REPORT OF EXAMINATION
OF THE
CALIFORNIA AUTOMOBILE INSURANCE COMPANY
AS OF
DECEMBER 31, 2021
Filed on May 30th, 2023
TABLE OF CONTENTS
PAGE
SCOPE OF EXAMINATION ............................................................................................ 1
COMPANY HISTORY: .................................................................................................... 3
Capitalization ............................................................................................................. 3
MANAGEMENT AND CONTROL:................................................................................... 3
Management Agreements .......................................................................................... 6
TERRITORY AND PLAN OF OPERATION ..................................................................... 8
REINSURANCE: ............................................................................................................. 9
Intercompany ............................................................................................................. 9
Assumed .................................................................................................................. 10
Ceded ...................................................................................................................... 10
ACCOUNTS AND RECORDS: ...................................................................................... 12
Annual Statement Instructions ................................................................................. 12
FINANCIAL STATEMENTS: ......................................................................................... 13
Statement of Financial Condition as of December 31, 2021 .................................... 14
Underwriting and Investment Exhibit for the Year Ended December 31, 2021 ........ 15
Reconciliation of Surplus as Regards to Policyholders from December 31, 2017
through December 31, 2021 ............................................................................... 16
COMMENTS ON FINANCIAL STATEMENT ITEMS: .................................................... 17
Losses and Loss Adjustment Expenses .................................................................. 17
SUBSEQUENT EVENTS .............................................................................................. 17
SUMMARY OF COMMENTS AND RECOMMENDATIONS: ........................................ 18
Current Report of Examination ................................................................................ 18
Previous Report of Examination .............................................................................. 18
ACKNOWLEDGMENT .................................................................................................. 19
Los Angeles, California
April 28, 2023
Honorable Ricardo Lara
Insurance Commissioner
California Department of Insurance
Sacramento, California
Dear Commissioner:
Pursuant to your instructions, an examination was made of the
CALIFORNIA AUTOMOBILE INSURANCE COMPANY
(hereinafter also referred to as the Company or CAIC). Its primary location of its books
and records is located at 4484 Wilshire Boulevard, Los Angeles, California, 90010. The
Company's statutory home office and main administrative office is located at 555 West
Imperial Highway, Brea, California, 92821.
SCOPE OF EXAMINATION
We have performed our multi-state examination of the Company. The previous
examination of the Company was made as of December 31, 2017. This examination
covers the period from January 1, 2018, through December 31, 2021.
The examination was conducted in accordance with the National Association of Insurance
Commissioners’ Financial Condition Examiners’ Handbook (Handbook). The Handbook
requires the planning and performance of the examination to evaluate the Company’s
financial condition, assess corporate governance, identify current and prospective risks,
and evaluate system controls and procedures used to mitigate those risks. The
examination also included identifying and evaluating significant risks that could cause the
Company’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 includes assessing significant estimates made by
2
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.
This examination report includes findings of fact and general information about the
Company and its financial condition. There might be other items identified during the
examination that, due to their nature (e.g., subjective conclusions, proprietary information,
etc.), were not included within the examination report, but separately communicated to
other regulators and/or the Company.
The examination was a coordinated examination of the Mercury Insurance Group with
California as the lead state, and conducted concurrently with the Florida, Georgia, Illinois,
Oklahoma, and Texas Departments of Insurance. The insurance entities reviewed as part
of this examination are identified below by state of domicile:
Company
State
California Automobile Insurance Company
California
California General Underwriters Insurance Company, Inc.
California
Mercury Casualty Company
California
Mercury Insurance Company
California
Orion Indemnity Company (fka Workmen’s Auto Insurance Company)
California
Mercury Indemnity Company of America
Florida
Mercury Insurance Company of Florida
Florida
Mercury Indemnity Company of Georgia
Georgia
Mercury Insurance Company of Georgia
Georgia
Mercury Insurance Company of Illinois
Illinois
American Mercury Insurance Company
Oklahoma
Mercury County Mutual Insurance Company
Texas
American Mercury Lloyds Insurance Company
Texas
3
COMPANY HISTORY
The Company was incorporated in the state of California on June 11, 1975 as Mercury
Indemnity Company. The Company’s name was changed to California Automobile
Insurance Company on December 29, 1988. The Company is a wholly-owned subsidiary
of Mercury General Corporation (MGC) and the parent company of Mercury Insurance
Company of Georgia, a Georgia domiciled insurance company.
