Holiday, Florida LION INSURANCE COMPANY. Ultimate Parent: Jamestown Holdings Corp.

Transcription

1 Holiday, Florida Ultimate Parent: Jamestown Holdings Corp. LION INSURANCE COMPANY 2739 US Highway 19 North, Suite 601, Holiday, FL Web: lioninsurancecompany.com Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A- Outlook: Positive Best s Financial Size Category: VII RATING RATIONALE Rating Rationale: The ratings reflect Lion Insurance Company s (Lion) excellent risk-adjusted capitalization, favorable underwriting and overall operating performance, and prudent reserving practices. These positive rating A- factors are driven by Lion s stringent underwriting and pricing guidelines, disciplined claims practices and conservative investment philosophy, which have generated underwriting and overall operating profitability measures that have significantly outperformed the workers compensation composite in recent years. The positive factors are somewhat offset by the company s product concentration as a workers compensation insurer writing primarily for an affiliated professional employer organization, South East Personnel Leasing, Inc. In addition, the majority of Lion s business is currently produced in Florida and California, which exposes the company to potentially greater legislative, regulatory and economic risks. Also, there is execution risk associated with Lion s significant ongoing expansion of affiliated business in states outside of Florida, particularly in California, over the past five years as part of its strategy to diversify operations. There was sizable non-affiliated business growth that began in late 2009 and ran through mid-2012 when it was discontinued for underwriting reasons. This book of business warrants continued monitoring of the run-off. Despite these concerns, the outlooks are based on Lion s excellent risk-adjusted capital, expectations of sustained profitability and management s intent to maintain capital at levels fully supportive of its growing exposures. Printed October 24, Page 1 of 8

2 The negative factors reflect some concern with two Florida Supreme Court rulings in 2016, one of which is anticipated to have a substantial effect on Florida s workers compensation premium rates and loss costs. In April 2016, the court s ruling in the case of Marvin Castellanos that current attorney fee limits are unconstitutional has created substantial uncertainty in the Florida workers compensation market and an urgent need for Florida insurers to significantly raise premium rates in this line. Of lesser impact, in June 2016, the court ruled in the Bradley Westfall case that the 104-week maximum duration of temporary disability benefits should be increased to the pre week limit. These adverse rulings are partially mitigated by the anticipated 14.5% rate increases effective December 1, 2016, approved by the Florida OIR, which may be sufficient to address expected increases in claim costs. In addition, there is concern of new litigation challenging open or even old workers compensation claims related to the now-declared unconstitutional fee schedule. Nearly 40% of Lion s gross premium written in 2015 was Florida workers compensation business, which warrants close monitoring. Factors that could lead to positive rating actions include Lion achieving continued solid underwriting and overall operating performance, along with favorable reserve development while maintaining above-average risk-adjusted capitalization. Negative rating actions could be taken should there be a deterioration in the company s operating performance, the reporting of material adverse loss reserve development, a material decline in its capitalization or a lack of financial support by its parent, if necessary. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 10/20/16 A- 05/09/13 A- 07/23/15 A- 05/31/12 A- 05/13/14 A- KEY FINANCIAL INDICATORS ($000) Statutory Data Direct Premiums Written Net Premiums Written Pre-tax Operating Income Net Income Total Admitted Assets Policyholders Surplus ,326 20,463 3,447 2, ,447 64, ,795 21,400 4,606 3, ,824 68, ,462 21,626 5,772 4, ,413 72, ,465 23,730 6,796 4, ,622 77, ,363 28,176 8,075 6, ,580 83,386 Profitability Leverage Liquidity Comb. Ratio Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW to PHS Net Lev. Overall Liq. (%) Oper. Cash flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Workers Compensation Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE Lion provides workers compensation insurance coverage primarily to an affiliate, South East Personnel Leasing, Inc. (SEPL). SEPL is focused on providing services, such as payroll administration, risk management, record keeping, employee relations and employee benefits to business owners. The current policy with SEPL is a high deductible policy with a $1,000,000 deductible per occurrence. Lion maintains a large deductible collateral fund that is funded by SEPL based on actuarially determined costs of ultimate losses under the deductible. The deductible portion of losses and loss adjustment expenses is paid from this large deductible fund. Under an expense allocation agreement, Lion allocates to SEPL that portion of investment income related to the funds paid by SEPL into the large deductible collateral fund. Lion benefits from its leading position in the construction industry and the ability to write small businesses and accommodate new start-ups. Although construction classes as a portion of its total book has declined over the years due to the adverse impacts of the macroeconomic environment and significant rate reductions in Florida, the company has diversified outside of Florida and into non-construction classes, such as manufacturing and transportation, as well as many service industries. Business is produced through internal sales representatives as well as independent agents. Operations are focused in Florida with a growing amount written in California, Georgia, North Carolina, Illinois, Arizona, Texas, New Jersey, Louisiana, Pennsylvania, Alabama, South Carolina, Maryland and seven other states over the past several years. In the fourth quarter of 2009, Lion started to underwrite workers compensation policies for businesses not affiliated with SEPL. However, this business was discontinued in mid-2012 due to less favorable underwriting results. Its last policy expired at the end of In the second quarter of 2011, Lion entered into a 100% quota share reinsurance agreement with Tower Insurance Company of New York, Tower National Insurance Company and Castle Point National Insurance Company (Tower). The quota share is in place to reinsure the SEPL business originated, primarily in California. Since 2013, this business has been fronted by State National Insurance Company. Printed October 24, Page 2 of 9

