Report of Financial Examination Mutual of Enumclaw

OF OREGON

DEPARTMENT OF CONSUMER & BUSINESS

SERVICES

DIVISION OF FINANCIAL REGULATION

REPORT OF FINANCIAL EXAMINATION

OF

MUTUAL OF ENUMCLAW INSURANCE COMPANY ENUMCLAW, WASHINGTON

ASOF

DECEMBER 31, 2018

STATE O OREGON

DEPARTMENT O CONSUMER & BUSINESS

SERVICES

DIVISION O INANCIALREGULATION

REPORT O INANCIAL EXAMINATION

O

MUTUAL F ENUMCLAW INSURANCE C MPANYENUMCLAW, WASHINGT N

AS O

DECEMBER 31,2018

ATE OF OREGON

DEPARTMENT OF CONSUMER AND BUSINESS SERVICES

DIVISION OF FINANCIAL REGULATION

REPORT OF FINANCIAL EXAMINATION

OF

MUTUAL OF ENUMCLA \,V INSURANCE COMPANY ENUMCLAW, \,VASHINGTON

NAIC COMPANY CODE 14761

ASOF

DECEMBER 31, 2018

STATE O OREGON

DEPARTMENT O CONSUMER AND BUSINESS SERVICES

DIVISION O INANCIAL REGULATION

REPORT O INANCIAL EXAMINATION

O

MUTUAL F ENUMCLAVV INSURANCE C MPANYENUMCLAW, WASHINGT N

NAIC C MPANY C DE 14761

AS O

DECEMBER 31, 2018

OF CONTENTS

SALUTATION ........................................................................................................................ 3

SCOPE OF EXAMINATION ................................................................................................ 4

COMP,<\NY HISTORY .......................................................................................................... 5

CORPORA TE RECORDS .................................................................................................... 6

M.I\NAGEMENT AND CONTROL ..................................................................................... 7

INTERCOMPANY .I\GREEMENTS .................................................................................. 10

FIDELITY BOND AND OTHER INSURANCE ............................................................... 12

TERRITORY AND PLAN OF OPERATION ................................................................... 12

GROWTH OF THE COMPANY ........................................................................................ 13

LOSS EXPERIENCE ........................................................................................................... 13

REINSURANCE ................................................................................................................... 14

ACCOUNTS AND RECORDS ............................................................................................ 17

STATUTORY DEPOSIT ..................................................................................................... 17

COMPLIANCE \VITH PRIOR EXAMINATION RECOMMENDATIONS ................ 18

SUBSEQUENT EVENTS ..................................................................................................... 18

FINANCIAL STATEMENTS .............................................................................................. 18

ASSETS ........................................................................................................................... 19

LIABILITIES, SURPLUS AND OTHER FUNDS ......................................................... 20

STATEMENT OF TNCOME ........................................................................................... 21

RECONCILIATION OF SURPLUS SINCE THE LAST EXAMINATION ................. 22

NOTES TO FINANCIAL STATEMENTS ........................................................................ 23

Note I -invested Assets ..................................................................................................... 23 Note 2 - Properties Occupied by the Company ................................................................. 2 3 Note 3 -Actuarial Resen;es ............................................................................................... 24 Note 4 - Surplus Notes ....................................................................................................... 24

SUMMARY OF COMMENTS AND RECOMMEND A TIO NS ...................................... 25

CONCLUSION ..................................................................................................................... 25

ACKNO\VLEDGMENT ...................................................................................................... 26

AFFIDAVIT .......................................................................................................................... 27

Mutual of Enumclaw Insurance Company

SALUTATION........................................................................................................................ 3SCOPE O EXAMINATION................................................................................................ 4COMPANY HISTORY.......................................................................................................... 5CORPORATE RECORDS.................................................................................................... 6MANAGEMENT AND CONTROL..................................................................................... 7INTERCOMPANY AGREEMENTS.................................................................................. 10 IDELITY BOND AND OTHER INSURANCE................................................................12TERRITORY AND PLAN O OPERATION....................................................................12GROWTH O THE COMPANY........................................................................................ 13LOSS EXPERIENCE........................................................................................................... 13REINSURANCE................................................................................................................... 14ACCOUNTS AND RECORDS............................................................................................ 17STATUTORY DEPOSIT..................................................................................................... 17COMPLIANCE WITH PRIOR EXAMINATION RECOMMENDATIONS.................18SUBSEQUENT EVENTS......................................................................................................18 INANCIAL STATEMENTS...............................................................................................18

ASSETS...........................................................................................................................19LIABILITIES, SURPLUS AND OTHER UNDS.........................................................20STATEMENT O INCOME.......................................................................................... 21RECONCILIATION O SURPLUS SINCE THE LAST EXAMINATION................ 22

NOTES TO INANCIAL STATEMENTS........................................................................ 23Note 1 InvestedAssets..................................................................................................... 23Note 2 Properties Occupied by the Company..................................................................23Note 3 Actuarial Reserves............................................................................................... 24Note 4 Surplus Notes....................................................................................................... 24

SUMMARY O COMMENTS AND RECOMMENDATIONS...................................... 25CONCLUSION..................................................................................................................... 25ACKNOWLEDGMENT...................................................................................................... 26A IDAVIT.......................................................................................................................... 27

TABLE O CONTENTS


August 28, 2019

Honorable Cameron Smith, Director Department of Consumer and Business Services Division of Financial Regulation State of Oregon 350 Winter Street NE Salem, Oregon 97301-3883

Dear Director:

In accordance with your instructions and guidelines in the National Association of Insurance

Commissioners (NAIC) Examiners Handbook, pursuant to ORS 731.300 and 731.302,

respectively, we have examined the business affairs and financial condition of

MUTUAL OF ENUMCLAW INSURANCE COMPANY 1460 \Veils Street

Enumclaw, \Vashington, 98022

NAIC Company Code 14761

Hereinafter referred to as the "Company." The following rep01i is respectfully submitted.

Mutual of Enumclaw Insurance Company 3

SALUTATI N

August 28, 2019

Honorable Cameron Smith, DirectorDepartment of Consumer and Business ServicesDivision of inancial RegulationState ofOregon350 Winter Street NESalem, Oregon 97301-3883

Dear Director;

In accordance with your instructions and guidelines in the National Association of Insurance

Commissioners (NAIC) Examiners Handbook, pursuant to ORS 731.300 and 731.302,

respectively, we have examined the business affairs and financial condition of

MUTUAL F ENUMCLAW INSURANCE C MPANY1460 Wells Street

Enumclaw, Washington, 98022

NAIC Company Code 14761

Hereinafter referred to as the "Company." The following report is respectfully submitted.


OF EXAMINATION

We have perfonned our regular, single-state, full-scope examination of Mutual of Enumclaw

Insurance Company. The examination was conducted in conjunction with the examination of a

subsidiary property and casualty insurer, Enumclaw Property and Casualty Insurance Company

and a separate report of examination will be prepared for that entity. The last examination of this

property and Casualty insurer was completed as of December 31, 2013. This examination covers

the period of January 1, 2014, to December 31, 2018.

We conducted our examination pursuant to ORS 731.300 and in accordance with ORS 731.302( I)

which allows the examiners to consider the guidelines and procedures in the NAIC Financial

Condition Examiners Handbook. The handbook requires that we plan and perfom1 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 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 Company's financial statements.


We have performed our regular, single-state, full-seope examination of Mutual of Enumelaw

Insurance Company. The examination was conducted in conjunction with the examination of a

subsidiary property and casualty insurer, Enumelaw Property and Casualty Insurance Company

and a separate report of examination will be prepared for that entity. The last examination of this

property and Casualty insurer was completed as of December 31, 2013. This examination covers

the period of January 1, 2014, to December 31, 2018.

We conducted our examination pursuant to ORS 731.300 and in accordance with ORS 731.302(1)

which allows the examiners to consider the guidelines and procedures in the NAIC Financial

Condition Examiners Handbook. 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.

SC PE F EXAMINATI N

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 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 Company's financial statements.

Mutual of Enumelaw Insurance Company

examination report includes significant findings of fact, as mentioned in ORS 731.302 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 separately communicated to

other regulators and the Company.

COMPANY HISTORY

The Company was originally incorporated in February, 1898, as the Farmers Mutual Insurance

Company under the laws of the state of Washington. The Company was reincorporated on August

11, 1899, under the Mutual Insurance Law of 1899, to form an assessment plan. The Company

was organized by, and run for the benefit of, its policyholder members with the purpose of insuring

farm and village buildings and personal property against loss by fire and lightning. The name was

changed to Mutual of Enumclaw Insurance Company in 1966.

