Safeco Insurance Company Of America - Mike Kreidler
STATE OF WASHINGTONOFFICE OF THE INSURANCECOMMISSIONERFINANCIAL EXAMINATIONOFSafeco Insurance Company of AmericaSeattle, WashingtonNAIC CODE 24740DECEMBER 31,2005Participating States:WashingtonIndianaIllinoisOregonTexasSafeco Insurance Company of AmericaMissouriOrder No. G07-181Exhibit A
SALUTATIONSeattle, WashingtonJune 8, 2007The Honorable Alfred E. GrossInsurance CommissionerChair, NAIC Financial Condition (E) CommitteeVirginia Bureau of InsuranceCommonwealth of VirginiaPO Box 1157Richmond, VA 23219The Honorable Kent MichieCommissioner, Utah Department of InsuranceNAIC Secretary, Western ZoneDepartment of Insurance3110 State Office BuildingSalt Lake City, UT 84114-1201The Honorable Mike Kreidler, CommissionerWashington State Office of the Insurance Commissioner (OIC)Insurance Building312-14th Avenue SWOlympia, WA 98504Dear Commissioners:In accordance with your instructions, and in compliance with the statutory requirements of RCW48.03.010, an Association examination was made of the corporate affairs and financial records ofSafeco Insurance Company of AmericaofSeattle, Washingtonhereinafter referred to as "SICA" or the "Company," at the location of its home office, SafecoPlaza, 4333 Brooklyn Avenue Northeast, Seattle, Washington 98185. This report is respectfullysubmitted showing the condition ofthe Company as of December 31, 2005.
CHIEF EXAMINER'S AFFIDAVITI hereby certify I have read the attached Report of the Financial Examination of Safeco InsuranceCompany of America of Seattle, Washington. This report shows the financial condition andrelated corporate matters as of December 31,2005. VJ2jd [Chief Examiner .)w7Date
TABLE OF CONTENTSSCOPE OF EXAMINATION . 1INSTRUCTIONS . 1COMMENTS AND RECOMMENDATIONS . 8COMP ANY PROFILE . 9HISTORY AND CAPITALIZATION . 9TERRITOR Y AND PLAN OF OPERATION . 9ACQUISITIONS, MERGERS, DISPOSALS, DISSOLUTIONS, AND PURCHASES . 9GROWTH OF COMPANY . 10AFFILIATED COMPANIES . 10INTERCOMPANY CONTRACTS . 11MANAGEMENT AND CONTROL . 131313OFFICERS . 13OWNERSHIP .DIRECTORS .CONFLICT OF INTEREST . 14FIDELITY BOND AND OTHER INSURANCE . 14OFFICERS' , EMPLOYEES' , AND AGENTS ' WELFARE AND PENSION PLANS . 14CORPORA TE RECORDS . 15UNP AID LOSSES AND LOSS ADJUSTMENT EXPENSES . 15REINSURANCE . 15INTERCOMPANY REINSURANCE . 15ASSUMED REINSURANCE .CEDED REINSURANCE .1717STATUTORY DEPOSITS . 18ACCOUNTING RECORDS AND INFORMATION SYSTEMS . 18SUBSEQUENT EVENTS . 19FOLLOW UP ON PREVIOUS EXAMINATION FINDINGS . 19FINANCIAL STATEMENTS . 19ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS . 20STATEMENT OF INCOME AND CAPITAL AND SURPLUS AcCOUNT . 21RECONCILIATION OF SURPLUS FOR THE PERIOD SINCE LAST EXAMINATION . ; . 22ANAL YSIS OF CHANGES IN FINANCIAL STATEMENTS RESULTING FROM THE EXAMINATION . 23NOTES TO THE FINANCIAL STATEMENTS . 24ACKNOWLEDGMENT . 25AFFIDA VIT . 26---------
SCOPE OF THE EXAMINATIONThis examination covers the period January 1, 2001 through December 31, 2005 and comprises acomprehensive review of the books and records of the Company. The examination followed thestatutory requirements contained in the Washington Administrative Code (WAC), the RevisedCode of Washington (RCW), and the guidelines recommended by the National Association ofInsurance Commissioners (NAIC) Financial Condition Examiners Handbook (FCEH). Theexamination included identification and disposition of material transactions and events occurringsubsequent to the date of examination that were noted during the examination.Corporate records, external reference materials, and various aspects of the Company's operatingprocedures and financial records were reviewed and tested during the course of this examinationand are commented upon in the following sections of this report. In addition, the Company'scertified public accountant's (CPA's) work papers were reviewed and utilized, where possible, tofacilitate efficiency in the examination.This examination was classified as an Association exam and was called through the NAIC'sExamination Tracking System. This examination was also classified as a coordinatedexamination of all insurance companies that are members of the Safeco Holding CompanyGroup, hereinafter referred to as the "Safeco Group". (This will also include non-insurerWashington State was also designated as