3 TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , , , , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: The company is licensed in the District of Columbia, AL, AZ, CO, CT, FL, GA, HI, IL, LA, MD, MA, MS, NV, NJ, NM, NC, OK, PA, RI, SC, TN, TX and VA BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Workers Comp 18, , , Total 18, , , Business NPW Retention Product Line ($000) (%) (%) Workers Comp 28, Total 28, BY-LINE RESERVES ($000) Product Line Workers Comp 46,782 40,819 38,420 36,463 31,501 Total 46,782 40,819 38,420 36,463 31,501 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) Florida 11,895 11,303 12,929 10,195 9,833 Georgia 1,615 1,760 1,095 5,216 5,650 North Carolina ,048 Pennsylvania New Jersey Arizona Illinois Louisiana Texas Maryland All Other , Total 18,363 17,465 17,462 18,795 17,326 RISK MANAGEMENT While Lion does not have a fully-developed Enterprise Risk Management program in place, a senior level officer is responsible for identifying material risks to the company s financial position and whether risk tolerances of these risks are exceeded. The company employs traditional risk management techniques focusing on such areas as underwriting, investments, liquidity, credit, operational and strategic risks. Potential causes and impacts associated with these risks have been identified and quantified where applicable. Action plans are developed to identify and address business execution risks relating to key personnel, information systems, growth, investments, economic / market conditions and the regulatory environment. The company has begun formalizing an annual Risk Assessment review process for its top risks which have been identified. The company s board and business units are kept appraised of risk metrics and risk management activities. OPERATING PERFORMANCE Operating Results: Over the past five years, Lion has produced strong operating earnings with pretax returns on revenue (ROR) that have substantially outperformed the workers compensation composite, driven by highly favorable underwriting results and sound net investment income. Underwriting has been particularly strong as evidenced by the company s five-year average combined ratio significantly outperforming the composite. While net investment income has remained sound, it declined 29.2% in 2014 largely reflecting certificates of deposit that matured late in 2013, that were reinvested in appreciably lower yielding tax exempt municipals and corporate bonds in early Also, Lion returned a higher portion of its investment income to South East Personnel Leasing, Inc. (SEPL) in 2014 associated with SEPL s prefunding of Lion s large deductible collateral fund, that related to higher realized capital gains, that were offset against Lion s net investment income. As a result of the lower interest rate environment and to compensate for higher yielding securities that have been maturing, Lion s investment strategy Printed October 24, Page 3 of 9

