Crown Global 12-31-15 - State of Delaware · Crown Global Insurance Group LLC DE Marble Hill...

REPORT ON EXAMINATION

OF

CROWN GLOBAL INSURANCE COMPANY OF AMERICA

AS OF

DECEMBER 31, 2015

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TABLE OF CONTENTS SALUTATION .................................................................................................................................... 1SCOPE OF EXAMINATION.............................................................................................................. 1SUMMARY OF SIGNIFICANT FINDINGS ..................................................................................... 2COMPANY HISTORY ....................................................................................................................... 3MANAGEMENT AND CONTROL ................................................................................................... 3Officers ................................................................................................................................................ 4Holding Company System ................................................................................................................... 5Related Party Agreement ..................................................................................................................... 5Expense Sharing Agreement ................................................................................................................ 5Corporate Service Agreement .............................................................................................................. 6Non-affiliated Service Agreement ....................................................................................................... 6Corporate Records ............................................................................................................................... 6TERRITORY AND PLAN OF OPERATION .................................................................................... 7Territory ............................................................................................................................................... 7Plan of Operation ................................................................................................................................. 7REINSURANCE.................................................................................................................................. 8FINANCIAL STATEMENTS ............................................................................................................. 9ANALYSIS OF CHANGES IN THE FINANCIAL STATEMENTS RESULTING FROM EXAMINATION ............................................................................................................................... 14COMMENTS ON FINANCIAL STATEMENT ITEMS .................................................................. 14SUBSEQUENT EVENTS ................................................................................................................. 14COMPLIANCE with PRIOR EXAMINATION RECOMMENDATIONS ..................................... 14SUMMARY OF RECOMMENDATIONS ....................................................................................... 15CONCLUSION .................................................................................................................................. 16

SALUTATION

January 11, 2017 Honorable Karen Weldin Stewart, CIR-ML Delaware Insurance Commissioner Delaware Department of Insurance Rodney Building 841 Silver Lake Blvd. Dover, Delaware 19904 Dear Commissioner;

In compliance with instructions and pursuant to statutory provisions contained in

Certificate of Authority No. 16.030, dated June 22, 2016, an examination has been made of the

affairs, financial condition and management of

CROWN GLOBAL INSURANCE COMPANY OF AMERICA

hereinafter referred to as the “Company” or “CROWN” and incorporated under the laws of the

State of Delaware as a stock company. The examination was conducted at the main office of the

Company, located at 1000 North West Street, Suite 1200, Wilmington, Delaware 19801. The

report for this examination thereon is respectfully submitted.

SCOPE OF EXAMINATION

The Delaware Department of Insurance (Department) performed a risk-focused financial

examination of the Company. This is the first examination of the Company. This examination

covered the period of March 7, 2012 through December 31, 2015.

We conducted our examination in accordance with the NAIC Financial Condition

Examiners Handbook. The Handbook requires that we plan and perform the examination to

Crown Global Insurance Company of America

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evaluate the financial condition, assess corporate governance, identify current and prospective

risks of the Company and evaluate system controls and procedures used to mitigate those risks.

An examination also includes identifying and evaluating significant risks that could cause an

insurer’s surplus to be materially misstated both currently and prospectively.

All accounts and activities of the Company were considered in accordance with the risk-

focused examination process. This may include assessing significant estimates made by

management and evaluating management’s compliance with Statutory Accounting Principles.

The examination does not attest to the fair presentation of the financial statements included

herein. If, during the course of the examination an adjustment is identified, the impact of such

adjustment will be documented separately following the Company’s financial statements.

This examination report includes significant findings of fact, pursuant to the General

Corporation Law of the State of Delaware as required by 18 Del. C. §321, along with general

information about the insurer and its financial condition. There may be other items identified

during the examination that, due to their nature, are not included within the examination report

but separately communicated to other regulators and/or the Company.

During the course of this examination, consideration was given to work performed by the

Company’s external accounting firm, Dixon Hughes Goodman, LLP, (“DHG”). Certain auditor

work papers of their 2015 audit have been incorporated into the work papers of the examiners

and have been utilized in determining the scope, areas of emphasis in conducting the

examination and in the area of risk mitigation and substantive testing.

SUMMARY OF SIGNIFICANT FINDINGS

There were no significant material adverse findings or financial adjustments as a result of

this examination.


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COMPANY HISTORY

General

The Company was incorporated on March 7, 2012 under the laws of the State of

Delaware and authorized to issue five thousand (5,000) common shares with a par value of $100

per share.