In 2015, the Company reorganized itself pursuant to the provisions of ORS 731.363, ORS 732.015

- 732.175, and ORS 732.600 - 732.630 by doing the following: reincorporating as a domestic

insurer, forming an Oregon mutual insurance holding company, converting from an Oregon mutual

insurer into an incorporated Oregon stock insurer, and becoming a wholly owned subsidiary of the

Oregon mutual insurance holding company. Mutual policyholders of the Company or any other

subsidiary that issues mutual insurance policies, including Enumclaw Property & Casualty

Insurance Company, were granted membership interests in the mutual insurance holding company.

There are no plans to issue shares of the Company to the public, any director or officer of the

mutual holding company, or to any other persons except for the granting of membership interests.


This examination report includes significant findings of fact, as mentioned in ORS 731.302 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 separately communicated to

other regulators and the Company.

C MPANY HIST RY

The Company was originally incorporated in ebruary, 1898, as the armers Mutual Insurance

Company under the laws of the state ofWashington. The Company was reincorporated on August

11, 1899, under the Mutual Insurance Law of 1899, to form an assessment plan. The Company

was organized by, and run for the benefit of, its policyholder members with the purpose of insuring

farm and village buildings and personal property against loss by fire and lightning. The name was

changed to Mutual of Enumclaw Insurance Company in 1966.

In 2015, the Company reorganized itselfpursuant to the provisions ofORS 731.363, ORS 732.015

- 732.175, and ORS 732.600 - 732.630 by doing the following: reincorporating as a domestic

insurer, fonuing an Oregon mutual insurance holding company, converting from an Oregon mutual

insurer into an incorporated Oregon stock insurer, and becoming a wholly owned subsidiary of the

Oregon mutual insurance holding company. Mutual policyholders of the Company or any other

subsidiary that issues mutual insurance policies, including Enumclaw Property & Casualty

Insurance Company, were granted membership interests in the mutual insurance holding company.

There are no plans to issue shares of the Company to the public, any director or officer of the

mutual holding company, or to any other persons except for the granting ofmembership interests.


The Company now writes non-assessable policies, meaning that if the company has adverse losses

or expenses, it cannot assess the policyholders to replenish surplus.

Capitalization

The Company is a for-profit stock insurer owned by Mutual of Enumclaw Insurance Holding

Company, an Oregon non-profit corporation, however, no shares have been authorized or issued.

Instead, the Company reported $3,000,000 as the value of common capital stock funded from

unassigned surplus. Additionally, the Company reported issuance of three surplus notes issued to

non-affiliated entities, as follows:

Purchaser I Preferred Term Securities III, Ltd I Preferred Term Securities III, Ltd Federated Mutual Ins. Co.

Total

Issued 10/29/2003 10/29/2003 4/29/2016

Princigal $ 10,000,000

10,000,000 20,000,000

$ 40100Q1Q00

Rate Maturity Floating rate 10/29/2033 Floating rate 10/29/2033

7.40% 4/29/2046

All notes are callable in whole or in part after five years at the Company's option. Both the 2003

notes are hedged through a 10-year interest rate swap, with an effective rate of7.30% and 7.20%,

respectively. See Note 4 - Surplus Notes below for a description.

Dividends to Stockholders and Other Distributions

During the period under examination, the Company did not declare or pay any dividend to its

stockholder or make any distribution.

CORPORA TE RECORDS

Board Minutes

In general, the review of Board meeting minutes of the Company indicated that the minutes support

the transactions of the Company and clearly describe the actions taken by its directors. A quorum


The Company now writes non-assessable policies, meaning that if the company has adverse losses

or expenses, it cannot assess the policyholders to replenish surplus.

Capita ization

The Company is a for-profit stock insurer owned by Mutual of Enumclaw Insurance Holding

Company, an Oregon non-profit corporation, however, no shares have been authorized or issued.

Instead, the Company reported $3,000,000 as the value of common capital stock funded from

unassigned surplus. Additionally, the Company reported issuance of three surplus notes issued to

non-affiliated entities, as follows:

Purchaser Issued Principal Rate MaturityI Preferred Term Securities III, Ltd 10/29/2003 $ 10,000,000 loating rate 10/29/2033I Preferred Term Securities III, Ltd 10/29/2003 10,000,000 loating rate 10/29/2033 ederated Mutual Ins. Co. 4/29/2016 20,000,000 7.40% 4/29/2046

Total $ 40.000.000

All notes are callable in whole or in part after five years at the Company’s option. Both the 2003

notes are hedged through a 10-year interest rate swap, with an effective rate of 7.30% and 7.20%,

respectively. See Note 4 - Surplus Notes below for a description.

Dividends to Stockho ders and Other Distributions

During the period under examination, the Company did not declare or pay any dividend to its

stockholder or make any distribution.

C RP RATE REC RDS

Board Minutes

In general, the review ofBoard meeting minutes ofthe Company indicated that the minutes support

the transactions of the Company and clearly describe the actions taken by its directors. A quorum


defined by the Company's Bylaws, met at all of the meetings held during the period under

review.

The Company's Bylaws autho1ize the Board to establish committees as it deems necessary.

Further, the Company's Board has created committees that oversee and support the Mutual of

Enumclaw Insurance Group; an Audit Committee, a Finance Committee, a Board Governance

Committee, and an Investment Committee.

The minutes indicated the Board directly approves the CEO's compensation through its

Compensation Committee and indirectly approves the compensation of senior executives through

approval of an Annual Perfonnance Compensation Plan. This process complies with the

provisions of ORS 732.320(3).

Articles o(Incorporation

The Company's restated Articles of Incorporation were most recently amended on August 14,

2014, to reincorporate as an Oregon domestic for-profit stock insurance company. The Articles of

Incorporation confonned to the Oregon Insurance Code.

Bylaws

The Company's Bylaws were last restated on February 16, 2016, and were amended and restated

to make minor changes associated with its conversion. The Bylaws conformed to Oregon statutes.

MANAGEMENT AND CONTROL

Board o(Directors

The Bylaws, in Article III, state the affairs of the Company shall be managed by the Board of not

less than seven (7) and not more than fourteen (14), the specific number to be set by resolution of


as defined by the Company’s Bylaws, met at all of the meetings held during the period under

review.

The Company’s Bylaws authorize the Board to establish committees as it deems necessary.

urther, the Company’s Board has created committees that oversee and support the Mutual of

Enumclaw Insurance Group; an Audit Committee, a inance Committee, a Board Governance

Committee, and an Investment Committee.

The minutes indicated the Board directly approves the CEO’s compensation through its

Compensation Committee and indirectly approves the compensation of senior executives through

approval of an Annual Perfonnance Compensation Plan. This process complies with the

provisions of ORS 732.320(3).

Artic es ofIncorporation

The Company's restated Articles of Incorporation were most recently amended on August 14,

2014, to reincorporate as an Oregon domestic for-profit stock insurance company. The Articles of

Incorporation confonned to the Oregon Insurance Code.

By aws

The Company's Bylaws were last restated on ebruary 16, 2016, and were amended and restated

to make minor changes associated with its conversion. The Bylaws conformed to Oregon statutes.

MANAGEMENT AND C NTR L

Board ofDirectors

The Bylaws, in Article III, state the affairs of the Company shall be managed by the Board of not

less than seven (7) and not more than fourteen (14), the specific number to be set by resolution of


Board. As of December 3 I, 2018, the Company was governed by an eight member Board of

Directors as follows:

Name and Address Principal Affiliation Member Since

Anthony Lawrence Baruffi Chief Investment Officer 2014 Seattle, Washington McMillen & Company

Tadashi Andrew Fujimoto * Director & CEO 2007 Meridian, Idaho AmeriBen/BEC Group

Laurinda Mackenzie Chief Executive Officer 2015 Portland, Oregon Anesthesiology Group

Eric Paul Nelson President & CEO 2010 Kent, Washington Mutual of Enumclaw Insurance Co.

Donald Edward Powell Attorney & Partner 2008 Richland, Washini;,rton Powell & Gunter

Janey Lynn Repensek Chief Operating & Financial Officer 2007 Seattle, Washington Seattle Opera

Nonnan Joseph Smith President & CEO 2015 Roseburg, Oregon The Ford Family Foundation

David Merle Waldo President 1994 Panna, Idaho Field-Waldo Insurance, Inc.

*Chairman

The examiners noted David Merle Waldo was granted a term limit waiver by board resolution as

allowed in the Bylaws.

