256 0 0 0 Aggregate write-ins for liabilities 0 55,535 101,798 58,331 25,526,532 Total liabilities 92,370,135 72,953,112 57,253,923 48,845,116 71,287,408 Common capital stock 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 Gross paid in and contributed surplus 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 Unassigned funds (surplus) 33,637,347 26,376,924 25,407,923 22,870,741 22,895,045 Surplus as regards policyholders 43,637,347 36,376,924 35,407,923 32,870,741 32,895,045 Totals 136,007,482$ 109,330,036$ 92,661,846$ 81,715,857$ 104,182,453$


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EastGUARD Insurance CompanyUnderwriting Income 2016 2015 2014 2013 2012

Premiums earned 40,515,580$ 32,314,159$ 21,772,611$ 17,741,315$ 194,024$

Deductions: Losses incurred 20,184,148 16,603,419 11,796,304 9,799,753 (7,720,486) Loss expenses incurred 3,714,710 2,776,201 1,896,904 1,963,278 173,065 Other underwriting expenses incurred 10,727,962 7,141,579 5,299,245 3,070,851 6,605,196 Total underwriting deductions 34,626,820 26,521,199 18,992,453 14,833,882 (942,225) Net underwriting gain or (loss) 5,888,760 5,792,960 2,780,158 2,907,433 1,136,249


Net realized capital gains or (losses) (876,741) 22,418 112,144 185,730 279,045 Net investment gain or (loss) 716,292 1,627,683 1,577,186 1,348,260 2,247,338


Aggregate write-ins for miscellaneous income (38,703) 0 1,107 17,253 0 Total other income (132,449) 0 1,107 17,253 0 Net income before dividends to policyholders and before federal and foreign income taxes 6,472,603 7,420,643 4,358,451 4,272,946 3,383,587 Dividends to policyholders 248,510 135,957 197,141 165,186 215,911 Federal and foreign income taxes incurred 2,693,318 3,011,068 1,335,742 687,392 54,859 Net income 3,530,775$ 4,273,618$ 2,825,568$ 3,420,368$ 3,112,817$


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EastGUARD Insurance Company 2016 2015 2014 2013 2012Surplus as regards policyholders,

December 31, previous year 36,376,924$ 35,407,923$ 32,870,741$ 32,895,045$ 30,226,292$ Net income 3,530,775 4,273,618 2,825,568 3,420,368 3,112,817 Net unrealized capital gains or (losses) 3,532,508 (3,847,250) 111,267 (251,554) (22,404) Change in net deferred income tax 387,541 542,633 (203,416) (468,323) (934,500) Change in nonadmitted assets (7,269) 0 285,190 564,710 352,300 Change in provision for reinsurance (183,132) 0 (11,281) 0 160,540 Dividends to stockholders 0 0 (1,799,232) (3,289,505) 0 Aggregate write-ins for gains and losses in surplus 0 0 1,329,086 0 0 Change in surplus as regards policyholder for the year 7,260,423 969,001 2,537,182 (24,304) 2,668,753 Surplus as regards policyholders, December 31, current year 43,637,347$ 36,376,924$ 35,407,923$ 32,870,741$ 32,895,045$


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EastGUARD Insurance Company 2016 2015 2014 2013 2012Cash from Operations

Premiums collected net of reinsurance 40,732,811$ 35,771,157$ 19,662,114$ 22,214,363$ 1,860,244$ Net investment income 1,833,969 1,869,196 1,661,516 1,880,848 2,424,504 Miscellaneous income (132,449) 0 1,107 17,253 0 Total income 42,434,331 37,640,353 21,324,737 24,112,464 4,284,748 Benefit and loss related payments 15,904,030 6,906,755 9,141,448 8,707,017 11,460,938 Commissions, expenses paid and aggregate write-ins for deductions 12,546,184 8,504,014 7,484,159 5,248,854 9,003,593 Dividends to policyholders 219,704 195,591 72,578 165,186 215,911 Federal and foreign income taxes paid (recovered) 1,363,070 2,730,713 1,264,561 601,614 1,096,874 Total deductions 30,032,988 18,337,073 17,962,746 14,722,671 21,777,316 Net cash from operations 12,401,343 19,303,280 3,361,991 9,389,793 (17,492,568)


