REPORT ON EXAMINATION OF THE EVEREST NATIONAL … · Holding Company System The Company is a member of an insurance holding company system as defined in 18 Del. C. §5001 (6) “Insurance

REPORT ON EXAMINATION

OF THE

EVEREST NATIONAL INSURANCE COMPANY

AS OF

DECEMBER 31, 2015

NAIC CODE 10120

i

TABLE OF CONTENTS

SCOPE OF EXAMINATION......................................................................................................... 2

SUMMARY OF SIGNIFICANT FINDINGS OF FACT ............................................................... 3

COMPANY HISTORY .................................................................................................................. 4

Capitalization ...................................................................................................................................4 Dividends to Stockholders ...............................................................................................................5

MANAGEMENT AND CONTROL .............................................................................................. 5

Directors ...........................................................................................................................................5 Officers ............................................................................................................................................6 Holding Company System ...............................................................................................................7 Affiliated Management and Service Agreements ............................................................................8

TERRITORY AND PLAN OF OPERATION ............................................................................... 9

Territory ...........................................................................................................................................9 Plan of Operation .............................................................................................................................9

REINSURANCE........................................................................................................................... 11

Assumed Reinsurance ....................................................................................................................12 Ceded Reinsurance .........................................................................................................................12 Third Party Reinsurance ................................................................................................................12

FINANCIAL STATEMENTS ...................................................................................................... 14

Assets .............................................................................................................................................16 Liabilities, Surplus and Other Funds .............................................................................................17 Statement of Income ......................................................................................................................18 Reconciliation of Capital and Surplus ...........................................................................................19

COMMENTS ON FINANCIAL STATEMENTS ........................................................................ 19

ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS RESULTING FROM THE EXAMINATION………………………………………………………………………………..20

COMPLIANCE WITH PRIOR REPORT OF EXAMINATION ................................................ 21

SUBSEQUENT EVENTS ............................................................................................................ 21

SUMMARY OF RECOMMENDATIONS .................................................................................. 22

CONCLUSION ............................................................................................................................. 22

April 7, 2017 Honorable Trinidad Navarro Commissioner Delaware Department of Insurance Rodney Building 841 Silver Lake Blvd. Dover, Delaware 19904 Dear Commissioner:

In accordance with instructions and pursuant to statutory provisions contained in

Certification Number 15.003, dated February 2, 2015, an examination has been made of the

affairs, financial condition and management of the

EVEREST NATIONAL INSURANCE COMPANY

hereinafter referred to as (Company or ENIC), incorporated under the laws of the State of

Delaware as a stock company with its home office located at 1209 Orange Street, Wilmington,

Delaware. The examination was conducted at the main administrative office of the Company,

located at 477 Martinsville Road, Liberty Corner, New Jersey.

The examination report thereon is respectfully submitted.

Everest National Insurance Company

2

SCOPE OF EXAMINATION

The Delaware Department of Insurance (Department) has performed a multi-state

coordinated risk-focused financial examination of the Company. The last examination of the

Company was conducted as of December 31, 2010. This examination covered the period of

January 1, 2011, through December 31, 2015, and encompassed a general review of transactions

during the period, the Company’s business policies and practices, as well as management and

relevant corporate matters, with a determination of the financial condition of the Company at

December 31, 2015. Transactions after the examination date were reviewed where deemed

necessary.

The examination of the Company was performed as part of the examination of the

Everest Re Group, Ltd. (ERG) insurance group of companies as of December 31, 2015. The

examination was conducted concurrently with that of its Delaware domiciled parent company,

Everest Reinsurance Company (ERC), a Delaware domiciled affiliate, Everest Indemnity

Insurance Company (EIIC), and a Georgia domiciled affiliate, Everest Security Insurance

Company (ESIC). To the fullest extent, the efforts, resources, project material and findings were

coordinated and made available to all examination participants.

We conducted the examination in accordance with the National Association of Insurance

Commissioners (NAIC) Financial Condition Examiners Handbook (Handbook) and generally

accepted statutory insurance examination standards consistent with the Insurance Code and

Regulations of the State of Delaware. The NAIC Handbook requires that the Department plan

and perform the examination to evaluate the 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


3

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 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 significant findings of fact, pursuant to the General

Corporation Laws of the State of Delaware as required by 18 Del. C. §321, along with general

information about the insurer and its financial condition. There may be other items identified

during the examination that, due to their nature, are not included within the examination report

but separately communicated to other regulators and/or the Company.

