Untitled

CERTIFICATE OF ADOPTION

Notice of the proposed report for the financial examination of

GEICO MARINE INSURANCE COMPANY

5323 PORT ROYAL ROAD

SPRINGFIELD, VA 22151

dated as of December 31, 2020, verified under oath by the examiner-in-charge on

June 2, 2022, and received by the company on June 3, 2022, has been adopted

without modification as the final report pursuant to Neb. Rev. Stat. § 44-5906(3) (a).

Dated this 17

day of June 2022.

STATE OF NEBRASKA

DEPARTMENT OF INSURANCE

Justin C. Schrader, CFE

Chief Financial Examiner

STATE OF NEBRASKA

Department of Insurance

EXAMINATION REPORT

GEICO MARINE INSURANCE COMPANY

as of

December 31, 2020

Table of Contents

Item Page

Salutation ........................................................................................................................................ 1

Introduction ..................................................................................................................................... 1

Scope of Examination ..................................................................................................................... 2

Description of Company ................................................................................................................. 4

History ......................................................................................................................................... 4

Management and Control ............................................................................................................ 4

Holding Company ................................................................................................................... 4

Shareholder .............................................................................................................................. 5

Board of Directors ................................................................................................................... 5

Officers .................................................................................................................................... 7

Committees .............................................................................................................................. 7

Transactions with Affiliates ........................................................................................................ 8

Intercompany Charge Agreement ............................................................................................ 8

GMIC (f/k/a Seaworthy) Agency Agreement with GEICO Insurance Agency, Inc. .............. 8

Facility Services Agreement .................................................................................................... 9

Intercompany Service Agreement with National Liability & Fire Insurance Company ......... 9

Intercompany Service Agreement with National Indemnity Insurance Company .................. 9

Towing Manager’s Agreement .............................................................................................. 10

Yacht Underwriter Manager’s Agreement ............................................................................ 10

Tax Allocation Agreement .................................................................................................... 10

Investment Services Agreement ............................................................................................ 10

Territory and Plan of Operation ................................................................................................ 11

Reinsurance ............................................................................................................................... 11

Assumed ................................................................................................................................ 11

Ceded ..................................................................................................................................... 11

General .................................................................................................................................. 15

Body of Report .............................................................................................................................. 15

Growth ....................................................................................................................................... 15

Financial Statements ................................................................................................................. 15

Examination Changes in Financial Statements ......................................................................... 18

Compliance with Previous Recommendations .......................................................................... 19

Commentary on Current Examination Findings ....................................................................... 19

Subsequent Events ........................................................................................................................ 20

Capital Contribution .................................................................................................................. 20

Reinsurance Ceded .................................................................................................................... 20

Summary of Comments and Recommendations ........................................................................... 21

Acknowledgment .......................................................................................................................... 22

Springfield, Virginia

June 2, 2022

Honorable Eric Dunning

Director of Insurance

Nebraska Department of Insurance

1526 K Street, Suite 200

Lincoln, Nebraska 68508

Dear Sir:

Pursuant to your instruction and authorizations, and in accordance with statutory requirements,

an examination has been conducted of the financial condition and business affairs of:

GEICO MARINE INSURANCE COMPANY

which has its Statutory Home Office located at

1440 Kiewit Plaza

Omaha, Nebraska 68131

with its Principal Executive Office Located at

5323 Port Royal Road

Springfield, Virginia 22151

(hereinafter also referred to as the “Company”), and the report of such examination is respectfully

presented herein.

INTRODUCTION

The State of Maryland last examined the Company as of December 31, 2015. The current

financial condition examination covers the intervening period to and includes the close of business on

December 31, 2020 and such subsequent events and transactions as were considered pertinent to this

report. The State of Nebraska participated in this examination and assisted in the preparation of this

report.

SCOPE OF EXAMINATION

The examination was conducted pursuant to and in accordance with both the NAIC Financial

Condition Examiners Handbook (Handbook) and Section §44-5904(1) of the Nebraska Insurance

Statutes. The Handbook requires that examiners plan and perform the examination to evaluate the

financial condition and identify prospective risks of the Company by obtaining information about the

Company, including but not limited to: corporate governance, identifying and assessing inherent risks

within the Company, and evaluating system controls and procedures used to mitigate those risks. The

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.