Proceeds from investments sold, matured or repaid: Bonds 5,919,291 8,676,837 6,792,577 21,425,201 15,493,182 Stocks 12,554,646 0 1,800,440 0 1,989,882 Other invested assets 90,667 34,987 172,654 265,913 524,893 Net gain or (loss) on cash and short-term investments 252 0 666 643 20 Total investment proceeds 18,564,856 8,711,824 8,766,337 21,691,757 18,007,977

Cost of investments acquired (long-term only): Bonds 449,527 2,065,657 0 502,282 20,468,210 Stocks 8,023,349 4,985,412 26,143,942 0 3,097 Total investments acquired 8,472,876 7,051,069 26,143,942 502,282 20,471,307 Net cash from investments 10,091,980 1,660,755 (17,377,605) 21,189,475 (2,463,330)


Other cash provided (applied): Dividends to stockholders (paid) 0 0 1,799,232 3,289,505 0 Other cash provided or (applied) (65,959) 669,244 304,629 (25,893,875) 24,894,938 Net cash from financing and miscellaneous sources (65,959) 669,244 (1,494,603) (29,183,380) 24,894,938


Net change in cash and short-term investments 22,427,364 21,633,279 (15,510,217) 1,395,888 4,939,040 Cash and short-term investments: Beginning of the year 26,577,280 4,944,001 20,454,218 19,058,330 14,119,290 End of the year 49,004,644$ 26,577,280$ 4,944,001$ 20,454,218$ 19,058,330$


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NorGUARD Insurance Company2016 2015 2014 2013 2012

Bonds 114,697,143$ 131,256,269$ 140,372,094$ 153,173,689$ 244,784,754$ Preferred stocks 1,340,255 1,215,584 1,618,078 1,700,692 1,704,200 Common stocks 111,393,326 96,582,651 86,335,914 7,507,063 6,252,828 Mortgage loans on real estate 0 0 0 380,030 685,303 Cash, cash equivalents, and short term investments 164,753,289 72,000,382 20,159,734 75,710,076 81,920,110 Other invested assets 6,609,642 7,048,074 8,591,013 9,582,537 20,255,899 Receivable for securities 0 0 0 446,461 20 Subtotals, cash and invested assets 398,793,655 308,102,960 257,076,833 248,500,548 355,603,114 Investment income due and accrued 918,178 1,281,304 1,399,365 1,310,586 2,280,555 Premiums and agents' balances due 317,983,382 265,522,707 197,573,447 151,210,620 139,456,677 Amounts recoverable from reinsurers 29,088,279 23,893,979 15,301,124 13,630,140 3,404,118 Funds held by or deposited with reinsured companies 253,462 209,155 160,014 88,119 50,261 Current federal and foreign income tax recoverable and interest thereon 0 0 2,494,035 4,589,584 1,881,282 Net deferred tax asset 11,202,468 15,056,423 8,178,641 7,295,610 8,586,300 Guaranty funds receivable or on deposit (14,511) (14,511) (23,438) 9,514 10,139 Receivable from parent, subsidiaries and affiliates 724,672 0 0 0 0 Aggregate write-ins for other than invested assets 1,703,826 1,624,372 552,318 239,577 502,669 Total 760,653,411$ 615,676,389$ 482,712,339$ 426,874,298$ 511,775,115$

