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TRANSCRIPT
REPORT ON EXAMINATION
OF
ATTORNEYS’ TITLE INSURANCE FUND, INC.
ORLANDO, FLORIDA
AS OF
DECEMBER 31, 2006
BY THE OFFICE OF INSURANCE REGULATION
TABLE OF CONTENTS LETTER OF TRANSMITTAL..........................................................................................................-
SCOPE OF EXAMINATION...................................................................................................... 1 STATUS OF ADVERSE FINDINGS FROM PRIOR EXAMINATION ....................................................... 2
HISTORY ...................................................................................................................................... 4 GENERAL ..................................................................................................................................... 4 CAPITAL STOCK ........................................................................................................................... 4 PROFITABILITY OF COMPANY ...................................................................................................... 5 DIVIDENDS TO STOCKHOLDERS ................................................................................................... 5 MANAGEMENT............................................................................................................................. 5 CONFLICT OF INTEREST PROCEDURE............................................................................................ 8 CORPORATE RECORDS ................................................................................................................. 8 ACQUISITIONS, MERGERS, DISPOSALS, DISSOLUTIONS, AND PURCHASE OR SALES THROUGH REINSURANCE.............................................................................................................................. 8 SURPLUS DEBENTURES ................................................................................................................ 8
AFFILIATED COMPANIES ...................................................................................................... 9
ORGANIZATIONAL CHART ................................................................................................. 10 TAX ALLOCATION AGREEMENT................................................................................................. 11
FIDELITY BOND AND OTHER INSURANCE..................................................................... 11
PENSION, STOCK OWNERSHIP AND INSURANCE PLANS .......................................... 12
STATUTORY DEPOSITS......................................................................................................... 12
INSURANCE PRODUCTS AND RELATED PRACTICES.................................................. 12 TERRITORY ................................................................................................................................ 13 TREATMENT OF POLICYHOLDERS............................................................................................... 13
REINSURANCE ......................................................................................................................... 14
ASSUMED................................................................................................................................... 14 CEDED ....................................................................................................................................... 14
ACCOUNTS AND RECORDS.................................................................................................. 14 CUSTODIAL AGREEMENT ........................................................................................................... 15
FINANCIAL STATEMENTS PER EXAMINATION............................................................ 15 ASSETS ...................................................................................................................................... 16 LIABILITIES, SURPLUS AND OTHER FUNDS ................................................................................ 17 STATEMENT OF INCOME............................................................................................................. 18
COMMENTS ON FINANCIAL STATEMENTS.................................................................... 19 LIABILITIES................................................................................................................................ 19
COMPARATIVE ANALYSIS OF CHANGES IN SURPLUS............................................... 20
SUMMARY OF FINDINGS ...................................................................................................... 21
CONCLUSION ........................................................................................................................... 22
Tallahassee, Florida August 19, 2007 Honorable Kevin M. McCarty Secretary, Southeastern Zone, NAIC Commissioner of Insurance Regulation Office of Insurance Regulation 200 E. Gaines Street Tallahassee, Florida 32399-0326 Honorable Jim Poolman Secretary, Midwestern Zone, NAIC Commissioner North Dakota Dept. of Insurance 600 E. Blvd. Bismarck, North Dakota 58505-0320 Honorable Alfred W. Gross Chairman Financial Condition (E) Committee State Corporation Commission Bureau of Insurance Commonwealth of Virginia PO Box 1157 Richmond, Virginia 23218 Dear Sirs and Madam: 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 of December 31, 2006, of the financial condition and corporate affairs of:
ATTORNEYS’ TITLE INSURANCE FUND, INC. 6545 CORPORATE CENTRE BOULEVARD
ORLANDO, FLORIDA 32822 Hereinafter referred to as the “Company”. Such report of examination is herewith respectfully submitted.
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SCOPE OF EXAMINATION
This examination covered the period of January 1, 2002 through December 31, 2006. The
Company was last examined by representatives of the Florida Office of Insurance Regulation
(Office) as of December 31, 2001. This examination commenced, with planning at the Office, on
June 11, 2007, to June 15, 2007. The fieldwork commenced on June 18, 2007, and was
concluded as of December 19, 2007.
