Report of Examination of
Cincinnati Equitable Insurance Company
Cincinnati, Ohio
As of December 31, 2018
Table of Contents
Subject
Page
Salutation .......................................................................................................................
1
Description of Company .................................................................................................
1
Scope of Examination .....................................................................................................
1
Management and Control:
Board of Directors .....................................................................................................
2
Officers ......................................................................................................................
2
Insurance Holding Company System..........................................................................
3
Territory and Plan of Operations .....................................................................................
3
Significant Operating Results ..........................................................................................
3
Reinsurance ....................................................................................................................
3
Financial Statements:
Statement of Assets, Liabilities, Surplus and Other Funds ...........................................
4
Statement of Income ...................................................................................................
5
Statement of Changes in the Capital and Surplus Account...........................................
5
Notes to Financial Statements:
Investments .................................................................................................................
6
Loss and Loss Adjustment Expense Reserves .............................................................
6
Subsequent Events ......................................................................................................
6
Conclusion......................................................................................................................
6
Acknowledgement ..........................................................................................................
7
1
Columbus, Ohio
May 27, 2020
Honorable Jillian Froment
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
Cincinnati Equitable Insurance Company
an Ohio domiciled, stock life insurance company, hereinafter referred to as the “Company.”
Scope of Examination
The Department last examined the Company as of December 31, 2013. This examination covers the period
of January 1, 2014, through December 31, 2018.
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.
This examination report includes significant findings of fact, as mentioned in ORC Section 3901.07 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., subjective conclusions, proprietary information, etc.), are not
included within the examination report but separately communicated to other regulators and/or the
Company.
2
For years ending December 31, 2014 through December 31, 2017, the Certified Public Accounting firm of
BKD, LLP provided an unqualified opinion on the Company’s financial statements based on Statutory
Accounting Principles. For the year ending December 31, 2018, the Certified Public Accounting firm of
MCM CPAs & Advisors, LLP provided an unqualified opinion on the Company’s financial statements
based on Statutory Accounting Principles. Representatives of the Department reviewed the audit report 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
Peter A. Alpaugh
Owner/Chairman of the Board
Cincinnati Equitable Companies, Inc.
Andrea A. Kessel
Owner
Cincinnati Equitable Companies, Inc.
Gregory A. Baker
President/Chief Executive Officer/Chief Financial Officer/Treasurer
Cincinnati Equitable Companies, Inc.
James W. Ketring
Retired
Cincinnati Equitable Companies, Inc.
Drew F. Knowles
Chief Executive Officer
Berkley Square Capital Management
Officers
As of the examination date, the following officers were elected and serving in accordance with the
Company’s Bylaws:
Name
Title
Peter A. Alpaugh
Chairman of the Board
Gregory A. Baker
President/Chief Executive Officer/Chief Financial Officer/Treasurer
Linda S. Bales
Secretary
3
Insurance Holding Company System
The Company is a member of an insurance holding company system as defined in ORC Section 3901.32.
The Company is a wholly owned subsidiary of Cincinnati Equitable Life Insurance Company, a wholly
owned subsidiary of Cincinnati Equitable Companies, Inc. As of the examination date, the ultimate
controlling persons in the holding company system were Peter Alpaugh and Andrea Kessel.
Territory and Plan of Operations
Effective January 1, 2008, the Company exited all property and casualty lines of business and the Company
began to non-renew all policies. As of December 31, 2018, the Company had one policy in-force. The
Company is licensed to transact business in the states of Illinois, Indiana, Kentucky, Ohio, and
Pennsylvania.
Significant Operating Results
The Company reported the following net underwriting results, in thousands, during the examination period:
2018
2017
2016
2015
2014
$ -
$ -
$ -
$ -
$ -
(3)
(3)
(7)
(24)
20
5
5
7
4
7
80
73
109
102
92
$ (82)
$ (75)
$ (109)
$ (82)
$ (119)
Reinsurance
The Company does not assume or cede any business.
Financial Statements
The following financial statements are based on the statutory financial statements filed by the Company
with the Department, and audited by the Company’s external auditors, and present the financial condition
of the Company for the year ending December 31, 2018. The accompanying Notes to Financial Statements
should be considered an integral part of the financial statements.