During the examination, consideration was given to work performed by the Company’s

external independent accounting firm, PricewaterhouseCoopers LLC. Certain auditor work

papers were incorporated into the work papers of the examiners and were utilized in determining

the examination scope, areas of emphasis in conducting the examination, and in areas of risk

mitigation and substantive testing.

SUMMARY OF SIGNIFICANT FINDINGS OF FACT

This examination had no material adverse findings, significant non-compliance findings,

material changes in financial statements, or updates on other significant regulatory information

disclosed in the previous examination.


4

COMPANY HISTORY

On November 12, 1985, under the laws of the state of Arizona, the Company was

incorporated as Dryden Guaranty Insurance Company, a wholly-owned stock property and

casualty insurance subsidiary of PRUCO, Inc., which was a wholly owned subsidiary of The

Prudential Insurance Company of America (Prudential), the ultimate parent in the holding

company system at that time. As Dryden Guaranty Insurance Company, the Company received

its first Certificate of Authority and commenced business on December 31, 1985. On June 13,

1991, the Company’s name was changed to Prudential National Insurance Company.

Effective October 6, 1995, as a result of an initial public offering of Prudential

Reinsurance Holdings, Inc., the Company ceased to be a member of the Prudential insurance

holding company system. The Company was subsequently acquired by Everest Re Group, Ltd.

(ERG Group), a Bermuda domiciled company, and effective June 17, 1996, the Company’s

current name was adopted. With the approval of the Arizona and Delaware Departments of

Insurance, the Company re-domesticated from Arizona to Delaware effective November 30,

2005.

Capitalization

The Company is authorized to issue 200,000 shares of common capital stock with a par

value of $50 per share. Currently, 100,000 common shares are issued and held by ERC,

resulting in paid-up capital stock of $5,000,000. Surplus as regards policyholders decreased

$15,698,822 during the examination period from $151,025,838 to $135,327,016. The decrease

in surplus was the direct result of dividends paid to stockholders in 2011, 2012 and 2015 totaling

$52,219,520.


5

Dividends to Stockholders

Dividends approved by the Department and paid to the sole stockholder during the

examination period were as follows:

* Extraordinary Dividend ** Return of Capital

MANAGEMENT AND CONTROL

Directors

Pursuant to the General Corporation Laws of the State of Delaware, as implemented by

the Company’s Certificate of Incorporation and bylaws, all corporate powers and its business

property and affairs are managed by, or under the direction of, its Board of Directors (Board).

The amended and restated bylaws provide that the Company’s Board shall consist of a minimum

of seven (7) directors. The number of directors shall not be subject to any maximum and shall be

fixed from time to time either by the Board or the stockholders. At December 31, 2015, the

members of the Board together with their principal business affiliations were as follows:

Director Principal Business Affiliation Dominic James Addesso Board Chairman, President and Chief

Executive Officer Brian David Drum Senior Vice President Craig William Howie Executive Vice President, Chief Financial

Officer and Treasurer

Date Declared Date Paid Dividend Paid

December 14, 2011 December 22, 2011 $ 15,100,000

December 6, 2012 December 6, 2012

December 24, 2012December 24, 2012

$ 12,119,520* $ 880,480**

December 14, 2015 December 29, 2015 $ 25,000,000


6

Sanjoy Mukherjee General Counsel, Compliance Officer and Secretary

Daryl Wayne Bradley Executive Vice President Mark DiGaetano Senior Vice President Jonathan Martin Zaffino President Officers

The amended and restated bylaws of the Company state that the principal officers shall be

a President, one or more Vice Presidents, a Treasurer, a Comptroller, a Corporate Secretary and

such additional officers as it may from time to time be decided by a resolution adopted by a

Board majority. The Board may also designate such number of Executive Senior Vice

Presidents as may be deemed appropriate. At December 31, 2015, the Company’s principal

officers and their respective titles are as follows:

Officer Title

Jonathan Martin Zaffino President

Craig William Howie Executive Vice President, CFO and Treasurer

Sanjoy Mukherjee Executive Vice President, General Counsel, Compliance Officer and Secretary

