NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES
FINANCIAL CONDITION REPORT ON EXAMINATION
OF THE
NTA LIFE INSURANCE COMPANY OF NEW YORK
CONDITION: DECEMBER 31, 2017
DATE OF REPORT: MAY 20, 2019
NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES
FINANCIAL CONDITION REPORT ON EXAMINATION
OF THE
NTA LIFE INSURANCE COMPANY OF NEW YORK
AS OF
DECEMBER 31, 2017
DATE OF REPORT: MAY 20, 2019
EXAMINER: JAMES W. MENCK, CFE
TABLE OF CONTENTS
ITEM
PAGE NO.
1.
Executive summary
2
2.
Scope of examination
3
3.
Description of Company
5
A. History
5
B. Holding company
5
C. Organizational chart
6
D. Service agreements
7
E. Management
8
4.
Territory and plan of operations
10
A. Statutory and special deposits
10
B. Direct operations
10
C. Reinsurance
11
5.
Significant operating results
12
6.
Financial statements
15
A. Independent accountants
15
B. Net admitted assets
15
C. Liabilities, capital and surplus
16
D. Condensed summary of operations
17
E. Capital and surplus account
18
F. Reserves
19
7.
Subsequent events
20
8.
Summary and conclusions
21
ONE STATE STREET, 2ND FLOOR, NEW YORK, NY 10004 -1511 | WWW.DFS.NY.GOV
February 24, 2020
The Honorable Linda A. Lacewell
Superintendent of Financial Services
New York, New York 10004
Madam:
In accordance with instructions contained in Appointment No. 31769, dated May 17, 2018,
and annexed hereto, an examination has been made into the condition and affairs of NTA
Life Insurance Company of New York, hereinafter referred to as “the Company,” at its
administrative office located at 4949 Keller Springs Road, Addison, TX 75001. The Company’s
home office is located at 30 Broad Street, New York, NY 10004.
Wherever “Department” appears in this report, it refers to the New York State Department
of Financial Services.
The report indicating the results of this examination is respectfully submitted.
Linda A. Lacewell
Superintendent
2
1. EXECUTIVE SUMMARY
The material violation and comment contained in this report are summarized below.
• The Company violated Section 4228(h) of the New York Insurance Law by failing to
provide the required demonstrations. (See item 6F of this report.)
• On December 10, 2018, the Company signed a definitive agreement to be acquired by
Horace Mann Educators Corporation for $405 million. (See item 7 of this report.)
3
2. SCOPE OF EXAMINATION
The examination of the Company was a full-scope examination as defined in the National
Association of Insurance Commissioners (“NAIC’s”) Financial Condition Examiners Handbook,
2018 Edition (the “Handbook”). The examination covers the period from October 1, 2013, to
December 31, 2017. The examination was conducted observing the guidelines and procedures in
the Handbook and, where deemed appropriate by the examiner, transactions occurring subsequent
to December 31, 2017, but prior to the date of this report (i.e., the completion date of the
examination) were also reviewed.
The examination was conducted on a risk-focused basis in accordance with the provisions
of the Handbook published by the NAIC. The Handbook guidance provides for the establishment
of an examination plan based on the examiner’s assessment of risk in the insurer’s operations and
utilizing that evaluation in formulating the nature and extent of the examination. The examiner
planned and performed the examination to evaluate the current financial condition as well as
identify prospective risks that may threaten the future solvency of the insurer. The examiner
identified key processes, assessed the risks within those processes and evaluated the internal
control systems and procedures used to mitigate those risks. The examination also included
assessing the principles used and significant estimates made by management, evaluating the
overall financial statement presentation, and determining management’s compliance with New
York statutes and Department guidelines, Statutory Accounting Principles as adopted by the
Department, and annual statement instructions.
The examination was led by the State of Texas, with participation from the State of
New York. Since the lead and participating states are all accredited by the NAIC, all states deemed
it appropriate to rely on each other’s work.