the Leadaffiliates as indicated.)State of the coordinated examination and examiners from the states of Washington, Indiana,Illinois, Missouri, Oregon, and Texas participated and assessed the financial condition andcorporate affairs of the affiliated companies in the Safeco Group.INSTRUCTIONSThe examiners reviewed the Company's filed 2005 NAIC Annual Statement as part of thestatutory examination. This review was performed to determine if the Company completed theNAIC Annual Statement in accordance with the NAIC Annual Statement Instructions and todetermine if the Company's accounts and records were prepared and maintained in accordancewith Title 48 RCW, Title 284 WAC, and the NAIC Statements of Statutory AccountingPrinciples (SSAP) as contained in the NAIC Accounting Practices and Procedures Manual(AP&P).The following summarizes the exceptions noted while performing this review.1. Reinsurance Recoverable from an Unauthorized AffiliateSafeco Insurance Company of America (SICA), a Washington domiciled insurer, admitted 139,673,000 of reinsurance recoverable from Safeco National Insurance Company (SNL), aMissouri domiciled insurer and affiliate of SICA. SNL is not licensed to write insurance inWashington, and is therefore an unauthorized reinsurer. RCW 48.12.160 requires cashcollateral or a clean, irrevocable letter of credit in order to admit reinsurance recoverable
from an unauthorized reinsurer. SICA admitted 100% of the reinsurance recoverable fromSNL without obtaining cash collateral or a clean, irrevocable letter of credit as security.In addition, SICA reported the recoverable from SNL as an "authorized" reinsurer onSchedule F - Part 3. This is not in accordance with RCW 48.05.250, which requires theCompany to file a true statement of its financial condition, transactions, and affairs.The Company is instructed to comply with RCW 48.12.160 by collateralizing theunauthorized reinsurance recoverable or non-admitting any un-collateralizedreinsurance recoverable from SNL and RCW 48.05.250 by filing a true statement of itsfinancial condition, transactions, and affairs. We have made an examinationadjustment to recognize the penalty for this unauthorized reinsurance recoverable inthe amount of 139,673,000.2. Investment Expense AllocationThe Safeco Group has an Investment Expense Sharing Agreement dated March 12, 1999 thatrequires each company to pay their "allocable share" of the investment expenses. SafecoInsurance Company of America (SICA) incurs all investment expenses and then allocatesthese expenses to the other members of the Safeco Group. The examiners reviewed the 2005investment expenses reported by each entity, and concluded that the expenses were not basedon the individual company's percentage of invested assets. Several companies did not haveany investment expense allocated to them. This result is not in compliance with RCW48.31 B.030(1 )(a), which requires the terms of the agreement to be fair and reasonable, thecharges or fees to be fair and reasonable, and expenses incurred and payment received to beallocated to the insurer in conformity with customary insurance accounting practices andconsistently applied.In addition, the agreement does not include the companies listed below as participants:Safeco Surplus Lines Insurance CompanySafeco National Insurance CompanyAmerican States Insurance CompanySafeco Insurance Company of IndianaAmerican Economy Insurance CompanyAmerican States Preferred Insurance CompanyInsurance Company of IllinoisSafeco Insurance Company of IllinoisAmerican States Lloyds Insurance CompanySafeco Lloyds Insurance CompanyAmerican States Insurance Company of TexasSafeco Insurance Company of OregonThe Company is instructed to comply with RCW 48.31B.030(1)(a), which requires theterms of the Investment Expense Sharing Agreement to be fair and reasonable.Expenses incurred and payment received must be allocated to the affiliated companiesin conformity with customary insurance accounting practices consistently applied. The2