Under Oregon law, ORS 732.305, at least five (5) or one-quarter of the Directors, whichever is

fewer, must be residents of Oregon and a majority of Directors must be non-salaried officers of

the Company. The Company was in compliance with this statute. The Directors as a group had


the Board. As of December 31,2018, the Company was governed by an eight member Board of

Directors as follows:

Name and Address PrinciDal Affiliation Member Since

Anthony Lawrence BaruffiSeattle, Washington

Chief Investment OfficerMcMillen & Company

2014

Tadashi Andrew ujimoto *Meridian, Idaho

Director & CEOAmeriBen/BEC Group

2007

Laurinda MackenziePortland, Oregon

Chief Executive OfficerAnesthesiology Group

2015

Eric Paul NelsonKent, Washington

President & CEOMutual of Enumclaw Insurance Co.

2010

Donald Edward PowellRichland, Washington

Attorney & PartnerPowell & Gunter

2008

Janey Lynn RepensekSeattle, Washington

Chief Operating & inancial OfficerSeattle Opera

2007

Norman Joseph SmithRoseburg, Oregon

President & CEOThe ord amily oundation

2015

David Merle WaldoParma, Idaho

President ield-Waldo Insurance, Inc.

1994

*Chairman

The examiners noted David Merle Waldo was granted a term limit waiver by board resolution as

allowed in the Bylaws.

Under Oregon law, ORS 732.305, at least five (5) or one-quarter of the Directors, whichever is

fewer, must be residents of Oregon and a majority ofDirectors must be non-salaried officers of

the Company. The Company was in compliance with this statute. The Directors as a group had


in law, insurance, accounting and management, in accordance with the provisions of

ORS 731.386.

Officers

Ptincipal officers serving at December 31, 2018, were as follows:

Name

Eric Paul Nelson Andrew Chen Alice Park Cameron Cori Nicole Medrano Megan Anne Hall Richard Frank Hawkins Michele Jean Wyatt David Alan Wilson Sandra Jean Williams Tadashi Andrew Fuj irnoto Athan Michael Shinas

Conflict of Interest

Title

President Vice President & Treasurer Vice President, Personal Underwriting Vice President, Commercial Underwriting Vice President, Product Management Vice President, Marketing Vice President, Claims Vice President Infonnation Technology Vice President, Administration Board Chair Secretary

The Company's Board adopted a fonnal statement of policy concerning conflict of interest for all

Directors, officers and responsible employees. Board members, senior officers and key employees

are required to annually sign a conflict of interest declaration. From a review of the completed

conflict of interest statements, it appeared that the affected personnel perfonned due diligence in

completing the statements. No material conflicts of interest were noted.

Insurance Company Hohling System

An insurance holding company registration statement was filed by the Company in accordance

with the provisions of ORS 732.552, ORS 732.554, and Oregon Administrative Rule (OAR) 836-

027-0020(1 ). The following organizational chart depicts the relationships of the Company within

the holding company system:


experience in law, insurance, accounting and management, in accordance with the provisions of

ORS 731.386.

Officers

Principal officers serving at December 31, 2018, were as follows:

Name

Eric Paul NelsonAndrew ChenAlice Park CameronCori Nicole MedranoMegan Anne HallRichard rank HawkinsMichele Jean WyattDavid Alan WilsonSandra Jean WilliamsTadashi Andrew ujimotoAthan Michael Shinas

Title

PresidentVice President & TreasurerVice President, Personal UnderwritingVice President, Commercial UnderwritingVice President, Product ManagementVice President, MarketingVice President, ClaimsVice President Information TechnologyVice President, AdministrationBoard ChairSecretary

Conf ict ofInterest

The Company’s Board adopted a foraial statement of policy concerning conflict of interest for all

Directors, officers and responsible employees. Board members, senior officers and key employees

are required to annually sign a conflict of interest declaration. rom a review of the completed

conflict of interest statements, it appeared that the affected personnel performed due diligence in

completing the statements. No material conflicts of interest were noted.

Insurance Company Ho din2 System

An insurance holding company registration statement was filed by the Company in accordance

with the provisions ofORS 732.552, ORS 732.554, and Oregon Administrative Rule (OAR) 836-

027-0020(1). The following organizational chart depicts the relationships of the Company within

the holding company system:


of Enumclaw Insurance Holding Company an OR mutual holding company

100%

Mutual of Enumclaw Insurance Company an OR for-profit property/casualty stock insurer

100%

Enumclaw Property & Casualty Insurance Company an OR for-profit property/casualty stock insurer

A description of each of the entities above is as follows:

Mutual of Enumclaw Insurance Holding Company is an Oregon domiciled mutual holding

company. It was formed pursuant to the re-domestication from Washington to Oregon in 2015

and is the ultimate controlling entity. It owns 100% of the Company and would be the ultimate

controlling entity.

Enumclaw Property and Casualty Insurance Company (EPC) is an Oregon domiciled for-profit

multiple line P&C stock insurer that was incorporated on November 27, 2001, in the State of

Washington. The Company owns I 00% of the issued and outstanding shares.

INTERCOMPANY AGREEMENTS

The following agreements are in place between the Company and its subsidiary:

Intercompany Quota Share Reinsurance Agreement

Effective January I, 2013, an Intercompany Quota Share Reinsurance Agreement between the

Company and EPC was entered into. Under the tenns of the agreement, the Company assumes

Mutual of Enu111cl:.1w Insurance Company IO

A description of each of the entities above is as follows:

Mutual of Enumclaw Insurance Holding Company is an Oregon domiciled mutual holding

company. It was formed pursuant to the re-domestication from Washington to Oregon in 2015

and is the ultimate controlling entity. It owns 100% of the Company and would be the ultimate

controlling entity.

Enumclaw Property and Casualty Insurance Company (EPC) is an Oregon domiciled for-profit

multiple line P&C stock insurer that was incorporated on November 27, 2001, in the State of

Washington. The Company owns 100% of the issued and outstanding shares.

INTERC MPANY AGREEMENTS

The following agreements are in place between the Company and its subsidiary:

Intercompany Quota Share Reinsurance Agreement

Effective January 1, 2013, an Intercompany Quota Share Reinsurance Agreement between the

Company and EPC was entered into. Under the terms of the agreement, the Company assumes

Mutual of Enumclaw Insurance Company10

of all EPC gross premiums, losses and expenses. The Company is also liable for its pro rata

share of loss adjustment expenses, extra contractual obligations and losses in excess of policy

limits. EPC is required to report within 30 days following the end of each month all premiums

written and earned, ceding commissions, losses and LAE paid and incurred, salvage and

subrogation, and the outstanding loss and LAE reserve and premiums unearned at the end of the

month. Settlement of any outstanding balances in the intercompany accounts are due within 45

days following the end of each quaiier.

With the two entities commonly managed and staffed, expenses will be allocated between the

Company and EPC, taking into consideration factors such as premium volume, policy counts,

underwriting profitability, or any other factor deemed significant. The Company allows EPC a

ceding commission equivalent to the allocated expenses. The Agreement remains effective until

tenninated by either party, which requires 12 months' prior notice in writing.

Tax Allocation Agreement

Effective January 30, 2004, a Consolidated Federal Income Tax Sharing Agreement was entered

into between the Company and EPC. The agreement requires the two entities to allocate federal

income tax provisions on a separate company, reporting entity basis. Allocation is based on

separate return calculations with current credit for net losses. Amounts are to be settled within 90

days of the filing of the consolidated income tax return, or within 90 days of the receipt of a refund,

when a refund is due to the reporting entity's parent. The Agreement may be amended at any time

for provisions relating to changes in Statement of Statutory Accounting Principles or for changes

in state insurance laws and regulations.


100% of all EPC gross premiums, losses and expenses. The Company is also liable for its pro rata

share of loss adjustment expenses, extra contractual obligations and losses in excess of policy

limits. EPC is required to report within 30 days following the end of each month all premiums

written and earned, ceding commissions, losses and LAE paid and incurred, salvage and

subrogation, and the outstanding loss and LAE reserve and premiums unearned at the end of the

month. Settlement of any outstanding balances in the intercompany accounts are due within 45

days following the end of each quarter.

With the two entities commonly managed and staffed, expenses will be allocated between the

Company and EPC, taking into consideration factors such as premium volume, policy counts,

underwriting profitability, or any other factor deemed significant. The Company allows EPC a

ceding commission equivalent to the allocated expenses. The Agreement remains effective until

terminated by either party, which requires 12 months’ prior notice in writing.