Information about the Company’s organizational structure, business approach and control
environment were utilized to develop the examination approach. The Company’s risks and
management activities were evaluated incorporating the NAIC’s nine branded risk categories.
These categories are as follows:
• Pricing/Underwriting
• Reserving
• Operational
• Strategic
4
• Credit
• Market
• Liquidity
• Legal
• Reputational
The Company was audited annually, for the years 2013 through 2017, by the accounting
firm of BDO USA LLP. The Company received an unqualified opinion in all years. Certain audit
workpapers of the accounting firm were reviewed and relied upon in conjunction with this
examination. The Company does not have a dedicated internal audit department. The formal
financial audits are conducted by an external audit firm, and the chief financial officer and his team
are dedicated to regularly ensuring proper financial reporting and monitoring of financial controls.
Internal audits of transactions are conducted regularly by the business units. These operational
audits are conducted by dedicated senior level, supervisory or management personnel, depending
on specific needs.
This is the first examination of the Company by the Department. As such, this is the
Company’s first report on examination.
This report on examination is confined to financial statements and comments on those
matters which involve departure from laws, regulations or rules, or matters which require
explanation or description.
5
3. DESCRIPTION OF COMPANY
A. History
The Company was incorporated as a stock life insurance company under the laws of the
State New York on July 17, 2012, and was licensed and authorized to commence business on
October 1, 2013. The Company began issuing policies in January 2014. Initial resources of
$7,000,000, consisting of common capital stock of $2,000,000 and paid in and contributed surplus
of $5,000,000, were provided through the sale of 2,000,000 shares of common stock (with a par
value of $1 each) for $3.50 per share.
B. Holding Company
The Company is a wholly owned subsidiary of National Teachers Association
Life Insurance Company (“NTA Life”), a Texas life insurance company. NTA Life is in turn a
wholly owned subsidiary of Ellard Enterprises, Inc., a Texas investment holding company. The
control of Ellard Enterprises, Inc., the sole shareholder of NTA Life, is held by the Bill J. and Betty
Jo Ellard Secure Trust B GST Non-Exempt and BJO Family Trust through their direct ownership
and control of Ellard Family Holdings, Inc., the parent company of the NTA Life holding company
system.
6
Ellard Family Holdings,
Inc. (Nevada)
NTA Life Enterprises,
LLC; formerly known as
EE Holdings, Inc. (Texas)
Ellard Enterprises, Inc.
(Texas)
National Teacher Associates, Inc.
(Delaware)
EE Micronix, Inc.
(Texas)
NTA Life Management, Inc.,
formerly known as NTA
Management, Inc. (Texas)
NTA Life Business Services
Group, Inc.
(Delaware)
Brian M.
Ellard
(Individual)
4%
C. Organizational Chart
An abbreviated organization chart reflecting the relationship between the Company and
significant entities in its holding company system as of December 31, 2017, follows:
JCE Exempt
Trust (Texas)
BME Exempt
Trust (Texas)
BJO Family
Trust (Texas)
BJO Holdings,
Ltd. (Texas)
National Teachers Associates
Life Insurance Company
(Texas)
NTA Life Insurance
Company of New York
(New York)
EE Realty, Inc.
(Texas)
Bill J. and Betty Jo Ellard
Secure Trust B GST Non-
Exempt (Texas)
Bill J. and Betty Jo Ellard
Secure Trust B GST
Exempt (Texas)
BJO Holdings GP,
LLC (Texas)
4%
92%
0.045%
64.075%
7.572%
28.308%
53%
23%
23%
1%
7
D. Service Agreements
The Company had three service agreements in effect with affiliates during the examination
period.
Type of
Agreement
and
Department
File Number
Effective
Date
Provider
of
Services
Recipient
of
Services
Specific Service(s)
Covered
Expense
For Each Year
of the
Examination
Administrative
Services
Agreement
File No. 46763
08/01/2013
NTA Life
The
Company
Accounting, actuarial,
agency support, claims
services, corporate
functions, general
management,
information technology,
legal, customer care,
premium billing &
collection, product
development,
reinsurance, sales &
marketing, support, and
underwriting
2013 $ 0
2014 $ (34,230)
2015 $ (107,700)
2016 $ (130,363)
2017 $ (142,064)
Premium
Remittance
Agreement
08/01/2013
NTA Life
Business
Services
Group, Inc.