Keith T. Shoemaker Vice President and Assistant Comptroller

Brian David Drum Senior Vice President

Ellen Joy Edmonds Vice President and Actuary

Inspection of Company files indicated that the ethics code conflict of interest affidavits

were distributed, completed and returned by all employees at a manager level or above for the

examination period. In addition, review of Company files indicated that written correspondence

was submitted to the Department with regards to the changes in officers and directors during the

period under examination in compliance with 18 Del. C. §4919. Finally, review of the


7

Company’s Board meeting minutes over the examination period reflected compliance with the

Company’s bylaws. From review of such minutes, the attendance at Board meetings, the

elections of directors and officers and the approvals of investment transactions were noted.

Holding Company System

The Company is a member of an insurance holding company system as defined in 18 Del.

C. §5001 (6) “Insurance Holding Company System”. The ultimate controlling entity within the

holding company system is ERG, a Bermuda company established in 1999, as a result of

corporate restructuring on February 24, 2000. However, Everest Reinsurance Holdings, Inc.

(Holdings) is the holding company for the U.S. based operations. At the time, holders of shares

of common stock of Holdings automatically became holders of the same number of common

shares of ERG. Prior to the restructuring, ERG had no significant assets or capitalization and

had not engaged in any business or prior activities other than in connection with the

restructuring. ERG is a registered public company whose shares are traded under the ticker

symbol “RE” on the New York Stock Exchange.

The following page reflects an abbreviated chart displaying the ownership chain of

insurance subsidiaries and their domestic affiliation as of December 31, 2015:


8

Affiliated Management and Service Agreements

Effective January 1, 2001, the Company became party to an Intercompany Tax

Allocation Agreement with other members within the ERG holding company group. The

agreement states that each member shall contribute its fair and equitable share to the taxes

payable by the group or as compensation for the reduction in the net operating loss deduction,

capital loss deduction, or other tax benefit of the group. The group files a consolidated tax

return. Each year, members of the group calculate their respective amounts for payment of taxes,

estimated tax, or refund of tax which a member would be liable for or entitled to as if it had filed

a separate return.

Effective January 1, 2008, the Company became party to a Full Service Agreement by

and among members of the ERG holding company group. The agreement states that if any

Everest Re Group, Ltd.

(Bermuda)

Everest Reinsurance (Bermuda), Ltd.

(Bermuda)

Everest International Reinsurance, Ltd.

(Bermuda)

Everest Underwriting Group (Ireland)

Limited (Ireland)

Everest Reinsurance Holdings, Inc.

(Delaware)

Everest Specialty Underwritiers, LLC

(Delaware)

Everest International

Assurance, Ltd. (Bermuda)

Everest Reinsurance

Company

(Delaware)


(Delaware)

Mt Whitney Securities, LLC

(Delaware)

Everest Reinsurance Company -Escritoro de Repesentacao No Brasil

Ltda. (Brazil)

99% Everest Reinsurance Cmpany

1% Everest Reinsurance Holdings, Inc.

Everest Security Insurance Company

(Georgia)

Everest Indemnity Insurance Company

(Delaware)

Specialty Insurance Group, Inc.

(Indiana)

Everest Insurance Company of Canada

(Canada)

Everest Reinsurance Company (Ireland),

Ltd.

(Ireland)

Everest Global Services, Inc. (Delaware)

Mt. Logan Re, Ltd.

(Bermuda)


9

group affiliate (receiving affiliate) requires administrative, consultative or other support services

and related materials and supplies of a type customarily provided, performed or supplied by

another group affiliate (providing affiliate), the service shall be provided according to the terms

of the Master Service Agreement, except for: 1) services, materials and supplies which each of

the affiliates elects to obtain directly from third parties; and 2) services, materials and supplies

furnished under any other agreement entered into between the parties. The receiving affiliate

shall pay the providing affiliate a fair market value price for such service, which is agreed upon

as being 108% of the underlying cost and expenses as according to GAAP and cost allocation

procedures implemented from time to time by the parties, except for ENIC, which will pay the

providing affiliate 100%.

TERRITORY AND PLAN OF OPERATION

Territory

As of December 31, 2015, the Company was licensed in 50 states and the District of

Columbia, with 39.3% of its direct premium written in the state of California in 2015. In 2015,

the Company offered the following insurance coverages: general liability, professional

liability, workers’ compensation, medical malpractice, commercial property, multi-peril crop

insurance, motor vehicle and non-standard auto.