Capitalization
The Company has 200,000 shares of $100 par value common stock authorized and
50,000 shares issued and outstanding.
During 2020, the Company received a cash contribution to surplus of $30 million from
MGC.
In March 2023, the Company received a contribution of capital from MGC of $50 million.
MANAGEMENT AND CONTROL
The Company is a member of an insurance holding company system of which Mr. George
Joseph is the ultimate controlling person. Mercury General Corporation (MGC) is a
publicly traded insurance holding company. As of December 31, 2021, the controlling
stockholders, George Joseph and Gloria Joseph, own 35.3% and 16.5%, respectively, of
MGC's stock with the remaining 48.2% held by public shareholders, none of whom own
10% or more interest.
The following organizational chart depicts the Company's relationship within the holding
company system. All ownership is 100% unless otherwise indicated.
4
George Joseph
35.3%
Public Shareholders
48.2%
Gloria Joseph
16.5%
Mercury General Corporation
(California)
California
Automobile
Insurance Co.
(California)
Mercury Insurance
Co. Of Georgia
(Georgia)
Mercury Casualty
Co.
(California)
Mercury Insurance
Co.
(California)
California General
Underwriters Ins.
Co., Inc.
(California)
Mercury Insurance
Services, LLC*
(California)
Mercury Insurance
Co. of Illinois
(Illinois)
American Mercury
Insurance Co.
(Oklahoma)
Mercury Indemnity
Co. of Georgia
(Georgia)
Mercury Select
Management Co.,
Inc. ***
(Texas)
Mercury Indemnity
Co. of America
(Florida)
Mercury Insurance
Co. of Florida******
(Florida)
Orion Indemnity
Company ****
(California)
Mercury County
Mutual Insurance
Co. **
(Texas)
American Mercury
Lloyds Insurance
Co.
(Texas)
* Mercury Insurance Services, LLC, is controlled by its sole and managing
member, Mercury Casualty Company, through a management agreement.
** Mercury County Mutual Insurance Company is managed and controlled by
Mercury Insurance Services, LLC, through a management agreement.
*** Mercury Select Management Company, Inc. is Attorney-in-fact for
American Mercury Lloyds Insurance Company, a Texas Lloyds Plan
Insurer.
****Orion Indemnity Company, a California insurer, was formerly named
Workmen’s Auto Insurance Company.
*****Mercury National Insurance Company, an Illinois domiciled insurance
company and 100% owned subsidiary of MICIL, was dissolved.
******Mercury Insurance Company of Florida was dissolved effective
November 30, 2022.
5
The seven members of the Company’s board of directors, who are elected annually,
manage the business and affairs of the Company. Following are members of the board
and principal officers of the Company serving on December 31, 2021:
Directors
Name and Location Principal Business Affiliation
George G. Braunegg
Los Angeles, California
Advisor and Investor
Terafina Inc
Ramona L. Cappello
Los Angeles, California
Principal
The Cappello Group
James G. Ellis
San Marino, California
Retired
George Joseph
Los Angeles, California
Chairman of the Board
Mercury General Corporation
Joshua E. Little
St. George, Utah
Shareholder
Durham Jones & Pinegar, P.C.