The
Company
Collection and
remittance of payroll
deducted premiums
2013 $0
2014 $0
2015 $0
2016 $0
2017 $0
Master General
Agency
Agreement
08/05/2013
Assigned
01/01/2016
National
Teacher
Associates of
New York,
Inc.;
assigned to
National
Teacher
Associates,
Inc.
The
Company
General agency services
2013$0
2014 $(75,936)
2015 $(367,013)
2016 $(474,245)
2017 $(385,469)
The Company participates in a federal income tax allocation agreement with its parent.
8
E. Management
The Company’s by-laws provide that the board of directors shall be comprised of not less
than 7 and not more than 12 directors. Directors are elected for a period of one year at the annual
meeting of the stockholders held in the last 14 days of April of each year. As of
December 31, 2017, the board of directors consisted of nine members. Meetings of the board are
held quarterly.
The nine board members and their principal business affiliation, as of December 31, 2017,
were as follows:
Name and Residence
Principal Business Affiliation
Year First
Elected
Betty J. Ellard
Dallas, TX
President
EE Ranches, Inc
2013
Brian M. Ellard
Dallas, Texas
Director and Vice Chairman
National Teachers Associates Life Insurance
Company
2013
Charles F. Ball Jr.*
Dallas, Texas
Senior Chairman
Bank of Texas, N.A.
2013
James T. Langham Jr.
Corsicana, Texas
Director
National Teachers Associates Life Insurance
Company
2013
Matthew J. Gaul*
Brooklyn, New York
Partner
Dentons US, LLP
2013
Peter J. Molinaro*
Loudonville, New York
Vice President
Park Strategies, LLC
2013
Philip A. Velasquez*
Port Jefferson, New York
Owner
Harbor View Actuarial Consulting LLC
2013
Raymond J. Martin Jr
Dallas, Texas
Director
National Teachers Associates Life Insurance
Company
2013
Wade A. Rugenstein
Plano, Texas
President and Chief Executive Officer
NTA Life Insurance Company of New York
2015
*Not affiliated with the Company or any other company in the holding company system
9
The examiner’s review of the minutes of the meetings of the board of directors and its
committees indicated that meetings were well attended, and that each director attended most
meetings.
The following is a listing of the principal officers of the Company as of December 31,
2017:
Name
Title
Wade A. Rugenstein
President and Chief Executive Officer
Earl R. Fonville
Vice President, Treasurer and Chief Financial Officer
Timothy A. Darley*
Vice President, Secretary and Chief Administrative Officer
Derik T. Sanders
Vice President, General Counsel
Stephen Murphy
Vice President, Chief Marketing Officer
Chris Rogers
Chief Information Security Officer
*Designated consumer services officer per Section 216.4(c) of 11 NYCRR 216 (Insurance
Regulation 64)
On April 26, 2018, Derik T. Sanders was appointed as the Chief Risk Officer besides being
the Vice President and General Counsel.
10
4. TERRITORY AND PLAN OF OPERATIONS
The Company is authorized to write life insurance, annuities, and accident and health
insurance as defined in paragraphs 1, 2 and 3 of Section 1113(a) of the New York Insurance Law.
The Company is a provider of voluntary worksite marketing insurance products in
New York. The Company was authorized to commence business on October 1, 2013, and began
issuing policies in January 2014.
The following tables show the percentage of direct premiums received, by state, and by
major lines of business for the year 2017:
Accident and Health
Life Insurance Premiums Insurance Premiums
New York
79.9%
New York
97.1%
Pennsylvania
11.6
New Jersey
6.4
Subtotal
97.1%
All others
2.9%
Subtotal
97.9%
All others
2.1
Total
100.0%
Total
100.0%
A. Statutory and Special Deposits
As of December 31, 2017, the Company had $500,000 (par value) New York State
Government Bond on deposit with the State of New York, its domiciliary state, for the benefit of
all policyholders, claimants and creditors of the Company.