Plan of Operation

The Company writes business primarily through agency relationships with program

administrators. The 2015 direct written premiums by program were as follows:

Program Direct

Premium Percentage

Arrowhead-All Lines 225,039,363 21.43%

All Risks 62,250,384 5.93%

North Island Facilities 19,411,437 1.85%


10

Dual Commercial 25,638,195 2.44%

American Bankers Association * 55,839,643 5.32%

C.V. Starr (14,798) 0.00%

In-house Facilities and Programs 662,182,119 63.04%

Total 1,050,346,343 100.00% * This is an MGA as defined in 18 Del. C. §1802(3) “Managing General Agent” and was properly disclosed in the 2015 Annual Statement, Notes to the Financial Statements.

The Company engages independent Claim Service Providers (CSPs) for the evaluation

and ultimate payment of the majority of its claims. Case loss and LAE reserves are initially

established by the CSPs, which are reviewed by the Company’s claim personnel. Case loss and

LAE reserves are adjusted based on these reviews. In addition, larger claims are forwarded to the

Company for direct involvement. Incurred But Not Reported (IBNR) reserves are established by

the Company’s actuaries.

During 2015, ERG initiated a strategic build out of its direct insurance platform through

the investment in key leadership hires, bringing underwriting talent and direction in achieving

its direct insurance program’s strategic goals. Recent growth came from diversified areas

including newly launched lines of business, as well as product and geographic expansion in

existing lines of business. ERG’s insurance platform is now capable of offering products

across lines and geographies to complement its global reinsurance franchise.

The Company’s direct insurance business targets commercial property and casualty and

writes business through general agents, brokers and surplus lines brokers. In 2015, Arrowhead

General Insurance Agency accounted for approximately 21.0% of the Company’s gross written

premium, with no other general agent generating more than 7.0% of the Company’s gross

written premiums.


11

In 2015, the Company’s direct written premium of $1,062.9 million accounted for

67.7% of the ERG Group’s direct written premium of $1,569.8 million, while the Company’s

program business accounted for 98.8% of the Company’s direct written premium. In 2015, the

Company’s primary lines of business were workers’ compensation (39.6%), with $421.1

million in direct written premium, allied lines (24.5%), with $260.4 million in direct written

premium, and other liability – claims made (15.0%), with $159.5 million in direct written

premium.

REINSURANCE

The Company has maintained reinsurance arrangements over the years with its direct

parent, ERC. Prior to 2014, the Company was party to an 85% Quota Share (QS) reinsurance

agreement with ERC. Effective December 31, 2013, the Company entered into a Loss Portfolio

Transfer Agreement (LPT), whereby ERC assumed all of the outstanding net loss and loss

adjustment expense and unearned premium reserves of the Company. The LPT was transacted

in anticipation of a 100% pooling arrangement effective January 1, 2014. Under the pooling

arrangement, the Company cedes 100% of its net underwriting activity after all other

reinsurance, except for a 3.5% ceding commission on the ceded written premium subject to the

pooling. The pooling arrangement was approved by the Department.

For 2015, the Company reported the following distribution of net premiums written:

Direct Written Premiums $ 1,062,894,493 Reinsurance assumed (from affiliates) -0- Reinsurance assumed (from non-affiliates) 1,954,138 Total Assumed Premiums $ 1,954,138 Gross Written Premiums $ 1,064,848,631


12

Reinsurance ceded (to affiliates) $ 1,060,000,825 Reinsurance ceded (to non-affiliates) 4,847,806 Total Ceded Premiums $ 1,064,848,631 Net Written Premiums $ -0- Assumed Reinsurance

The Company only assumes business from National Workers Compensation Reinsurance

Pool, a mandatory workers’ compensation pool. During 2015, the Company reported $1,954,138

in assumed premium.

Ceded Reinsurance

The Company limits its exposure through a 100% reinsurance pooling agreement with

ERC, as mentioned above. The pooling agreement was properly filed with and approved by the

Department. Pursuant to the agreement and after all other reinsurance, the Company ceded

99.5% or $1,060.0 million of the Company’s $1,064.8 million of gross written premiums in

2015.

