KINGSWAY AMIGO INSURANCE COMPANY Formerly known as US SECURITY INSURANCE

25 Pages·2011·0.06 MB·English

REPORT ON EXAMINATION

OF

KINGSWAY AMIGO INSURANCE
COMPANY
Formerly known as
U.S. SECURITY INSURANCE COMPANY
MIAMI, FLORIDA

AS OF

DECEMBER 31, 2009

BY THE
OFFICE OF INSURANCE REGULATION
TABLE OF CONTENTS

LETTER OF TRANSMITTAL ..................................................................................................... -
SCOPE OF EXAMINATION ......................................................................................................... 1
SUMMARY OF SIGNIFICANT FINDINGS ................................................................................... 2
CURRENT EXAM FINDINGS .......................................................................................................... 2
PRIOR EXAM FINDINGS ............................................................................................................... 3
SUBSEQUENT EVENTS .............................................................................................................. 3
HISTORY ...................................................................................................................................... 3
GENERAL ................................................................................................................................... 3
DIVIDENDS TO STOCKHOLDERS ................................................................................................... 4
CAPITAL STOCK AND CAPITAL CONTRIBUTIONS ............................................................................ 4
SURPLUS DEBENTURES .............................................................................................................. 5
ACQUISITIONS, MERGERS, DISPOSALS, DISSOLUTIONS, AND PURCHASE OR SALES THROUGH
REINSURANCE ............................................................................................................................ 5
CORPORATE RECORDS ............................................................................................................ 5
CONFLICT OF INTEREST .............................................................................................................. 6
MANAGEMENT AND CONTROL ................................................................................................ 6
MANAGEMENT ............................................................................................................................ 6
AFFILIATED COMPANIES .............................................................................................................. 7
ORGANIZATION CHART ................................................................................................................ 9
TAX ALLOCATION AGREEMENT .................................................................................................... 9
MANAGEMENT AGREEMENT ......................................................................................................... 9
MANAGING GENERAL AGENT AGREEMENT ................................................................................... 9
FIDELITY BOND ........................................................................................................................ 10
PENSION, STOCK OWNERSHIP AND INSURANCE PLANS .................................................. 10
TERRITORY AND PLAN OF OPERATIONS ............................................................................. 10
TREATMENT OF POLICYHOLDERS............................................................................................... 10
COMPANY GROWTH ................................................................................................................ 11
PROFITABILITY OF COMPANY ..................................................................................................... 12
LOSS EXPERIENCE .................................................................................................................. 12
REINSURANCE .......................................................................................................................... 12
REINSURANCE CEDED ............................................................................................................... 12
ACCOUNTS AND RECORDS .................................................................................................... 12
CUSTODIAL AGREEMENT ........................................................................................................... 13
ASSET MANAGEMENT AGREEMENT ............................................................................................ 13
INDEPENDENT AUDITOR AGREEMENT ........................................................................................ 13
INFORMATION TECHNOLOGY REPORT ................................................................................ 14
STATUTORY DEPOSITS ........................................................................................................... 14
FINANCIAL STATEMENTS PER EXAMINATION ..................................................................... 14
ASSETS .................................................................................................................................... 15
LIABILITIES, SURPLUS AND OTHER FUNDS ................................................................................. 16
STATEMENT OF INCOME ............................................................................................................ 17
COMPARATIVE ANALYSIS OF CHANGES IN SURPLUS ................................................................... 18
COMMENTS ON FINANCIAL STATEMENTS ........................................................................... 19
ASSETS .................................................................................................................................... 19
LIABILITIES................................................................................................................................ 19
CAPITAL AND SURPLUS ............................................................................................................. 20
SUMMARY OF RECOMMENDATIONS ..................................................................................... 20
CONCLUSION ............................................................................................................................ 21
TALLAHASSEE, FLORIDA

November 3, 2010

Kevin M. McCarty
Commissioner
Office of Insurance Regulation
State of Florida
Tallahassee, Florida 32399-0326

Dear Sir:

Pursuant to your instructions, in compliance with Section 624.316, Florida Statutes, Rule 69O-
138.005, Florida Administrative Code, and in accordance with the practices and procedures
promulgated by the National Association of Insurance Commissioners (NAIC), we have conducted
an examination as of December 31, 2009, of the financial condition and corporate affairs of:

KINGSWAY AMIGO INSURANCE COMPANY
Formerly known as
US SECURITY INSURANCE COMPANY
3155 NW 77 AVENUE
MIAMI, FLORIDA 33122

Hereinafter referred to as, the “Company”. Such report of examination is herewith respectfully
submitted.
SCOPE OF EXAMINATION

This examination covered the period of January 1, 2005, through December 31, 2009. The
Company was last examined by representatives of the Florida Office of Insurance Regulation
(Office) as of December 31, 2004. This examination commenced with planning at the Office on
June 28, 2010, to July 2, 2010. The fieldwork commenced on July 12, 2010, and concluded as of
November 3, 2010.

This financial examination was a statutory financial examination conducted in accordance with the
Financial Condition Examiners Handbook, Accounting Practices and Procedures Manual and
annual statement instructions promulgated by the NAIC as adopted by Rules 69O-137.001(4) and
69O-138.001, Florida Administrative Code, with due regard to the statutory requirements of the
insurance laws and rules of the State of Florida.

The Financial Condition Examiners Handbook requires that the examination be planned and
performed to evaluate the financial condition and identify prospective risks of the Company by
obtaining information about the Company including corporate governance, identifying and
assessing inherent risks within the Company, and evaluating system controls and procedures
used to mitigate those risks. An examination also includes assessing the principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation and management's compliance with Statutory Accounting Principles and annual
statement instructions when applicable to domestic state regulations.