At formation, the Company became a member of an Insurance Holding Company

System. 18 Del. C. §5001(3) states that “control shall be presumed to exist if any person,

directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing

10% or more of the voting securities of any other person.” The following entities, which owned

or controlled 10% or more of Crown Global Insurance Group, LLC (“Group”) as of the

examination date, are considered ultimate controlling entities of the Company:

Economic Control Voting Control Jamie P. Sohacheski (individual) {1} 20.7363% 0 Cal-Delaware Trust 21.6867% 0 Syncora Alternative investments, LLC {1} 12.6766% 12.7081% Perry A. Lerner (Director and Officer) 30.9159% Christopher J. Calise 30.9159% {1} – Filed disclaimer of affiliation with the Delaware Department of Insurance.

MANAGEMENT AND CONTROL

Pursuant to the General Corporation Law of the State of Delaware, as implemented by

the Company’s Certificate of Incorporation and bylaws, all corporate powers and its business

property and affairs are managed by, or under the direction of, its Board of Directors (Board).

The Board was comprised of three members, each elected or appointed in accordance with the

Company’s bylaws. Each Director shall hold their office until a successor is elected and

qualified, or until resignation or removal. The Board of Directors, duly elected in accordance


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with the Company’s bylaws and serving as of the period ending December 31, 2015, is as

follows:

Directors Name Principal Occupation

Perry Alan Lerner Director Crown Group

Christopher John Calise Director Crown Group

Alex Ethan Seldin Director Crown Group

Officers

The bylaws of the Company state the principal officers shall be a President, Treasurer

and a Secretary, and such officers or assistant officers or agents for the Board may vary from

time to time. As of December 31, 2015, the Company’s principal officers and their respective

titles are as follows:

Name Title

Perry Alan Lerner President

Christopher John Calise Vice President and Treasurer

Alex Ethan Seldin Vice President and Secretary

Thomas Senior Berry Vice President

The minutes of the meetings of the Board of Directors, which were held during the period

of the examination were reviewed and determined to be in accordance with the Company’s

bylaws. The attendance at such meetings, the elections of directors and officers and the

approvals of investment transactions were reviewed and noted.

Inspection of the Company’s files indicated that the Conflict of Interest Statement and the

Ethics Code were completed and distributed in compliance with Company guidelines.


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Holding Company System

The Company is a member of an insurance holding company system as defined in 18 Del.

C. §5001 (6) “Insurance Holding Company System”.

Company Domicile Ownership Crown Global Insurance Group LLC DE Marble Hill Advisors LLC DE 44.45%

23.5% (V) CGI Group Ltd. BVI 100% Crown World Services Ltd. BM 100% Crown Global Management Inc. PA 100% Crown Global Services Inc. CN 100% Decommissioning Financial Services, LLC DE 100% Crown Global Holdings, LTD BM 100% Crown Global Life Insurance (Cayman) Ltd. CM 100% Crown Global Life Insurance (Bermuda) Ltd. BM 100% Crown Global Titan Life Insurance Ltd. BM 100% Crown Global Life Insurance Ltd. BM 100% Crown Global Insurance Company of America DE 100%

Related Party Agreement

Expense Sharing Agreement

Effective October 24, 2012, the Company has an Expense Sharing Agreement with

Crown Global Holdings Ltd., a wholly-owned subsidiary of the Group. The agreement provides

services including but not limited to, the employment of persons; the engagement of consultants

and advisors; the operation and maintenance of office space, vehicles and equipment, whether

owned or leased; the acquisition and use of supplies; communications equipment and services,

travel expenses and related charges. The agreement was approved by the Department in

November 2012. During the year ended December 31, 2015, the Company incurred $441,600,

of expenses under this Expense Sharing Agreement.


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Corporate Service Agreement

Effective April 1, 2013, Crown Global Insurance Group, LLC (Group) (together with its

affiliates and subsidiaries) and Crown Global Management, Inc. (“CGM”) (together with its

successor and assigns) provides corporate services for the purpose of providing the Company

with certain management and other professional and administrative services. During the year

ended December 31, 2015, the Company incurred $187,271, of expenses under the Corporate

Service Agreement.

A review of the filed Form B, revealed that the Company did not disclose the Corporate

Service Agreement. The Company is not incompliance with 18 Del. C.§ 5004 (b)(3)(e) -

Registration of Insurers. Therefore:

It is recommended that the Company update its Form B to be in compliance with 18 Del. C.§ 5004 (b)(3)(e) - Registration of Insurers.

Non-affiliated Service Agreement

The Company’s assets are currently being held at Morgan Stanley Smith Barney. It was

observed that the Company did not have a custodian agreement as required. Therefore:

It is recommended that the Company comply with 18 Del. C.§ 318- Examination of Insurers “other criteria as set forth in the Examiner's Handbook adopted by the National Association of Insurance Commissioners”, specifically,, model audit rule #298, specific language regarding custodial duties and obligations.