Losses 217,624,524$ 179,522,759$ 144,106,162$ 123,826,514$ 107,805,208$ Reinsurance payable on paid loss and loss adjustment expenses 10,931,268 10,782,394 1,771,063 966,104 (59,761) Loss adjustment expenses 33,847,558 26,035,522 20,211,457 17,005,556 12,933,716 Commissions payable, contingent commissions and other similar charges 2,690,226 1,920,591 0 0 0 Other expenses 30,718 116,484 166,073 275,404 190,877 Taxes, licenses and fees 14,126,731 10,960,183 9,539,329 20,703,826 18,571,907 Current federal and foreign income taxes 1,564,551 2,272,620 0 0 0 Unearned premiums 107,167,747 80,031,815 53,533,680 42,628,108 69,000,463 Dividends declared and unpaid: Policyholders' 0 0 13,100 0 0 Ceded reinsurance premiums payable (net of ceding commissions) 164,665,968 126,418,730 83,961,817 64,057,615 26,368,422 Funds held by company under reinsurance treaties 6,344,264 6,298,664 6,097,680 5,872,232 5,680,664 Amounts withheld or retained by company for account of others 541,523 287,464 0 0 0 Provision for reinsurance 530,201 30,112 30,112 8,255 18,893 Payable to parent, subsidiaries and affiliates 2,193,430 4,487,277 566,036 326,683 1,248,735 Aggregate write-ins for liabilities 0 290,754 325,418 250,205 121,468,432 Total liabilities 562,258,709 449,455,369 320,321,927 275,920,502 363,227,556 Common capital stock 5,250,000 5,250,000 5,250,000 5,250,000 5,250,000 Gross paid in and contributed surplus 36,400,000 36,400,000 36,400,000 36,400,000 36,400,000 Unassigned funds (surplus) 156,744,702 124,571,020 120,740,412 109,303,796 106,897,559 Surplus as regards policyholders 198,394,702 166,221,020 162,390,412 150,953,796 148,547,559 Totals 760,653,411$ 615,676,389$ 482,712,339$ 426,874,298$ 511,775,115$


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NorGUARD Insurance CompanyUnderwriting Income 2016 2015 2014 2013 2012

Premiums earned 202,577,903$ 161,832,405$ 110,358,988$ 88,923,569$ 5,438,665$

Deductions: Losses incurred 100,858,927 82,969,804 59,713,308 49,638,645 (32,351,529) Loss expenses incurred 18,629,207 13,937,884 9,492,659 9,843,435 1,181,066 Other underwriting expenses incurred 53,396,115 37,651,201 27,163,590 15,305,107 33,102,012 Total underwriting deductions 172,884,249 134,558,889 96,369,557 74,787,187 1,931,549 Net underwriting gain or (loss) 29,693,654 27,273,516 13,989,431 14,136,382 3,507,116


Net realized capital gains or (losses) (1,557,776) 399,653 1,118,417 2,258,676 4,418,655 Net investment gain or (loss) 5,086,539 7,102,676 7,313,886 7,850,164 13,407,246


Aggregate write-ins for miscellaneous income (300,203) 0 4,580 30,232 34,181 Total other income (1,012,617) 0 4,580 30,232 34,181 Net income before dividends to policyholders and before federal and foreign income taxes 33,767,576 34,376,192 21,307,897 22,016,778 16,948,543 Dividends to policyholders 1,242,548 679,808 985,703 825,930 1,079,553 Federal and foreign income taxes incurred 14,108,991 13,914,823 8,239,908 3,401,045 68,810 Net income 18,416,037$ 19,781,561$ 12,082,286$ 17,789,803$ 15,800,180$


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NorGUARD Insurance Company 2016 2015 2014 2013 2012Surplus as regards policyholders,