4 has focused on increasing investment grade corporates and tax exempt municipals, while decreasing US treasury and government allocations. Also, an allocation to high dividend equities has been maintained for higher income; portfolio duration has remained relatively consistent. Lion s investment yields remain well below the industry composite in large part because Lion is required by agreement with SEPL to transfer back a portion of investment income related to funds paid by SEPL into the large deductible collateral fund. In 2009, Lion began to underwrite workers compensation policies for businesses not associated with South East Personnel Leasing, Inc., which also has reduced profitability. This non-affiliated business, which grew to account for 43% of direct premiums written in 2011, was discontinued in mid-2012 due to several years of less favorable underwriting results. Largely offsetting the run-off of the company s non-affiliated premium in the second half of 2012 and in 2013 and 2014, was continued substantial expansion of its affiliated business in states other than Florida, particularly in California. A.M. Best will closely monitor the run-off of Lion s non-affiliated business, the profitability of its growing affiliated business, as well as reserve development in the near term, as the company s growth in recent years has been in highly competitive workers compensation markets. In 2012, while the company s loss and loss adjustment expense (LAE) ratio declined 8.5 points to 56.4, its expense ratio rose 10.8 points to an above-average level of The increase in the expense ratio was largely attributable to the higher commission structure on its California assumed business. In addition, there was a 78% increase in the Workers Compensation Administration Trust Fund rate on increased Florida premiums, which resulted in a doubling of Lion s Florida assessment charges. Management achieved significantly lower expense ratios in years 2013 through 2015 of 38.6, 37.6 and 34.8, respectively, in part due to a change in cost-containment strategies. The company s loss and LAE ratio declined further to 45.9 in 2013 and 40.3 in 2014 largely due to favorable prior year loss reserve development and lower current accident year losses in The loss and LAE ratio rose modestly to 43.0 in 2015 primarily reflecting a $2.6 million swing from highly favorable calendar year prior year loss reserve development in 2014 to slightly unfavorable development in 2015, which adversely impacted the loss and LAE ratio 10.9 points. This was largely offset by lower current accident year losses in 2015 as compared with While A.M. Best expects that Lion will continue to generate profitable underwriting and overall operating income in the near term, more competitive workers compensation markets and the adverse effects of the recent Florida Supreme Court rulings will likely pressure profitability measures. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Net Total Income Income Income Return ,447 2,403 2,422 2, ,606 3,382 3,480 3, ,772 3,828 4,086 4, ,796 3,792 4,937 4, ,075 5,435 6,069 5,766 5-Yr Total 28,695 18,841 20,994 21,299 Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating ROR (%) on PHS (%) Ratio (%) ROR (%) on PHS (%) Ratio (%) Yr Avg UNDERWRITING EXPERIENCE Net Undrw Loss Ratios Expense Ratios Ind Income Pure Net Other Total Div. Comb. ($000) Loss LAE Loss LAE & Comm. Exp. Exp. Pol. Ratio Ratio , , , , , Yr Total/Avg 19, BY-LINE LOSS RATIO Product Line Yr Avg Workers Comp Total DIRECT LOSS RATIO BY STATE Yr Avg Florida Georgia North Carolina Arizona Louisiana Texas All Other Total Printed October 24, Page 4 of 9

