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RECORDS OF MEETING
GOVERNING COMMITTEE
A Meeting of the Governing Committee of the Commonwealth Automobile Reinsurers was held at the offices of C.A.R, on -
WEDNESDAY, MAY 16, 1990 AT 10:00 A.M.
The following Members were present -
Mr. Craig M. Bradley Mr. James D. Doherty
Mr. Richard W. Brewer Mr. Sumner D. Gilman
Mr. Arthur J. Remillard, Jr.**Mr. E. Donald Lewis
Mr. Edwin J. Rinehimer Mr. Robert V. McGowan
Mr. James M. Stone Mr. George Peters
*Mr. Frederick E. Wilde Mr. Louis M. Xifaras
*Mr. Frederick E. Wilde substituted for Mr. Donald O. Burns.
**Mr. E. Donald Lewis substituted for Mr. David J. Lane.
There were also present -
Commonwealth Automobile Reinsurers
PresidentMr. R. M. LaFontaine
Executive Vice President & TreasurerMr. M. J. Trovato
Administrative Vice President & SecretaryMr. D. I. Jewell
Vice President & General CounselMr. J. J. Maher, Jr.
Vice President-Data Services and
Strategic PlanningMr. P. P. Ryan
Vice President-Financial ServicesMs. M. L. Corbett
Director of CommunicationsMr. P. W. Corsetti
Adm. Assistant for Industry RelationsMr. G. F. Monahan
Claims ConsultantMr. Robert Tyler
Administrative ManagerMr. J. D. Metcalfe
Underwriting ManagerMs. P. A. Wallace
Financial ManagerMr. J. V. Kelly
Statistical ManagerMs. M. S. Adgate
S.C./Representative Producer CoordinatorMr. T. J. Costain
Executive SecretaryMs. B. A. Seminatore
Massachusetts Division of InsuranceMr. D. R. Judson
Hale and DorrMr. R. W. Mahoney
Aetna Casualty and Surety CompanyMr. H. T. Himes
Amica Mutual Insurance CompanyMr. J. J. Wolstencroft, Jr.
Arbella Mutual Insurance CompanyMr. J. F. Goode
Mr. W. D. Healey
CIGNA Property & Casualty Insurance CompanyMr. B. A. Lerch
The Commerce Insurance CompanyMr. R. P. Remillard
Commercial Union Insurance CompanyMr. A. A. Kinsman, Jr.
Crum & Forster Commercial Insurance Mr. Edward Coloney
Fitchburg Mutual Insurance CompanyMr. George Larson
The Hanover Insurance CompanyMr. K. W. Mudie
Home Insurance CompanyMr. Kevin Purcell
I.S.I. Systems, Inc.Mr. Donald Devers
Mr. R. E. Jenkins
John Hancock Property & Casualty Ins. Co.Mr. Jerry Heberlein
Liberty Mutual Insurance CompanyMr. L. E. Grimes
Metropolitan Property & Liability Ins. Co.Mr. D. J. Stoeckel
New Hampshire Insurance CompanyMs. Anne Koeck
Norfolk & Dedham Mutual Fire Insurance Co.Mr. R. A. DeLorenzo
Plymouth Rock Assurance CorporationMr. P. R. Jones
Policy Management Systems CorporationMr. Thomas Bigelow
Ms. Jean Walsh
Royal Insurance CompanyMr. J. C. Spellman
Safety Insurance CompanyMr. D. F. Brussard
Travelers Insurance CompanyMs. D. C. Fortino
Mr. J. R. Johnson
United States Fidelity and Guaranty CompanyMr. R. P. Fawthrop, Jr.
Ms. S. A. Millen
Utica Mutual Insurance CompanyMr. W. D. Fabri
W. B. Palmer AssociatesMr. W. B. Palmer
Worcester Insurance CompanyMs. Bonnie Rankin
Chairman McGowan called the meeting to order at 10:00 A.M. and announced that the Commissioner of Insurance approved the substitution of Mr. Frederick E. Wilde for Mr. Donald O. Burns and Mr. E. Donald Lewis for Mr. David J. Lane.