December 31, previous year 166,221,020$ 162,390,412$ 150,953,796$ 148,547,559$ 134,162,598$ Net income 18,416,037 19,781,561 12,082,286 17,789,803 15,800,180 Net unrealized capital gains or (losses) 11,546,251 (10,545,286) 475,850 99,165 (800,503) Change in net unrealized foreign exchange capital gain or (loss) 226,348 256,608 (165,608) (302,875) 656,317 Change in net deferred income tax 2,727,420 1,337,725 (483,592) (2,123,036) (3,941,600) Change in nonadmitted assets (242,285) 0 1,533,678 2,732,722 2,637,400 Change in provision for reinsurance (500,089) 0 (21,857) 10,638 33,167 Dividends to stockholders 0 (7,000,000) (7,196,930) (15,800,180) 0 Aggregate write-ins for gains and losses in surplus 0 0 5,212,789 0 0 Change in surplus as regards policyholder for the year 32,173,682 3,830,608 11,436,616 2,406,237 14,384,961 Surplus as regards policyholders, December 31, current year 198,394,702$ 166,221,020$ 162,390,412$ 150,953,796$ 148,547,559$


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NorGUARD Insurance Company 2016 2015 2014 2013 2012Cash from Operations

Premiums collected net of reinsurance 215,456,091$ 162,789,052$ 94,734,040$ 88,448,606$ (2,016,546)$ Net investment income 7,509,007 7,000,916 6,650,441 7,867,301 10,886,095 Miscellaneous income (1,012,617) 0 4,580 30,232 34,181 Total income 221,952,481 169,789,968 101,389,061 96,346,139 8,903,730 Benefit and loss related payments 67,802,588 47,134,731 40,299,684 42,817,497 65,849,668 Commissions, expenses paid and aggregate write-ins for deductions 60,362,870 42,482,091 44,691,224 18,859,631 39,796,065 Dividends to policyholders 1,242,548 692,908 972,603 825,930 1,079,553 Federal and foreign income taxes paid (recovered) 13,978,257 9,363,366 6,746,583 7,325,550 5,655,947 Total deductions 143,386,263 99,673,096 92,710,094 69,828,608 112,381,233 Net cash from operations 78,566,218 70,116,872 8,678,967 26,517,531 (103,477,503)


Proceeds from investments sold, matured or repaid: Bonds 26,750,257 20,859,585 24,834,566 92,929,329 72,634,615 Stocks 30,412,007 509,664 8,618,215 748,509 32,273,192 Mortgage loans 0 0 380,030 305,273 287,538 Other invested assets 960,533 2,586,421 3,276,766 13,276,194 3,730,250 Net gain or (loss) on cash and short-term investments 0 0 2,090 2,899 228 Miscellaneous proceeds 0 0 446,461 0 364,276 Total investment proceeds 58,122,797 23,955,670 37,558,128 107,262,204 109,290,099

Cost of investments acquired (long-term only): Bonds 9,691,642 12,553,616 12,924,747 532,837 70,672,140 Stocks 30,979,041 25,280,363 81,708,397 625,866 9,603,345 Other invested assets 176,355 700,887 720,482 898,878 8,933,811 Miscellaneous applications 0 0 0 446,441 0 Total investments acquired 40,847,038 38,534,866 95,353,626 2,504,022 89,209,296 Net cash from investments 17,275,759 (14,579,196) (57,795,498) 104,758,182 20,080,803


Other cash provided (applied): Dividends to stockholders (paid) 0 7,000,000 7,196,930 15,800,180 0 Other cash provided or (applied) (3,089,070) 3,302,972 763,119 (121,685,567) 120,470,125 Net cash from financing and miscellaneous sources (3,089,070) (3,697,028) (6,433,811) (137,485,747) 120,470,125


Net change in cash and short-term investments 92,752,907 51,840,648 (55,550,342) (6,210,034) 37,073,425 Cash and short-term investments: Beginning of the year 72,000,382 20,159,734 75,710,076 81,920,110 44,846,685 End of the year 164,753,289$ 72,000,382$ 20,159,734$ 75,710,076$ 81,920,110$


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SUMMARY OF EXAMINATION CHANGES There were no examination changes to the preceding financial statements as filed with

regulatory authorities over the examination period.