Martha E. Marcon
Glendale, California
Retired
Gabriel Tirador
Tustin, California
President and Chief Executive Officer
Mercury General Corporation
Principal Officers
Name Title
Gabriel Tirador
President and Chief Executive Officer
Theodore R. Stalick
Senior Vice President, Chief Financial
Officer, and Treasurer
Judith A. Walters
Secretary
Christopher W. Graves
Vice President and Chief Investment
Officer
6
Management Agreements
Tax Allocation Agreement: Since January 1, 1983, the Company and various affiliates
have been parties to a Tax Allocation Agreement with the ultimate parent, MGC. Under
the terms of this agreement, the tax liability of the Company and its affiliates are computed
as if each entity filed a separate stand-alone return, with current credit for net losses
incurred by the insurance subsidiaries to the extent it can be used in the current
consolidated return. In 2015, the agreement was amended to: 1) add affiliate Workmen’s
Auto Insurance Company (now Orion Indemnity Company (Orion)), 2) delete dissolved
entities, and 3) include several technical provisions required by the California Department
of Insurance (CDI), which did not alter or affect existing practices. The amendment was
approved by the CDI on June 5, 2015. Taxes paid or (recovered) by the Company totaled
$90,222, $(1,547,563), $(13,454,679), and $8,212,623 for the years 2018, 2019, 2020,
and 2021, respectively.
Management Agreement: Since January 1, 2001, the Company has been a party to a
Management Agreement with Mercury Insurance Services, LLC (MIS), a subsidiary of
Mercury Casualty Company (MCC). Approval of the agreement was granted by the CDI
on December 27, 2000. Under the terms of this agreement, MIS performs underwriting
and loss adjustment services for the MGC group of companies. The management fee is
based on actual incurred expenses. The underwriting portion of the management fee is
allocated between the Company and its affiliates based upon their proportionate share of
direct premiums written. The fee for allocated loss adjustment expenses is based on
actual payments by MIS for claims on policies issued by the Company. The unallocated
loss adjustment expenses portion of the management fee is allocated between the
Company and its affiliates based upon their proportionate share of net losses incurred.
In 2013, the agreement was amended: 1) authorizing MIS to pay certain expense items
that were previously reserved to the insurers, including agent commissions and audit fees
and 2) adding a 60-day due date for the payment of management fees, in order to comply
with Statement of Statutory Accounting Principles No. 96. The amendment was approved
by the CDI on September 25, 2013. In 2015, the agreement was amended again to allow
MIS to pursue salvage and subrogation claims on behalf of the insurers, with MIS
7
remitting the recoveries to the insurers. This amendment was approved by the CDI on
June 11, 2015. The Company paid management fees of $298,067,839, $327,772,573,
$341,963,343, and $361,667,498 during the years 2018, 2019, 2020, and 2021,
respectively.
Service Agreement: Effective January 11, 2005, the Company entered into a Service
Agreement with MCC and Mercury Insurance Company (MIC). Under the terms of this
agreement, MCC collects premiums on behalf of the Company and MIC. Approval of the
agreement was granted by the CDI on January 11, 2005. Effective December 1, 2019,
the agreement was amended to add affiliate California General Underwriters Insurance
Company, Inc. (CGU) as a party. The amendment was approved by the CDI on
December 20, 2019. There are no fees or costs paid by any affiliates under this
agreement.
Multiple-Cedents Reinsurance Allocation Agreement: Effective July 1, 2013, the
Company, American Mercury Insurance Company (AMIC), CGU, MIC, and MCC entered
into a Multiple-Cedents Reinsurance Allocation Agreement, providing for the allocation of
premiums and recoveries in connection with external reinsurance treaties covering all the
parties at a single rate, as required by Statement of Statutory Accounting Principles No.
62R. The agreement approval was granted by the Oklahoma Department of Insurance
and the CDI, on March 28, 2014 and June 26, 2014, respectively.