books, accounts, and records of each party to all such transactions must be somaintained as to clearly and accurately disclose the nature and details of thetransactions, including such accounting information as is necessary to support thereasonableness of the charges or fees to the respective parties.The Company is instructed to comply with RCW 48.31B.030(1)(b)(iv) which requiresall insurers that are members of a holding company system to file, with thecommissioner, all management agreements, service contracts, and cost sharingagreements prior to entering into them. All companies participating in the agreementneed to be listed in the agreement. A revised agreement was submitted to the OIC inDecember 2006.3. Holding Company Act ComplianceI. Form D Filings- Notice of Intention to Enter into a TransactionThe following intercompany agreements were subject to RCW 48.31B.030(1)(b) but werenot properly filed with the commissioner:a. Expense Sharing Agreement dated June 12, 2002Between Safeco Insurance Company of America and Safeco Insurance Company ofOregon.b. Investment Expense Sharing Agreement dated March 12, 1999Between Safeco Insurance Company of America, General Insurance Company ofAmerica, First National Insurance Company of America and three non-Washingtonlife companies.c. Reinsurance Agreement dated 10/1512002Between Safeco Insurance Company of America and American States InsuranceCompany of Texas.d. Reinsurance Agreement dated 10116/2002Between Safeco Insurance Company of America and American States Lloyds.e. Reinsurance Agreement dated 10116/2002Between Safeco Insurance Company of America and Safeco Lloyds.RCW 48.31B.030(1 )(b) requires that certain transactions listed below involving adomestic insurer and a person in its holding company system may not be entered intounless the insurer has notified the commissioner in writing of its intention to enter intothe transaction and the commissioner declares the notice to be sufficient at least sixtydays before, or such shorter period as the commissioner may permit, and thecommissioner has not disapproved it within that period:3
Reinsurance agreements or modifications to them in which the reinsurance premiumor a change in the insurer's liabilities equals or exceeds five percent of the insurer'ssurplus as regards policyholders, as of the 31 st day of the previous December.Management agreements, service contracts, and cost-sharing arrangements. The Company is instructed to comply with RCW 48.31B.030(1)(b) by properly filingagreements subject to the Holding Company Act. Form D filings for the agreementslisted above were sent to the OIC in December 2006.II. Form B Filings- NotificationThe agreements listed below were subject to RCW 48.31B.025(2)(c)(vi) or RCW48.31B.025(2)(c)(v) but the Company failed to file or filed inaccurate information for thefollowing agreements:a. Reinsurance Agreement dated 111311983Between Safeco Insurance Company of America and Safeco Surplus Lines.b. Short-Term Borrowing AgreementThe Restated Intercompany Short-Term Borrowing Agreement effective July 15,2002includes companies that are no longer affiliated with the Safeco Group companies andone entity that is no longer a party to the contract. Safeco Life Insurance Company is no longer affiliated with the Safeco Group andshould be removed from the agreement.Safeco National Life Insurance Company is no longer affiliated with the SafecoGroup and should be removed from the agreement.American States Life Insurance Company is no longer affiliated with the SafecoGroup and should be removed from the agreement.Safeco Financial Products, Inc., is no longer a party to the agreement and shouldbe removed from the agreement.c. Expense Sharing AgreementThe Expense Sharing Agreement dated March 15, 2001 includes several insurancecompanies that are no longer affiliated with the Safeco Group and uses one incorrectname. Safeco Life Insurance Company is no longer affiliated with the Safeco Group andshould be removed from the agreement.Safeco National Life Insurance Company is no longer affiliated with the SafecoGroup and should be removed from the agreement.First Safeco National Life Insurance Company of New York is no longer affiliatedwith the Safeco Group and should be removed from the agreement.American States Life Insurance Company of Texas is no longer affiliated with theSafeco Group and should be removed from the agreement.4