Corporate Records

The recorded minutes of the shareholders and Board were reviewed for the period under

examination. The recorded minutes of the Board adequately documented its meetings and

approval of Company transactions and events, for the approval of investment transactions in

accordance with 18 Del. C. §1304.


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Inspection of Company files indicated that an ethics statement/conflict of interest

statement was completed by all directors and employees for the examination period.

A review was performed for compliance with Code 18 Del. C. § 4919 “Change of

directors, officers; notice”. The Company is in compliance.

TERRITORY AND PLAN OF OPERATION

Territory

Effective March 7, 2012, the Company was licensed in Delaware only for Life and

Variable annuities. Currently, the Company only writes annuities to entities or individuals in the

State of Delaware.

Plan of Operation

The Company operates within the framework of the group. The group insurance

subsidiaries existing distribution strategy is based on providing its services through direct

contacts and in partnership with private banks, registered investment advisers, lawyers and other

financial intermediaries. The insurance subsidiaries have the ability to recognize each countries

own distinctive culture, language and legal framework. Through this understanding, the

insurance subsidiaries are able to provide country-specific solutions that comply with local tax

and legal regulations and are tailored to meet the unique requirements of each client.

The insurance subsidiaries within the Crown group of companies currently offer

investment-oriented life insurance and annuity products to US and non-US citizens and residents.

The insurance subsidiaries intend to focus their efforts on the following organic growth of U.S.-

compliant private placement life insurance (PPLI) business with emphasis on pre-immigration

planning opportunities, organic growth of variable life business for Latin America and Asia and

consolidation of placed business by offshore businesses through acquisition; strategic alignment


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to high quality asset management institutions and funds; and group deferred variable annuities

for U.S. companies and non-profits.

PPLI is only offered to qualified purchasers seeking to invest large sums of money,

usually more than $1 million, in the policy. Offshore insurance companies specializing in PPLI

typically offer the product as a financial service for high net worth clients and price their services

as a provider, rather than as a traditional insurance carrier. When purchased by any individual

with US tax reporting requirements these products are fully disclosed to tax authorities. The

Company does not accept premium if taxes have not been paid on the funds. It is the intention of

the Company to begin to provide PPLI. Currently the Company only provides annuity policies

to global high net worth clients that have requirements for U.S.-compliant policies.

The Company does not provide investment management services and therefore, will offer

each client the freedom to select insurance dedicated funds and investment managers on the

Company's investment platform that provide investment returns consistent with their personal

risk profile and investment preferences.

As of December 31, 2015, the Company reported direct net written premiums in the

amount of $3,362,802. Distribution by line of business is as follows:

REINSURANCE

General

The Company does not engage in any reinsurance transactions, contracts or agreements.

Lines of Business Net PremiumsPercentage

of TotalGroup Annuities 3,362,802$ 100.0%Total 3,362,802$ 100.0%


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FINANCIAL STATEMENTS

Financial statements, as reported and filed by the Company with the State Department of

Insurance, are reflected in the following:

o Statement of assets. o Statement of liabilities and surplus

o Statement of income o Reconciliation of surplus for the period since inception


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CROWN GLOBAL INSURANCE COMPANY OF AMERICA STATEMENT OF ASSETS

DECEMBER 31, 2015

Nonadmitted Net Admitted

Assets Assets Assets Note

Bonds 1,408,609$ 1,408,609$ 1

Cash $104,087; cash equivalents $0 and short-term investments $105.989 210,075 210,075 Investment income due and accrued 15,637 15,637 Net deferred tax asset 18,008 6,000 12,008 Aggregate write-ins for other than invested assets 48,265 48,265 - Total assets excluding Separate Accounts; Segregated Accounts and Protected Cell Accounts 1,700,595$ 54,266$ 1,646,329$ From separate accounts 361,825,591 - 361,825,591 2

Total Assets 363,526,186$ 54,266$ 363,471,920$


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CROWN GLOBAL INSURANCE COMPANY OF AMERICA STATEMENT OF LIABILITES AND SURPLUS

DECEMBER 31, 2015

Cuurent Year NOTESAggregate reserve for life contracts -$ Commissions to agents due or accrued 33,112 General expensesdue or accrued 40,000 Transfer to separate accounts (88)Current or foreign income tax 15,696 Asset valuation reserve 15,866 Payable to par, subs and affiliates 101,913 Total Liabilities excluding Separate Accounts business 206,499$ From Separate Accounts Statement 361,825,591$ 2Total Liabilities 362,032,090$