NOTES TO FINANCIAL STATEMENTS

ASSETS

INVESTMENTS As of December 31, 2016, WIC’s invested assets were distributed as follows:

As of December 31, 2016, AIC’s invested assets were distributed as follows:

As of December 31, 2016, EIC’s invested assets were distributed as follows:

As of December 31, 2016, NIC’s invested assets were distributed as follows:

Amount PercentageBonds 11,828,361$ 2.0 %Common stocks 529,536,294 90.1 %Real estate 5,255,265 0.9 %Cash 17,415,967 3.0 %Short-term investments 23,754,592 4.0 %Totals 587,790,479$ 100.0 %

Amount PercentageBonds 91,908,587$ 31.7 %Common stocks 79,651,623 27.5 %Cash 16,895,423 5.8 %Short-term investments 98,829,036 34.1 %Other invested assets 2,697,415 0.9 %Totals 289,982,084$ 100.0 %

Amount PercentageBonds 19,537,677$ 20.6 %Common stocks 26,133,960 27.6 %Cash 7,505,764 7.9 %Short-term investments 41,498,880 43.8 %Other invested assets 61,971 0.1 %Totals 94,738,252$ 100.0 %

Amount PercentageBonds 114,697,143$ 28.8 %Preferred stocks 1,340,255 0.3 %Common stocks 111,393,326 27.9 %Cash 12,340,383 3.1 %Short-term investments 152,412,906 38.2 %Other invested assets 6,609,642 1.7 %Totals 398,793,655$ 100.0 %


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WIC’s bond and short-term investment portfolio had the following quality and maturity profiles:

AIC’s bond and short-term investment portfolio had the following quality and maturity

profiles:

EIC’s bond and short-term investment portfolio had the following quality and maturity

profiles:

NAIC Designation Amount Percentage1 - highest quality 35,582,953$ 100.0 %Totals 35,582,953$ 100.0 %

Years to Maturity Amount Percentage1 year or less 24,254,592$ 68.1 %2 to 5 years 1,637,565 4.6 %6 to 10 years 6,571,969 18.5 %11 to 20 years 2,229,304 6.3 %over 20 years 889,523 2.5 %Totals 35,582,953$ 100.0 %

NAIC Designation Amount Percentage1 - highest quality 182,970,312$ 95.9 %2 - high quality 5,287,666 2.8 %3 - medium quality 2,016,718 1.1 %4 - low quality 462,927 0.2 %Totals 190,737,623$ 100.0 %

Years to Maturity Amount Percentage1 year or less 105,084,181$ 55.1 %2 to 5 years 48,368,887 25.4 %6 to 10 years 15,524,876 8.1 %11 to 20 years 9,525,427 5.0 %over 20 years 12,234,252 6.4 %Totals 190,737,623$ 100.0 %

NAIC Designation Amount Percentage1 - highest quality 59,325,007$ 97.3 %2 - high quality 1,424,401 2.3 %3 - medium quality 140,440 0.2 %4 - low quality 146,709 0.2 %Totals 61,036,557$ 100.0 %



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NIC’s bond and short-term investment portfolio had the following quality and maturity profiles:

As depicted above, the Companies’ investment portfolio primarily consists of common

stocks, short-term investments, bonds, and cash. Since being owned by Berkshire, the Companies’ investment portfolio has been realigned, shifting a larger share of holdings to equities. The Companies’ bond portfolio primary consists of U.S. Government and state and special revenue bonds.

The Companies have a written investment policy as required by 40 P.S. § 653b(b). The Board reviews, updates, and approves the investment policy on an annual basis. The Companies were following their investment policy as of December 31, 2016.

The Companies entered into a custodial agreement with US Bank National Association, a national banking association organized under the laws of the United States of America, effective June 14, 2007. The custodial agreement complies with the standards for custodial agreements pursuant to 31 Pa. Code § 148a.3.

LIABILITIES

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES The following chart depicts the Companies’ reported reserves for losses and loss

adjustment expenses (“LAE”) on the December 31, 2016, Annual Statements.

