Report of Examination of
American Modern Home Insurance Company
Amelia, Ohio
As of December 31, 2019
Table of Contents
Subject
Page
Salutation ............................................................................................................................
1
Description of Company .....................................................................................................
1
Scope of Examination .........................................................................................................
1
Management and Control:
Board of Directors .........................................................................................................
2
Officers ..........................................................................................................................
3
Insurance Holding Company System ............................................................................
3
Territory and Plan of Operations ........................................................................................
3
Significant Operating Results .............................................................................................
4
Reinsurance:
Assumed Reinsurance. ....................................................................................................
5
Ceded Reinsurance ........................................................................................................
5
Financial Statements:
Statement of Assets, Liabilities, Surplus and Other Funds ............................................
7-8
Statement of Income .......................................................................................................
9
Statement of Changes in the Capital and Surplus Account ............................................
10
Notes to Financial Statements:
Investments .....................................................................................................................
10
Loss and Loss Adjustment Expense Reserves ................................................................
10
Subsequent Events ..............................................................................................................
11
Conclusion ..........................................................................................................................
11
Acknowledgement ..............................................................................................................
11
Verification .........................................................................................................................
12
1
Columbus, Ohio
March 15, 2021
Honorable Judith L. French
Director
State of Ohio
Department of Insurance
50 West Town Street
3
rd
Floor – Suite 300
Columbus, Ohio 43215
Dear Director:
In accordance with Section 3901.07 of the Ohio Revised Code (“ORC”), the Ohio Department
of Insurance (“Department”) conducted an examination of:
American Modern Home Insurance Company
an Ohio domiciled, stock property and casualty insurance company, hereinafter referred to as
the “Company” or “AMHIC.”
Scope of Examination
The Department, as the coordinating state regulator of the insurance subsidiaries of the
American Modern Insurance Group (“Group”), led the multi-state coordinated examination that
included representatives from the States of Florida, Oklahoma, and Texas. The last
examination covered the period of January 1, 2010 through December 31, 2014. This
examination covers the period of January 1, 2015 through December 31, 2019.
The examination was conducted in accordance with the National Association of Insurance
Commissioners (“NAIC”) Financial Condition Examiners’ Handbook (“Handbook”). The
Handbook requires that the Department plan and perform the examination to evaluate the
Company’s financial condition, assess corporate governance, identify current and prospective
risks of the Company and evaluate system controls and procedures used to mitigate those risks.
An examination also includes identifying and evaluating significant risks that could cause an
insurer’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 may include assessing significant estimates made by
management and evaluating management’s compliance with Statements of Statutory
Accounting Principles (“SSAPs”). 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.
2
This examination report includes significant findings of fact, as mentioned in Section 3901.07
of the ORC and general information about the insurer and its financial condition. There may be
other items identified during the examination, that, due to their nature (e.g., substantive
conclusions, proprietary information, etc.), are not included within the examination reports but
separately communicated to other regulators and/or the Company.
For all years under examination, the Certified Public Accounting firm of KPMG, LLP
(“KPMG”) provided an unqualified opinion on the Company’s financial statements based on
Statutory Accounting Principles. Representatives of the Department reviewed KPMG’s reports
and supporting work papers during the examination.
Management and Control
Board of Directors
Management of the Company is vested in its Board of Directors, which was comprised of the
following members as of the examination date:
Name
Principal Occupation
James J. Butler Retired
René Gobonya Senior Vice President and Chief Financial Officer,
The Company
Alice C. Hill Retired
Oliver J. Horbelt Senior Vice President and Chief Financial Officer,
Munich Reinsurance America, Inc.
Andreas M. Kleiner President and Chief Executive Officer,
The Company
Anthony J. Kuczinski President and Chief Executive Officer,
Munich Reinsurance America, Inc.
William A. Robbie Retired
Robin H. Willcox Senior Vice President and Chief Legal Counsel,
Munich Reinsurance America, Inc.