Capital and SurplusCommon capital stock 300,000$ Gross paid in and contributed surplus 1,200,000 Unassigned funds (surplus) (60,170)Total Surplus 1,139,830$ Total Capital and Surplus 1,439,830$ Total Liabilities, Surplus and Other Funds 363,471,920$


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CROWN GLOBAL INSURANCE COMPANY OF AMERICA STATEMENT OF INCOME

DECEMBER 31, 2015

Premium and Annuity Considerations 3,362,802$ Consideration for supplementary contracts - Net investment income 66,919 Amortization of IMR (2,193) Commissions and expense alllowances on reinsurance ceded - Income from fees assoc iated with investment management 959,387 Aggregate write ins for miscellaneous income - Totals 4,386,915$ Death benefits - Annuity benefits - Disability benefits - Surrender benefits - Interest and adjustments on contract or deposit type contract - Payments on supplementary contracts with life contingencies - Increase in aggregate reserves\ - Totals -$ Commissions on premiums 302,538 Commissions and expense allowance - General insurance expenses 710,889 Insurance taxes, licsenes and fees 3,662 Net transfers to or Separate Accounts 3,362,802 Aggregate write-ins for deductions - Totals 4,379,891$ Net gain from operations before dividends 7,025$ Dividends to policyholders - Net gains from operations before dividends to policyholders 7,025$ Federal and foreign income taxes 20,439 Net gains from operations after dividends to policyholdrrs (13,414)$ Net realized capital gains - Net Income (13,414)$


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CROWN GLOBAL INSURANCE COMPANY OF AMERICA RECONCILIATION OF SURPLUS FOR THE PERIOD

SINCE INCEPTION DECEMBER 31, 2015

Capital Stock

Gross Paid in and

Contributed

Unassigned Surplus Total

Beginnng Balance -$ -$ -$ -$ 2012 2 5,000 - 5,000 2012 1 930 930 2012 2 495,000 495,000 2013 1 (38,676) (38,676) 2013 2 295,000 705,000 1,000,000 2014 1 (8,558) (8,558) 2015 1 (13,866) (13,866)

Total $300,000 $1,200,000 (60,170)$ 1,439,830$

1- net income, change in net deferred income tax, change in non admitted assets, change in

AVR and net change in capitak and surplus for the year

2 -paid in capital contributions


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ANALYSIS OF CHANGES IN THE FINANCIAL STATEMENTS RESULTING FROM

EXAMINATION

There were no financial adjustments to the Company’s financial statements as a result of

this examination.

COMMENTS ON FINANCIAL STATEMENT ITEMS

Note 1 Bonds $1,408,609 The Company’s bonds represented 85.56% of admitted assets (excluding separate

accounts) at year-end 2015. 16.90% of the Company’s bonds are rated as Class 1, 61.37% Class

2 and 21.73% are Class 3 as designated by the NAIC. 91.47% of the bond portfolio is comprised

of investments maturing in five years or more.

Bonds were comprised of the following classes:

Description Statement Value % of TotalIndustrial and Miscellaneous 1,408,609$ 100.00%

Total 1,408,609$ 100.00%

Note 2 Separate Accounts Assets/Liabilities $361,825,591 CROWN maintains separate accounts, for its annuity products with accounting for assets

and liabilities in the amount of $361,825,591 as of December 31, 2015. 100% of separate

accounts consisted of Group Annuities at year end.

SUBSEQUENT EVENTS

There were no significant subsequent events.

COMPLIANCE with PRIOR EXAMINATION RECOMMENDATIONS

This was the first examination of the Company.


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SUMMARY OF RECOMMENDATIONS

The following recommendations were noted as a result of this examination:

A review of the filed Form B revealed that the Company did not disclose the Corporate

Service Agreement. It is recommended that the Company update its Form B to be in compliance

with 18 Del. C.§ 5004 (b)(3)(e) - Registration of Insurers.

It is recommended that the Company comply with 18 Del. C.§ 318- Examination of

Insurers “other criteria as set forth in the Examiner's Handbook adopted by the National

Association of Insurance Commissioners” specifically, model audit rule #298, specific language

regarding custodial duties and obligations.


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CONCLUSION

The assistance of Delaware’s consulting actuarial firm, INS Consultants, Inc. is

acknowledged. In addition, the assistance and cooperation of the Company’s outside audit firm,

Dixon Hughes Goodman, LLP and the Company’s management and staff were appreciated and

are acknowledged.

In addition to the undersigned, Anthony Cardone, CFE, (Examination Supervisor),

participated in the examination.

Respectfully submitted,

Albert M. Piccoli, Sr., CFE Examiner-In-Charge Delaware Department of Insurance

Anthony Cardone, CFE Administrative Supervisor Delaware Department of Insurance

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