The Nebraska Department of Insurance made a general review of the Company’s operations and

the manner in which its business has been conducted in order to determine compliance with statutory

and charter provisions. The Company’s history was traced and has been set out in this report under the

caption “Description of Company.” All items pertaining to management and control were reviewed,

including provisions for disclosure of conflicts of interest to the Board of Directors and the departmental

organization of the Company. The Articles of Incorporation and By-Laws were reviewed, including

appropriate filings of any changes or amendments thereto. The minutes of the meetings of the

Shareholder, Board of Directors, and committees held during the examination period were read and

noted. Attendance at meetings, proxy information, election of Directors and Officers, approval of

investment transactions, and authorizations of salaries were also noted.

The fidelity bond and other insurance coverages protecting the Company’s property and interests

were reviewed. Certificates of Authority to conduct the business of insurance in the various states were

inspected, and a survey was made of the Company’s general plan of operation.

Data reflecting the Company's growth during the period under review, as developed from the

Company's filed annual statements, is reflected in the financial section of this report under the caption

“Body of Report.”

The Company's reinsurance facilities were ascertained and noted and have been commented

upon in this report under the caption “Reinsurance.” Accounting records and procedures were tested to

the extent deemed necessary through the risk-focused examination process. The Company’s method of

claims handling and procedures pertaining to the adjustment and payment of incurred losses were also

noted.

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

examination process. This included a review of workpapers prepared by Johnson Lambert LLP, the

Company’s external auditors, during their audit of the Company’s accounts for the years ended

December 31, 2020 and 2021. Portions of the auditor’s workpapers have been incorporated into the

workpapers of the examiners and have been utilized in determining the scope and areas of emphasis in

conducting the examination. This utilization was performed pursuant to Title 210 (Rules of the Nebraska

Department of Insurance), Chapter 56, Section 013.

Any failure of items to add to the totals shown in schedules and exhibits appearing throughout

this report is due to rounding.

DESCRIPTION OF COMPANY

HISTORY

The Company is a wholly owned subsidiary of Boat America Corporation (BAC), a Virginia

corporation, and is formerly known as Seaworthy Insurance Company. The Company was incorporated

under the laws of Maryland on November 1, 1989. The Company obtained its original Certificate of

Authority from the Maryland Insurance Administration (MIA) on February 27, 1990 and commenced

operations in March 1990. The Company underwrites ocean marine coverage.

Effective January 1, 2015, GEICO Corporation, a Delaware corporation and a wholly owned

subsidiary of National Indemnity Company (NICO), a Nebraska corporation, assumed the direct

management of BAC. NICO is a wholly owned subsidiary of Berkshire Hathaway Inc. (BHI), a

corporation organized under the laws of the state of Delaware, with executive offices located in Omaha,

Nebraska. In October 2015, the MIA approved the Company’s name change from Seaworthy Insurance

Company to GEICO Marine Insurance Company with an effective date of November 1, 2015.

Effective December 31, 2020, the Company re-domesticated to the State of Nebraska.

MANAGEMENT AND CONTROL

Holding Company

The Company is a member of an insurance holding company system as defined by Nebraska

Statute. An abridged organizational listing flowing from the “Ultimate Controlling Person,” as reported

in the 2020 Annual Statement, is represented by the following (subsidiaries are denoted through the use

of indentations, and unless otherwise indicated, all subsidiaries are 100% owned):

Berkshire Hathaway Inc.

National Indemnity Company

GEICO Corporation

Boat America Corporation

GEICO Marine Insurance Company

Shareholder

The Articles of Incorporation state that, “the total authorized capital stock of the Corporation is

five hundred thousand (500,000) shares of Common Stock of the par value of ten dollars ($10.00) per

share.” As of December 31, 2020, Company records indicated that 300,000 were issued and

outstanding, and all shares were owned by the parent company, BAC.

Gross paid in and contributed surplus decreased by $1,552,617 in 2017 and increased by

$25,000,000 in 2018 for a total of $44,009,043 as of December 31, 2020. No dividends were paid

during the examination period. The Company received a subsequent capital contribution in 2021 from

its parent in the amount of 31,500,000.

The By-Laws state that, “the annual meeting of the Stockholders of the Corporation shall be held

in the month of April each year on a day determined by the Secretary, unless otherwise ordered by the

Board of Directors. The annual meeting shall be for the purposes of electing Directors to succeed those

whose terms shall have expired as of the date of such annual meeting, receiving reports of Officers and

committees, and for the transaction of such other business of the Corporation as may properly come

before the meeting.”