Effective July 1, 2018, the agreement was amended to add affiliate Orion as a party. The
amendment also renewed the agreement for three years until June 30, 2022. The
amendment was approved by the Oklahoma Insurance Department on June 11, 2019
and by the CDI on September 4, 2019. A total of $33,100 in premiums were transferred
between affiliates under this Agreement in 2021. The California insurers recovered
$2,076,512 under multi-cedent reinsurance in 2021, and reimbursed reinsurers
$5,318,712 in subrogation recoveries. Those amounts were paid to or by the Company,
respectively, and allocated as follows pursuant to this agreement:
8
Insurer
Recoveries
Subrogation Paid
California Automobile Insurance Company
$1,938,859
$(5,144,019)
Mercury Casualty Company
112,311
(104,052)
Mercury Insurance Company
25,335
(70,422)
Orion Indemnity Company
7
(218)
The Multiple-Cedents Reinsurance Allocation Agreement was renewed effective
July 1, 2022, and will automatically renew for consecutive one-year terms until
June 30, 2025.
TERRITORY AND PLAN OF OPERATION
As of December 31, 2021, the Company is licensed to transact property and casualty
insurance business solely in California. The Company provides private passenger
automobile liability and physical damage insurance coverage through a network of
independent producers appointed by the Company. The Company offers both a standard
private passenger automobile product and a nonstandard automobile product targeted at
higher risk drivers in California. The Company began writing homeowners business in
August 2014 and commercial automobile business in November 2017.
During 2021, the Company’s top four lines of business written were homeowners’ multiple
peril, private passenger automobile liability, private passenger automobile physical
damage, and commercial automobile liability, which made up 53.6%, 15.6%, 12.7%, and
11.7%, respectively, of the Company’s total direct premiums written of $1,216,819,000.
The Company’s business is distributed and marketed through a network of appointed
independent agents. Branch offices are maintained in various locations throughout
California.
9
REINSURANCE
Intercompany
Effective January 1, 2015, the Company entered into a 100% Reinsurance Agreement
with California General Underwriters Insurance Company, Inc. (CGU), under which CGU
reinsured all of the Company’s liability under automobile fleet insurance policies issued
by the Company. The agreement was terminated, effective January 1, 2021 and notice
was provided to the California Department of Insurance (CDI).
Effective February 1, 2016, the Company and Mercury Casualty Company (MCC) entered
into a 50% Quota Share Reinsurance Agreement under which MCC reinsures the
Company’s Private Passenger Automobile Liability and Automobile Physical Damage
lines of business. Effective July 1, 2018, the Company amended the agreement to
increase the ceding percentage from 50% to 100%. Effective January 1, 2021, the
agreement was amended to add Commercial Automobile to the lines of business
reinsured. The amendments were approved by the CDI on June 26, 2018 and
November 24, 2020, respectively. The Company ceded $534,128,554 in premiums and
$527,330,464 in losses in calendar year 2021.
Effective September 1, 2020, MCC and the Company entered into a Catastrophe
Reinsurance Agreement, under which MCC reinsured the Company for the portion of
losses in excess of $40 million (combined between all affiliates) not covered by an existing
external reinsurance treaty. The agreement was approved by the CDI on
November 4, 2020. The agreement terminated on its own terms on June 30, 2021, and
informal notice was provided to the CDI.
Effective July 1, 2021, MCC and the Company entered into a new Catastrophe
Reinsurance Agreement. Like the prior agreement between the parties, this agreement
reinsures the Company for the portion of losses in excess of $40 million (combined
between all affiliates) that is not covered by an existing external reinsurance treaty, but
10
the premium terms were materially different from the prior agreement, due to changes in
the external reinsurance treaty. Prior approval was not required for this agreement, as the
premium and the change in liabilities were below the threshold amounts. The Company
ceded $1,250,000 in premium and zero in losses in calendar year 2021.
Assumed
The Company did not assume reinsurance during the period covered by this examination.
Ceded
The Company is party to a Catastrophe Reinsurance Treaty (2021 Treaty) with affiliated
companies that are under the ownership, control or management of Mercury General
Corporation. The 2021 Treaty covers a wide range of perils that is effective from
July 1, 2021 through June 30, 2022. The 2021 Treaty provides $792 million of coverage
on a per occurrence basis after covered catastrophe losses exceed the $40 million
combined company retention limit. The 2021 Treaty specifically excludes coverage for
any Florida business and for California earthquake losses on fixed property policies, such
as homeowners, but does cover losses from fires following an earthquake. In addition,
the 2021 Treaty provides for one full reinstatement of coverage limits and excludes losses
from wildfires on certain coverage layers of the 2021 Treaty.