90.1MINUTES OF PREVIOUS MEETINGS
A motion was made by Mr. James Doherty and duly seconded by Mr. Louis Xifaras to accept the Records of the Governing Committee Meeting of March21, 1990.
The motion passed on a unanimous vote.
The written Records of the Governing Committee Meeting of April 18, 1990 being unavailable for Governing Committee consideration, approval was deferred until the next meeting.
90.5COUNSEL REPORT
Mr. Joseph J. Maher, Jr., Vice President and General Counsel, suggested that his report relative to a complaint filed by Aetna Casualty and Surety Company, naming the Division of Insurance and the Commonwealth Automobile Reinsurers as parties defendant, would be appropriate for the Governing Committee to consider in Executive Session.
Continuing, Mr. Maher advised that C.A.R. met with the Guaranty Fund relative to American Mutual Insurance Company's obligations that are being asserted against C.A.R. Mr. Maher suggested that because of the potential for litigation if there is not total agreement, it would be appropriate for the Governing Committee to consider in Executive Session.
Mr. Maher suggested that a brief update regarding the status of the settlements with Central Insurance Companies and St. Paul Fire and Marine Insurance Company would be appropriate for the Governing Committee to consider in Executive Session.
90.5COUNSEL REPORT (Cont.)
Continuing, Mr. Maher advised that C.A.R. met with representatives of CIGNA Insurance Company relative to their continuation or cessation of relations within the state. Because of the impact that has on other pending litigation and the potential for litigation in this particular set of circumstances, Mr. Maher suggested that it would be appropriate for the Governing Committee to consider in Executive Session.
Mr. Maher reported that Norfolk and Dedham Mutual Fire Insurance Company has filed an appeal with the Commissioner of Insurance relative to pending changes to Rule 11, Assessments and Participation - 1989 and Thereafter. C.A.R. is awaiting a hearing date. Mr. Maher advised that the Governing Committee will be kept apprised of this matter.
In regard to Representative Producer appointments, Mr. Maher indicated that three individuals who appealed to the Market Review Committee and subsequently appealed to the Governing Committee Review Panel have filed for a hearing with the Commissioner of Insurance on the declination of their applications for appointment. These declinations were based on the new market need criteria that the Governing Committee and Commissioner of Insurance have approved. A hearing is scheduled before a Deputy Commissioner on May 17, 1990. Mr. Maher advised that a report will be furnished the Governing Committee on the results of these matters.
Continuing, Mr. Maher reported that the Division of Insurance was forwarded amendments to Rule 2, definitions of "Exclusive Representative Producer" and "Representative Producer." The Commissioner of Insurance on May 2, 1990, remanded these proposed changes to the Governing Committee for further review and consideration. This matter will be addressed during the report of the Market Need Criteria Committee.
A meeting of the Commercial Lines Committee was held May 9, 1990, where proposed changes to Rule 6, Coverages, were discussed (see attached). The changes to Rule 6 are relative to the approval by the Commissioner of Insurance of the Pollution Exclusion Endorsement for garage policies. C.A.R. received confirmation from the Division of Insurance that the endorsement was considered effective on a prospective basis from the March18, 1990 approval date. The Commercial Lines Committee, after lengthy discussion, voted to amend Rule 6, Coverages, effective for policies written on and after June 1, 1990, that all coverages eligible for private passenger motor vehicles as defined in Section, B, 1, would be eligible for cession for a garage policy, providing that a Pollution Exclusion Endorsement is attached. The Commercial Lines Committee further considered the question of the exclusion of garage premium from cession limitation calculations and determined that the exclusion should continue through the end of 1990.
90.5COUNSEL REPORT (Cont.)
