«WINDHAVEN INSURANCE COMPANY MIAMI, FLORIDA AS OF DECEMBER 31, 2009 BY THE OFFICE OF INSURANCE REGULATION TABLE OF CONTENTS LETTER OF TRANSMITTAL ...»
REPORT ON EXAMINATION
WINDHAVEN INSURANCE COMPANY
DECEMBER 31, 2009
OFFICE OF INSURANCE REGULATION
TABLE OF CONTENTS
LETTER OF TRANSMITTAL
SCOPE OF EXAMINATION
SUMMARY OF SIGNIFICANT FINDINGS
CURRENT EXAM FINDINGS
PRIOR EXAM FINDINGS
DIVIDENDS TO STOCKHOLDERS
CAPITAL STOCK AND CAPITAL CONTRIBUTIONS
CONFLICT OF INTEREST
MANAGEMENT AND CONTROL
FIDELITY BOND AND OTHER INSURANCE
PENSION, STOCK OWNERSHIP AND INSURANCE PLANS
TERRITORY AND PLAN OF OPERATIONS
TREATMENT OF POLICYHOLDERS
PROFITABILITY OF COMPANY
ACCOUNTS AND RECORDS
INDEPENDENT AUDITOR AGREEMENT
INFORMATION TECHNOLOGY REPORT
FINANCIAL STATEMENTS PER EXAMINATION
LIABILITIES, SURPLUS AND OTHER FUNDS
STATEMENT OF INCOME
COMPARATIVE ANALYSIS OF CHANGES IN SURPLUS
COMMENTS ON FINANCIAL STATEMENTS
CAPITAL AND SURPLUS
SUMMARY OF RECOMMENDATIONS
TALLAHASSEE, FLORIDAMarch 31, 2011 Kevin M. McCarty Commissioner Office of Insurance Regulation State of Florida Tallahassee, Florida 32399-0326
Pursuant to your instructions, in compliance with Section 624.316, Florida Statutes, and in accordance with the practices and procedures promulgated by the National Association of Insurance Commissioners (NAIC), we have conducted an examination as of December 31, 2009,
of the financial condition and corporate affairs of:
This examination covered the period of January 1, 2009, through December 31, 2009. The Company was last examined by representatives of the Florida Office of Insurance Regulation (Office) as of December 31, 2008. This examination commenced with planning at the Office on December 6, 2010, to December 9, 2010. The fieldwork commenced on December 13, 2010, and concluded as of March 31, 2011.
This financial examination was a statutory financial examination conducted in accordance with the Financial Condition Examiners Handbook, Accounting Practices and Procedures Manual and annual statement instructions promulgated by the NAIC as adopted by Rules 69O-137.001(4) and 69O-138.001, Florida Administrative Code, with due regard to the statutory requirements of the insurance laws and rules of the State of Florida.
The Financial Condition Examiners Handbook requires that the examination be planned and performed to evaluate the financial condition and identify prospective risks of the Company by obtaining information about the Company including corporate governance, identifying and assessing inherent risks within the Company, and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation and management's compliance with Statutory Accounting Principles and annual statement instructions when applicable to domestic state regulations.
All accounts and activities of the Company were considered in accordance with the risk-focused examination process.
financial statements or other information of regulatory significance or requiring regulatory action.
The report comments on matters that involved departures from laws, regulations or rules, or which were deemed to require special explanation or description.
Current Exam Findings The following is a summary of material adverse findings, significant non-compliance findings, or material changes in the financial statements noted during this examination.
General The Company is a party to Consent Order No. 85477-06-CO, filed March 29, 2006, regarding the application for the issuance of a Certificate of Authority. (1) The Company did not make full disclosure of all companies owned directly, or indirectly, in the updates to the Holding Company Registration Statement; (2) did not have written and approved agreements in place for all affiliated transactions; and (3) did not have a formal, written security policy in place. Therefore the Company was not in compliance with Articles 17, 18, and 19 of this Consent Order.
Subsequent event: Effective January 1, 2010, the Company entered into a Rent Share Agreement with its affiliate, ASIM and its parent, Managers. Pursuant to the terms of the agreement, the Company is required to pay $5,000 per month, approximately 30%, of the total rent expense.
Effective February 1, 2011, the Company’s affiliates, Oakwood Software Insurance Solutions, LLC (OSIS) and ASIM, entered into a Software License Agreement. Under terms of the agreement, OSIS had developed a software package and granted a license to ASIM and agreed to provide a
1% of collected premium processed, with a minimum of $3,000 per month.
The Company did not maintain a claims procedure manual that included detailed procedures for handling each type of claim which was in violation of Section 626.9541(1) (i) 3a, Florida Statutes.
Subsequent Event: On June 30, 2011, the Company provided the Office with the Claims Manual in compliance with Section 626.9541(1) (i) 3a, Florida Statutes.
Affiliated Companies The Company was a member of an insurance holding company system as defined by Rule 69O-143.045(3), Florida Administrative Code. The Latest holding company registration statement filed with the State of Florida on June 17, 2010 did not disclose Pillar Reinsurance as an affiliated company, as required by Section 628.801 Florida Statutes, and Rule 69O-143.046, Florida Administrative Code.
Schedule Y part one and two of the Company’s 2009 and 2010 annual statement did not reflect all of its affiliates (Pillar Reinsurance) as required by the NAIC Annual Statement Instructions.