Coverage on individual catastrophes provided for the 12 months ended June 30, 2022
under the 2021 Treaty is presented below in various layers.
Catastrophe Loss and LAE
In Excess of Up to
Percentage
of Coverage
Layer of Coverage (1)
Layer of Coverage (2)
Layer of Coverage (2)(3)(4)
(Amounts in Millions)
$ 40 $ 100
100 400
400 792
70
100
100
(1) The 2021 Treaty covers 70% placement for the layer of $40 million to $100 million.
11
The Company has an additional intercompany agreement with MCC where MCC
assumes and the Company cedes 30%of the layer between $40 million and $100
million. See above for further detail on the intercompany reinsurance agreement.
(2) Layer of Coverage represents multiple actual treaty layers that are grouped for
presentation purposes.
(3) 13.4% of this layer covers only California wildfires and fires following an
earthquake in California and is not subject to reinstatement.
(4) 14% of this layer includes a territorial restriction covering California, Arizona, and
Nevada only.
The annual premium for the 2021 Treaty is approximately $55 million ($47.9M related to
the Company) for the 12 months ending June 30, 2022. The 2021 Treaty provides for
one full reinstatement of coverage limits, and reinstatement premiums are based on the
amount of reinsurance benefits used by the Company and at 100% of the annual premium
rate with some minor exceptions, up to the maximum reinstatement premium of
approximately $51 million if the full amount of benefit is used for the 12 months ending
June 30, 2022. The total amount of reinstatement premiums is recorded as ceded
reinstatement premiums written at the time of the catastrophe event based on the total
amount of reinsurance benefits expected to be used for the event, and such reinstatement
premiums are recognized ratably over the remaining term of the treaty as ceded
reinstatement premiums earned.
For California homeowners policies, the Company has reduced its catastrophe exposure
from earthquakes by placing earthquake risks directly with the California Earthquake
Authority.
12
ACCOUNTS AND RECORDS
Annual Statement Instructions
Pursuant to the National Association of Insurance Commissioners (NAIC) Annual
Statements Instructions, Note to Financial Statements, 14D, Claims Related Extra
Contractual Obligation and Bad Faith Losses Stemming from Lawsuits, the Company
shall disclose the dollar amount paid (for the extra contractual and bad faith portion of the
total claim amount) for claims related extra contractual obligations and bad faith losses
stemming from lawsuits, in the current reporting period on a direct basis. The Company’s
2021 Annual Statement Note to Financial Statements 14D was not prepared in
accordance to the NAIC’s Annual Statement Instructions and did not disclose the potential
risk and/or uncertainties related to lawsuits in the manner or format required by the NAIC.
The Company should compile its bad faith/extra contractual litigation settlements arising
from claims and disclose it annually in the Notes to Financial Statements 14D in
accordance with the NAIC Annual Statement Instructions. It is recommended the
Company implement procedures to ensure compliance with the National Association of
Insurance Commissioners Annual Statement Instructions for Note 14D to the Financial
Statements, Claims related extra contractual obligations and bad faith losses stemming
from lawsuits. The Company has subsequently updated its reporting procedures to
ensure Note 14D is in compliance with the NAIC Annual Statement Instructions.
13
FINANCIAL STATEMENTS
The following financial statements are based on the statutory financial statements filed by
the Company with the California Department of Insurance and present the financial
condition of the Company for the period ending December 31, 2021. The accompanying
comments to the amounts reported in the annual statements should be considered an
integral part of the financial statements. No adjustments were made to the statutory
financial statements filed by the Company.