Tax Allocation Agreement

Effective January 30, 2004, a Consolidated ederal Income Tax Sharing Agreement was entered

into between the Company and EPC. The agreement requires the two entities to allocate federal

income tax provisions on a separate company, reporting entity basis. Allocation is based on

separate return calculations with current credit for net losses. Amounts are to be settled within 90

days ofthe filing of the consolidated income tax return, or within 90 days of the receipt of a refund,

when a refund is due to the reporting entity’s parent. The Agreement may be amended at any time

for provisions relating to changes in Statement of Statutory Accounting Principles or for changes

in state insurance laws and regulations.

Mutual of Enumclaw Insurance Company1 1

BOND AND OTHER INSURANCE

The examination of insurance coverages involved a review of adequacy of limits and retentions,

and the solvency of the insurers providing the coverages. The insurance coverages are provided

through insurance policies issued by unaffiliated carriers. Coverage protected just the company.

The group as a whole is insured up to $10,000,000 per occurrence, after a $75,000 deductible per

single loss, against losses from acts of dishonesty and fraud by its employees and agents. Fidelity

bond coverage was found to meet the coverage recommended by the NAIC.

Other insurance coverages in force at December 31, 2018, were found to be adequate, and are as

follows:

Cyber and Cyber Excess Policy Property General Liability Insurance company professional liability

Director's and officer's Automobile Liability Workers' compensation

TERRITORY AND PLAN OF OPERATION

The Company is licensed in the States of in Alaska, Arizona, Colorado, Idaho, Montana, Nevada,

New Mexico, Oregon, Utah, and Washington. Direct premiums written in 2018 were:

State Direct Premiums Written Percentage

Arizona $ 35,476,010 10.8% Idaho 32,250,132 9.8% Montana 4,280,060 1.3% Oregon 61,271,878 18.7% Utah 23,081,805 7.0% Washington 171,490,524 52.3% Total $ 327,850,409 100.0%

The following is a breakdown of the direct premiums written in 2018:


FIDELITY B ND AND THER INSURANCE

The examination of insuranee coverages involved a review of adequacy of limits and retentions,

and the solvency of the insurers providing the coverages. The insurance coverages are provided

through insurance policies issued by unaffiliated carriers. Coverage protected just the company.

The group as a whole is insured up to $10,000,000 per occurrence, after a $75,000 deductible per

single loss, against losses from acts of dishonesty and fraud by its employees and agents. idelity

bond coverage was found to meet the coverage recommended by the NAIC.

Other insurance coverages in force at December 31, 2018, were found to be adequate, and are as

follows:

Cyber and Cyber Excess PolicyPropertyGeneral LiabilityInsurance company professional liability

Director’s and officer’sAutomobile LiabilityWorkers’ compensation

TERRITOR AND PLAN OF OPERATIONThe Company is licensed in the States of in Alaska, Arizona, Colorado, Idaho, Montana, Nevada,

New Mexico, Oregon, Utah, and Washington. Direct premiums written in 2018 were;

State Direct Premiums Written Percentage

Arizona $ 35,476,010 10.8%Idaho 32,250,132 9.8%Montana 4,280,060 1.3%Oregon 61,271,878 18.7%Utah 23,081,805 7.0%Washington 171.490,524 52.3%Total S 327.850.409 100.0%

The following is a breakdown of the direct premiums written in 2018:


of Business Premium Percentage

Fire $ 1,733,255 0.5% Allied lines 1,439,943 0.4% Farmowners multiple peril 34,491,487 10.5% Homeowners multiple peril 62,147,874 18.9% Commercial multiple peril 62,856,217 19.2% Inland marine 3,536,036 1.1% Earthquake 339,416 0.1% Other liability - occurrence 10,886,569 ,., ,., 01,

.),.)/o

Other liability - claims-made 258,582 0.1% Products liability - occurrence 144,665 0.0% Private passenger auto liability 68,336,626 20.8% Commercial auto liability 32,444,844 9.9% Auto physical damage 46,299,082 14. l % Burglary and theft 31,461 0.0% Boiler and machinery 2 904 352 0.5% Totals $ 3771850,409 100.0%

GRO\VTH OF THE COMPANY

Growth of the Company over the past five years is reflected in the following schedule. Amounts

were derived from Company's armual statements, except in those years where a report of

examination was published by the Oregon Division of Financial Regulation.

Capital and Net Income Year Assets Liabilities Surplus (Loss)

2014 666,731,799 363,808,362 302,923,437 11,263,408 2015 696,996,745 406,969,568 290,027,177 (11,587,075) 2016 745,340,168 419,009,473 326,330,695 9,920,101 2017 748,274,123 409,998,306 338,275,817 7,455,254 2018* 765,757,463 435,947,316 329,810,147 6,134,839

*Per examination

LOSS EXPERIENCE

The following exhibit reflects the annual underwriting results of the Company over the last five

years. The amounts were obtained from copies of the Company's filed annual statements and,

· where indicated, from the previous examination reports.


Lines of Business Premium Percentage

ire $ 1,733,255 0.5%Allied lines 1,439,943 0.4% armowners multiple peril 34,491,487 10.5%Homeowners multiple peril 62,147,874 18.9%Commercial multiple peril 62,856,217 19.2%Inland marine 3,536,036 1.1%Earthquake 339,416 0.1%Other liability - occurrence 10,886,569 3.3%Other liability - claims-made 258,582 0.1%Products liability - occurrence 144,665 0.0%Private passenger auto liability 68,336,626 20.8%Commercial auto liability 32,444,844 9.9%Auto physical damage 46,299,082 14.1%Burglary and theft 31,461 0.0%Boiler and machinery 2,904.352 0.5%Totals $ 327.850.409 100.0%

GR WTH F THE C MPANY

Growth of the Company over the past five years is refleeted in the following sehedule. Amounts

were derived from Company’s annual statements, except in those years where a report of

examination was published by the Oregon Division of inancial Regulation.

Capital and Net IncomeYear Assets Liabilities Surplus (Loss)

2014 666,731,799 363,808,362 302,923,437 11,263,4082015 696,996,745 406,969,568 290,027,177 (11,587,075)2016 745,340,168 419,009,473 326,330,695 9,920,1012017 748,274,123 409,998,306 338,275,817 7,455,2542018* 765,757,463 435,947,316 329,810,147 6,134,839

*Per examination

L SS EXPERIENCE

The following exhibit reflects the annual underwriting results of the Company over the last five

years. The amounts were obtained from copies of the Company's filed annual statements and,

where indicated, from the previous examination reports.


(2) (3) (2)+(3)/(1) Losses and LAE Other Underwriting Combined

Year Premium Earned Incurred ExQenses Incurred Ratio

2014 339,550,834 231,136,426 113,551,678 l 0l.5~lo 2015 362,930,142 2~1,153,181 117,670,405 109.9% 2016 379,598,079 265,883,657 122,067,758 102.2% 2017 388,754,496 281,422,017 125,080,295 104.Mlo *2018 403,091,402 284,020,807 131,784,279 103.2%

*Per examination

A combined ratio of more than l 00% would indicate an underwriting loss. The Company reported

net underwriting 1 osses in each of the past five years.

REINSURANCE

AssumQtion Agreement

An Intercompany Quota Share Reinsurance Agreement between the Company and EPC was

described under intercompany agreements above.

Ceded

The Company uses external reinsurers to secure additional capacity in its capital and surplus level

with two annual renewal dates of July 1st and January 1st to ensure maximum overlapping coverage.

The property aggregate program has an annual renewal date of January I st and covers wildfires

and windstonns with higher maximum limits. The property program has an annual renewal date

of July l st and covers larger catastrophic events. The casualty program has an annual renewal date

of July l st and covers smaller claims with a required $1 million retention. The terrorism aggregate

program has an annual renewal date of July l st covering events related to terrorism. This program

was discontinued effective July 1, 2019. All treaties include Enumclaw Property & Casualty

Insurance Company and are syndicated across multiple reinsurers of excellent financial strength.


(1) (2)Losses and LAE

(3) ther Underwriting

(2)+(3)/(l)Combined

Year Premium Earned Incurred Expenses Incurred Ratio

2014 339,550,834 231,136,426 113,551,678 101.5%2015 362,930,142 281,153,181 117,670,405 109.9%2016 379,598,079 265,883,657 122,067,758 102.2%2017 388,754,496 281,422,017 125,080,295 104.6%*2018 403,091,402 284,020,807 131,784,279 103.2%

*Per examination

A combined ratio ofmore than 100% would indicate an underwriting loss. The Company reported

net underwriting losses in each of the past five years.

