Examination Reports : Bureau of Insurance

DANVILLE MUTUAL FIRE INSURANCE COMPANY

REPORT OF EXAMINATION
AS OF
DECEMBER 31, 2006

TABLE OF CONTENTS

SCOPE OF EXAMINATION ................................................................................................................1
HISTORY AND ORGANIZATION .......................................................................................................2
CORPORATE RECORDS .....................................................................................................................2
MANAGEMENT ....................................................................................................................................2
LINES OF BUSINESS AND TERRITORY ............................................................................................3
FIDELITY BOND .................................................................................................................................3
UNDERWRITING RULES AND PRACTICES ........................................................................................3
REINSURANCE ...................................................................................................................................3
ACCOUNTS AND RECORDS ..............................................................................................................3
FINANCIAL STATEMENTS ................................................................................................................4
EXAMINATION ADJUSTMENTS ........................................................................................................7
NOTES TO FINANCIAL STATEMENTS ..............................................................................................7
COMMENTS AND RECOMMENDATIONS ..........................................................................................8

I hereby certify that the attached report of examination dated March 22, 2007 shows the conditions and affairs of the DANVILLE MUTUAL FIRE INSURANCE COMPANY, Poland, Maine as of December 31, 2006 and has been filed in the Bureau of Insurance as a public document.

This report has been reviewed.

_______________________
Kendra L. Godbout, CPA, CFE
Director of Financial Analysis

Dated this ____ day of May, 2007

STATE OF MAINE

BUREAU OF INSURANCE

IT IS HEREBY CERTIFIED THAT THE ANNEXED REPORT OF EXAMINATION FOR

Danville Mutual Fire Insurance Company

has been compared with the original on file in this bureau and that it is a correct transcript therefrom and of the whole of said original.

IN WITNESS WHEREOF,

I have hereunto set my hand and affixed the official seal of this Office at the City of Augusta this

____day of May, 2007

_________________________
Eric A. Cioppa
Acting Superintendent
Bureau of Insurance

May 7, 2007

Eric A. Cioppa, Acting Superintendent
Bureau of Insurance
34 State House Station
Augusta, ME 04333

Dear Sir:

In accordance with your instructions and pursuant to statutory provisions, an examination has been made on the conditions and financial affairs of

DANVILLE MUTUAL FIRE INSURANCE COMPANY

of Poland, Maine hereinafter referred to as the “Company”. The following report is respectfully submitted.

SCOPE OF EXAMINATION

This examination covers the period from January 1, 2004 to the close of business on December 31, 2006.

The examination consisted of a survey of the Company’s business policies, review of the Articles of Incorporation, Bylaws, Minutes of Board of Directors’ meetings, operational practices, verification of assets and determination of liabilities at December 31, 2006 in conformity with the statutory accounting practices, NAIC guidelines, and the laws, rules and regulations prescribed or permitted by the Maine Bureau of Insurance, where applicable.

The prior examination covered the period from January 1, 2001 through December 31, 2003. The Examination Report, dated February 11, 2005, was issued to the Company, but the Company did not respond to the Report Comments. The Company has not provided any documentation that the Report was furnished to the Board of Directors, as required by Title 24-A M.R.S.A. Chapter 3 Section 226 paragraph 5. (See Comments & Recommendations #1.)

HISTORY AND ORGANIZATION

The Danville Mutual Fire Insurance Company was created by a special act of the legislature on March 20, 1860 and commenced business shortly thereafter. The Company is tax-exempt under Internal Revenue Code Section 501 (c) (15).

CORPORATE RECORDS

The Company’s Articles of Incorporation, Bylaws, and Minutes of the Board of Directors’ meetings held during the period under examination were reviewed.

MANAGEMENT

Management of the Company is vested in a Board of Directors. The following are the duly elected members of the Board of Directors and the Officers serving as of December 31, 2006.

Directors
Gaylon Richards	Margaret Anderson
Thelma Redman	William Stiles
Laurent Comeau	Lionel C. Ferland, Jr.

Officers
William Stiles	President
Lionel C. Ferland Jr.	Vice President
Lionel C. Ferland Sr.	Secretary/Treasurer

LINES OF BUSINESS AND TERRITORY

The Company issues fire and lightning policies in the State of Maine.

FIDELITY BOND

The Company is protected as a named insured under a fidelity bond in the amount of $20,000. The bond amount was tested with regard to NAIC standards and was determined to be adequate.

UNDERWRITING RULES AND PRACTICES

The Company issues fire and lightning policies for a three-year period under an assessment plan. The Company requires every insured to provide a premium note to the Company. The amount of the note is determined based on risk and is currently 14% - 20% of the insured amount. The Company charges a premium based on the promissory note.