Third Party Reinsurance

The Company is covered under a corporate property automatic facultative program that

varies by geographic location, with retention from $5,000,000 to $25,000,000 and limits per

occurrence from $35,000,000 to $55,000,000 with 100% coverage.

The Company’s insurance business is covered under a corporate property per risk XOL

reinsurance arrangement, whereby the Everest Companies retain the first $2,000,000 per risk on

property losses and cede amounts in excess of $2,000,000 on each loss. The first layer provides

84% coverage from $2,000,000 to $5,000,000, second layer 92.5% coverage from $5,000,000 to

$15,000,000 and third layer 97.5% coverage from $15,000,000 to $35,000,000.


13

The Company is covered under a corporate property automatic facultative program that

varies by geographic location, with retention from $5,000,000 to $35,000,000 and limits per

occurrence from $25,000,000 to $40,000,000 with 100% coverage.

The Company is covered under a corporate property catastrophe XOL reinsurance

arrangement, whereby the Everest Companies retain the first $100,000,000 per occurrence on

insurance business property losses, net of recoveries under the property per risk reinsurance

referenced above, and have coverage for 51.5% of the next $50,000,000 of losses.

The Company is covered under a Property Difference in Conditions (DIC) catastrophe

reinsurance program whereby the Everest Companies retain the first $50,000,000 of loss and

have coverage for 95% of the losses between $50,000,000 and $375,000,000.

The Company is covered under a QS reinsurance program for its Financial Lines

insurance business whereby limits up to $5,000,000 and excess of loss reinsurance for 42.5% for

losses between $1,000,000 and $10,000,000 is in place. For the Company’s Environment

business, reinsurance coverage is in place with a 15% QS of the first $1,000,000 of limit and

70% coverage is available for the next $10,000,000 of limit.

For Contingency business, the Company has a variable QS arrangement in place, with

reinsurance of 30% of limits up to $7,142,857, 50% of $10,000,000 and the portion reinsured

sliding between 30% and 50% for limits between $7,142,857and $10,000,000.

For Automobile business, the Company is covered by a 35% QS arrangement for limits

up to $1,000,000 and by an additional XOL program providing 30% coverage for the layer of

$500,000 excess $500,000.


14

The Company purchases QS reinsurance for its umbrella and excess business for business

underwritten by its Umbrella and Excess Facility, whereby it cedes 60% of up to $25,000,000 of

loss per policy.

The Company is covered under an aggregate stop loss reinsurance program for its Crop

business. For the Hail peril, the Company has coverage for $10,000,000 excess of a 110% net

loss ratio. For Multi-Peril Crop Insurance, the Company has coverage for $10,700,000 excess of

a 94% net loss ratio. Cumulative recoveries under the Crop reinsurance are capped at

$15,000,000.

For its Property Catastrophe Reinsurance business, the Company has a retrocession QS of

4.24% and, for non-U.S. business, has in place $100,000,000 of retrocession coverage excess of

either $175,000,000 or $225,000,000, depending on the geography.

The Company is covered under a corporate Equipment Breakdown pro-rata reinsurance

arrangement, with 100% coverage up to $100,000,000 per policy occurrence.

Along with the corporate reinsurance programs described above, the Company utilizes

captive reinsurance vehicles on a program-by-program basis. Participation varies, but typically

involves the captive and/or professional reinsurer taking a percentage of a ground-up layer. As

these are generally unauthorized reinsurers, collateral is obtained to secure the reinsurers’

obligation. The Company also has facultative reinsurance in place for some risks.

FINANCIAL STATEMENTS

The following financial statements are based on the statutory financial statements filed by

the Company with the Delaware Department of Insurance and present the financial condition of

the Company for the period ending December 31, 2015. The accompanying comments on


15

financial statements reflect any examination adjustments to the amounts reported in the annual

statements and should be considered an integral part of the financial statements.

Assets Liabilities, Surplus and Other Funds Statement of Income Reconciliation of Surplus Account The narrative on the reserve related balances is presented in the “Comments on Financial

Statements” section of this report.