REINSURANCE

Assumption Agreement

An Intercompany Quota Share Reinsurance Agreement between the Company and EPC was

described under intercompany agreements above.

Ceded

The Company uses external reinsurers to secure additional capacity in its capital and surplus level

with two annual renewal dates ofJuly and January to ensure maximum overlapping coverage.

The property aggregate program has an annual renewal date of January and covers wildfires

and windstomis with higher maximum limits. The property program has an annual renewal date

ofJuly and covers larger catastrophic events. The casualty program has an annual renewal date

ofJuly and covers smaller claims with a required $1 million retention. The terrorism aggregate

program has an annual renewal date of July covering events related to terrorism. This program

was discontinued effective July 1, 2019. All treaties include Enumclaw Property & Casualty

Insurance Company and are syndicated across multiple reinsurers of excellent financial strength.


Company has a requirement to only work with reinsurers who are rated A or A+ by AM Best.

The reinsurance structure is as follows:

January I, 2018 through December 31, 2018

• Property Catastrophe Aggregate Layer 1 - $ 7 .5 million in excess of $10.0 million, with a

$1 million franchise deductible. Includes coverage for losses resulting from an act of

terrorism.

• Property Catastrophe Aggregate Layer 2 - $5.0 million in excess of $17.5 million, with a

$1 million franchise deductible for all loss occurrences during the term of the contract. The

maximum contribution to the ultimate net loss from any one-loss occurrence is $7.5

million. Includes coverage for losses resulting from an act of terrorism.


$1 million franchise deductible for all loss occurrences during the term of the contract.

Includes coverage for losses resulting from an act of terrorism.

• Aggregate Stop Loss - $15.0 million in excess of 67.0% accident year loss ratio. The

reinsurer is liable for the amount by which the Company's aggregate Ultimate Net Loss

occurring during the tenn of the contract exceeds 67% of the Company's gross net earned

premium income during the contract term limited to $15.0 million. Unallocated LAE is

limited to no more than 7% of the Company's ,gross net earned premium income for the

contract tenn.


The Company has a requirement to only work with reinsurers who are rated A or A+ by AM Best.

The reinsurance structure is as follows:

January K 2018 through December 31, 2018


$1 million franchise deductible. Includes coverage for losses resulting from an act of

terrorism.


$ 1 million franchise deductible for all loss occurrences during the term ofthe contract. The

maximum contribution to the ultimate net loss from any one-loss occurrence is $7.5

million. Includes coverage for losses resulting from an act of terrorism.


$1 million franchise deductible for all loss occurrences during the terni of the contract.

Includes coverage for losses resulting from an act of terrorism.•

• Aggregate Stop Loss - $15.0 million in excess of 67.0% accident year loss ratio. The

reinsurer is liable for the amount by which the Company’s aggregate Ultimate Net Loss

occurring during the tenn of the contract exceeds 67% of the Company’s gross net earned

premium income during the contract tenn limited to $15.0 million. Unallocated LAE is

limited to no more than 7% of the Company’s gross net earned premium income for the

contract term.


1, 2018 through July 1, 2019

• Property Per risk - $6.5 million in excess of $1.0 million, with 5 free reinstatements.

Reinsurer limited to $13.0 million for each loss occmTence, and to $39.0 million for any

and all claims arising from all losses and risks occurring during the contract term.

• Property Occurrence (Risk/Catastrophe) - $7.5 million in excess of $7.5 million for any

single occurrence. One free reinstatement and one at 100%. Coverage for losses, which

result from an Act of Terrorism.

• Property Catastrophe - $65.0 million in excess of $15.0 million for each and every loss

occurrence, and one free reinstatement at 100%. Coverage for losses, which result from

an act of Terrorism.

• Terrorism Stand-Alone Aggregate Excess of Loss - $10.0 million in excess of $7.5 million

in the aggregate for all losses during the contract tenn.

• Casualty Per Occurrence Layer 1 - $6.0 million in excess of $1.0 million, free and

unlimited reinstatements. All terrorism losses including Nuclear, Chemical, Biological and

Radiology events are covered up to $18.0 million.

• Casualty Per Occurrence Layer 2 - $13.0 million in excess of $7.0 million, one

reinstatement at 100%. Nuclear, Chemical, Biological and Radiology events arc covered

up to $13 .0 million. Reinsurer limited to $26.0 million for all losses occurring during the

term of the contract.


July K 2018 through July 1,2019

• Property Per risk - $6.5 million in excess of $1.0 million, with 5 free reinstatements.

Reinsurer limited to $13.0 million for each loss occurrence, and to $39.0 million for any

and all claims arising from all losses and risks occurring during the contract term.

• Property Occurrence (Risk/Catastrophe) - $7.5 million in excess of $7.5 million for any

single occurrence. One free reinstatement and one at 100%. Coyerage for losses, which

result from an Act ofTerrorism.

• Property Catastrophe - $65.0 million in excess of $15.0 million for each and eyery loss

occurrence, and one free reinstatement at 100%. Coyerage for losses, which result from

an act ofTerrorism.

• Terrorism Stand-Alone Aggregate Excess ofLoss - $10.0 million in excess of$7.5 million

in the aggregate for all losses during the contract tenn.

• Casualty Per Occurrence Layer 1 - $6.0 million in excess of $1.0 million, free and

unlimited reinstatements. All terrorism losses includingNuclear, Chemical, Biological and

Radiology eyents are coyered up to $18.0 million.

Casualty Per Occurrence Layer 2 - $13.0 million in excess of $7.0 million, one

reinstatement at 100%. Nuclear, Chemical, Biological and Radiology events are covered

up to $13.0 million. Reinsurer limited to $26.0 million for all losses occurring during the

term of the contract.


Retention

The Company did not retain risk on any one subject in excess of 10% of its surplus as regards

policyholders. The Company complied with the provisions of ORS 731.504.

Insolvency Clause

The reinsurance agreements each contained an insolvency clause that specified payments would

be made to a statutory successor without diminution in the event of insolvency in compliance with

ORS 731.508(3).

ACCOUNTS AND RECORDS

In general, the Company's records and source documentation supported the amounts presented in

the Company's December 31, 2018, annual statement and were maintained in a manner by which

the financial condition was readily verifiable pursuant to the provisions of ORS 733.170. The

Company has a system in place to account for unclaimed funds and the Company has filed the

reports on abandoned property pursuant to the provisions of ORS 98.352.

STATUTORY DEPOSIT

As of the examination date, the Company maintained two U.S. Treasury Notes with a par value of

$1 million each on file with the Oregon Division of Financial Regulation. In addition, the

Company reported one U.S. Treasury Bond with a par value of $200,000 as a deposit held for the

Nevada Department of Business and Industry and one U.S. Treasury Bond with a par value of

$315,000 held for the New Mexico Office of Superintendent of Insurance. The Oregon deposit

was verified from the records of the Division of Financial Regulation. All other deposits were

confirmed through Wells Fargo Bank.


Risk Retention

The Company did not retain risk on any one subject in excess of 10% of its surplus as regards

policyholders. The Company complied with the provisions of ORS 731.504.

Insolvency Clause

The reinsurance agreements each contained an insolvency clause that specified payments would

be made to a statutory successor without diminution in the event of insolvency in compliance with

ORS 731.508(3).

ACC UNTS AND REC RDS

In general, the Company's records and source documentation supported the amounts presented in

the Company's December 31, 2018, annual statement and were maintained in a manner by which

the financial condition was readily verifiable pursuant to the provisions of ORS 733.170. The

Company has a system in place to account for unclaimed funds and the Company has filed the

reports on abandoned property pursuant to the provisions of ORS 98.352.

STATUT RY DEP SIT

As of the examination date, the Company maintained two U.S. Treasury Notes with a par value of

$1 million each on file with the Oregon Division of inancial Regulation. In addition, the

Company reported one U.S. Treasury Bond with a par value of $200,000 as a deposit held for the

Nevada Department of Business and Industry and one U.S. Treasury Bond with a par value of

$315,000 held for the New Mexico Office of Superintendent of Insurance. The Oregon deposit

was verified from the records of the Division of inancial Regulation. All other deposits were

confinned through Wells argo Bank.


WITH PRIOR EXAMINATION RECOMMENDATIONS

There were three comments and recommendations made from the prior examination performed by

the Washington Office of the Insurance Commissioner. All have since been complied with. A

follow-up review was not made for this company.

SUBSEQUENT EVENTS

There were no events subsequent to the examination date that would have a material impact on the

Company's solvency.