Statement of Financial Condition as of December 31, 2021
Underwriting and Investment Exhibit for the Year Ended December 31, 2021
Reconciliation of Surplus as Regards Policyholders from December 31, 2017
through December 31, 2021
14
Statement of Financial Condition
as of December 31, 2021
Assets
Ledger and
Nonledger Assets
Assets Not
Admitted
Net Admitted
Assets
Notes
Bonds
$ 629,083,146
$
$ 629,083,146
Preferred stocks
5,050,000
5,050,000
Common stocks
21,135,907
21,135,907
Cash and short-term investments
42,035,510
42,035,510
Other invested assets
7,467,849
7,467,849
Investment income due and accrued
7,566,581
7,566,581
Premiums and agents’ balances in course of
collection
15,438,651
739,865
14,698,786
Premiums, agents’ balances and installments booked
but deferred and not yet due (including $
0
earned but
unbilled premiums.
120,976,306
120,976,306
Amounts recoverable from reinsurers
34,477,408
34,477,408
Current federal and foreign income tax recoverable
and interest there on
3,441,173
3,441,173
Net deferred tax asset
7,114,663
7,114,663
Receivables from parents, subsidiaries and affiliates
37,543,617
37,543,617
Aggregate write-ins for other than invested assets
2,842,364
2,842,364
Total assets
$ 934,173,175
$ 739,865
$ 933,433,310
Liabilities, Surplus and Other Funds
Notes
Losses
$ 216,452,981
(1)
Loss adjustment expenses
40,563,596
(1)
Commissions payable, contingent commissions and other similar
charges
7,677,643
Other expenses
1,616,390
Taxes, licenses and fees
6,226,387
Unearned premiums
360,008,120
Advance premiums
27,311,329
Ceded reinsurance premiums payable
33,932,301
Remittances and items not allocated
3,859,133
Payable to parent, subsidiaries and affiliates
14,511
Payable for securities
1,036,088
Aggregate write-ins for liabilities
1,403,530
Total liabilities
700,102,009
Common capital stock
5,000,000
Gross paid-in and contributed surplus
149,777,923
Unassigned funds (surplus)
78,553,378
Surplus as regards policyholders
233,331,301
Total liabilities, surplus, and other funds
$ 933,433,310
15
Underwriting and Investment Exhibit
for the Year Ended December 31, 2021
State of Income
Underwriting Income
Premiums earned
$ 589,482,136
Deductions:
Losses incurred
$ 375,772,629
Loss adjustment expenses incurred
62,133,915
Other underwriting expenses incurred
138,042,494
Aggregate write-ins for underwriting deductions
503,485
Total underwriting deductions
576,452,523
Net underwriting gain
13,029,613
Investment Income
Net investment income earned
$ 16,591,189
Net realized capital gains
12,344,655
Net investment gain
28,935,844
Other Income
Net loss from agent’s or p
remium balances charged off (amount
recovered $108,562 amount charged off $241,978)
$ (133,416)
Finance and service charges not included in premiums
2,099,755
Aggregate write-ins for miscellaneous income
1,060,419
Total other income
3,026,758
Net
income after dividends to policyholders, after capital gains tax, and
before all other federal and foreign income taxes
44,992,215
Federal and foreign income taxes incurred
2,065,097
Net income
$ 42,927,118
Capital and Surplus Account
Surplus as regards policyholders, December 31, 2020
$ 199,302,920
Net income
$ 42,927,118
Change in net unrealized capital losses
(8,243,178)
Change in net deferred income tax
(611,167)
Change in nonadmitted assets
(44,392)
Change in surplus as regards policyholders for the year
34,028,381
Surplus as regards policyholders, December 31, 2021
$ 233,331,301
16
Reconciliation of Surplus as Regards to Policyholders
from December 31, 2017 through December 31, 2020
Surplus as regards policyholders,
December 31, 2017
$ 188,231,557
Gain in
Surplus
Loss in
Surplus
Net income
$ 17,671,142
$
Net unrealized capital losses
4,373,734
Change in net deferred income tax
1,784,735
Change in nonadmitted assets
256,399
Change in provision for reinsurance
274,000
Surplus adjustment: Paid-in
30,000,000
Total gains and losses
$ 49,729,877
$ 4,630,133
Net increase in surplus as regards policyholders
45,099,744
Surplus as regards policyholders,
December 31, 2021
$ 233,331,301
17
COMMENTS ON FINANCIAL STATEMENT ITEMS
(1) Losses and Loss Adjustment Expenses
Based on an analysis by a Senior Casualty Actuary from the California Department of
Insurance, the Company’s loss and loss adjustment expense reserves as of
December 31, 2021 were found to be reasonably stated and have been accepted for the
purpose of this examination.