5 INVESTMENT GAINS ($000) Company Net Realized Unrealized Inv Capital Capital Year Income Gains Gains , , , ,663 1, , Yr Total 10,104 2, Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: Lion has reported consistent surplus growth in the 4% to 8% range in each of the past five years, driven by favorable operating earnings. The company s risk-adjusted capitalization, as measured by Best s Capital Adequacy Ratio (BCAR), is well-supportive of its current rating and reflects its conservative premium leverage, strong operating earnings and conservative investment guidelines. Given management s business plan, A.M. Best expects Lion to remain strongly capitalized over the near term. Although the company has reported favorable calendar year prior year loss reserve development since 2009 (2012 and 2015 being exceptions when it was slightly adverse), accident years have developed somewhat variably since inception in Given the company s discontinuance of its non-affiliated business in mid-2012 and substantial expansion of its affiliated business in states outside of Florida over the past several years, A.M. Best will be closely monitoring the company s loss reserve position. Current BCAR: CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains , , , , , , ,796 1,145 3, , , Yr Total 28,695 2,153 9, Source of Surplus Growth Net Change % Chg Contrib. Other in in Year Capital Changes PHS PHS , , , , , Yr Total 56 21, QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,062 15, ,062 18, ,062 23, ,062 28, ,062 34,324 Year-End Conditional Adjusted Year PHS Reserves PHS ,622 64, ,032 68, ,405 72, ,551 77, ,386 83,386 LEVERAGE ANALYSIS Company Industry Composite Res. Res. to Net Gross NPW to to Net Gross PHS Lev. Lev. PHS PHS Lev. Lev. NPW to PHS Printed October 24, Page 5 of 9

6 CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. to Reins. to (%) PHS (%) PHS (%) Industry Composite Bus. Reins. Ceded Ret. Recov. to Reins. to (%) PHS (%) PHS (%) Ceded Reins. Total , , , , , REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Insurers ,631 8,723 Other Non-US ,365 5,817 Total (ex US Affils) ,996 14,540 Grand Total ,996 14,540 * Includes Commissions less Funds Withheld LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Orig. Developed Develop. Develop. Develop. Unpaid Unpaid Loss Reserves to to to Reserves Res. to Reserves Thru 15 Orig. (%) PHS (%) NPE Develop. (%) Calendar Year ,288 9, , ,744 18, , ,576 23, , ,227 31, , ,395 39, , ,264 45, , LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru 15 Develop. to Orig. (%) Unpaid Acc. Yr Loss Ratio Acc. Yr Comb. Ratio ,010 4, , ,910 11, , ,636 10, , ,021 12, , ,870 11, , ,155 8,155 8, Liquidity: Lion maintains solid balance sheet liquidity with the quick liquidity measure remaining higher than the workers compensation composite, primarily due to the substantial percentage of invested assets held in cash and short-term investments. Overall liquidity has been enhanced over the most recent five-year period by strong underwriting and operating cash flows and is expected to remain solid over the near term. LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Current Overall Agents Bal. to PHS (%) Quick Current Overall Agents Bal. to PHS (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Net Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) ,978 10,269-36, ,290 8,408-21, ,608 6,531 24, ,132 7,585-20, ,697 11,497 4, Yr Total 43,704 44,289-49,411 INVESTMENT LEVERAGE ANALYSIS (% OF PHS) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Estate/ Invested Common Inv. Affil. 3-6 Common Bonds Mtg. Assets Stocks Lev. Inv. Bonds Stocks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total Printed October 24, Page 6 of 9