The Company’s retention per risk is limited by M.R.S.A. Title 24-A Chapter 51 § 3623 to 10% of surplus and 8% of outstanding premium notes. The amount of retention is also limited to $5,000 per risk by one of the Company’s reinsurance agreements.

REINSURANCE

During the period of examination, the Company had two reinsurance contracts in-force. The Company has a reinsurance agreement with another mutual fire assessment company where the Company cedes up to a maximum of $5,000 after retaining the first $5,000. The second agreement is a facultative agreement where the Company cedes all risk over the limit of the first contract, or $10,000.

ACCOUNTS AND RECORDS

The Company maintains its books and records on a manual basis, and they are in the care of the Treasurer at the Treasurer’s home. The books are kept on a cash basis, and the Annual Statement was reported on a cash basis, which is not materially different than on an accrual basis.

FINANCIAL STATEMENTS

The following financial statements show the results of the Company’s operations for the year ending December 31, 2006 as determined by this examination.

BALANCE SHEET

DECEMBER 31, 2006

Assets
Cash and Investments (Note 1)	$ 115,589
Total Assets	$ 115,589

Liabilities and Surplus
Unearned Premium Reserve (Note 2)	$ 357
Other Liabilites - Sinking Fund (Note 3)	5,000
Total Liabilities	$ 5,357
Surplus as Regards to Policyholders	110,232
Total Liabilities and Surplus	$ 115,589

INCOME STATEMENT

DECEMBER 31, 2006

Income
Net Premium Income	$ 261
Net Assessment Income	685
Interest Income	3,515
Dividend Income	2,242
Income from other sources	40
Total Revenue	$ 6,743


Expenses
Agents' Commissions	$ 95
Salaries & Fees	2,100
Health Insurance	2,018
Fidelity Bond	729
Rent	600
Taxes, Licenses & Fees	212
Reinsurance	233
Miscellaneous	97
Total Expenses	$ 6,084

Net Income	$ 659

EXAMINATION ADJUSTMENTS

Policyholders’ surplus as reported by the Company at December 31, 2006 was $115,232. As a result of this examination, the following adjustments were made and are presented here showing the affects on surplus:

Surplus Per Company			$ 115,232
	Record Sinking Fund Reserve		(5,000)
		Surplus Per Examination	$110,232

NOTES TO FINANCIAL STATEMENTS

Note 1 - Cash and Certificates of Deposit

$115,589

The balance on the Financial Statements consists of the following:

Cash and Money Market Accounts	$ 6,948
Certificates of Deposit	88,101
Mutual Funds	20,540
Total Cash and Investments	$ 115,589

Note 2 – Unearned Premium Reserve

$ 357

Title 24-A M.R.S.A. Chapter 51 § 3624 requires mutual assessment companies to maintain an unearned premium reserve equal to 50% of net premiums and net assessments on its policies in-force.

Note 3 - Sinking Fund Reserve

$ 5,000

The Company’s Bylaws in Article VIII Section 4 require a “Sinking Fund” reserve in the amount of $5,000 for use in emergencies as prescribed by the Directors. The Company did not establish a liability for this fund on its Annual Statement. (See Comment and Recommendation #2)

COMMENTS AND RECOMMENDATIONS

Comment: The Company did not respond to the prior Examination Report Comments, nor was any documentation provided that the Report was furnished to the Board of Directors. Title 24-A M.R.S.A Chapter 3 Section 226 Paragraph 5 requires the Examination Report be presented at a meeting of the Board of Directors within thirty (30) days following receipt of the Examination Report. Acceptance of the Examination Report was due to the Bureau on May 13, 2005. Although several notices were sent to the Company requesting this information, the Company is still not in compliance with this statute.

Recommendation: The Company should call a Special Board of Directors Meeting to review and accept the Examination Report within 30 days of receipt of the Report, as instructed on the cover letter accompanying the Report.
Comment: As discussed in Note 4 - Sinking Fund Reserve, the Company is not booking this liability as its Bylaws require.

Recommendation: The Company should abide by its Bylaws and report this reserve.

STATE OF MAINE

COUNTY OF KENNEBEC, SS

Michael R. Nadeau, CPA, CFE, CISA, AES being duly sworn according to law, deposes and says that, in accordance with the authority vested in him by Eric A. Cioppa, Acting Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, has made an examination on the conditions and affairs of

DANVILLE MUTUAL FIRE INSURANCE COMPANY

of Poland, Maine as of December 31, 2006 and that the foregoing report of examination, subscribed to by him, is true to the best of his knowledge and belief.

_________________________
Michael R. Nadeau, CPA, CFE, CISA, AES
Examiner in Charge

Subscribed and sworn to before me

This ____ day of May, 2007

_________________________
Patricia A. Galouch, Notary Public

My Commission Expires: