«OF UTAH INSURANCE DEPARTMENT REPORT OF FINANCIAL EXAMINATION Of EQUITABLE LIFE & CASUALTY INSURANCE COMPANY Of Salt Lake City, Utah As of December ...»
STATE OF UTAH INSURANCE DEPARTMENT
REPORT OF FINANCIAL EXAMINATION
EQUITABLE LIFE & CASUALTY INSURANCE COMPANY
Salt Lake City, Utah
December 31, 2012
TABLE OF CONTENTS
SCOPE OF EXAMIN"ATION
Period Covered by Examination
Examination Procedure Employed
Status of Prior Examination Findings
SUMMARY OF SIGNIFICANT FIN"DIN"GS
Dividends and Capital Contributions
Mergers and Acquisitions
MANAGEMENT & CONTROL IN"CLUDIN"G CORPORATE GOVERNANCE............ 5 Biographical Affidavits
FIDELITY BONDS AND OTHER IN"SURANCE
PENSIONS, STOCK OWNERSHIP AND IN"SURANCE PLANS
TERRITORY AND PLAN OF OPERATION
GROWTH OF COMPANY
ACCOUNTS AND RECORDS
BALANCE SHEET (ASSETS)
BALANCE SHEET (LIABILITIES, SURPLUS AND OTHER FUNDS)
SUMMARY OF OPERATIONS
RECONCILIATION OF CAPITAL AND SURPLUS
COMMENTS ON FIN"ANCIAL STATEMENTS
SUMMARY OF RECOMMENDATIONS
February 20, 2014 Honorable Todd E. Kiser, Commissioner Utah Insurance Department 3110 State Office Building Salt Lake City, Utah 84114 Pursuant to your instructions and in compliance with statutory requirements, an examination, as of
December 31, 2012, has been made of the financial condition and business affairs of:
hereinafter referred to in this report as "the Company" or "Equitable," and the following report of examination is respectfully submitted.
SCOPE OF EXAMINATIONPeriod Covered by Examination We have performed the examination of Equitable Life & Casualty Insurance Company. This examination covers the period of January 1, 2010 through December 31, 2012. The examination was conducted under the NAIC' s coordinated approach, with the State of Indiana participating.
Examination Procedure Employed The NAIC Financial Condition Examiners Handbook (Handbook) requires that we plan and perform the examination 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, 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.
Status of Prior Examination Findings The last examination was completed as of December 31, 2009. Items of significance noted in the prior examination report summary were either adequately addressed by the Company or are identified as repeat exceptions in this report.
SUMMARY OF SIGNIFICANT FINDINGSThe Company did not maintain adequate records of some Board of Directors (Board) actions to provide evidence of the oversight obligation of the Board under Utah Code Annotated (U.C.A.) § 31A-5-407(6) for the proper examination of the affairs of the examinee. Evidence of certain decisions, transactions and other activities under the oversight of the Board were not available. (CORPORATE RECORDS)
On February 20, 2013, at a Special Meeting of the Board of the Company, Daren W. Hackett was appointed as Treasurer of the Company to fill out the remaining term of Kristine Christensen who passed away during the year.
On May 20, 2013, at the Annual Meeting of the shareholders of the Company the following persons were elected to the Board of the Company: Earl Roderick Ross, Chairman; Kendall R. Surfass, Vice Chairman;
F. Lynn DeBry; Ma.rilyn R. Froelich; and Christopher M. McDaniel.
On May 20, 2013, at the Annual Meeting of the Board of the Company the following persons were elected as the Principal Officers of the Company: Earl Roderick Ross, Chairman; Christopher M. McDaniel, President & Chief Executive Officer; Kendall R. Surfass, Vice Chairman, Vice President, Secretary & General Counsel; and Daren W. Hackett, Treasurer.