After discussion, a motion was made by Mr. Louis Xifaras and duly seconded by Mr. James Doherty to adopt the amendment to Rule 6, Coverages, as recommended by the Commercial Lines Committee, and direct Staff to submit the proposed amendment to the Commissioner of Insurance for his approval.
The motion passed on a unanimous vote.
Continuing, Mr. Maher reported that buy-out agreements, relative to the requirement that all Members assume the obligations of a Servicing Carrier as of May 1, 1990, have been received from the National Grange Mutual Insurance Company, Safety Insurance Company and Pilgrim Insurance Company. Mr. Maher advised that after review of the buy-out agreements, there is concern about the following issues:
1.Whether or not the provider is in a position to satisfy, together with the Servicing Carrier, all of the requirements of Rule 13?
2.Whether the ultimate responsibility resides with the Servicing Carrier for its obligations, financial and otherwise, to C.A.R.?
3.Whether there was ample time specified for notice of termination of the agreement?
Continuing, Mr. Maher noted that C.A.R. is not a party to these agreements. The Governing Committee was in agreement that Counsel would advise the "Buy-out" companies that any ambiguities of terms within the agreements would be interpreted in a fashion that satisfies criteria established by C.A.R. as respects Servicing Carrier obligations and responsibilities. Speaking to the issue of an orderly transition if there is a cancellation of a buy-out agreement, Mr. Maher advised that in two instances the agreements are for a one year period. In one instance, the agreement can be terminated, with seven months notice upon the expiration of the one year period. In the other case, there is a one-hundred and twenty day termination procedure. Mr. Maher indicated that in all of the contracts, there is recitation of an intent to provide services to any pending or existing policies, i.e., outstanding contracts for insurance through date of expiration of the policies.
After discussion, a motion was made by Mr. Rinehimer and duly seconded by Mr. Louis Xifaras to authorize the Governing Committee Chairman, upon advice of Counsel that the buy-out agreements are in compliance with C.A.R. Rules, to notify the Servicing Carriers seeking the services of a company that the agreements have been approved.
The motion passed on a unanimous vote.
90.5COUNSEL REPORT (Cont.)
In conclusion, Mr. Maher advised that C.A.R. had just received a revised draft of American Transportation Insurance Company's agreement and suggested that it would be appropriate for the Governing Committee to consider it in Executive Session.
90.6MARKET REVIEW COMMITTEE
Mr. James Doherty, reporting on the Market Review Committee Meeting of May 2, 1990, advised that the Committee considered an appeal by Ms.Marianne Maillet regarding the declination of her application for appointment as an Exclusive Representative Producer in accordance with Rule14, C.A.R. Rules of Operation. Ms. Maillet failed, within the past twelve months period, to have worked for a minimum of six months with an agent or broker licensed by the Division of Insurance or with a Massachusetts insurer, during which time her efforts were primarily devoted to the Massachusetts motor vehicle market.
After discussion determined that Ms.Maillet had an affiliation with the R. J. Quinn Insurance Agency since October, 1988, coupled with the fact she currently has brokered seventy-seven vehicles through the Quinn Agency and appears to be familiar with Registry forms, etc., the Market Review Committee voted to conditionally grant the appeal, pending C.A.R. Staff communicating with the Quinn Agency to have verified in writing Ms.Maillet's work experience.
Continuing, Mr. Doherty reported that the Market Review Committee considered an appeal by Mr. Christopher McNiff regarding the termination of his Exclusive Representative Producer contract by the Aetna Casualty and Surety Company for failure to develop and maintain a minimum book of business. Mr. Thomas Greenfield, representing the Aetna Casualty and Surety Company, indicated to the Market Review Committee that as of the Exclusive Representative Producer's anniversary date in 1989, Mr. McNiff had written five vehicles. Mr. Doherty advised the Governing Committee that Mr. McNiff was notified of C.A.R.'s Rules pursuant to minimum volume requirements at that time. As of Mr. McNiff's contract anniversary date in 1990, his writings increased to twenty vehicles. Mr. McNiff was subsequently notified of his termination by Aetna Casualty and Surety Company pursuant to C.A.R.'s Rules of Operation. The Market Review Committee unanimously voted to uphold Aetna's termination.