Safeco Insurance Company of Pennsylvania is listed as a party to the agreement.This should be amended to read Safeco Insurance Company of Indiana.RCW 48.31B.02S(2)(c)(vi) and RCW 48.31B.02S(2)(c)(v) require an insurer subject toregistration to file the registration statement on a form prescribed by the commissioner,containing current information for reinsurance agreements currently outstanding and allmanagement agreements, service contracts, and cost-sharing arrangements.The Company is instructed to file accurate information for the above agreements sothat they correctly identify the parties to the contracts in conformance with RCW48.31B.025(2)(c)(vi) and RCW 48.31B.025(2)(c)(v).4. Right of Offset ClauseThe Safeco Group settles all intercompany payables and receivables for all the insurancecompanies in the group on a net basis. This methodology is acceptable as long as theintercompany agreements being settled provide for the right of offset. However, certainSafeco Group companies are parties to several agreements that do not include the right ofoffset clause.NAIC Accounting Practices and Procedures Manual, Statements of Statutory AccountingPrinciples (SSAP) 64 states: "Assets and liabilities shall be offset . only when a valid rightof setoff exists . " and "The right of setoff is enforceable by law".The companies aresettling intercompany payables and receivables based upon the premise that a right of offsetexists. However, since the agreements listed below do not contain the right of offset clause,this premise is not supported by the terms of these agreements. As a result, the Company isnot in compliance with SSAP 64 as required by RCW 48.0S.073.Agreements that do not include a right of offset clause are: Investment Expense Sharing AgreementRestated Intercompany Short Term Borrowing AgreementReinsurance Agreement dated November 3, 1983Agreement of Allocation of Payment of Federal Income Taxes, February 28, 2000, andthe Amendment dated July 21,2006Expense Sharing Agreement dated June 12,2002Services Agreement (an amendment to the agreement dated 11111984 and originally filedwith Texas) dated March 17,2003Investment Expense Sharing Agreement dated March 12, 1999Agreement for Maintenance of Services: Substitution and Discharge and ConsentThereto, dated December 29,1998Expense Sharing Agreement dated March IS, 2001The Company is instructed to comply with RCW 48.05.073 and SSAP 64 by eitheramending the agreements to include a right of offset clause, or by reporting and settlingeach agreement separately without a right of offset.5
5. First Cash Plus Plan Account ReconciliationThe First Cash Plus Plan (FCP) is an option given to certain claimants for their settlementpayment. Instead of the usual lump sum payment made via check, the FCP is offered toclaimants that have settlement amounts above a certain threshold. The claimant receives acheckbook, and he or she has the right to withdrawal 100% of the funds at any time. Thebenefit to the claimant is that he or she still has 100% access to the settlement funds, but alsohas the option to leave funds in the account and earn interest.The FCP reconciliation includes over 770,000 of uncleared differences at December 31,2005 that date back to years 2000, 2001, and 2002. Over 680,000 still remained unresolvedas of September 30, 2006. Since these reconciliation differences are not being cleared in areasonable time frame, the Company is in violation of RCW 48.05.280, which requires theCompany to keep full and adequate accounts and records.The Company is instructed to comply with RCW 48.05.280, which requires theCompany to keep full and adequate accounts and records of its assets, obligations,transactions, and affairs.6. NAIC 2005 Annual Statement Errors and MisclassificationsThe examination team discovered several instances in which the Company's NAIC 2005Annual Statement did not conform to the NAIC Accounting Practices and Procedures Manualand the NAIC 2005 Annual Statement Instructions. While the Company needs to correctthese practices, none of the following items in the instruction were material to the financialstatements and no examination adjustments were made.The Company is instructed to comply with RCW 48.05.073, RCW48.05.250, and WAC284-07-050(2) in filing its NAIC 2005 Annual Statement in accordance with the NAICAccounting Practices and Procedures Manual and the NAIC 2005 Annual StatementInstructions.The following exceptions were noted in our examination:a. Classification of LiabilitiesSeveral liability accounts containing employee wages and benefits and other expenseswere not properly classified in the NAIC 2005 Annual Statement according to the NAIC2005 Annual Statement Instructions and NAIC Accounting Practices and ProceduresManual. These accounts were incorrectly classified as "Amounts withheld or retained bythe Company for account of others" or "Aggregate write-ins for liabilities" instead of"Loss adjustment expenses" or "Other expenses".b. Classification of Unpaid ExpensesThe unpaid expenses at December 31, 2005 in the Underwriting and Investment Exhibit(UIE) did not include bonuses and other miscellaneous liabilities recorded as Aggregate6