3
Officers
As of the examination date, the following officers were serving in the designated position:
Name
Title
Anthony J. Kuczinski
Andreas M. Kleiner
René Gobonya
Chairman of the Board
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Scott C. Vess
Vice President and Treasurer
Charles S. Griffith III Senior Vice President and Secretary
Insurance Holding Company System
The Company is a member of a holding company system as defined in Section 3901.32 of the
ORC. The ultimate controlling entity is Munich Re, a publicly traded insurance holding
company. The immediate ownership structure is as follows:
Munich-American Holding Corporation Delaware
The Midland Company Ohio
Midland-Guardian Co. Ohio
American Modern Insurance Group, Inc. Ohio
American Modern Home Insurance Company Ohio
American Modern Property & Casualty Insurance Company Ohio
American Western Home Insurance Company Oklahoma
American Southern Home Insurance Company Florida
American Modern Insurance Company of Florida, Inc. Florida
American Modern Select Insurance Company Ohio
Lloyds Modern Corporation, Attorney in Fact for: Texas
American Modern Lloyds Insurance Company Texas
American Family Home Insurance Company Florida
Bridgeway Insurance Company Delaware/Ohio
On July 1, 2019, Munich-American Holding Corporation directly acquired American Modern
Surplus Lines Insurance Company (“AMSLIC”) and reorganized the entity from the Group.
AMSLIC was thereafter renamed Bridgeway Insurance Company (“BIC”) and redomiciled to
the State of Delaware. However, BIC is included in the current coordinated examination as the
entity was domiciled in the State of Ohio during the period under examination.
Territory and Plan of Operations
The Company is licensed to transact business in the District of Columbia and all 50 states, as
well as the territories of Guam and Puerto Rico. The Group writes specialty products for
owners of mobile and manufactured homes; specialty dwellings such as vacant, rental, and
seasonal homes; watercraft; motorcycles; collector vehicles; travel; pet; and snowmobiles.
4
The following schedule illustrates the Company’s 2019 premiums written, in thousands, by
line of business:
Direct
Assumed
Ceded Net Percent
Homeowners multiple peril $196,631
$ 388,992
$454,881 $130,742 41.4%
Inland marine 83,064 10,032 49,153 43,943 13.9%
Fire 46,208 166,066 168,719 43,556 13.8%
Auto physical damage 33,355 47,648 47,930 33,073 10.5%
Allied Lines 22,639 123,701 121,224 25,116 8.0%
Commercial multiple peril 18,388 23,755 32,334 9,808 3.1%
Earthquake 9,804 1,656 9,328 2,132 0.7%
Private passenger auto liability 7,965 15,960 13,310 10,615 3.4%
Other liability - occurrence 7,686 48,902 48,835 7,753 2.4%
Ocean marine 6,459 9,240 8,637 7,062 2.2%
Other 3,347 33,011 34,295 2,063 0.6%
Totals
$435,546 $868,963 $988,646 $315,863 100.0%
Significant Operating Results
The Company reported the following net underwriting results, in thousands, during the
examination period:
2019
2018
2017
2016
2015
Premiums earned
$ 300,861
$ 280,936
$ 305,020
$ 352,660
$ 436,305
Losses incurred
148,831
150,370
164,297
171,929
187,985
Loss adjustment expense incurred
18,527
23,809
20,087
21,251
22,319
Underwriting expense incurred
146,726
134,409
142,279
160,232
174,691
Total underwriting deductions
314,084
308,588
326,663
353,412
384,995
Net underwriting gain (loss)
$(13,223)
$ (27,652)
$ (21,643)
$ (752)
$ 51,310
Loss ratio
49.5%
53.5%
53.9%
48.8 %
43.1%
Loss adjustment expense ratio
6.1% 8.5% 6.6% 6.0% 5.1%
Loss and LAE ratio
55.6%
62.0%
60.5%
54.8%
48.2%
Expense ratio
46.5% 48.3% 46.7% 48.7% 47.2%
Combined ratio
102.1%
110.3%
107.2%
103.5%
95.4%
5
Reinsurance
Assumed Reinsurance
As of December 31, 2019, the Group consisted of nine property and casualty companies, seven
of which participated in an inter-company pooling agreement, with AMHIC as the lead in the
Group's pooling arrangement. AMHIC assumed the premiums, losses, loss expenses and other
insurance expenses from the seven affiliates. After ceding to non-affiliated reinsurers as
appropriate, AMHIC then retroceded to the seven affiliates in accordance with the percentages
established in the pooling agreement. The following depicts the pooling percentages as of
December 31, 2019:
American Modern Home Insurance Company
47.5%
American Family Home Insurance Company
27.0%
American Western Home Insurance Company
9.0%
American Southern Home Insurance Company
4.0%
American Modern Select Insurance Company
5.0%
American Modern Property & Casualty Insurance Company
5.5%
American Modern Insurance Company of Florida, Inc.