In conclusion, Mr. Doherty advised that an oral report of the Market Review Committee Meeting of April 12, 1990 was given at the Governing Committee Meeting of April 18, 1990. The written Records being available for Governing Committee consideration and review, a motion was made by Mr.James Doherty and duly seconded by Mr. Sumner Gilman to accept the Records of the Market Review Committee Meeting of April 12, 1990.
The motion passed on a unanimous vote.
90.6MARKET REVIEW COMMITTEE (Cont.)
A motion was made by Mr. James Doherty and duly seconded by Mr. Sumner Gilman to receive the verbal report of the Market Review Committee Meeting of May 2, 1990.
The motion passed on a unanimous vote.
90.8OPERATIONS COMMITTEE
Ms. Mary Corbett advised that an oral report of the Operations Committee Meeting of March 29, 1990 was given at the Governing Committee Meeting of April 18, 1990. The written Records being available for Governing Committee consideration and review, a motion was made by Mr.James Doherty and duly seconded by Mr. Frederick Wilde to accept the Records of the Operations Committee Meeting of March 29, 1990.
The motion passed on a unanimous vote.
90.11ACTUARIAL COMMITTEE
Mr. Arthur Remillard referred to the Executive Summary of the Actuarial Committee Meeting of May 15, 1990 (see attached) and advised that the Committee approved in concept the procedure for calculating interim and final ceding expense allowances. The Records of the May 15, 1990 Meeting will be available for the Governing Committee's consideration at the June, 1990, meeting.
Continuing, Mr. Remillard reported that the Governing Committee, at its April 18, 1990 Meeting, deferred action on the commercial cession limitation until data relative to the current commercial cession levels was made available for further consideration by the Actuarial Committee. After reviewing the data available as of May 1, 1990, which was incomplete but did indicate a drop in the commercial cession rate from last year's levels, the Actuarial Committee voted, with eight Members in favor and four opposed, to modify the policy year 1991 commercial cession limitation to allow companies to be reimbursed for the commissions and premium tax portions of their ceding expense allowance for ceded business, which represents between 30% and 40% of their total voluntary, plus voluntary-ceded book of business. Ceded business written in excess of 40% of a company's total voluntary, plus voluntary-ceded book of business, will not be eligible to receive ceding expense reimbursement. Mr. Remillard noted that some of those opposed were in favor of relaxing the penalties, but also believed that the 1991 commercial cession limitation level should be made less restrictive. He also noted that an appropriate revision to Rule17 would be presented to the Governing Committee at their next meeting, which will accomplish the modifications approved by the Actuarial Committee.
90.11ACTUARIAL COMMITTEE (Cont.)
In conclusion, Mr. Remillard advised that the Actuarial Committee considered the Motor Club of America Insurance Company's participation appeal. The Committee unanimously voted to affirm C.A.R. Staff's recommendation that the Motor Club of America Insurance Company's calculations be revised to more accurately categorize that company as neither newly emerging or newly writing for policy years 1987 through 1990. The Actuarial Committee instructed Staff to draft a prospective modification to Rule 2, which would expand the definition of "Newly Writing Company" so that it will encompass a company that has stopped writing in Massachusetts and, subsequently, reenters the market.
After discussion, it was the consensus of the Governing Committee to refer the drafting of the definition of "Newly Writing Company" to the Servicing Carrier Committee.
A motion was made by Mr. James Doherty and duly seconded by Mr. George Peters to receive the verbal report of the Actuarial Committee Meeting of May 15, 1990.
The motion passed on a unanimous vote.