7 Bonds (000) 153, ,221 88, , ,043 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Private Issues Public Issues Bond Quality (%) Class Class Class INVESTMENTS - EQUITIES Stocks (000) 3,519 3,524 3,072 2,218 1,093 Unaffiliated Common INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 77,749 73,555 93,339 69,053 90,998 Cash Short-Term All Other 0.7 HISTORY Gulf Atlantic Insurance Company commenced operations on June 17, On March 31, 1999, Clarendon National Insurance Company (Clarendon) acquired Gulf Atlantic and changed the name to Lion Insurance Company. Effective April 29, 2003, the State of Florida Office of Insurance Regulation approved the acquisition of 100% ownership of Lion Insurance Company by Jamestown Holdings Corp. pursuant to Section , Florida Statutes. Clarendon received total consideration of approximately $7.9 million, which consisted of Lion s capital and surplus as of the date of acquisition, plus the value of its six state Certificates of Authority, which totaled $600,000. As a condition of the approval of the acquisition by the Florida Office of Insurance Regulation, workers compensation insurance was added to the company s Certificate of Authority and all other lines of insurance were removed. All liabilities remaining from operations prior to the date of acquisition were 100% ceded to Clarendon. MANAGEMENT The company is a wholly owned subsidiary of Jamestown Holdings Corp., a privately held Florida corporation owned 100 percent by John A. Porreca. The company is affiliated with South East Personnel Leasing, Inc., a privately held Florida corporation owned by John A. Porreca and Deborah A. Porreca. Officers: President and Treasurer, John A. Porreca; Secretary, Grant Dalgleish. Directors: Robert B. Bennett, Carol A. Ostapchuk, John A. Porreca, Stephen L. Rohde, Mary Ann Stiles. REGULATORY An examination of the financial condition was made as of December 31, 2011, by the insurance department of Florida. The 2015 annual independent audit of the company was conducted by TaylorChandler, LLC. The annual statement of actuarial opinion is provided by Al Rhodes, SIGMA Actuarial Consulting Group, Inc. REINSURANCE Concurrent with the acquisition of Lion in 2003, a net retained liability reinsurance agreement was entered into between Lion and Lion s former parent, Clarendon National Insurance Company. Under this agreement, Clarendon accepts 100% quota share reinsurance of Lion s net retained liability under all policies of insurance or reinsurance issued or renewed by Lion prior to April 30, Accordingly, since Lion has ceded all liability for any losses under this agreement and does not have access to any loss data for claims under this agreement, the Florida Office of Insurance Regulation approved the reporting of only Lion s workers compensation losses and loss adjustment expenses on business written since April 30, Lion maintains excess of loss reinsurance on workers compensation providing coverage of 50% of $9 million in excess of $1 million per occurrence. Additionally, catastrophe reinsurance provides coverage in excess of $10 million up to $25 million. BALANCE SHEET ADMITTED ASSETS ($000) 12/31/15 12/31/14 15% 14% Bonds , , Common stock... 3,519 3, Cash & short-term invest... 77,749 73, Other non-affil inv asset Total invested assets , , Premium balances... -1,201-1, Accrued interest... 1,283 1, All other assets... 10,223 3, Total assets , , Printed October 24, Page 7 of 9

8 LIABILITIES & SURPLUS ($000) 12/31/15 12/31/14 15% 14% Loss & LAE reserves... 46,782 40, Unearned premiums All other liabilities ,397 90, Total liabilities , , Capital & assigned surplus... 49,062 49, Unassigned surplus... 34,324 28, Total policyholders surplus... 83,386 77, Total liabilities & surplus , , SUMMARY OF 2015 OPERATIONS ($000) Funds Provided from Statement of Income 12/31/15 Operations 12/31/15 Premiums earned... 28,172 Premiums collected... 28,345 Benefit & loss-related pmts Losses incurred... 6,852 2,160 LAE incurred... 5,264 Undrw expenses incurred LAE & undrw expenses paid 9,810 13,489 Net underwriting income 6,247 Undrw cash flow... 12,697 Net investment income... 1,834 Investment income... 2,788 Other income/expense Other income/expense... -2,207 Pre-tax cash operations Pre-tax oper income... 8,075 13,278 Realized capital gains Income taxes incurred... 2,639 Income taxes pd (recov)... 1,781 Net income... 6,069 Net oper cash flow... 11,497 Printed October 24, Page 8 of 9

9 Why is this Best s Rating Report important to you? The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of insurance companies since contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. A Best's Financial Strength Rating (FSR) is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer's claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. An FSR is not a recommendation to purchase, hold or terminate any insurance policy, The company information appearing in this pamphlet is an extract from the complete AMB Credit Report. You may obtain the complete report by contacting Customer Service at +1(908) or customer_service@ambest.com. Please reference the company's identification number (AMB#) listed on this rating report. For the latest Best's Financial Strength Ratings along with their definitions and A.M. Best's Terms of Use, please visit Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. All rights reserved. No part of this report may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior written permission of the A.M. Best Company. While the data in this report was obtained from sources believed to be reliable, its accuracy is not guaranteed. Printed October 24, Page 9 of 9