Board of Directors

The Articles of Incorporation state that, “the Corporation shall have and be managed by a Board

of Directors. The number of Directors of the Corporation shall be nine (9), which number may be

increased pursuant to the By-Laws of the Corporation, but shall never be less than permitted by the laws

of the State of Nebraska.”

The By-Laws state that, “the Directors shall be elected each year at the annual meeting of the

Stockholders…” The By-Laws go on to state “regular meetings of the Board of Directors may be held

without notice at such time and place as shall from time to time be determined…”

The following persons were serving as Directors at December 31, 2020:

Name and Residence Principal Occupation

Cecilia Lynn Aguerrevere (a) Chief Financial Officer and Treasurer

Alexandria, Virginia of the Company

Michele Amy El-Gamil (g) Internal Auditor

Bethesda, Maryland Government Employees Insurance Company

Kirk Quoc La (b) Vice President

Clifton, Virginia Government Employees Insurance Company

Tammy Lee Moore (h) AVP Line III

Centrefille, Virginia Government Employees Insurance Company

Michael Gilford Pellerin (i) Boat Managing Director – Underwriting

Fernandina Beach, Florida Government Employees Insurance Company

John Warren Pham Chief Information Officer

Virginia Beach, Virginia Government Employees Insurance Company

Nancy Leigh Pierce (c) Executive Vice President

Washington, District of Columbia Government Employees Insurance Company

William Evan Roberts (d) Chairman of the Company

Bethesda, Maryland

Armando Valdes (e) Assistant Controller

Hialeah, Florida Government Employees Insurance Company

Richard Caulton Wilson (f) Vice President Claims

Alexandria, Virginia of the Company

(a) Resigned effective 2/26/21; replaced by Daniel Jaksich effective 2/26/21

(b) Not re-elected effective 4/27/21

(d) Resigned effective 12/31/20; replaced by John Pham as Chairman effective 1/1/21

(e) Not re-elected effective 4/27/21; replaced by Shane Wheeler effective 4/27/21, who was

subsequently replaced by Nancy Pierce effective 4/26/22

(f) Resigned effective 3/3/21

(g) Not re-elected effective 4/26/22; replaced by Todd Combs effective 4/26/22

(h) Replaced by Seth Ingall effective 4/26/22

(i) Replaced by Hollis White effective 4/26/22

Officers

The By-Laws state that, “the Officers of the Company shall be a President, Secretary, and a

Treasurer, and also such other Officers including a Chairman of the Board and/or one or more Vice

Presidents and/or one or more assistants to the foregoing Officers as the Board of Directors from time to

time may consider necessary for the proper conduct of the business of the Company. The Officers shall

be elected annually by the Board of Directors at its first meeting following the annual meeting of the

Stockholders except where a longer term is expressly provided in an employment contract duly

authorized and approved by the Board of Directors.”

The following is a listing of Officers elected and serving the Company at December 31, 2020:

Name Office

William Evan Roberts Chairman

Tammy Lee Moore President

Cecilia Ann Aguerrevere Senior Vice-President, Chief Financial Officer, and

Treasurer

Christopher James Nowack Secretary

Richard Caulton Wilson Vice-President Claims

Michael Gilford Pellerin Vice-President Underwriting

Travis S. Stiens Assistant Vice-President

Hollis White Assistant Vice-President

Maren S. Kench Assistant Vice-President

Todd Prigal Assistant Vice-President

John Nichols Assistant Secretary

Michael Freije Assistant Secretary

Committees

The By-Laws state that, “the Board of Directors may, by resolution passed by a majority of the

whole Board, designate one or more Committees (including, but not limited to, an Audit Committee,

Executive Committee, Claims Committee, and Finance Committee), each consisting of such number of

Directors (but not less than two) as the Board shall appoint.”