FINANCIAL STATEMENTS

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

Company with the Division of Financial Regulation and present the financial condition of the

Company for the period ending December 31, 2018. 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. These statements include:

Statement of Assets Statement of Liabilities, Surplus, and Other Funds Statement of Income Reconciliation of Capital and Surplus Since the last Examination


C MPLIANCE WITH PRI R EXAMINATI N REC MMENDATI NS

There were three comments and recommendations made from the prior examination perfomied by

the Washington Office of the Insurance Commissioner. All have since been complied with. A

follow-up review was not made for this company.

SUBSEQUENT EVENTS

There were no events subsequent to the examination date that would have a material impact on the

Company’s solvency.

FINANCIAL STATEMENTS

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

Company with the Division of inancial Regulation and present the financial condition of the

Company for the period ending December 31, 2018. 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. These statements include;

Statement ofAssetsStatement of Liabilities, Surplus, and Other undsStatement of IncomeReconciliation ofCapital and Surplus Since the last Examination


OF ENUMCLA\V INSURANCE COMPANY ASSETS

As of December 31, 2018

Balance per Examination Balance per Assets Company Adjustments Examination Notes

Bonds $ 490,997,409 $ $ 490,997,409 Common stocks 81,396,302 81,396,302 Mortgage loans on real estate: other than first liens 100,475 100,475 Properties occupied by the company 5,278,111 5,278,111 2 Cash, cash equivalents and short-term investments 21,903,535 21,903,535 Aggregate write-ins for invested assets Subtotal, cash and invested assets 599,675,832 $ 599,675,832

Investment income due and accrued 3,641,565 3,641,565 Premiums and considerations

Uncollected premiums, agents' balances in course of collection 16,054,977 16,054,977 Deferred premiums, agents' balances and installments not yet due 88,969,797 88,969,797

Reinsurance Amounts recoverable from reinsurers 1,705,312 1,705,312

Current FIT recoverable 592,499 592,499 Net deferred tax assets 13,720,034 13,720,034 EDP equipment and software 756,796 756,796 Aggregate write-ins for other than invested assets 40,640,651 40,640,651 Total Assets $ 765,757,463 $ $ 765,757,463


MUTUAL O ENUMCLAW INSURANCE COMPANYASSETS


AssetsBalance perCompany

ExaminationAdjustments

Balance perExamination Notes

Bonds $ 490,997,409 $ $ 490,997,409 1Common stocks 81,396,302 81,396,302 1Mortgage loans on real estate: otherthan first liensProperties occupied by the company

100,4755,278,11 1

100,4755,278,111 2

Cash, cash equivalents and short-terminvestmentsAggregate write-ins for invested assets

21,903,535'

21,903,535

Subtotal, cash and invested assets 599.675.832 $ 599.675.832

Investment income due and accrued 3,641,565 _ 3,641,565Premiums and considerationsUncollected premiums, agents’balances in course of collection 16,054,977 16,054,977Deferred premiums, agents’ balancesand installments not yet due 88,969,797 88,969,797

ReinsuranceAmounts recoverable from reinsurers 1,705,312 1,705,312

Current IT recoverableNet deferred tax assets

592,49913,720,034

592,49913,720,034

EDP equipment and software 756,796 756,796Aggregate write-ins for other thaninvested assets 40.640.651 40.640.651Total Assets $ 765.757.463 $ $ 765.757.463


-

-

-

-

-

OF ENUMCLA\V INSURANCE COMPANY LIABILITIES, SURPLUS AND OTHER FUNDS


Balance per Examination Balance per Company Adjustments Examination Notes

Losses $ 159,082,048 $ $ 159,082,048 3 Loss adjustment expenses 36,852,263 36,852,263 3 Commissions payable, contingent commissions and other similar charges 12,445,145 12,445,145 Other expenses 19,886,243 19,886,243 Taxes, licenses and fees ( excl. FIT) 836,436 836,436 Unearned premiums 199,808,312 199,808,312 Advance premium 3,338,159 3,338,159 Ceded reinsurance premium payable 2,886,539 2,886,539 Funds held by company under reinsurance treaties 550,002 550,002 Provision for reinsurance 3,743 3,743 Payable to parent, subsidiaries and affiliates 128,423 128,423 Payable for securities 130,003 130,003 Aggregate write-ins for liabilities Total Liabilities $435,947,316 $ $435,947,316

Common capital stock $ 3,000,000 $ $ 3,000,000 Gross paid-in and contributed capital Surplus notes 40,000,000 40,000,000 4 Unassigned funds (surplus) 286,810,147 286,810,147 Surplus as regards policyholders 329,810,147 329,810,147

Total Liabilities, Surplus and other Funds $ 765,757,463 $ $765,757,463


MUTUAL O ENUMCLAVV INSURANCE COMPANYLIABILITIES, SURPLUS AND OTHER UNDS


Balance per Examination Balance perCompany Adjustments Examination

Losses $ 159,082,048 $ $ 159,082,048Loss adjustment expensesCommissions payable, contingent

36,852,263 36,852,263

conmiissions and other similar charges 12,445,145 12,445,145Other expenses 19,886,243 19,886,243Taxes, licenses and fees (excl. IT) 836,436 836,436Unearned premiums 199,808,312 199,808,312Advance premium 3,338,159 3,338,159Ceded reinsurance premium payable unds held by company under reinsurance

2,886,539 2,886,539

treaties 550,002 550,002Provision for reinsurance 3,743 3,743Payable to parent, subsidiaries and affdiates 128,423 128,423Payable for securities 130,003 130,003Aggregate write-ins for liabilitiesTotal Liabilities $ 435,947,316 $ $ 435,947,316

Common capital stock $ 3,000,000 $ $ 3,000,000Gross paid-in and contributed capitalSurplus notes 40,000,000 40,000,000Unassigned funds (surplus) 286.810.147 286.810.147Surplus as regards policyholders 329.810.147 _ 329.810.147Total Liabilities, Surplus and other unds $ 765.757.463 $ $ 765.757.463

Notes

33


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-

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--

-

OF ENUMCLA\.V INSURANCE COMPANY STATEMENT OF INCOME

For the Year Ended December 31, 2018

Underwriting income Premium earned

Deductions Losses incurred Loss adjustment expenses incurred Other underwriting expenses Aggregate write-ins for underwriting deductions

Total underwriting deductions Net underwriting gain or (loss)

Investment income

Net investment income earned Net realized gains or (losses)

Net investment gain or (loss)

Other income Net gain or (loss) from agents' or premium balances charges off Finance and service charges not included in premiums Aggregate write-ins for miscellaneous income Total other income

Net income before dividends to policyholders and income taxes

Dividends to policyholders Federal income taxes incurred Net income


Balance per Company

$403,091,402

244,887,249 39,133,558

131,784,279

415,805,086 (12,713,684)

11,834,904 6 778 418

18,613,322

(254,865)

1,792,854

(2,808,?02) (1,270,212)

4,629,426

(1,505,413)

$ 6,134.839

21

Examination Adjustments

$

$

Balance per Examination

$ 403,091,402

244,887,249 39,133,558

131,784,279

415,805,086 (12,713,684)

11,834,904 6 778 418

18,613,322

(254,865)

1,792,854

(2,808,202) (1,270,212)

4,629,426

(1,505,413)

$ 6,134.839

Notes

MUTUAL O ENUMCLAW INSURANCE COMPANYSTATEMENT O INCOME

or the Year Ended December 31, 2018

Balance perCompany

ExaminationAdjustments

Balance perExamination Notes

Underwriting incomePremium earned 403,091,402 403,091,402

DeductionsLosses incurredLoss adjustment expenses incurredOther underwriting expensesAggregate write-ins forunderwriting deductions

Total underwriting deductionsNet underwriting gain or (loss)

244,887,24939,133,558131,784,279

415.805,086(12,713,684)

244,887,24939,133,558131,784,279

415.805.086(12,713,684)

Investment income

Net investment income earnedNet realized gains or (losses)Net investment gain or (loss)

11,834,9046.778.41818,613,322

11,834,9046.778.41818,613,322

ther incomeNet gain or (loss) from agents’ orpremium balances charges off inance and service charges notincluded in premiumsAggregate write-ins for miscellaneousincomeTotal other income

Net income before dividends topolicyholders and income taxes

(254,865)

1,792,854

(2.808.202)(1.270.212)

4,629,426

(254,865)

1,792,854

(2.808.202)(1.270.212)

