4 - Financial Examinations

4.1 Mission

The mission of the Financial Examination Section is to perform statutory examinations of Massachusetts domestic insurers in order to assure the financial health of these companies and thereby protect consumers purchasing insurance products.

4.2 2009 Goals

Conduct financial audits of domestic insurance companies in order to ensure that policyholders' and claimants' rights are protected and fulfilled, and that insurance consumers can do business with financially solvent companies.

Maintain Accreditation by the National Association of Insurance Commissioners (NAIC). Impose qualitative standards in the regulation of insurance. Ensure that our domestic insurance companies operate and provide insurance coverage to policyholders and consumers with the least amount of regulatory oversight and involvement from other U.S. jurisdictions, and thus with the least amount of cost to them.

Conduct financial audits in compliance with the NAIC Financial Condition Examiners Handbook to ensure for timely and regular examination reviews that are based on a substantive "risk-focused" audit approach toward proper allocation of examination resources within the financial operations of our domestic insurance companies.

4.3 Primary Activities

Financial Examinations

Financial examinations are conducted in accordance with standards established by the Financial Condition (E) Committee of the NAIC as well as with the requirements of the NAIC Financial Condition Examiner's Handbook, the Division's own examination standards and Massachusetts General Laws. The principal focus of an examination is the most recent calendar year's activity. However, transactions both prior and subsequent to the "as of" examination date are reviewed as deemed appropriate.

In addition to a review of the financial condition of the insurer, the examination includes a review of the company's:

  • Business Policies and Practices
  • Corporate Records
  • Reinsurance Programs
  • Conflict of Interest Disclosure Statements
  • Fidelity Bonds and Other Insurance
  • Employees' Pension and Benefits Plans
  • Disaster Recovery Plan
  • Treatment of Policyholders

In addition to this list, the review also includes other pertinent matters in order to provide a reasonable assurance that the company is in compliance with applicable laws, rules and regulations. In planning and conducting an examination, consideration is given to the concepts of materiality and risk, and examination efforts are directed accordingly.

In 2009, the Financial Examination Section completed routine statutory examinations of twenty-three insuring organizations. These companies produced $19.9 billion in premium nationwide - $3.7 billion in Massachusetts. The Section also continued its special purpose examinations of domestic managed care organizations to evaluate their premium rate setting processes.

The NAIC Financial Regulation Standards & Accreditation (F) Committee has a standard known as the "18 Month Rule." This standard establishes a general rule that comprehensive financial examinations conducted by state insurance departments should be completed and reports issued within eighteen months of the "as of" date of the examination. Exceptions to this rule are permitted for reasonable justification and an extension of up to twenty-two months is allowed before the state is required to roll the "as of" date of a re-initiated exam forward one year.

The Financial Examination Section conducted twenty-one full-scope financial examinations with an "as of" date of December 31, 2007. All of these examinations were completed by June 30, 2009, within the "18 Month Rule" timeframe noted above. Twenty financial examinations were in progress at year's end, representing approximately $19.7 billion in premium nationwide - $6.5 billion in Massachusetts.

Examination Reports Issued in 2009

US Direct


MA Direct Premium


Property & Casualty Insurers

Arrow Mutual Insurance Co.




Bunker Hill Ins. Co. (Plymouth Rock Group)




Pilgrim Ins. Co. (Plymouth Rock Group)




Plymouth Rock Assurance Co. (Plymouth Rock Group)




Health Insurers

Dental Service of Massachusetts




Fallon Community Health Plan, Inc. (Fallon Group)




Fallon Health & Life Assur. Co. (Fallon Group)




HPHC Insurance Co. (Harvard Pilgrim Group)




HPHC of New England, Inc. (Harvard Pilgrim Group)




HPHC, Inc. (Harvard Pilgrim Group)




Life, Accident & Health Insurers

John Hancock Life Ins. Co. (John Hancock Group)




John Hancock Var. Life Ins. Co. (John Hancock Group)




New England Life Ins. Co.




Self Insured Groups

Mass. Catholic Self-Insured Group




Mass Govt and Educ Self-Insured Group




Mass. Bay Self-Insured Group




Commonwealth Transportation Comp. Corp.




Construction Industries Compensation Corp.




Graphic Arts Compensation Corporation




Independent Schools Compensation Corp.




Manufacturers of Mass. Comp. Group, Inc.




Self-Insured Lumber Business Assoc., Inc.




Wholesale/Retail Suppliers Comp. Corp




Fraternal Organizations

Catholic Assn of Foresters








Examinations in Progress 12/31/2009

US Direct Premium

MA Direct Premium


Property & Casualty Insurers

AIM Mutual Ins. Co. (AIM Group)




Associated Employers Ins. Co. (AIM Group)




MA Employers Ins. Co. (AIM Group)




Employers Security Assur.. Co. (AIM Group)




Encompass Insurance Co. (Allstate Group)




Commerce Ins. Co. (Commerce Group)




Citation Ins. Co. (Commerce Group)




Danbury Insurance Company (Hingham Group)




Hingham Mutual Insurance Co. (Hingham Group)




Safety Insurance Co.




Safety Property and Casualty Insurance Co.




Safety Indemnity Insurance Co.




Health Insurers

Neighborhood Health Plan




Tufts Associated HMO, Inc.




Tufts Insurance Company




Life, Accident & Health Insurers

The Paul Revere Life Ins. Co. (Paul Revere Group)




The Paul Revere Var. Annuity Ins. Co (Paul Revere Group)




Savings Bank Life Ins. Co. of MA




Massachusetts Mutual Life Insurance Company




Fraternal Organizations

Supreme Council of the Royal Arcanum








Other Insurance Entities

In addition to examining traditional insurance companies, the Section also conducts periodic examinations of domestic self-insured groups, residual market pools and over 150 fraternal benefit and mutual aid societies.

Special Brokers Tax Collection

The Financial Examination Section collects state taxes on the Excess and Surplus Lines business written by Special Brokers licensed in Massachusetts. Collections in calendar year 2009 for business written in calendar year 2008 totaled $25.2 million on written premium of $635.1 million.

Life Company Certification and Valuation Fees Collection

At the end of each calendar year, Division financial examiners are charged with compiling the actuarial valuations of insurance reserves of Massachusetts domiciled life insurance companies as described in the annual financial statements and the actuarial reserve exhibits. These valuations are reviewed in context with the actuarial opinions provided by the companies, including asset adequacy testing required on these reserves. The Division then issues a certification of the company's entire reserve liability. Under Massachusetts law, the companies are required to pay fees for the annual valuation process and for the certificates issued. Valuation and certification fees billed in 2009 amounted to $664,000.

4.4 Special Activities

Training & Professional Accomplishments

Two Financial Examination Section managers attended the Society of Financial Examiner's annual Career Development Seminar (CDS) in July, 2009. The Society of Financial Examiners (SOFE) is a professional society made up of state insurance examiners throughout the United States and its territories. Through lectures, roundtable discussions and interactive formats, participants learn the latest developments, current and emerging issues, and new solutions in the regulation of insurance companies. Topics also include the new risk-focused examination approach, fraud detection, IT development, and the latest legislation, auditing and regulatory issues.