The following persons were serving on the Audit Committee at December 31, 2020:

Michele Amy El-Gamil Chairperson

Richard Wilson

Armando Valdes

The following persons were serving on the Finance Committee at December 31, 2020:

Cecilia Ann Aguerrevere Chairperson

Tammy Lee Moore

Armando Valdes

The following persons were serving on the Claims Committee at December 31, 2020:

Richard Wilson Chairperson

Tammy Lee Moore

Michael Gilford Pellerin

TRANSACTIONS WITH AFFILIATES

Intercompany Charge Agreement

Effective May 15, 2015, the Company was added to the Intercompany Charge Agreement dated

August 19, 1992, with GEICO Corporation and certain affiliated companies. These companies share in

the service costs of underwriting, claims, actuarial, policy processing, tax, legal, investment, information

technology, advertising, accounting, administrative, management, and customer support in proportion to

each affiliate’s use. The expenses are allocated to the affiliate companies based primarily on defined

statistical units of measure pursuant to the agreement.

GMIC (f/k/a Seaworthy) Agency Agreement with GEICO Insurance Agency, Inc.

Effective March 1, 2011, the Company entered into an agency agreement with GEICO Insurance

Agency, Inc. (Agency). This is not an exclusive or captive agency relationship. The Agency is

authorized to solicit insurance for the Company. In consideration, the Company agrees to pay the

Agency commissions per the commission schedule located in Addendum A. Addendum A was

amended effective January 1, 2014 and November 1, 2015. There was no new business written through

this agreement since 2017; however, renewal commissions continue to be paid to the Agency.

Facility Services Agreement

Effective January 1, 2007, the Company entered into a Facility Services Agreement with

BAC. This agreement is for facility and services provided by BAC to the Company. BAC shall provide

to the Company office space and storage in its leased facilities. BAC shall provide data processing

services, as well as general accounting, personnel, general facility management, policy issuance, and

premium accounting to the Company. Effective January 1, 2018, the agreement was amended to include

the name change of the Company (Seaworthy Insurance Company to GEICO Marine Insurance

Company) and the location change of BAC corporate headquarters from Alexandria, Virginia to

Springfield, Virginia.

Intercompany Service Agreement with National Liability & Fire Insurance Company

Effective June 1, 2008, the Company entered into an intercompany service agreement with

National Liability and Fire Insurance Company (NLF). NLF is to perform certain administrative and

special services for the Company in its operations and desire further for the Company to make use in its

day-to-day operations of certain property, equipment, and facilities of NLF. This arrangement will

achieve certain operating economies and improve services to the mutual benefit of both the Company

and NLF. Since 2018, the Company has had no policy activity with this agreement; however, there is

claims activity still in run-off.

Intercompany Service Agreement with National Indemnity Insurance Company

Effective June 1, 2008, the Company entered into an intercompany service agreement with

National Indemnity Company (NICO). NICO is to perform certain administrative and special services

for the Company in its operations and to make further use in its day-to-day operations of certain

property, equipment, and facilities of NICO. This arrangement will achieve certain operating economies

and improve services to the mutual benefit of both the Company and NICO.

Towing Manager’s Agreement

Effective January 1, 2013, the Company entered as a party into the Towing Manager’s

Agreement with BAC and BoatU.S., Inc. (BoatU.S.). This agreement is for the specific purpose of the

sale and administration of the ocean marine search and rescue (towing and waterway assistance). This

agreement was subsequently terminated as of January 1, 2022.

Yacht Underwriter Manager’s Agreement

Effective January 1, 2013, the Company entered as a party into the Yacht Underwriting

Manager’s Agreement with BAC and BoatU.S. This agreement is for the specific purpose of the sale of

ocean marine (boat/yacht) insurance to members of the Boat Owners Association of the U.S. and to

facilitate the servicing and handling of such business. The Company appoints BoatU.S. as its agent in

the State of Maryland and any other state where the Company is admitted to do business. This

agreement was subsequently terminated as of January 1, 2022.

Tax Allocation Agreement

Effective February 16, 2018, the Company entered into the Agreement to Allocate Consolidated

Federal Income Tax Liability with GEICO Corporation and GEICO Corporation’s subsidiaries. The

parties of the agreement agree to allocate the consolidated federal income tax liability among members

of the affiliated group using the method described in the Internal Revenue Service Regulations. Federal

income taxes are paid to or refunded by GEICO Corporation.

Investment Services Agreement

Effective January 1, 2016, the Company was added to the Investment Services Agreement with

BHI and NICO. Under this agreement, BHI is appointed as investment manager and will provide

investment management services and supervise and direct the investments for the Company subject to

the terms and conditions of the agreement and to the terms of BHI’s investment objectives, policies, and

restrictions.