This financial examination was an association 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.
In this examination, emphasis was directed to the quality, value and integrity of the statement of
assets and the determination of liabilities, as those balances affect the financial solvency of the
Company as of December 31, 2006. Transactions subsequent to year-end 2006 were reviewed
where relevant and deemed significant to the Company’s financial condition.
The examination included a review of the corporate records and other selected records deemed
pertinent to the Company’s operations and practices. In addition, the NAIC IRIS ratio reports, the
A.M. Best Report, the Company’s independent audit reports and certain work papers prepared by
the Company’s independent certified public accountant (CPA) and other reports as considered
necessary were reviewed and utilized where applicable within the scope of this examination.
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This report of examination is confined to financial statements and comments on matters that
involve departures from laws, regulations or rules, or which are deemed to require special
explanation or description.
Based on the review of the Company’s control environment and the materiality level set for this
examination, reliance was placed on work performed by the Company’s CPAs, after verifying the
statutory requirements, for the following accounts:
Federal and Foreign Income Taxes Agents’ Balances – Premiums not collected
Status of Adverse Findings from Prior Examination
The following is a summary of significant adverse findings contained in the Office’s prior
examination report as of December 31, 2001, along with resulting action taken by the Company
in connection therewith.
Securities Custodian
Morgan Stanley Dean Witter, a broker, had custody of securities for the Company. The broker was
not an authorized custodian in accordance with Rule 69O-143.042 and 69O-143.041(2), Florida
Administrative Code. Resolution: The recent amendment to Section 628.511(2)(c), Florida
Statutes provided an updated definition of a custodian. Custodian means a national bank, state
bank, trust Company, broker, or dealer that participated in a clearing corporation. The broker who
has custody of the Company securities is now an acceptable custodian.
Reporting of Security Trades
In the 2001 annual statement, the Company incorrectly recorded the amount of $1,003,978 as due
from the broker for four stocks not traded or settled until late January and February of 2002. This
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was not only inaccurate recording but also resulted in an $118,007 overstatement of Company
assets on the 2001 annual statement. Resolution: The Company recognized the problem and
correctly recorded the security trades on subsequent annual statements.
Custody Agreement
The Company’s custody agreement with First Union National Bank did not meet all of the
requirements of Rule 69O-143.042, Florida Administrative Code. Resolution: First Union
National Bank was merged into Wachovia Bank. The Company had a corrected custody
agreement with Wachovia Bank.
Escrow Accounts
The Company had a checking account with SunTrust and an associated 001 sweep account. The
account had a December 31, 2001 balance of $16,822,686, of which $2,256 was identified as
Company funds. This account did not segregate funds held for others as required by SSAP No. 1.
The associated sweep account earned $64,024 of interest in 2001 that was retained by the
Company. This was in violation of Rule 69O-186.008(3), Florida Administrative Code, which
requires that escrow funds received not be deposited in an interest – bearing account without the
written consent of the buyer and seller. Resolution: The Company submitted a new escrow
agreement to the Office. The Office subsequently approved the new agreement.
Review of 1998 Examination Report
The Company’s board of directors meeting minutes did not reflect a review of the 1998 report of
examination by the Office. Resolution: The Company presented the report of examination at the
2002 annual board of directors meeting and noted its review in the board of director minutes.
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HISTORY
General
The Company was incorporated in Florida on November 21, 1985, under the laws of the State of
Florida, as a stock title insurer and commenced business on January 1, 1986, as Attorneys’ Title
Insurance Fund, Inc.
The Company’s parent was created as a business trust on March 22, 1947, under the name of
Lawyers’ Title Guaranty Fund. On July 1, 1982, its name was changed to Attorneys’ Title
Insurance Fund. The trust was owned by members consisting of attorneys.
On January 1, 1986, Attorneys’ Title Insurance Fund merged its operations and transferred its
assets and liabilities into the Company in exchange for all of the Company’s 1,000,000 shares of
Class A voting stock.
The Company was authorized to transact title insurance coverage in the State of Florida on
December 31, 2006.