2.0%
100%
American Modern Lloyds Insurance Company cedes 100% of its premium and losses to
AMHIC, who then retrocedes the business to the pool.
Effective July 1, 2019, as part of an overall plan to transfer AMSLIC to Munich-American
Holding Corporation, AMSLIC was removed from the inter-company pooling agreement and
all outstanding balances related to the pool were settled in the ordinary course or commuted.
American Family Home Insurance Company, 100% owner of AMSLIC, then contributed
AMSLIC via a $26.4 million dividend to its parent, American Modern Insurance Group, Inc.
(“AMIG”). The $26.4 million amount represented AMSLIC’s statutory surplus at the time of
the dividend. AMIG, via dividend, contributed AMSLIC to its parent, and it was ultimately
contributed to Munich American Holding Corp.
In addition to the inter-company reinsurance pooling arrangement described above, the
Company assumed business from other external insurers during the ordinary course of business
under various contracts that cover individual risks or entire classes of business on a quota share
basis. All contracts contained an insolvency clause, errors and omissions clause and an
arbitration clause, which meet the guidelines prescribed by the NAIC.
Ceded Reinsurance
Effective January 1, 2019, the Group entered into a property catastrophe excess of loss
reinsurance agreement with Munich Reinsurance America, Inc. The Group’s retention is $250
million, while the reinsurer’s per occurrence limit is $125 million with a term limit of $250
million.
6
Coverage is provided below this $250 million retention limit via an external CAT XOL policy.
Coverage is provided for non-named storms, non-earthquake losses in excess of the Company’s
retention of $20,000,000 each Loss Occurrence, and subject to a limit of $20,000,000 each Loss
Occurrence for the First Excess Layer. For the Second Excess Layer, coverage is provided for
non-named storms, non-earthquake loss in excess of $40,000,000 each Loss Occurrence and
subject to a limit of $35,000,000 each Loss Occurrence. For the Third Excess Layer, all perils
coverage is provided for losses in excess of $75,000,000 each Loss Occurrence and subject to a
limit of $25,000,000 each Loss Occurrence. For the Fourth Excess Layer, all peril coverage is
provided for loss in excess of $100,000,000 in the first event, and $75,000,000 thereafter for
each Loss Occurrence and subject to a limit of $175,000,000 each Loss Occurrence.
Effective January 1, 2019 the Company also entered into an external Property CAT Aggregate
of Loss treaty where coverage is provided for non-named storms, non-earthquake losses
occurring during the term of the contract for policies covering property business in force,
written or renewed by or on behalf of the Company. Coverage is provided in the aggregate for
loss in excess of the Company’s aggregate retention of $75,000,000 and subject to an aggregate
limit of $50,000,000.
The Company maintains coverage with Munich Reinsurance America, Inc. for its quota share
program to cover the property and casualty personal lines business on manufactured and site-
built homes, net of inuring reinsurance. Effective July 1, 2015 the quota share program ceding
percentage was decreased from 90% to 60% on a portfolio basis.
The Company maintained a property per risk reinsurance agreement with Munich Reinsurance
America, Inc. The Group’s retention is $5 million of ultimate net loss, while the reinsurer’s per
risk and per occurrence limit is $20 million. Effective October 15, 2019, the Group entered into
a property per risk reinsurance agreement with Munich Reinsurance America, Inc. The Group’s
retention is $25 million of ultimate net loss, while the reinsurer’s per risk and per occurrence
limit is $25 million with a term limit of $50 million.