16

Assets December 31, 2015

Assets Nonadmitted

Assets Net Admitted

Assets Notes

Bonds $ 85,042,880 $ -0- $ 85,042,880 1

Cash 17,740,643 17,740,643

Short term investments 16,184,989 16,184,989

Receivable for securities 4,163 4,163

Subtotal cash and invested assets $ 118,972,675 $ 118,972,675

Investment Income due and accrued 517,278 517,278

Uncollected premiums and agents' balances in the course of collection 31,664,047 11,501,859 20,162,188

Deferred premiums agents' balances and installments booked but deferred and not yet due 186,085,234 186,085,234

Amounts recoverable from reinsurers 204,712,110 204,712,110 2

Current federal and foreign income tax recoverable and interest thereon 731,361 731,361

Net deferred tax asset 15,335,860 4,247,025 11,088,835

Electronic data process equipment and software 2,704,345 2,704,345

Furniture and equipment 808,352 808,352 -

Receivable from parent, subsidiaries and affiliates 23,804,581 23,804,581

Aggregate write-ins for other-than-invested assets 172,665,995 938,496 171,727,499

Total $ 758,001,838 $ 17,495,732 $ 740,506,106


17

Liabilities, Surplus and Other Funds December 31, 2015

Notes

Losses $ -0- 3

Reinsurance payable on paid losses and loss adjustment expenses

Loss adjustment expense -0- 3

Commissions payable, contingent commissions and other similar charges 25,961,335

Other expenses 13,290,355

Taxes, licenses and fees 2,984,480

Unearned premiums

Advanced premium

Ceded reinsurance premiums payable 536,410,022 4

Funds held by company under reinsurance treaties

Amounts withheld or retained by company for account of others 7,335,176

Remittances and items not allocated 11,082,884

Net adjustment in assets and liabilities due to foreign exchange rates

Payable to parent, subsidiaries and affiliates 6,967,540

Aggregate write-ins for liabilities 1,147,298

Total liabilities $ 605,179,090

Common capital stock $ 5,000,000

Gross paid in and contributed surplus 122,362,088

Unassigned funds (surplus) 7,964,928

Surplus as regards policyholders $ 135,327,016

Total $ 740,506,106


18

Statement of Income December 31, 2015

UNDERWRITING INCOME Notes

Premiums earned $ -0- 5

DEDUCTIONS:

Losses incurred -0- 5

Loss adjustment expenses incurred -0- 5

Other underwriting expenses incurred (32,166,306)

Aggregate write-ins for underwriting deductions

Total underwriting deductions (32,166,306)

Net underwriting gain (loss) 32,166,306

INVESTMENT INCOME

Net investment income earned 1,427,831

Net realized capital gains (losses) less capital gains tax of $40,857 -

Net investment gain (loss) 1,427,831

OTHER INCOME

Net gain (loss) from agents' or premium balances charged off

Finance and service charges not included in premiums 625,629

Aggregate write-ins for miscellaneous income (1,880,825)

Total other income (1,255,196)

Net income before dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes 32,338,941

Dividends to policyholders -

Net income after dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes 32,338,941

Federal and foreign income taxes incurred 1,453,390

Net income $ 30,885,551


19

Reconciliation of Capital and Surplus December 31, 2010 to December 31, 2015

Aggregate Write-Ins for

Special Surplus Funds

Common Capital Stock

Gross Paid-in and Contributed

SurplusUnassigned

Surplus TotalDecember 31, 2010 $ 2,205,729 $ 5,000,000 $ 110,113,790 $ 33,706,319 151,025,838$

Operations 2011 (1) (11,140,519) (11,140,519) Paid-in Surplus (2) 1,822,699 1,822,699 Dividends to Stockholder (3) (15,100,000) (15,100,000)

Agg. Write-Ins for Gains/Losses in Surplus (4) 3,666,930 3,666,930

Operations 2012 (1) 698,828 698,828

Paid-in Surplus (2) 1,096,838 1,096,838 Dividends to Stockholder (3) (12,119,520) (12,119,520)

Agg. Write-Ins for Gains/Losses in Surplus (4) (5,872,659) 5,872,659 -

Operations 2013 (1) (15,216,409) (15,216,409) Paid-in Surplus (2) 2,575,695 2,575,695 Dividends to Stockholder (3)

Operations 2014 (1) 25,253,505 25,253,505 Paid-in Surplus (2) 3,517,025 3,517,025 Dividends to Stockholder (3)

Operations 2015 (1) 21,010,066 21,010,066 Paid-in Surplus (2) 3,236,040 3,236,040 Dividends to Stockholder (3) (25,000,000) (25,000,000)

December 31, 2015 -$ 5,000,000$ 122,362,088$ 7,964,928$ 135,327,016$

(1) Operations defined as: Net income, change in unrealized capital gains (loss), change in unrealized

foreign exchange capital gains (loss), change in net deferred income tax, change in non-admitted assets, change in provision for reinsurance and aggregate write-ins for gains and losses in surplus.