On May 20, 2013, at the Annual Meeting of the Board of the Company the following directors were
appointed to the following Board Committees:
Steering Committee Earl Roderick Ross, Chair Kendall R. Surfass Christopher M. McDaniel Executive Committee Earl Roderick Ross, Chair Kendall R. Surfass Christopher M. McDaniel Audit Committee F. Lynn DeBry, Chair E. Rod Ross Marilyn R. Froelich Finance & Investment Committee Earl Roderick Ross, Chair F. Lynn DeBry Marilyn R. Froelich Risk Management Committee Earl Roderick Ross, Chair Kendall R. Surfass Christopher M. McDaniel The notarized Biographical Affidavit of Daren W. Hackett was executed on May 23, 2013, and subsequently filed with the Utah Insurance Commissioner.
The notarized Biographical Affidavit of Christopher M. McDaniel was executed on May 28, 2013, and subsequently filed with the Utah Insurance Commissioner.
2 On February 20, 2013, the Board met specifically to address their concern regarding the current state of the transaction between the Chairman Earl Roderick Ross and Christopher McDaniel, which is intended to result in the change of ownership and control of Equitable from Mr. Ross to Mr. McDaniel. A Letter of Intent (LOI) had been executed previously by Mr. McDaniel and Mr. Ross with the understanding that a purchase agreement would be executed reflecting the terms and conditions of the LOI. The parties filed a "Form A" on July 12, 2013, with the Utah Insurance Commissioner for approval of the transaction.
On September 23, 2013, the Form A filed on July 12, 2013 to seek a change of ownership and control of the Company was withdrawn.
On November 26, 2013, Christopher M. McDaniel resigned as President and Chief Executive Officer of the Company and as a member of the Board of Directors of the Company.
On November 27, 2013, at a Special Meeting of the Board of Directors of the Company, Kendall R. Surfass was appointed President of the Company to fill the vacancy caused by the resignation of Christopher M.
On December 4, 2013, at a Special Meeting of the Board of Directors of the Company, William B. Prouty was appointed to the Board of Directors and appointed Chief Executive Officer of the Company to fill the vacancies caused by the resignation of Christopher M. McDaniel. William B. Prouty was appointed to serve on the Steering Committee, the Executive Committee and the Risk Management Committee to fill the vacancies caused by the resignation of Christopher M. McDaniel.
On January 20, 2014, at a Special Meeting of the Board of Directors of the Company, a resolution was adopted to increase the size of the Board to seven (7) directors. William A. Adams and Gil C. Rohde, Jr.
were appointed to the Board of Directors of the Company. The Compensation Committee was reinstated.
E. Rod Ross (Chair), William A. Adams and Gil C. Rohde, Jr. were appointed to serve as members of the Committee.
COMPANY HISTORYThe Company was initially organized on June 5, 1935, as a mutual benefit assessment association. On March 7, 1936, the Company was operating under the name of Equitable Mutual Life Insurance Company of Utah. The name was changed to Equitable Life & Casualty Insurance Company on May 18, 1938. The Company's authorized lines of insurance as of December 31, 2012, were life and disability (accident and health).
On May 20, 1946, the Company was converted to a capital stock legal reserve company. Authorized capital stock of the Company consisted of 500,000 shares of $1.00 par value stock. On May 14, 1979, the articles of incorporation were amended to increase the authorized capital stock to 2,000,000 shares of $1.00 par value stock.
During 1987, the articles of incorporation were amended to provide for 408,000 shares of preferred stock with a par value of $2.00.
During 1997, the Company instituted a succession plan in which it purchased the majority of stock from shareholders directly or indirectly related to Mr. Earl Roderick Ross.
3 During 2001, the Company amended its articles of incorporation to change the common stock par value from $1.00 to no-par. In addition, the Board retired all common and preferred treasury stock and increased the paid-in capital account of the Company to $2,500,000. The amendment was approved by the Board at a special meeting held on December 17, 2001, and approved by the Utah Insurance Department (the Department) on February 19, 2002.
On May 13, 2002, the Company filed bylaws with the Department that were amended during 1998.
