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INTERCOMPANY AGREEMENTS

The Company participates in a federal income tax allocation agreement dated December 31, 2003 along with other subsidiaries. The agreement was filed and approved by the NJDOBI. The Company and affiliates constitutes an affiliated group within section 1504(a) of the Internal Revenue Code of 1986 of which Fundacion Mapfre (Spain) is the common parent and, therefore, are eligible to file a consolidated United States federal income tax return and pay federal income taxes on a consolidated basis if necessary. Federal income tax expense and benefits are allocated in the ratio that the Company's separate tax return liability bears to the sum of the separate return tax liabilities and benefits of the Mapfre Group. Estimated payments are made between members during the year.

It was noted that there is no new tax allocation agreement even though there was a reorganization and changes during the examination period. Mapfre Holdings, Inc. sold the Company to Mapfre USA on July 16, 2007. It is recommended that the consolidated income tax agreement should be updated to reflect the new owner of the Company.

The Company participates in a "Memorandum of Agreement" dated February 17, 2005, between the Company and D.M. Williams & Associates Ltd. (Representative) whereas Representative has agreed to be the sole representative in Canada for the Company which includes all final regulatory on behalf of the Company. The Representative shall have NO authority to bind the Company to any risks, settle claims, or enter into any contracts of insurance or reinsurance on behalf of the Company unless specifically authorized by the Company. Once specifically authorized the Representative is hereby empowered with respect to business in Canada to act as agent with the powers to collect premium or other monies on investments but not pay claims.

FIDELITY BOND AND OTHER INSURANCE COVERAGES

The Company has a $3 million Fidelity Bond, which provides fidelity coverage for all officers of the Company and which is more than adequate to meet the minimum requirement of coverage as suggested by the NAIC.

ACCOUNTS AND RECORDS

The Company uses the Freedom software package to prepare the general ledger and to complete the annual statement. The general ledger system was tested and reconciled to the annual statement. Financial information needed in conjunction with the verification of assets and the determination of liabilities was made available in detail and summary form. The Company’s accounting books and records are maintained at its main

administrative office located at 100 Campus

Drive

in

Florham

Park,

New

Jersey.

The Company maintains two systems for reporting business.

The RSG system maintains the old run-off business from Chatham Reinsurance Company, the system generates both premium and loss reports.

The CONDOR system is where all other business is recorded, the system also generates reports which feed the general ledger and exhibits for the filed Annual Statements. The CONDOR system is administered in Spain and the Company has direct access to CONDOR through the internet.

The Company also has the following policies in force at December 31, 2008 to protect itself against the various perils/hazards to which it may become exposed. These policies include an automobile liability policy;

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