write-ins for liabilities on the Liabilities, Surplus, and Other Funds page of the NAIC2005 Annual Statement.c. Inaccurate Notes to Financial Statements Note lOB Disclosures Relating to Intercompany Loans and Dates of TransactionsThe Note erroneously disclosed that SICA issued loans to its parent, SafecoCorporation and other affiliates. It should have disclosed that it received loans fromits parent, Safeco Corporation, and other affiliates.The following disclosures were missing:The Company received a loan from American Economy Insurance Company.The Company received a loan from American States Insurance Company of Texas.In addition, the Company failed to report the date of the transactions in Note lOB, butrather disclosed that these amounts were in 2005. This disclosure does not meet therequirements of SSAP 25 Paragraph 17.b.i, which requires the Company to list thedate of the transaction for non-reinsurance or non cost-allocation transactions equal toor greater than 112 of 1% of the total prior year admitted assets of the reporting entity.The Company is instructed to provide accurate and complete disclosures in the Notesto Financial Statements. Note 12 Deferred Compensation Plan not DisclosedThe Company failed to disclose the Deferred Compensation and SupplementalBenefit Plan for Executives in Note 12 of the Financial Statements. This is not inaccordance with SSAP 14. The Company is instructed to provide accurate andcomplete disclosures in the Notes to Financial Statements. Note 26 Disclosures Relating to Intercompany Pooling ArrangementsNote 26 of the Notes to Financial Statements incorrectly listed all fifteen insurers asparticipants in an intercompany reinsurance agreement. This is incorrect, since thereare eight intercompany reinsurance agreements. As noted in the reinsurance sectionof this report, there is a pooling agreement, which includes eight companies. Theother seven companies in the group each have separate reinsurance agreements withSICA, which cal
America, First National Insurance Company of America and three non-Washington life companies. c. Reinsurance Agreement dated 10/1512002 Between Safeco Insurance Company of America and American States Insurance Company of Texas. d. Reinsurance Agreement dated 10116/2002 Between Safeco Insurance Company of America and American States Lloyds. e.
NAIC Company Code 23922 . Hereinafter referred to as the "Company." The following report is respectfully submitted. . multi-state, full-scope examination of Oregon Automobile Insurance Company, together with its affiliates, Safeco Insurance Company of Oregon and North Pacific Insurance Company, and the Company's direct parent, Liberty .
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Safeco Optimum Package (OPTM) Audio, Visual and Customized Equipment (ACE) Roadside Assistance Emergency Assistance Package Loss of Use (LOU) Physical damage Minimum Discounts Anti-theft Discount Anti-Lock Braking Systems Discount Airbag System Discount Accident Prevention Cour
General Insurance Company of America of Seattle, Washington hereinafter referred to as "GICA" or the "Company," at the location of its home office, Safeco Plaza, 4333 Brooklyn Avenue Northeast, Seattle, Washington 98185. This report is respectfully submitted showing the condition of the Company as of December 31, 2005.
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Safeco Optimum Package TM for Auto Up to 500 in deductible savings for safe driving with us Free replacement electronic keys Up to 1K in emergency expenses Up to 1K for stolen property and four other features 7. Motorcycle is our fastest-g
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