Capital Stock
As of December 31, 2006, the Company’s capitalization was as follows:
Number of authorized common (A) capital shares 10,000,000 Number of shares common (A) issued and outstanding 2,000,000 Number of authorized common (B) capital shares 5,000,000 Number of shares common (B) issued and outstanding 0 Total common capital stock $2,000,000 Par value per share $1.00
Control of the Company was maintained by its parent, Attorneys’ Title Insurance Fund, which
owned 100% of the stock issued by the Company.
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Profitability of Company
The following table shows the profitability trend (in dollars) of the Company for the period of
examination, as reported in the filed annual statements.
2006 2005 2004 Premiums Earned 486,833,465 473,600,477 402,190,214Net Underwriting Gain/(Loss) 27,182,045 40,895,307 43,480,790
Net Income 26,854,230 30,477,425 31,631,997
Total Assets 328,314,418 298,166,408 250,759,201
Total Liabilities 169,651,678 159,541,969 138,023,264Surplus As Regards Policyholders
158,662,740 138,624,439 112,735,937
Dividends to Stockholders
In accordance with Section 628.371, Florida Statutes, the Company declared and paid dividends to
its stockholder in 2006 and 2004 in the amounts of $3,500,000 and $5,000,000, respectively.
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, 2006, were:
Directors
Name and Location Principal Occupation
G. Thomas Smith Attorney Agent Pensacola, Florida Russell D. Gautier Attorney Agent
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Tallahassee, Florida
Michael S. Smith Attorney Agent Perry, Florida
Duane C. Romanello Attorney Agent Jacksonville, Florida
Del G. Potter Attorney Agent Mt. Dora, Florida Julius J. Zschau Attorney Agent Clearwater, Florida Michael A. Pyle Attorney Agent Ormond Beach, Florida Melissa J. Murphy Attorney Agent, Chairman Gainesville, Florida Victor E. Woodman Attorney Agent Winter Park, Florida George T. Dunlap, III Attorney Agent Bartow, Florida Richard W. Lyons Attorney Agent Miami, Florida James L. Ritchey Attorney Agent Sarasota, Florida Stephen H. Reynolds Attorney Agent Tampa, Florida Stephen L. Mackey Attorney Agent Boca Raton, Florida Charles S. Isler, III Attorney Agent Panama City, Florida Thomas D. Wright Attorney Agent Marathon, Florida George R. Maraitis Attorney Agent Ft. Lauderdale, Florida Jerry W. Allender Attorney Agent Titusville, Florida
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Richard J. Dungey Attorney Agent Stuart, Florida Peter J. Gravina Attorney Agent Ft. Myers, Florida
The Board of Directors in accordance with the Company’s bylaws appointed the following senior
officers:
Senior Officers
Name Title
Charles James Kovaleski President Robert Norwood Gay, III Secretary Jimmy Roger Jones Treasurer Michael Roy Hammond Senior Vice President Barbara Gwen Geier Senior Vice President Sharon Kay Priest Senior Vice President Jeannie Lynn Calabrese Senior Vice President Louis Brent Guttman, III Vice President Sue Ellen Foreman Vice President William Theodore Conner Vice President Patricia Pearl Jones Vice President George Robert Arnold Vice President Matthew Allen Lewis Assistant Vice President The Company’s board appointed several internal committees in accordance with Section
607.0825, Florida Statutes. Following are the principal internal board committees and their
members as of December 31, 2006:
Executive Committee Audit Committee Investment Committee
Russell Gautier1 Thomas Smith 1 Jerry Allender 1 Charles Isler Jerry Allender Russell Gautier George Moraitis George Moraitis Charles Isler Melissa Murphy Stephen Reynolds Richard Lyons Del Potter James Ritchey George Moraitis Stephen Reynolds Michael Smith Del Potter
Thomas Wright Thomas Wright Thomas Smith
Julius Zschau Victor Woodman
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1 Chairman
Conflict of Interest Procedure
The Company adopted a policy statement requiring annual disclosure of conflicts of interest in
accordance with the NAIC Financial Condition Examiners Handbook. No exceptions were noted
during this examination period.