Custodial Agreement The Company did not have a formal written agreement with its custodian, Bank of America for the period of January 1, 2009 through February 9, 2009. Subsequent event: the Company established a formal written custodial agreement with its new custodian, Morgan Stanley Trust, N.A., entered into on February 9, 2009. The Company was in compliance with Rule 69O
Management The recorded minutes of the Investment Committee or Board did not adequately document the authorization or approval of Investments as required by Section 625.304, Florida Statutes The Company was in violation of Section 625.304, Florida Statutes, in that there was no evidence that the investments were approved by the Board of Directors (Board) or the investment committee.
Prior Exam Findings There were no material findings, exceptions or corrective actions to be taken by the Company for the examination as of December 31, 2008.
Effective March 1, 2010, the Company entered into a Management Agreement with Risk Services, LLC, a Virginia Limited Liability Company under which Risk Services, LLC is to provide financial reporting and administrative services. In accordance with the terms of the agreement, the services provided include the establishment and maintenance of an accounting system appropriate to the Company’s operations; cash management services for all non-claims operations activities;
preparation of financial statements; and the preparation of premium tax returns. In return for providing these services, the Company pays $80,000 per year with annual increases at the rate of 5% a year for the duration of the agreement. In the event that the Office removes the requirement for monthly filings, the annual fee will be reduced by $5,000.
General The Company was incorporated in Florida on December 23, 2005, and commenced business on February 1, 2006, as Windhaven Insurance Company.
The Company was party to Consent Order 85477-06-CO, with the Office, regarding the application for the issuance of a Certificate of Authority. The Company failed to comply with the following
provisions of this consent order:
The Company did not make full disclosure of all companies owned directly or indirectly on their updates to it’s Holding Company Registration Statement, pursuant to Article 17.
The Company did not have a written and approved agreements in place for all affiliated transactions, pursuant to Article 18.
The Company and its affiliated Managing General Agent (MGA) did not have a formal written security policy in place to protect the data and environment of the work being done for the Company, pursuant to Article 19.
The Company was authorized to transact private passenger auto liability and private passenger auto physical damage coverage in Florida on December 31, 2009.
The Articles of Incorporation and the Bylaws were not amended during the period covered by this examination.
Dividends to Stockholders
Control of the Company was maintained by its parent, Windhaven Mangers, Inc., a Florida Corporation, which owned 100% of the common stock issued by the Company. Windhaven Mangers, Inc. was wholly owned by Windhaven Holdings Ltd, a Bermuda based holding company. Windhaven Holdings Ltd is wholly owned by Jimmy Eric Whited.
The recorded minutes of the shareholder, Board, and certain internal committees were reviewed for the period under examination. The recorded minutes of the Board adequately documented its meetings and approval of Company transactions and events in accordance with Section 607.1601, Florida Statutes. The recorded minutes of the Investment Committee or Board did not adequately document the authorization of investments as required by Section 625.304, Florida Statutes. Investment transactions by the Company were not noted as approved by the Board on a timely basis in 2009.
Conflict of Interest The Company adopted a policy statement requiring annual disclosure of conflicts of interest in accordance with the NAIC Financial Condition Examiners Handbook adopted by Rule 69OFlorida Administrative Code.
Management The annual shareholder meeting for the election of directors was held in accordance with Sections
607.1601 and 628.231, Florida Statutes. Directors serving as of December 31, 2009, were:
Affiliated Companies The Company was a member of an insurance holding company system as defined by Rule 69O-143.045(3), Florida Administrative Code. The latest holding company registration statement was filed with the State of Florida on June 17, 2010, as required by Section 628.801, Florida Statutes, and Rule 69O-143.046, Florida Administrative Code. However, the Company was in violation of this Rule due to exclusion of Pillar Reinsurance, an affiliated company, in the filing.
shown below. Schedule Y part one and two of the Company’s 2009 and 2010 annual statements did not reflect all of its affiliates (Pillar Reinsurance) as required by the NAIC Annual Statement Instructions.
Executive Management and Claims Administration Agreement The Company entered into a Management and Claims Administration Agreement with its parent, Windhaven Managers, Inc. (Managers) on February 1, 2006, being further amended on November 1, 2007. Under terms of the agreement, Managers performed all executive management services on behalf of the Company for the administrative and managerial oversight of the MGA Agreement with an affiliate; claims administration services; and certain claim services not covered by the MGA Agreement. The term of the agreement was stated at three years with successive three year renewal terms. The costs incurred in 2009 for claims adjustment and other services were $946,818 and $184,582. As stipulated in the amendment to the agreement, the Company may recover a portion of outside legal fees and mediation costs incurred in excess of 2% of collected premiums. As a result, the reduction to the fee paid to Managers was $408,225 in 2009.
Managing General Agency Agreement The Company entered into a Managing General Agency Agreement with an affiliate, American Southwest Insurance Managers of Florida, LLC (ASIM) on December 30, 2005, further amended on January 1, 2007; November 1, 2007; and again on August 1, 2009; reflecting adjustments to the commission fees charged. In accordance with the Third Amendment, the term of the agreement commenced on February 1, 2006 and continues until January 31, 2012, with the option of renewal for additional three year periods. As stipulated, ASIM is to act as the exclusive managing general agent and is to produce, administer and manage the policies and provide other services including marketing, general ledger accounting, information services, product and underwriting development and management and catastrophic risk management on behalf of the Company. In accordance with the Third amendment, ASIM was paid, as commission, 12.5% of the annual direct collected
incurred under the agreement were $1,558,530 in addition to the per policy fees of $578,200.
Office Building Lease Agreement During 2009, the Company shared office space with two affiliated companies, ASIM and Managers, with ASIM named as the lessee. Although there was no rent sharing or cost allocation agreement in place during 2009, the Company paid $60,000 in rent expense during 2009.