Statement of Assets, Liabilities, Surplus and Other Funds
Statement of Income
Statement of Changes in the Capital and Surplus Account
4
Statement of Assets, Liabilities, Surplus and Other Funds
As of December 31, 2018
Admitted Assets
Bonds
$ 2,889,854
Common stocks
120,170
Cash, cash equivalents and short-term investments
151,173
Subtotal, cash and invested assets
3,161,197
Investment income due and accrued
39,768
Current federal and foreign income tax recoverable and interest
31,819
Electronic data processing equipment and software
5,883
Total admitted assets
3,238,667
Liabilities
Losses
10,000
Loss adjustment expenses
3,509
Other expenses
66,605
Payable to parent, subsidiaries and affiliates
2,727
Total liabilities
82,841
Surplus
Common capital stock
1,000,000
Gross paid in and contributed surplus
1,949,915
Unassigned funds
205,911
Surplus as regards policyholders
3,155,826
Total liabilities, surplus and other funds
$ 3,238,667
5
Statement of Income
For the Year Ended December 31, 2018
Premiums earned
$ -
Losses incurred
(3,296)
Loss adjustment expenses incurred
5,305
Other underwriting expenses incurred
80,295
Total underwriting deductions
82,304
Net underwriting loss
(82,304)
Net investment income earned
108,591
Net investment gain
108,591
Net income after dividends to policyholder but before income taxes
26,287
Federal income taxes incurred
(60,819)
Net income
$ 87,106
Statement of Changes in the Capital and Surplus Account
(in thousands)
2018
2017
2016
2015
2014
Capital & surplus, prior year end
$ 3,080
$ 3,070
$ 3,338
$ 3,830
$ 4,194
Net income
87
(10)
(97)
61
71
Change in net unrealized capital gains (losses) less
capital gains tax
(11)
11
85
(38)
8
Change in net deferred income tax
(58)
(81)
36
(22)
87
Change in non-admitted assets
58
89
(42)
7
(31)
Change in asset valuation reserve
-
-
-
-
Paid-in surplus
-
-
(250)
(500)
(500)
Surplus transferred from capital
-
-
-
500
500
Dividends to stockholders
-
-
-
(500)
(500)
Net change in capital & surplus
76
10
(268)
(492)
(364)
Capital & surplus, current year end
$ 3,156
$ 3,080
$ 3,070
$ 3,338
$ 3,830
6
Notes to Financial Statements
Investments
The Company’s investment portfolio is in compliance with ORC Section 3925.08 and valued in accordance
with the relevant Statements of Statutory Accounting Principles and NAIC Securities Valuation Office.
Loss and Loss Adjustment Expense Reserves
The Company requested exemptions from filing annual statements of actuarial opinion for all years under
examination. The Department determined the Company met the statutory criteria for the exemptions and
therefore granted the requests.
Subsequent Events
Effective September 30, 2019, the Company was acquired by the Michigan Farm Bureau Financial
Corporation.
On March 11, 2020, The World Health Organization declared the spreading coronavirus (COVID-19)
outbreak a pandemic. On March 13, 2020, President Donald J. Trump declared COVID-19 a national
emergency in the United States. The epidemiological threat posed by COVID-19 is having disruptive effects
on the global supply chain as well as the demand for labor, products and services in the U.S. The economic
disruptions caused by COVID-19 and the increased uncertainty about its magnitude has also caused extreme
volatility in the financial markets. While the full effect of COVID-19 is still unknown at the time of this
report, the Department and all insurance regulators, with the assistance of the NAIC, are monitoring the
situation through a coordinated effort and will continue to assess the impacts of COVID-19 on U.S. insurers.
Conclusion
The balance sheet contained in this Report of Examination reflects the financial condition of the Company
as of December 31, 2018, and is summarized as follows:
Total Admitted Assets
$ 3,238,667
Liabilities
82,841
Surplus and Other Funds
3,155,826
Total Liabilities, Surplus and Other Funds
$ 3,238,667
7
Acknowledgement
In addition to the aforementioned and undersigned, the following representatives of the Department
participated in this examination: Edward J. Nagorny, AES, CFE, CISA, CPA; Michael E. Overmyer, CPA
(Inactive); Mary K. Raps, AFE; and John Zadnik, CPA.
Respectfully,
s/Zachary Wheatley (via email authorization 5-28-2020)
Zachary L. Wheatley, CPA, AFE
Examiner-In-Charge
Office of Risk Assessment
Ohio Department of Insurance
s/Rick Rhoades (via email authorization 5-28-2020)
Rick A. Rhoades, CPA (Inactive), CFE
Assistant Chief Examiner
Office of Risk Assessment
Ohio Department of Insurance
Verification
As required by Section 3901.07 of the Ohio Revised Code, 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, 2018.
Examiner-In-Charge Date
Assistant Chief Examiner Date
State of Ohio
County of Franklin
Personally appeared before me the above named, Zachary L. Wheatley and Rick A. Rhoades, 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 knowledge and belief.
Subscribed and sworn to before me this _____ day of ___________, 2020.
________________________
(Notary Public)
________________________
My Commission Expires