4,629,426

Dividends to policyholders ederal income taxes incurredNet income

(1.505.413)$ 6.134.839

(1.505.413)6.134.839


OF ENUMCLA\V INSURANCE COMPANY RECONCILIATION OF SURPLUS SINCE THE LAST EXAMINATION

For the Year Ended December 31,

2018 2017 2016 2015 2014

Surplus as regards policyholders, December 31, previous year $338,275.817 $326.330.695 $290,077.177 $302,923,437 $286,879.139

Net income (loss) 6,134,839 7,455,254 9,920,101 (11,587,075) 11,263,408 Change in net unrealized capital gains or (losses) (11,644,825) 3,992,750 2,112,776 (5,392,059) (2,638,230) Change in net deferred income tax (297,575) (6,686,783) (820,981) 2,737,680 1,968,893 Change in non-admitted assets (3,739,100) 2,474,255 5,545,566 3,786,149 6,988,286 Change in provision for reinsurance 15,539 (5,276) 381,867 (232,995) (142,456) Change in surplus notes 20,000,000 Cumulative effects of changes in accounting principles Capital changes:

Paid in 3,000,000 Transferred from surplus (Stock Dividend) Transferred to surplus

Surplus adjustments: Paid in Transferred to capital (Stock Dividend) Transferred from capital (3,000,000)

Distributions to parent ( cash) Change in treasury stock Examination adjustment Aggregate write-ins for gains and losses in surplus 1,065,453 4 714.9?2 {835,8]'.)} (2,207,960) {] .395.603} Change in surplus as regards policyholders for the year (8,465,670) l l,945,122 36.303.518 (12,896.260) 16.044.298

Surplus as regards policyholders, December 31, current year $329,810,147 $338,275,817 $326,330,695 $'.'90,0?7,177 $30?,923 437


MUTUAL O ENUMCLAVV INSURANCE COMPANYRECONCILIATION O SURPLUS SINCE THE LAST EXAMINATION

or the Year Ended December 31,

Surplus as regards policyholders,December 31, previous year

2018

$338,275,817

2017

$326,330,695

2016

$290,027,177

2015

$302,923,437

2014

$286,879,139

Net income (loss) 6,134,839 7,455,254 9,920,101 (11,587,075) 11,263,408Change in net unrealized capitalgains or (losses) (11,644,825) 3,992,750 2,112,776 (5,392,059) (2,638,230)Change in net deferred income tax (297,575) (6,686,783) (820,981) 2,737,680 1,968,893Change in non-admitted assets (3,739,100) 2,474,255 5,545,566 3,786,149 6,988,286Change in provision forreinsurance 15,539 (5,276) 381,867 (232,995) (142,456)Change in surplus notes 20,000,000Cumulative effects of changes inaccounting principles _ _ _ _ _Capital changes:

Paid in 3,000,000Transferred from surplus (StockDividend) . . . .Transferred to surplus

Surplus adjustments:Paid inTransferred to capital (StockDividend) .Transferred from capital (3,000,000)

Distributions to parent (cash)Change in treasury stockExamination adjustmentAggregate write-ins for gains andlosses in surplus 1.065.453 4.714.922 (835.812) (2.207.960) (1.395.603)Change in surplus as regardspolicyholders for the year (8.465.670) 11.945.122 36.303.518 (12.896.260) 16.044.298

Surplus as regards policyholders,December 31, current year $329,810,147 $338,275,817 $326,330,695 $290,027,177 $302,923,437


- - - -

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- - - -- - - - -- - - - -- - - - -

TO FINANCIAL STATEMENTS

Note 1 - Invested Assets

At year-end 2018, the Company's long-term bond investments were in US obligations, municipal obligations, US special revenue bonds and corporate issues. The Company did have a moderate exposure to mortgaged-backed and asset-backed securities. Most of MBS/ABS issues were investment rated, with a carrying book value of $134.8 million, which comprised 27.2% of the total long-term bond portfolio and 25.5% of all invested assets.

Common stocks included corporate issues and the equity in Enumclaw Property & Casualty Insurance Company.

Short-term deposits consisted of two money market mutual funds held in the custodial account at Wells Fargo Bank.

A comparison of the major investments over the past five years shows the following:

A B C Ratio Ratio Ratio Common Cash and Al B/ Cl

Year Bonds Stocks Short-term Total Assets Total Assets Total Assets

2014 * 416,528,297 76,677,349 34,881,252 62.5% 11.5% 5.2% 2015 414,916,078 76,915,742 39,918,087 59.5% 11.0% 5.7% 2016 472,988,050 70,995,245 35,153,450 63.5% 9.5% 4.7% 2017 485,011,118 85,764,335 15,163,138 64.8% 11.5% 2.0% 2018 * 490,997,409 81,396,302 21,903,535 64.1% 10.6% 2.9%

* Balance per examination

As of December 31, 2018, sufficient invested assets were invested in amply secured obligations of the United States, the State of Oregon, or in FDIC insured cash deposits, and the Company was in compliance with ORS 733.580.

Effective October 1, 2009 the Company entered into a custodial agreement with Wells Fargo Bank N.A. The agreement did not contain all of the relevant protections described in OAR 836-027-0200(4)(a) through (1).

I recommend the Company revise its custodial agreement with Wells Fargo Bank to include all of the relevant protections pursuant to the provisions of OAR 836-027-0200(4)(a) through (I).

Note 2 - Properties Occupied by the Company

Represents the book value of the Company's home office in Enumclaw, Washington, which includes both the remaining amortized cost of the building and the actual cost of the land.


N TES T FINANCIAL STATEMENTS

Note 1 InvestedAssets

At year-end 2018, the Company’s long-term bond investments were in US obligations, municipalobligations, US special revenue bonds and corporate issues. The Company did have a moderateexposure to mortgaged-backed and asset-backed securities. Most of MBS/ABS issues wereinvestment rated, with a carrying book value of $134.8 million, which comprised 27.2% of thetotal long-tema bond portfolio and 25.5% of all invested assets.

Common stocks included corporate issues and the equity in Enumclaw Property & CasualtyInsurance Company.

Short-temi deposits consisted of two money market mutual funds held in the custodial account atWells argo Bank.

A comparison of the major investments over the past five years shows the following:

A B C Ratio Ratio RatioCommon Cash and A/ B/ Cl

Year Bonds Stocks Short-term Total Assets Total Assets Total Assets

2014 * 416,528,297 76,677,349 34,881,252 62.5% 11.5% 5.2%2015 414,916,078 76,915,742 39,918,087 59.5% 11.0% 5.1%2016 472,988,050 70,995,245 35,153,450 63.5% 9.5% 4.7%2017 485,011,118 85,764,335 15,163,138 64.8% 11.5% 2.0%2018 * 490,997,409 81,396,302 21,903,535 64.1% 10.6% 2.9%

* Balance per examination

As ofDecember 31,2018, sufficient invested assets were invested in amply secured obligations ofthe United States, the State ofOregon, or in DIC insured cash deposits, and the Company was incompliance with ORS 733.580.

Effective October 1,2009 the Company entered into a custodial agreement with Wells argo BankN.A. The agreement did not contain all of the relevant protections described in OAR 836-027-0200(4)(a) through (1).

I recommend the Company revise its custodial agreement with Wells Fargo Bank to includeall of the relevant protections pursuant to the provisions of AR 836-027-0200(4)(a) through(!)•

Note 2 Properties Occupied by the Company

Represents the book value of the Company’s home office in Enumclaw, Washington, whichincludes both the remaining amortized cost of the building and the actual cost of the land.


3 -Actuarial Reserves

A review of the unpaid loss and LAE reserves for the Company was performed by David Dahl, FCAS, MAAA, Property & Casualty actuary for the Oregon Division of Financial Regulation. The review included loss and LAE reserves for Enumclaw Property & Casualty Insurance Company, which is 100% assumed by the Company. As part of the review, Mr. Dahl examined the supporting statements prepared by the Company's opining actuary, Derik Freihaut, FCAS, MAAA, Principle and Consulting Actuary for Pinnacle Actuarial Resources, Inc.

Mr. Dahl's review was based on the data, methods and calculations used in the Actuarial Report supporting the Actuarial Opinion as of December 31, 2018; the data, methods, and calculations used by the Company to establish its loss and LAE liabilities; the Company's reserve position as measured by the appointed actuary's range; and independent actuarial tests as necessary. He also relied on work performed by the examiners who reviewed the underlying data used to create the annual statement filing. He determined the following:

Unpaid Losses Unpaid Loss Adjustment Expenses

My Estimate $159,082,048

36,852,253

Annual Statement $159,082,048

36,852,253

The appointed actuary opined that the reserves for unpaid losses and LAE carried by the Company as of December 31, 2018 were reasonable. Mr. Dahl's total estimate concluded that total loss and LAE reserves were redundant by $5,000 on a net basis, which was immaterial in relation to the Company's surplus position. He concurred that the reserves of the Company were reasonably stated as of December 31, 2018.

Note 4-Surplus Notes

On October 29, 2003, the Company issued two separate surplus notes to I-Preferred Term Securities III, Ltd, a Cayman Islands company, for $10 million each, for a total of $20 million. Both surplus notes are due on October 29, 2033. The first one carries an interest rate of 3.95% plus LIBOR, and the second one 3.85% plus LIB OR. Any payment of principle or interest must be paid from unassigned surplus and is subject to approval by the Division of Financial Regulation.

On April 29, 2016, the Company issued a surplus notes to Federated Mutual Insurance Company, for $20 million. The surplus note is due on April 29, 2046. The note carries a fixed interest rate of 7 .40%. Any payment of principle or interest must be paid from unassigned surplus and is subject to approval by the Division of Financial Regulation.


Note 3 Actuarial Reserves

A review of the unpaid loss and LAE reserves for the Company was performed by David Dahl, CAS, MAAA, Property & Casualty actuary for the Oregon Division of inancial Regulation.The review included loss and LAE reserves for Enumclaw Property & Casualty InsuranceCompany, which is 100% assumed by the Company. As part of the review, Mr. Dahl examinedthe supporting statements prepared by the Company’s opining actuary, Derik reihaut, CAS,MAAA, Principle and Consulting Actuary for Pinnacle Actuarial Resources, Inc.

Mr. Dahl’s review was based on the data, methods and calculations used in the Actuarial Reportsupporting the Actuarial Opinion as of December 31, 2018; the data, methods, and calculationsused by the Company to establish its loss and LAE liabilities; the Company’s reserve position asmeasured by the appointed actuary’s range; and independent actuarial tests as necessary. ie alsorelied on work perfomied by the examiners who reviewed the underlying data used to create theannual statement filing. He determined the following:

Unpaid LossesUnpaid Loss Adjustment Expenses

My Estimate$159,082,04836,852,253

Annual Statement$159,082,04836,852,253

The appointed actuary opined that the reserves for unpaid losses and LAE carried by the Companyas ofDecember 31, 2018 were reasonable. Mr. Dahl’s total estimate concluded that total loss andLAE reserves were redundant by $5,000 on a net basis, which was immaterial in relation to theCompany’s surplus position. He concurred that the reserves of the Company were reasonablystated as ofDecember 31, 2018.

Note 4 Surplus Notes

On October 29, 2003, the Company issued two separate surplus notes to I-Preferred TermSecurities III, Ltd, a Cayman Islands company, for $10 million each, for a total of $20 million.Both surplus notes are due on October 29, 2033. The first one carries an interest rate of 3.95%plus LIBOR, and the second one 3.85% plus LIBOR. Any payment of principle or interest mustbe paid from unassigned surplus and is subject to approval by the Division of inancial Regulation.

On April 29, 2016, the Company issued a surplus notes to ederated Mutual Insurance Company,for $20 million. The surplus note is due on April 29, 2046. The note carries a fixed interest rateof 7.40%. Any payment of principle or interest must be paid from unassigned surplus and issubject to approval by the Division of inancial Regulation.


;,, .

SUMMARY OF COMMENTS AND RECOMMENDATIONS

There were no adjustments to the Company's surplus; however, the following is a summary of the

recommendations made in this report of examination.

Page

24 I recommend the Company revise its Custodial Agreement with Wells Fargo Bank to include all of the relevant protections pursuant to the provisions of OAR 836-0200-027( 4)( a) through (1).

CONCLUSION

During the five year period covered by this examination, the surplus of the Company has increased

from $286,879,139, as presented in the December 31, 2013, report of examination, to

$329,810,147, as shown in this report. The comparative assets and liabilities are:

Assets Liabilities Surplus

2018 December 31,

2013

$ 765,757,463 435,947,316

$ 329,810.147

$ 634,775,572 347,896,433

$286,879.139


Change

$130,981,891 88,050,883

$ 42,931.008

SUMMARY F C MMENTS AND REC MMENDATI NS

There were no adjustments to the Company’s surplus; however, the following is a summary of the

recommendations made in this report of examination.

Page

24 I recommend the Company revise its Custodial Agreement with Wells argo Bank toinclude all of the relevant protections pursuant to the provisions of OAR 836-0200-027(4)(a) through (1).

C NCLUSI N

During the five year period covered by this examination, the surplus of the Company has increased

from $286,879,139, as presented in the December 31, 2013, report of examination, to

$329,810,147, as shown in this report. The comparative assets and liabilities are:

December 31,

AssetsLiabilitiesSurplus

2018

$ 765,757,463435.947316

$ 329.810.147

2013

$ 634,775,572347.896.433

$ 286.879.139

Change

$130,981,89188.050.883

$ 42.931.008


I t,

ACKNO\VLEDGMENT

The cooperation and assistance extended by the officers and employees of the Company during

the examination process are gratefully acknowledged.

In addition to the undersigned, Tho Le, AFE, and Maanik C. Gupta, insurance examiners, and

David Dahl, FCAS, MAAA, Property & Casualty Actuary for the State of Oregon, Department of

Consumer and Business Services, Division of Financial Regulation, all participated in this

examination.

Respectfully submitted,

JM)~ Mark A. Giffin, CFE Senior Financial Examiner Division of Financial Regulation Department of Consumer and Business Services State of Oregon


ACKNOWLEDGMENT

The cooperation and assistance extended by the officers and employees of the Company during

the examination process are gratefully acknowledged.

In addition to the undersigned, Tho Le, A E, and Maanik C. Gupta, insurance examiners, and

David Dahl, CAS, MAAA, Property & Casualty Actuary for the State of Oregon, Department of

Consumer and Business Services, Division of inancial Regulation, all participated in this

examination.

Respectfully submitted.

Mark A. Giffin, C ESenior inancial ExaminerDivision of inancial RegulationDepartment ofConsumer and Business ServicesState ofOregon


ST ATE OF OREGON)

County of Marion)

Mark A. Giffin, CFE, being duly sworn, states as follows:

I. I have authority to represent the state of Oregon in the examination of Mutual of Enumclaw Insurance Company, Enumclaw, Washington.

2. The Division of Financial Regulation of the Department of Consumer and Business Services of the State of Oregon is accredited under the National Association of Insurance Commissioners Financial Regulation Standards and Accreditation.

3. I have reviewed the examination work papers and examination report. The examination of Mutual of Enumclaw Insurance Company was performed in a manner consistent with the standards and procedures required by the Oregon Insurance Code.

Mark A. Giffin, CFE Senior Financial Examiner Division of Financial Regulation Department of Consumer and Business Services State of Oregon

Subscribed and sworn to before me this I 1-

My Commission Expires: I z( l l /zJ

Mutual of Enumclaw lnsur:rncc Company 27

dayof De~ , 2019.

OFFICIAL STAMP SARA MARIE WARBURTON NOTARY PUBLIC· OREGON COMMISSION NO. 969549

_MY COMMISSION EXPIRES DECEMBER 17, 2021

AFFIDAVIT

STATE O OREGON)

County ofMarion)

Mark A. Giffin, CEE, being duly sworn, states as follows;

1. I have authority to represent the state ofOregon in the examination ofMutual ofEnumclawInsurance Company, Enumclaw, Washington.

2. The Division of inancial Regulation of the Department of Consumer and BusinessServices of the State of Oregon is accredited under the National Association of InsuranceCommissioners inancial Regulation Standards and Accreditation.

3. I have reviewed the examination work papers and examination report. The examination ofMutual of Enumclaw Insurance Company was performed in a manner consistent with thestandards and procedures required by the Oregon Insurance Code.

The affiant says nothing^rther.

Mark A. Giffin, CEESenior inancial ExaminerDivision of inancial RegulationDepartment of Consumer and Business ServicesState of Oregon

Subscribed and sworn to before me this T day of 2019.

T^OTary Public in and for'tE^state ofOregon

My Commission Expires: I Z-| 1 ^ ^Z1

OFF C AL STAMPSARA MAR E WARBURTONNOTARY PUBL C OREGONCOMM SS ON NO. 989549

MY COMM SS ON EXP RES DECEMBER 17 2021


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Documents

Report of Financial Examination Mutual of Enumclaw