Effective April 1, 2018, the Group entered into a quota share reinsurance agreement with
AllState Insurance Company whereby the Group cedes 25% of the property and casualty
business written by Ivantage Select Agency, Inc.
The Company continues to cede 100% of its specialty markets business written to Munich
Reinsurance America, Inc. via a quota share agreement. The reinsurance agreement has been in
effect since 2010.
In addition to the significant reinsurance contracts described above, the Group cedes a portion
of the direct premiums written to several mandatory state pools and associations. Furthermore,
the Company cedes business to other external reinsurers with which the reinsurance
transactions were not material during the period under examination. All contracts contained an
insolvency clause, errors and omissions clause and an arbitration clause, which meet the
guidelines prescribed by the NAIC.
7
Financial Statements
The financial condition and the results of its operations for the period under examination as
reported and filed by the Company with the Department and audited by the Company’s external
auditors, are reflected in the following:
Statement of Assets, Liabilities, Surplus and Other Funds
Statement of Income
Statement of Changes in the Capital and Surplus Account
Statement of Assets, Liabilities, Surplus and Other Funds
As of December 31, 2019
Admitted assets
Bonds
$206,505,414
Common stocks
206,679,147
Real estate - properties occupied by the company
55,439,624
Cash, cash equivalents and short-term investments
28,858,537
Other invested assets
300,000
Receivable for securities
8,333
Total cash and invested assets
497,791,055
Investment income due and accrued
1,903,239
Uncollected premiums and agents’ balances in course of collection
150,711,228
Deferred premiums, agents' balances and installments booked
but deferred and not yet due
74,198,885
Amounts recoverable from reinsurers
102,016,715
Funds held by or deposited with reinsured companies
22,517,209
Current federal and foreign income tax recoverable
426,334
Net deferred tax asset
14,288,973
Electronic data processing equipment and software
1,092,835
Receivables from parent, subsidiaries or affiliates
74,066,127
Aggregate write-ins for other than invested assets
28,854
Total admitted assets
$939,041,454
8
Statement of Assets, Liabilities, Surplus and Other Funds (Continued)
As of December 31, 2019
Liabilities
Losses
$54,332,025
Reinsurance payable on paid losses and loss adjustment expenses
60,313,077
Loss adjustment expenses
7,067,234
Commissions payable, contingent commissions and other similar charges
28,567,812
Other expenses
14,452,063
Taxes, licenses and fees
4,639,241
Unearned premiums
165,580,296
Ceded reinsurance premiums payable
175,916,736
Funds held by company under reinsurance treaties
56,475,079
Provision for reinsurance
1,574
Payable to parent, subsidiaries, and affiliates
19,256,209
Aggregate write-ins for liabilities
9,889,813
Total liabilities
$596,491,159
Capital and Surplus
Common capital stock
5,000,000
Gross paid in and contributed surplus
103,771,315
Unassigned funds (surplus)
233,778,980
Surplus as regards policyholders
342,550,295
Total liabilities, capital and surplus
$939,041,454
9
Statement of Income
For the Year Ending December 31, 2019
Premiums earned
$300,860,491
Losses incurred
148,831,122
Loss adjustment expenses incurred
18,526,979
Other underwriting expenses incurred
145,879,144
Aggregate write-ins for underwriting deductions
846,686
Total underwriting deductions
314,083,931
Net underwriting loss
(13,223,440)
Net investment income earned
11,347,668
Net realized capital gains
758,303
Net investment gain
12,105,971
Net loss from agents' or premium balances charged off
(573,602)
Finance and service charges not included in premiums
8,869,597
Aggregate write-ins for miscellaneous income
(7,316,828)
Total other income
979,167
Net loss after dividends to policyholders
(138,302)
Federal and foreign income taxes incurred
(1,203,178)
Net Income
$ 1,064,876
10
Statement of Changes in the Capital and Surplus Account
(In thousands)
2019 2018 2017 2016 2015
Capital and surplus, prior year-end $360,426
$378,757
$406,895
$436,071
$380,461
Net income (loss) 1,065
(17,016)
(8,348)
15,773
54,189
Change in net unrealized capital gains
(losses)
6,303
(9,368)
(226)
9,856
21,359
Change in net deferred income tax (2,166) 1,295
(6,315)
(3,726) (10,084)
Change in non-admitted assets 9,670 6,816 16,462 (18,020)
(9,938)
Change in provision for reinsurance 1 (3) 289 (52) 84
Dividends to stockholders
(34,000)
(7,800)
(30,000)
(25,000)
-
Aggregate write-ins for gains and (losses)
in surplus
1,251
7,745
-
(8,007)
-
Net change in capital and surplus (17,876)
(18,331)
(28,138) (29,176)
55,610
Capital and surplus, current year-end $342,550
$360,426
$378,757
$406,895
$436,071
Notes to Financial Statements
Investments
The Company’s investment portfolio consists of bonds (majority are investment grade),
common stock, real estate, cash and cash equivalents and other invested assets. The Company’s
investment portfolio is in compliance with the ORC and valued in accordance with the relevant
SSAPs and the NAIC Securities Valuation Office.