All accounts and activities of the Company were considered in accordance with the risk-focused
examination process.

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This report of examination is confined to significant adverse findings, a material change in the
financial statements or other information of regulatory significance or requiring regulatory action.
The report comments on matters that involved departures from laws, regulations or rules, or which
were deemed to require special explanation or description.

SUMMARY OF SIGNIFICANT FINDINGS

Current Exam Findings
The following is a summary of material adverse findings, significant non-compliance findings, or
material changes in the financial statements noted during this examination.

Admissibility of Deferred Tax Assets

The Company estimated a deferred tax asset of $2,842,226 for the one year period ending
December 31, 2009; however, the Company did not realize the benefit of the deferred tax asset
in 2010 because the Company experienced negative pre-tax earnings.

Prior Exam Findings
The following is a summary of significant adverse findings contained in the Office’s prior
examination report as of December 31, 2004, along with resulting action taken by the Company.

General
The articles of incorporation were not amended and filed with the Florida Secretary of State
pursuant to the amendment ratified by the Company’s Board which increased the authorized
shares of the Company’s capital stock by 1.5 million shares. Resolution: The Company
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amended the articles of incorporation authorizing the additional 1.5 million shares and filed that
amendment with the Florida Secretary of State on February 26, 2010.

SUBSEQUENT EVENTS
The Company made significant changes to the financial position and structure of the Company
subsequent to the examination date. The Company reported an unrealized valuation in its
investment in affiliate, KFS Capital, LLC, of $685,912 and reported total cumulative investment
in KFS Capital, LLC of $2,987,401 as of March 31, 2010.
HISTORY
General
The Company was incorporated in Florida on August 20, 1985, and commenced business on
December 1, 1985, as U.S. Security Insurance Company. Effective February 25, 2010, the
Company modified their name and continued doing business as Kingsway Amigo Insurance
Company.

The Company was authorized to transact the following insurance coverage in Florida on December
31, 2009:

Private Passenger Auto Liability Commercial Automobile Liability
Private Passenger Auto Physical Damage Commercial Auto Physical Damage
Inland Marine Commercial Multi Peril
Other Liability

The Office approved the Company’s request to amend its Certificate of Authority on June 29, 2010,
to discontinue the Inland Marine, Other Liability, and Commercial Multi Peril lines of business.

The Articles of Incorporation and the Bylaws were amended during the period covered by this
examination to change the Company’s name and increase the number of authorized shares of
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common stock by 1,500,000. This amendment was filed with the Florida Secretary of State on
February 26, 2010.

Dividends to Stockholders
The Company did not declare or pay dividends to its stockholder during the period under
examination.

Capital Stock and Capital Contributions
As of December 31, 2009, the Company’s capitalization was as follows:
Number of authorized common capital shares 2,000,000
Number of shares issued and outstanding 2,000,000
Total common capital stock $2,000,000
Par value per share $1.00

Control of the Company was maintained by its parent, Hamilton Risk Management Company
(HRMC), which owned 100% of the stock issued by the Company, which in turn was 100%
owned by Kingsway America Inc. The ultimate parent was Kingsway Financial Services, Inc., a
Canadian corporation listed on the New York Stock Exchange.

Surplus Debentures
The Company issued a subordinated surplus debenture on September 30, 2009 to HRMC in
exchange for a $2,600,000 cash infusion to policyholder surplus. The surplus debenture, a 7.5%
interest-bearing note, was approved by the Office on September 11, 2009.

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Acquisitions, Mergers, Disposals, Dissolutions, and Purchase or Sales Through
Reinsurance
The Company did not have any acquisitions, mergers, disposals, dissolutions and purchase or
sales through reinsurance for the five year period ending December 31, 2009.

CORPORATE RECORDS
The recorded minutes of the shareholder, Board, and certain internal committees were reviewed
for the period under examination. The recorded minutes of the Board adequately documented
its meetings and approval of Company transactions and events in accordance with Section
607.1601, Florida Statutes, including the authorization of investments as required by Section
625.304, Florida Statutes.

Conflict of Interest
The Company adopted a policy statement requiring annual disclosure of conflicts of interest in
accordance with the NAIC Financial Condition Examiners Handbook adopted by Rule 69O-
138.001, Florida Administrative Code.

MANAGEMENT AND CONTROL

Management
The annual shareholder meeting for the election of directors was held in accordance with Sections
607.1601 and 628.231, Florida Statutes. Directors serving as of December 31, 2009, were:

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Directors

Name and Location Principal Occupation

Roberto Espin, Jr. President and Director, CEO
Coral Gables, Florida Hamilton Risk Management Co.

Colin Simpson President/CEO
Toronto, Ontario Kingsway Financial Services, Inc.

Alberto Naon Vice President/COO
Miami, FL Hamilton Risk Management Co.

Kathleen Howie VP/General Counsel
Oakville, Ontario Kingsway Financial Services, Inc.

Scott Wollney President/CEO
Glenview, Illinois Kingsway America Inc

The Board in accordance with the Company’s bylaws appointed the following senior officers:
Senior Officers
Name Title
Roberto Espin, Jr. President/CEO
Kevin Walton Executive Vice President & CEO
Mike Suerth Vice President/CFO/Treasurer
Alberto Naon Vice President/COO
Rachael L. Aldulaimi Secretary
Tim Lane Vice President of Claims
Marco DePompa Vice President of Claims

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