B. Direct Operations
The Company markets nonparticipating health and life insurance products to public sector
employees. Approximately 98% of premiums written in 2017 were from health insurance products
that are exempt from the provisions of the Patient Protection and Affordable Care Act of 2010.
Health products marketed include limited benefit medical insurance, hospital indemnity insurance,
and disability income insurance. The Company also markets ordinary life insurance products.
Products are marketed through an affiliated captive agency.
11
C. Reinsurance
As of December 31, 2017, the Company had reinsurance treaties in effect with two
companies, of which one was authorized or accredited. The Company’s life, accident and health
business is reinsured on a coinsurance and yearly renewable term basis. Reinsurance is provided
on an automatic and facultative basis. The Company’s accident and health business is reinsured
with NTA Life on a coinsurance with funds withheld basis.
The coinsurance agreement provides for automatic reinsurance up to a maximum face
value of $100,000. The total face amount of life insurance ceded as of December 31, 2017, was
$827,475, which represents 49% of the total face amount of life insurance in force.
Reserve credit taken for reinsurance ceded to unauthorized companies, totaling $17,258
was supported by funds withheld.
The Company did not assume any insurance business during the period under examination.
12
5. SIGNIFICANT OPERATING RESULTS
Indicated below is significant information concerning the operations of the Company
during the period under examination as extracted from its filed annual statements. Failure of items
to add to the totals shown in any table in this report is due to rounding. Fluctuations between the
years are due to the Company being a startup in its first years of operations.
The following table indicates the Company’s financial growth (decline) during the period
under review:
December 31,
2013
December 31,
2017
Increase
(Decrease)
Admitted assets
$7,000,000
$7,564,018
$564,018
Liabilities
$ 0
$ 641,588
$641,588
Common capital stock
$2,000,000
$2,000,000
$0
Gross paid in and contributed surplus
5,000,000
5,000,000
0
Unassigned funds (surplus)
0
(77,570)
(77,570)
Total capital and surplus
$7,000,000
$6,922,430
$ (77,570)
Total liabilities, capital and surplus
$7,000,000
$6,922,430
$564,018
The Company’s invested assets as of December 31, 2017 were mainly comprised of bonds
(93.4%), and cash and short-term investments (6.6%).
One-hundred percent (100%) of the Company’s bond portfolio, as of December 31, 2017,
was comprised of investment grade obligations.
13
The following indicates, for each of the years listed below, the amount of life insurance
issued and in force by type (in thousands of dollars):
Individual
Individual
Whole Life
Term
Group Life
Year
Issued
In Force
Issued
In Force
Issued &
Increases
In Force
2013
$ 0
$ 0
$ 0
$ 0
$0
$0
2014
$ 495
$ 495
$175
$175
$0
$0
2015
$1,980
$1,725
$696
$450
$0
$0
2016
$ 650
$1,855
$125
$325
$0
$0
2017
$ 50
$1,355
$50
$330
$0
$0
The following has been extracted from the Exhibits of Accident and Health Insurance in
the filed annual statements for each of the years under review:
Ordinary
2013
2014
2015
2016
2017
Outstanding, end of previous year
0
0
673
1,749
2,247
Issued during the year
0
724
1,645
1,314
1,162
Other net changes during the year
0
(51)
(569)
(816)
(641)
Outstanding, end of current year
0
673
1,749
2,247
2,768
14
The following is the net gain (loss) from operations by line of business after federal income
taxes but before realized capital gains (losses) reported for each of the years under examination in
the Company’s filed annual statements:
2013
2014
2015
2016
2017
Ordinary life insurance
$ 0
$( 826)
$( 3,169)
$ 20,563
$16,891
Other accident and health
$(67,524)
$(20,335)
$(49,391)
$(18,222)
$16,054
Total
$(67,524)
$(21,161)
$(52,561)
$ 2,341
$32,945