SUBSEQUENT EVENTS
On September 10, 2021, the California Department of Insurance (CDI) served the
Company a Notice of Non-Compliance (NNC), alleging violations in connection with its
2014 Rating & Underwriting Examination Report, which was adopted by the CDI in 2019.
On August 1, 2022, the CDI publicly announced its intention to pursue an administrative
action against the Company with respect to certain outstanding issues. The Company
filed a written response to the NNC on September 29, 2022. On November 9, 2022, the
CDI served objections and non-substantive responses to the Company's discovery
requests. The Company is continuing settlement discussions with the CDI. The Company
cannot reasonably predict the likelihood, timing or outcome of any hearing process or
administrative action, nor can it reasonably estimate the amount of penalties, if any.
On October 5, 2021, the CDI requested additional information on the amount of premium
refunds or credits that the Company has provided or plans to further provide to its private
passenger automobile policyholders, and the methodology used in determining such
refunds or credits for the time period of March 2020 through at least March 2021, due to
reduced driving during the pandemic. On November 21, 2022, after review of loss and
expense data requested from and provided by the Company, the CDI notified the
Company that additional refunds should be provided to its private passenger automobile
policyholders, based upon its analysis of the Company’s data. The Company engaged in
discussions with the CDI, and on April 24, 2023, the Company entered into a stipulated
settlement agreement with the CDI. Under the terms of the agreement, the Company
18
agreed to provide an aggregate credit amount of $1.5 million to existing California private
passenger automobile policyholders, by means of a credit against future private
passenger automobile renewal premium obligations over a period not to exceed 18
months. Credits due will start to be distributed when the 6.99% rate increase filing for the
California private passenger automobile line of business is approved by the CDI and
becomes effective.
SUMMARY OF COMMENTS AND RECOMMENDATIONS
Current Report of Examination
Accounts and Records – Annual Statement Instructions (Page 12): It is recommended
the Company implement procedures to ensure compliance with the National Association
of Insurance Commissioners Annual Statement Instructions for Note 14D to the Financial
Statements, Claims related extra contractual obligations and bad faith losses stemming
from lawsuits.
Previous Report of Examination
Accounts and Records – Automobile Assessment File (Page 10): It was recommended
the Company maintain an automobile assessment file in compliance with California Code
of Regulations 10 § 2698.62(d). The Company has complied with this recommendation.
Accounts and Records – Vehicle Fraud Assessment Fees (Page 11): It was
recommended the Company include replacement vehicles in its vehicle counts in
accordance with California Insurance Code, Section 1872.8(a). The Company has
complied with this recommendation.
19
ACKNOWLEDGMENT
Acknowledgment is made of the cooperation and assistance extended by the Company’s
officers and employees during the course of this examination.
Respectfully submitted,
___________________________
Elizabeth Nielson, CFE, CPA
Examiner-In-Charge
Contract Examiner
Department of Insurance
State of California
___________________________
Anjanette Briggs, CFE
Senior Insurance Examiner, Supervisor
Department of Insurance
State of California
Elizabeth
Nielson
Digitally signed by Elizabeth Nielson
DN: cn=Elizabeth Nielson, o=Noble
Consulting Services Inc., ou,
c=US
Date: 2023.05.25 15:50:48 -07'00'
Briggs,
Anjanette
Digitally signed by
Briggs, Anjanette
Date: 2023.05.25
15:57:57 -07'00'