Corporate Records
The recorded minutes of the shareholder, Board of Directors, 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, including the authorization of investments
as required by Section 625.304, Florida Statutes.
Acquisitions, Mergers, Disposals, Dissolutions, and Purchase or Sales through
Reinsurance
The Company did not have any acquisitions, mergers, disposals, dissolutions, purchases or sales
through reinsurance during the period January 1, 2002 to December 31, 2006.
Surplus Debentures
The Company did not have any surplus debentures as December 31, 2006.
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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 February 17, 2007, as required by Section
628.801, Florida Statutes, and Rule 69O-143.046, Florida Administrative Code.
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A simplified organizational chart as of December 31, 2006, reflecting the holding company
system, is shown below. Schedule Y of the Company’s 2006 annual statement provided a list of
all related companies of the holding company group.
ATTORNEYS’ TITLE INSURANCE FUND, INC. ORGANIZATIONAL CHART
DECEMBER 31, 2006
Attorneys’ Title
Acquisition Corp.
Attorneys’ Title Insurance Fund
100%
Attorneys’ Title Insurance
Fund, Inc. 100%
Florida Title Company
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The following agreements were in effect between the Company and its affiliates:
Tax Allocation Agreement
The Company, along with its parent and affiliates, filed a consolidated federal income tax return.
On December 31, 2006, the method of allocation was apportioned among the members of the
affiliated group in accordance with the ratio that the portion of the consolidated income attributable
to each member of the group having taxable income bears to the consolidated taxable income.
Under the percentage method an additional amount shall be allocated to each member of the
group equal to 100% of the excess, if any, of the separate return tax liability for such member for
the tax year and credited to the members that had items of income, deduction, credit, and so forth
to which any difference was attributable.
FIDELITY BOND AND OTHER INSURANCE
The Company maintained fidelity bond coverage up to $7,500,000 with a deductible of $50,000,
which adequately covered the suggested minimum amount of coverage for the Company as
recommended by the NAIC.
The Company carried the following insurance coverage during the period covered by the
examination: Commercial application, general liability, flood, commercial application pollution
liability, Directors Officers, inland marine, automobile umbrella excess liability, boiler & machinery,
and workers compensation.
12
PENSION, STOCK OWNERSHIP AND INSURANCE PLANS
The Company provided a trustee deferred savings and profit sharing plan under Internal Revenue
Code, Section 401(K). The Company also provided a trustee money purchase defined contribution
pension plan. These plans were available to substantially all employees who met minimum length
of service requirements.
STATUTORY DEPOSITS
The following securities were deposited with the State of Florida, as required by Section 624.411,
Florida Statutes, and various other states:
Par Market STATE Description Value Value FL Cash $ 100,000 $ 100,000 TOTAL FLORIDA DEPOSITS $ 100,000 $ 100,000 AL Cash $ 50,000 $ 50,000 AR Cash 100,000 100,000 GA Cash 100,000 100,000 IL Bond 1,000,000 1,105,706 MN Cash 400,000 400,000 NC Cash 200,000 200,000 SC Bond 130,000 134,388 TOTAL OTHER DEPOSITS $1,980,000 $2,190,094 TOTAL SPECIAL DEPOSITS $2,080,000 $2,290,094
INSURANCE PRODUCTS AND RELATED PRACTICES
The Company operates as a title insurer, which guarantees and insures titles to interest and liens
on real estate through its attorney agents, who are members of the trust. Membership in the trust
is limited to persons who are actively engaged in the private practice of law.
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A title insurance policy comes in two forms, 1) an “owners policy”, which protects the interests of
the buyer, and 2) a “lender’s policy”, which protects the interests of the mortgage lender of the
property. Mortgage lenders require the borrowers to obtain a lender’s title insurance policy, which
provides an opinion of the condition of the lender’s interest in the title. A reasonable search and
examination of the title must be conducted before a title insurance policy may be issued. A title
insurance policy is required by Section 627.7845, Florida Statutes.
Title insurance coverage is for past defects that were in place at the time the property was sold,
which did not become noticed until after the property was transferred to the new owner.