The following ratios, applicable to the accident and health business of the Company, have
been extracted from Schedule H for each of the indicated years:
2013
2014
2015
2016
2017
Premiums earned
100.0%
100.0%
100.0%
100.0%
100.0%
Incurred losses
0.0%
7.4%
23.5%
27.9%
36.0%
Commissions
0.0
86.0
70.6
51.6
36.4
Expenses
0.0
178.8
49.3
35.9
36.2
0.0%
272.2%
143.4%
115.4%
108.6%
Underwriting results
0.0%
(172.3%)
(43.4%)
(15.4%)
(8.6%)
15
6. FINANCIAL STATEMENTS
The following statements show the assets, liabilities, and capital and surplus as of
December 31, 2017, as contained in the Company’s 2017 filed annual statement, a condensed
summary of operations and a reconciliation of the capital and surplus account for each of the years
under review. The examiner’s review of a sample of transactions did not reveal any differences
which materially affected the Company’s financial condition as presented in its financial
statements contained in the December 31, 2017 filed annual statement.
A. Independent Accountants
The firm of BDO USA LLP was retained by the Company to audit the Company’s
combined statutory basis statements of financial position as of December 31 of each year in the
examination period, and the related statutory-basis statements of operations, capital and surplus,
and cash flows for the years then ended.
BDO USA LLP concluded that the statutory financial statements presented fairly, in all
material respects, the financial position of the Company at the respective audit dates. Balances
reported in these audited financial statements were reconciled to the corresponding years’ annual
statements with no discrepancies noted.
B. Net Admitted Assets
Bonds
$7,007,825
Cash, cash equivalents and short-term investments
491,961
Investment income due and accrued
34,790
Premiums and considerations:
Uncollected premiums and agents’ balances in the course of collection
5,000
Deferred premiums, agents’ balances and installments booked but
deferred and not yet due
3,535
Net deferred tax asset
20,908
Total admitted assets
$7,564,019
16
C. Liabilities, Capital and Surplus
Aggregate reserve for life policies and contracts
$ 17,258
Aggregate reserve for accident and health contracts
181,982
Contract claims:
Accident and health
165,857
Premiums and annuity considerations for life and accident and health
contracts received in advance
4,539
Contract liabilities not included elsewhere:
Other amounts payable on reinsurance
627
Interest maintenance reserve
211
Commissions to agents due or accrued
6,906
General expenses due or accrued
15,512
Taxes, licenses and fees due or accrued, excluding federal income taxes
23,994
Current federal and foreign income taxes
53,513
Remittances and items not allocated
60
Miscellaneous liabilities:
Asset valuation reserve
6,600
Funds held under reinsurance treaties with unauthorized reinsurers
34,022
Payable to parent, subsidiaries and affiliates
130,508
Total liabilities
$ 641,589
Common capital stock
$2,000,000
Gross paid in and contributed surplus
5,000,000
Unassigned funds (surplus)
(77,570)
Surplus
$4,922,430
Total capital and surplus
$6,922,430
17
D. Condensed Summary of Operations
2013
2014
2015
2016
2017
Premiums and considerations
$ 0
$101,423
$509,839
$ 919,019
$1,061,138
Investment income
44,570
136,042
166,349
171,513
184,124
Commissions and reserve
adjustments on reinsurance ceded
0
527
14,339
4,514
2,280
Total income
$ 44,570
$237,992
$690,527
$1,095,046
$1,247,542
Benefit payments
$ 0
$ 6,506
$114,922
$ 219,944
$ 254,586
Increase in reserves
0
9,725
7,630
45,385
136,500
Commissions
0
75,936
367,013
474,245
385,469
General expenses and taxes
112,094
163,970
254,979
335,384
386,073
Increase in loading on deferred and
uncollected premiums
0
3,460
(1,081)
(745)
(1,022)
Total deductions
$112,094
$259,597
$743,463
$1,074,213
$1,161,606
Net gain (loss)
$ (67,524)
$ (21,605)
$ (52,936)
$ 20,833
$ 85,936
Federal and foreign income taxes incurred
0
(444)
(375)
18,493
52,992