90.14AUDIT COMMITTEE
Mr. David Brussard reported that the Audit Committee, at its Meeting of May 4, 1990, heard a report from Coopers & Lybrand on investment objectives and suggested guidelines to be used by C.A.R. in its short-term and long-term cash management.
Coopers & Lybrand identified two major classifications of investments that C.A.R. must control and manage:
1.Day-to-day excess overnight or short-term funds.
2.Escrow funds.
Mr. Brussard reported that the Audit Committee restated that the C.A.R. investment guidelines and objectives should address the issues of safety, liquidity and yield. Mr. Brussard advised that C.A.R.'s investment strategy should try to obtain the highest available yield consistent with liquidity and safety constraints.
Continuing, Mr. Brussard advised that the Audit Committee reviewed a list of money market type investment instruments that meet those criteria. After discussion and due consideration, the Audit Committee voted unanimously to recommend, for Governing Committee approval, the following investment guidelines:
90.14AUDIT COMMITTEE (Cont.)
1.Excess operating funds or overnight monies will be placed in an Institutional Money Market Fund.
2.Escrow Funds will also be placed in Institutional Money Market Funds, with a cap of twenty million dollars per fund, but not to exceed five funds.
3.Quarterly Settlement Funds will be processed through one major Institutional Money Market Fund, with wire transfer procedures in place to accomplish the settlement as quickly as possible so as to minimize exposure.
In conclusion, Mr. Brussard advised that the Audit Committee reaffirmed its recommendation that C.A.R. should establish its primary banking relationship with Bank of Boston, however, Staff will implement the use of a controlled disbursement account which will ensure that excess monies will be deposited in the Institutional Money Market Fund versus maintaining large excess balances at the bank.
A motion was made by Mr. James Doherty and duly seconded by Mr.Rinehimer to adopt the recommendation of the Audit Committee.
The motion passed on a unanimous vote.
A motion was made by Mr. James Doherty and duly seconded by Mr.Rinehimer to receive the verbal report of the Audit Committee Meeting of May 4, 1990.
The motion passed on a unanimous vote.
90.16COMMERCIAL LINES COMMITTEE
Mr. Kenneth Mudie, reporting on the Commercial Lines Committee Meeting of May 9, 1990, advised that the Committee considered Lumbermens Mutual Casualty Company's appeal to allow for the backdating of an endorsement to increase the limits of liability on a policy ceded to C.A.R., which was issued to the Don Adams Oil Co., Inc. Mr. Mudie reported that January 1, 1986, the Lumbermens issued a ceded policy with property damage liability limits of $300,000. Effective September 1, 1986, the umbrella carrier had increased the underlying limits requirement to $500,000 for combined single limits. The agent sent the company a request to increase the limits of liability on the policy to be effective upon the renewal date of January 1, 1987. On December 1, 1986, an accident occurred causing considerable property damage. Mr. Mudie advised that Lumbermens is seeking to endorse their policy back to the date of the umbrella carrier's requirement for the $500,000 limit to be effective September 1, 1986. Mr. Mudie reported that
90.16COMMERCIAL LINES COMMITTEE (Cont.)
this would result in Lumbermens being able to cede the $200,000 gap in coverage, which currently exists. The Commercial Lines Committee denied the appeal. Mr. Mudie noted that representatives were advised that they could appeal the decision of the Commercial Lines Committee, but they have not done so to date.
Continuing, Mr. Mudie reported that the Commercial Lines Committee considered whether the Pollution Exclusion Endorsement sufficiently addresses the elimination of the pollution hazard from the garage risk. Mr. Mudie advised that the Committee was in agreement that the Pollution Exclusion Endorsement, which had been approved by the Division of Insurance, was adequate. As a result of the availability of the endorsement, the Commercial Lines Committee unanimously voted that ceded garage premiums shall count toward the Servicing Carrier commercial cession limitations as of January 1, 1991. An amendment to Rule 17 to this effect will be presented at the next Governing Committee meeting.