On January 14, 2009, the Board adopted the second amended bylaws, which were approved by the Department on March 11, 2009.
On October 23, 2009, the Board adopted the third amended bylaws which were approved by the
Department on October 27, 2009. The changes were as follows:
• Verbiage was changed in Section 3 to address that the Board will meet at least on an annual basis instead of on a regular basis as stated in the second amendment. The third amendment changed Section 14 to add an Audit Committee to the list of committees.
• Section 15 was added to establish a Steering Committee, which may act when the Board is not in session subject to the limitations set by U.C. A. § 31A-5-412.
• Section 16 was added to state that no director or officer shall be liable to the Company or its shareholders for breach of a fiduciary duty.
• Section 17 was added to limit the authority of the Board to act without approval of the shareholders for certain acts. No other amendments to the bylaws or articles of incorporation were noted during the period covered by this examination.
Currently, the Company continues as a closely held Utah domiciled life, accident, and health insurance company.
The Company holds certificates of authority to conduct business in forty-five states and the District of Columbia.
In 2007, Equitable Resolutions, LLC was formed as the exclusive marketing support arm for agents.
During the examination period this entity also applied for and received approval as a licensed insurance agency in a number of states, including Utah. In 2012, Equitable Resolutions, LLC was sold to Earl Roderick Ross, as an individual.
Dividends and Capital Contributions There were no capital contributions or dividends during the period of examination.
Mergers and Acquisitions There were no mergers or acquisitions during the period of examination.
CORPORATE RECORDSThe Company did not maintain adequate records of certain transactions to provide evidence of the oversight by the Board as required under U.C.A. § 31A-5-407(6). Evidence of certain decisions, transactions and other activities under the oversight of the Board were not available to perform a proper
examination of the affairs of the Company. The following transactions are the examples:
As noted earlier, on November 26, 2013, Mr. McDaniel resigned as President and Chief Executive Officer of the Company and as a member of the Board of Directors of the Company. As a result, both agreements noted above were cancelled. Subsequent to the year end and before the last day of this examination, the Company executed three new agreements with HFG as follows
1. Agency service agreement
2. Producer service agreement
3. Consulting agreement These agreements were properly executed in accordance with SSAP 25 and the Company appears to be in compliance with this recommendation.
The previous examination report as of December 31, 2009, dated September 15, 2010, was distributed to the Board on November 18,2010.
MANAGEMENT & CONTROL INCLUDING CORPORATE GOVERNANCEThe bylaws of the Company indicated the number of directors shall be not less than three (3) or more than twenty-five (25). A majority of the directors are residents of the state of Utah and manage the business and affairs of the corporation per the requirements of U.C.A. § 31A-5-407(2) and (6).
The following persons served as directors of the Company as of December 31,2012:
As of December 31, 2012, the Company's bylaws provide for the Principal Officers to consist of Chief Executive Officer, President, up to five (5) Vice Presidents, Secretary, and Treasurer. Other Officers and Assistant Officers, as necessary may be elected or appointed by the Board. Principal Officers of the Corporation shall be held by at least three (3) separate natural persons. The offices of CEO and President shall be held by members of the Board of the Company.
The Principal Officers of the Company as of December 31, 2012, were as follows:
Marilyn Rose Froelich - Fargo, North Finance & Investment Consultant Dakota Richard Klar, Jr.- Heber City, Utah Corporate Actuary - Participant Kristine Christensen - Stansbury Park, Treasurer- Participant Utah
Marilyn Rose Froelich, Fargo, North Finance & Investment Consultant Dakota Kristine Christensen - Stansbury Park, Treasurer- Participant Utah Richard Klar, Jr.- Heber City, Utah Corporate Actuary - Participant
Daren Hackett- Salt Lake City, Utah Controller - Participant 8 Biographical Affidavits Pursuant to the requirements of the Commissioner under Utah Code 31A-5-410(1) (a) (ii), notarized biographical affidavits are to be filed immediately for any changes in key management of staff of the Company and reported to the Commissioner.