Title search and abstract work are related title services that generate revenue from title plants. The
Company provides title information necessary to perform the title search and examination of the
title through the utilization of the title plants owned by the Company.
Territory
The Company was authorized to transact insurance in the following states and territories:
Florida Illinois Minnesota Georgia Indiana North Dakota Arkansas Maryland South Carolina Alabama Michigan North Carolina Puerto Rico
Treatment of Policyholders
The Company established procedures for handling written complaints in accordance with Section
626.9541(1) (j), Florida Statutes.
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The Company maintained a claims procedure manual that included detailed procedures for
handling each type of claim in accordance with Section 626.9541(1)(i) 3a, Florida Statutes.
REINSURANCE
The reinsurance agreements reviewed complied with NAIC standards with respect to the standard
insolvency clause, arbitration clause, transfer of risk, reporting and settlement information
deadlines.
Assumed
The Company assumed risk on an excess of loss basis, and a facultative basis. The entity's
maximum liability was $3,210,000 on a single policy. The reinsurer's maximum coverage was
$25,000,000 per policy. The Company had Excess of Loss of 90% of insured's liability excess
of $3,000,000. All amounts greater than $30,000,000 were reinsured on a facultative policy.
Ceded
The Company ceded risk on a quota share and excess of loss basis to Old Republic National
Title Insurance Company. The Company retained risk for the first $3,000,000, then 30% up to
$10,000,000. Old Republic National Title Insurance Company assumed all risk above
$10,000,000 to $30,000,000 maximum.
ACCOUNTS AND RECORDS
The Company maintained its principal operational offices in Orlando, Florida, where this
examination was conducted.
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An independent CPA audited the Company’s statutory basis financial statements annually for the
years 2002 to 2006, in accordance with Section 624.424(8), Florida Statutes. Supporting work
papers were prepared by the CPA as required by Rule 69O-137.002, Florida Administrative Code.
The Company’s accounting records were maintained on a computerized system. The Company’s
balance sheet accounts were verified with the line items of the annual statement submitted to the
Office.
The Company and non-affiliates had the following agreements:
Custodial Agreement
The Company had custodial agreements with Wachovia Bank and Morgan Stanley/Dean Witter.
The agreements were in compliance with Rule 69O-143.042, Florida Administrative Code.
FINANCIAL STATEMENTS PER EXAMINATION
The following pages contain financial statements showing the Company’s financial position as of
December 31, 2006, and the results of its operations for the year then ended as determined by this
examination. Adjustments made as a result of the examination are noted in the section of this
report captioned, “Comparative Analysis of Changes in Surplus.”
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ATTORNEYS’ TITLE INSURANCE FUND, INC. Assets
DECEMBER 31, 2006
Per Company Examination Per ExaminationAdjustments
Bonds $108,963,081 $108,963,081Stocks: 0 Preferred 3,347,513 3,347,513 Common 130,602,752 130,602,752Real Estate: 0 Properties occupied by Company 7,716,278 7,716,278 Other properties 3,060,970 3,060,970Cash: 18,433,438 18,433,438Other investments 665,217 665,217Investment income due and accrued 1,267,219 1,267,219Title Plants 4,621,760 4,621,760Agents' Balances: 0 Uncollected premium 29,407,555 29,407,555Amounts receivable reinsurance 112,565 112,565Net deferred tax asset 18,750,632 18,750,632Electronic data processing equipment 634,015 634,015Aggregate write-in for 0 other than invested assets 731,423 731,423
Totals $328,314,418 $0 $328,314,418
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ATTORNEYS’ TITLE INSURANCE FUND, INC.