Company Losses LAE WIC $ 21,016,584 $ 3,312,848 AIC $ 155,719,760 $ 24,009,741 EIC $ 43,993,296 $ 6,809,236 NIC $ 217,624,524 $ 33,847,558

NAIC Designation Amount Percentage1 - highest quality 257,647,486$ 96.5 %2 - high quality 6,501,589 2.4 %3 - medium quality 1,819,484 0.7 %4 - low quality 1,099,348 0.4 %5 - lower quality 10,641 0.0 %6 - in or near default 31,501 0.0 %Totals 267,110,049$ 100.0 %



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Allan A. Kerin, FCAS, MAAA, Chief Actuary and Executive Vice President of the Companies has been the Companies’ appointed actuary for the examination period.

For each year of the examination period, Mr. Kerin issued a Statement of Actuarial Opinion for each of the Companies concluding that the reserves made a reasonable provision for all unpaid loss and LAE expense obligations of each company under the terms of its contracts and agreements.

In order for the examination team to gain an adequate comfort level with the Companies’ loss and LAE reserve estimates, the Department retained the actuarial services of Taylor-Walker Consulting, LLC (“TW”) through Dixon Hughes Goodman, LLP (“DHG”) to perform a risk-focused review of the Companies’ reserving and pricing activities. Certain risks within the pricing and reserving processes required Phase 5 substantive test work.

Based on the procedures performed and results obtained by TW, the examination team obtained sufficient evidence to support the conclusion that the Companies’ net loss and LAE reserves are reasonably stated as of December 31, 2016.

SUBSEQUENT EVENTS Pursuant to Unanimous Written Consent of the Board of Directors for each of the

Companies, executed on September 15, 2017, the Board reduced the number of directors on the Policy Dividend Committee from four directors to three directors and rotated some of the directors serving on the committee from those described under “Committees” on Page 7 to the following: Eitan Ajchenbaum, Sy Foguel, and Carl Witkowski.

RECOMMENDATIONS

PRIOR EXAMINATION There were no recommendations made in the Companies’ prior examination reports.

CURRENT EXAMINATION As a result of the current examination, the following recommendation is being made:

• It is recommended that each of the Companies maintain a share register that is a complete and accurate record of shareholders in compliance with 15 Pa. C.S.A. § 1508(a) (see “Stockholders”, Page 4).


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CONCLUSION As a result of this examination, the financial condition of WestGUARD Insurance

Company, AmGUARD Insurance Company, EastGUARD Insurance Company, and NorGUARD Insurance Company as of December 31, 2016, was determined to be as follows:

Since the previous examination, made as of December 31, 2011, WIC’s assets increased

by $917,351,086, its liabilities increased by $420,630,493, and its surplus increased by $496,720,593.

Since the previous examination, made as of December 31, 2011, AIC’s assets increased

by $ $228,447,400, its liabilities increased by $ 181,081,897, and its surplus increased by $47,365,503.

Since the previous examination, made as of December 31, 2011, EIC’s assets increased

by $31,421,748, its liabilities increased by $18,010,693, and its surplus increased by $13,411,055.

WestGUARD Insurance Company Amount Percentage

Admitted assets 954,998,882$ 100.0 %

Liabilities 445,809,762$ 46.7 %Surplus as regards policyholders 509,189,120 53.3 %Total liabilities and surplus 954,998,882$ 100.0 %

AmGUARD Insurance Company Amount Percentage

Admitted assets 600,335,289$ 100.0 %


EastGUARD Insurance Company Amount Percentage

Admitted assets 136,007,482$ 100.0 %


NorGUARD Insurance Company Amount Percentage

Admitted assets 760,653,411$ 100.0 %


Documents

Pennsylvania Insurance Department Home - Examination Warrant … · 2018-02-05 · Insurance Department Harrisburg, Pennsylvania . Dear Sir: In accordance with instructions contained