Loss and Loss Adjustment Expense Reserves
The Company’s Board of Directors appointed G. Christopher Nyce, FCAS, MAAA, of KPMG,
to render the Company’s Statement of Actuarial Opinion (“Opinion”). Mr. Nyce prepared an
Actuarial Report supporting the Opinion in connection with the preparation of the Company’s
December 31, 2019 Annual Statement.
Thomas S. Botsko, ACAS, MAAA, Chief Property & Casualty Actuary of the Department,
reviewed the actuarial report provided by Mr. Nyce. Based on his review, Mr. Botsko
determined that the loss and loss adjustment expense reserves presented in the Company’s 2019
Annual Statement are reasonably stated.
11
Subsequent Events
The COVID-19 pandemic has continued to develop throughout 2020, with significant
uncertainty remaining regarding the full effect of COVID-19 on the U.S. and global insurance
and reinsurance industry. At the time of releasing this report, the examination team’s review of
the Group noted that there has not been a significant impact to the Group. The Department has
been in communication with the Group regarding the impact of COVID-19 on its business
operations and financial position. The Department continues to closely monitor the impact of
the pandemic on the Group and will take necessary action if a solvency concern arises.
Conclusion
The balance sheet contained in this Report of Examination reflects the financial condition of the
Company as of December 31, 2019, and is summarized as follows:
Total Admitted Assets
$939,041,454
Liabilities
596,491,159
Capital and Surplus
342,550,295
Total Liabilities, Capital and Surplus
$939,041,454
Acknowledgement
In addition to the undersigned, the following representatives of the Department participated in
this examination: Barbara Chairez, CPA, CISA; Travis Dilley, CPA; and Chris Shumaker,
CPA.
Respectfully,
s/Metty Nyangoro (via email authorization 4/19/2021)
Metty E. Nyangoro, AES, CFE, CISA, CPA
Examiner-In-Charge
Office of Risk Assessment
Ohio Department of Insurance
s/Mark Boston (via email authorization 4/19/2021)
Mark W. Boston, CPA
Assistant Chief Examiner
Office of Risk Assessment
Ohio Department of Insurance
12
Verification
As required by Section 3901.07 of the ORC, the undersigned hereby attest to the best of their
knowledge and belief that the attached is a true Report of Examination as of December 31,
2019.
_____________________ _______ _____________________ _______
Examiner-In-Charge Date Assistant Chief Examiner Date
State of Ohio
County of Franklin
Personally appeared before me the above named Metty E. Nyangoro, personally known to me,
who executed the above instrument and that the statements and answers contained therein are
true and correct to the best of his/her knowledge and belief.
Subscribed and sworn to before me this _____ day of ___________, 2021.
________________________
(Notary Public)
________________________
My Commission Expires
State of Ohio
County of Franklin
Personally appeared before me the above named Mark W. Boston, personally known to me,
who executed the above instrument and that the statements and answers contained therein are
true and correct to the best of his/her knowledge and belief.
Subscribed and sworn to before me this _____ day of ___________, 2021.
________________________
(Notary Public)
________________________
My Commission Expires