(2) Due to share-based compensation expense and tax benefits and a return of capital of $880,480 (3) Dividends to sole stockholder (4) Gain or loss from the application of SSAP 10R


20

COMMENTS ON FINANCIAL STATEMENTS

(1) Bonds $ 85,042,880

Long-term bonds constitute the largest category of invested assets at December 31, 2015,

representing approximately 11.5% of the Company’s reported total admitted assets, with 100.0%

of the bonds rated as Class 1 (97.3%) or Class 2 (2.7%) by the NAIC, or investment grade.

(2) Amounts recoverable from reinsurers $ 204,712,110

As of December 31, 2015, the Company had approximately 99.9%, or $204.4 million, of

its total reported reinsurance recoverable amount of $204.7 million, due from its parent ERC, as

a result of the 100% pooling arrangement effective January 1, 2014. Amounts recoverable from

reinsurers decreased approximately $39.5 million from $244.2 million in 2014 to $204.7 million

in 2015, primarily due to a decline in year over year paid losses.

(3) Losses $ -0- Loss adjustment expenses $ -0-

ERC assumed all of the outstanding net loss and loss adjustment expenses of the

Company, per the LPT effective December 31, 2013 and the 100% pooling arrangement

effective January 1, 2014. Per the pooling arrangement, in effect as of December 31, 2015, the

Company cedes 100% of its net underwriting activity to ERC.

The DDOI contracted INS Consultants, Inc. (INS), to conduct an independent review of

pooled loss and LAE reserves reported by ERC as of December 31, 2015. The Consulting

Actuary’s analysis was performed using a risk-focused approach according to the guidelines

contained in the NAIC Handbook. The Statement of Actuarial Opinion and the Actuarial Report

for the Company were signed by Ellen Edmonds, FCAS and MAAA, Vice President and Actuary

for the Company.


21

(4) Ceded reinsurance premiums payable $ 536,410,022

As of December 31, 2015, the Company’s reported ceded premiums payable was due to

its parent ERC, as a result of the 100% pooling arrangement effective January 1, 2014. Ceded

premiums payable increased $77.8 million, from approximately $458.6 million in 2014 to $536.4

million in 2015, primarily due to an increase in reinsurance premiums ceded over the prior year.

(5) Premiums earned $ -0- Losses incurred $ -0-

Loss adjustment expenses incurred $ -0-

Per the pooling arrangement mentioned above, the Company cedes 100% of its net

underwriting activity to ERC as of December 31, 2015.

ANALYSIS OF CHANGES IN THE FINANCIAL STATEMENTS RESULTING FROM

EXAMINATION

There were no financial adjustments to the Company’s financial statements as a result of

this examination.

COMPLIANCE WITH PRIOR REPORT OF EXAMINATION

There were no recommendations in the prior report of examination.

SUBSEQUENT EVENTS

There were no significant subsequent events that warranted disclosure in this examination

report.


22

SUMMARY OF RECOMMENDATIONS

No examination report recommendations were noted as a result of this examination.

CONCLUSION

The assistance and cooperation of examiners representing the states on the coordinated

examination is acknowledged. In addition, the assistance of the consulting actuarial firm, INS

Consultants, Inc., the information systems specialist firm, INS Services, Inc., the Company’s

outside audit firm, PricewaterhouseCoopers LLC, and the Company’s management and staff was

appreciated and is acknowledged.

Respectfully submitted,

James M. Perkins, CFE

Examiner-In-Charge State of Delaware Department of Insurance

Tony Cardone, CFE and CPA Supervising Examiner State of Delaware Department of Insurance

Documents

REPORT ON EXAMINATION OF THE EVEREST NATIONAL … · Holding Company System The Company is a member of an insurance holding company system as defined in 18 Del. C. §5001 (6) “Insurance