Net gain (loss) from operations
before net realized capital gains
$ (67,524)
$ (21,161)
$ (52,561)
$ 2,340
$ 32,944
Net income
$ (67,524)
$ (21,161)
$ (52,561)
$ 2,340
$ 32,944
18
E. Capital and Surplus Account
2013
2014
2015
2016
2017
Capital and surplus, December 31, prior year
$ 0
$6,948,586
$6,933,721
$6,869,762
$6,893,129
Net income
$ (67,524)
$ (21,161)
$ (52,561)
$ 2,340
$ 32,944
Change in net deferred income tax
30,277
(201)
13,896
19,116
(2,844)
Change in non-admitted assets and related
items
(13,431)
8,298
(23,693)
3,289
285
Change in asset valuation reserve
(736)
(1,801)
(1,601)
(1,378)
(1,084)
Capital changes:
Paid in
2,000,000
0
0
0
0
Surplus adjustments:
Paid in
5,000,000
0
0
0
0
Net change in capital and surplus for the year
$6,948,586
$ (14,865)
$ (63,959)
$ 23,367
$ 29,301
Capital and surplus, December 31, current year
$6,948,586
$6,933,721
$6,869,762
$6,893,129
$6,922,430
19
F. Reserves
Section 4228(h) of the New York Insurance Law states, in part:
“No company shall offer for sale any life insurance policy form or annuity contract
form covered by this section or any debit life insurance policy form which shall not
appear to be self-supporting on reasonable assumptions as to interest, mortality,
persistency, taxes, agents' and brokers' survival and expenses resulting from the
sale of the policy or contract form. For all such forms offered for sale in this state,
and for all forms filed for use outside this state by domestic life insurance
companies, a statement that the requirements of this subsection have been met,
signed by an actuary who is a member in good standing of the American Academy
of Actuaries and meets the requirements prescribed by the superintendent by
regulation shall be submitted with each such life insurance policy or annuity
contract form filed pursuant to paragraph one or six of subsection (b) of section
three thousand two hundred one of this chapter. A demonstration supporting each
such statement, signed by an actuary meeting such qualifications, shall be retained
in the company's home office, while such form is being offered in this state and for
a period of six years thereafter and be available for inspection…”
The examiner conducted a review of the Company’s pricing adequacy for two products
subject to Section 4228(h) of the New York Insurance Law. The examiner requested the required
actuarial statements of self-support and corresponding demonstrations for the two policy forms
per Section 4228(h). For the two policy forms, with 61 policies issued, the Company was unable
to provide the demonstrations of self-support.
The Company violated Section 4228(h) of the New York Insurance Law by failing to
provide the required demonstrations.
In response to the Department's concerns, the Company provided current demonstrations
for these products. The Company confirmed that all future statements of self-support will be
supported by complete and comprehensive documentations, and that such demonstrations will be
well organized and containing detailed narrative descriptions of the methodologies, results,
sensitivity tests, and material assumptions used such that another actuary can make a reasonable
assessment of the analyses performed. The Company also agreed that such demonstrations will
be signed, dated, and finalized prior to the date of the statement of self-support.
20
7. SUBSEQUENT EVENTS
On December 10, 2018, the Company signed a definitive agreement to be acquired by
Horace Mann Educators Corporation (“Horace Mann”) for $405 million. Horace Mann is a
financial services company focused on marketing insurance and retirement plans to educators and
school employees. The transaction is expected to close in the second quarter of 2019.
21
8. SUMMARY AND CONCLUSIONS
Following is the violation contained in this report:
Item
Description
Page No(s).
A
The Company violated Section 4228(h) of the New York Insurance
Law by failing to provide the required demonstrations.
19