Liabilities, Surplus and Other Funds
DECEMBER 31, 2006
Per Company Examination PerAdjustments Examination
Known claim reserves $27,147,619 $27,147,619
Statutory premium reserve 124,907,226 124,907,226
Other expenses 10,736,307 10,736,307
Taxes, licenses and fees 1,883,408 1,883,408
Current federal income tax 2,025,839 2,025,839
Amounts withheld or retained for others 183,872 183,872
Payable for securities 79,925 79,925
Aggregate write-ins for liabilities 2,687,482 2,687,482
Total Liabilities $169,651,678 $0 $169,651,678
Common capital stock $2,000,000 $2,000,000
Gross paid in and contributed surplus 13,000,000 13,000,000
Unassigned funds (surplus) 143,662,740 143,662,740
Surplus as regards policyholders $158,662,740 $158,662,740
Total liabilities, surplus and other funds $328,314,418 $0 $328,314,418
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ATTORNEYS’ TITLE INSURANCE FUND, INC. Statement of Income
DECEMBER 31, 2006
Underwriting Income
Premiums earned 466,833,465$ Aggregate write-in for other operating income 36,614,677Total operating income 503,448,142$
Deductions:Losses incurred and loss adjustment expenses 26,406,495$ Operating expnse incurred 449,859,602Total operating deductions 476,266,097$
Net operating gain 27,182,045$
Investment Income
Net investment income earned 6,412,871$ Net realized capital gains or (losses) 5,374,995Net investment gain or (loss) 11,787,866$
Other Income
Net income after capital gains 38,969,911$ Federal and foreign income taxes incurred 12,115,681Net income 26,854,230$
Capital and Surplus Account
Surplus as regards policyholders, December 31 prior year 138,624,439$
Net Income 26,854,230Net unrealized capital gains or losses 4,862,460Change in non-admitted assets (12,799,171)Change in net deferred income tax 4,620,782Dividends to stockholders (3,500,000)Examination AdjustmentChange in surplus as regards policyholders for the year 20,038,301$
Surplus as regards policyholders, December 31 current year 158,662,740$
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COMMENTS ON FINANCIAL STATEMENTS
Liabilities
Losses $27,147,619 An outside actuarial firm appointed by the Board of Directors, rendered an opinion that the
amounts carried in the balance sheet as of December 31, 2006, make a reasonable provision for
all unpaid loss and loss expense obligations of the Company under the terms of its policies and
agreements.
Kay Kufera, FCAS, MAAA of Veris Consulting, LLC, an outside actuarial firm contracted by the
Office, reviewed work papers provided by the Company and was in concurrence with this opinion.
A comparative analysis of changes in surplus is shown below.
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ATTORNEYS’ TITLE INSURANCE FUND, INC. COMPARATIVE ANALYSIS OF CHANGES IN SURPLUS
DECEMBER 31, 2006 The following is a reconciliation of Surplus as regardspolicyholders between that reported by the Company andas determined by the examination.
Surplus as Regards PolicyholdersDecember 31, 2006, per annual statement $158,662,740
INCREASEPER PER (DECREASE)
COMPANY EXAM IN SURPLUS
ASSETS:
No adjustment
LIABILITIES:
No adjustment
Net Change in Surplus: 0
Surplus as Regards PolicyholdersDecember 31, 2006, per examination $158,662,740
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SUMMARY OF FINDINGS
Compliance with previous directives
The Company has taken the necessary actions to comply with the comments made in the 2001
examination report issued by the Office.
Current examination comments and corrective action
The Company did not have any items that needed corrective actions taken.
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CONCLUSION
The insurance examination practices and procedures as promulgated by the NAIC have been
followed in ascertaining the financial condition of Attorneys’ Title Insurance Fund, Inc. as of
December 31, 2006, consistent with the insurance laws of the State of Florida.
Per examination findings, the Company’s Surplus as regards policyholders was $158,662,740,
in compliance with Section 624.408, Florida Statutes.
In addition to the undersigned, Kethessa Carpenter, CPA, Financial Examiner/Analyst
Supervisor, Owen Anderson, Financial Examiner/Analyst II, and Samita Lamsal, Financial
Examiner/Analyst II participated in the examination. We also recognize the participation of Kay
Kufera, FCAS, MAAA of Veris Consulting, LLC in the examination.
Respectfully submitted,
___________________________ James D. Collins Reinsurance/Financial Specialist Florida Office of Insurance Regulation Mary James, CFE Financial Administrator Florida Office of Insurance Regulation