TERRITORY AND PLAN OF OPERATION

As evidenced by current or continuous Certificates of Authority, the Company is a property and

casualty insurance company licensed to transact business in all 50 states, and the District of Columbia.

The Company underwrites ocean marine coverage in two focused areas – on-the-water towing of

recreational boats and the issuance of ocean marine policies covering a variety of watercraft.

During the examination period, the Company’s business was underwritten by its affiliate,

GEICO Insurance Agency, Inc. and a network of independent agents. In 2020, the Company stopped

writing new business for charter and superyacht programs and non-renewed all superyacht policies. The

Company ended the independent agency program, which started to phase out in 2020. Starting 2021, the

Company started non-renewing charter business.

REINSURANCE

Assumed

The Company does not assume any reinsurance.

Ceded

In order to protect itself from significant losses, the Company had implemented a ceded

reinsurance program. Under this program, the Company effectively limited its liability related to

excessive losses. The Company has evaluated its maximum loss by use of a blend of actuarial and

experimental methods. The Company ultimately cedes on an excess of loss basis for named and

numbered storm losses to external parties (with retention of $20M), and 80% and 75% of all other losses

to an affiliate, NICO. The following agreements were in effect during the examination period:

Loss Portfolio Agreement of Reinsurance

The Company and NICO, an affiliate, entered into a Loss Portfolio Agreement of Reinsurance,

effective January 1, 2008, where NICO assumed 50% of the Company’s outstanding net loss and loss

adjustment expense reserves at December 31, 2007 with an aggregate limit on the loss portfolio of three

times the consideration paid by the Company. Effective December 31, 2012, the agreement was amended

to increase the percentage NICO assumes to 75%. This agreement was commuted, effective January 1,

2022.

Quota Share Agreement of Reinsurance

Effective December 31, 2007, the Company and NICO also entered into a Quota Share

Agreement of Reinsurance where NICO assumes 50% of all premiums written and earned in return for

assuming 50% of all losses and loss adjustment expenses incurred after December 31, 2007 by the

Company with the reinsurance premiums subject to a commission allowance equal to 50% of the

Company’s expenses. The agreement is subject to an aggregate ceded limit for each calendar accident

year equal to three times the earned premium ceded by the Company for that calendar accident year.

Settlements are made quarterly by the fifteenth day of the second month after the close of such quarter.

Effective January 1, 2013, the agreement was amended to increase the percentage NICO assumes to

75%. This agreement was commuted, effective January 1, 2022.

Quota Share Agreement of Reinsurance, Super Yacht

Effective October 1, 2011, the Company entered into a Quota Share Agreement of Reinsurance

with NICO. Under this agreement, NICO assumes 80% of all Super Yacht program premiums written

and earned in return for assuming 80% of all losses and loss adjustment expenses incurred by the

Company. The reinsurance premiums are subject to a commission allowance equal to 80% of the

Company’s Super Yacht expenses. The agreement is subject to an aggregate ceded net loss limit for

each calendar accident year of $500 million. The remaining 20% Super Yacht business inures to the

Company’s Quota Share Agreement of Reinsurance (see preceding paragraph) with its affiliate, NICO,

effective December 31, 2007. This agreement was commuted, effective January 1, 2022.

Reinsurance Agreement due to Named windstorms and Flood associated with a Named Wind

Storm

Effective June 1, 2013, the Company entered into a Reinsurance Agreement with NICO. Under

this agreement, in return for a percentage of its earned premiums, NICO assumes 100% of the

Company’s Named wind storm and flood associated with a Named wind storm losses. This agreement

inures to all other reinsurance agreements. This agreement was terminated and replaced, effective May

1, 2019, through an agreement with unaffiliated reinsurers that provides similar coverage.

Reinsurance Agreements due to Named or numbered windstorms

Effective May 1, 2019, the Company entered into two annual Excess of Loss Reinsurance

Agreements with groups of unaffiliated reinsurers through a broker, Capsicum Re. The two agreements

work in conjunction and combined have a maximum recovery of $107.5M for losses arising from a

Named or Numbered windstorms. The first agreement requires the Company to retain the first $5.0

million in losses and surpass $20.0 million in losses from one Loss Occurrence before making a claim to

the reinsurers. The Company can recover up to $95.0 million after the $20.0 million loss threshold is

met. If the Company surpasses $100.0 million in losses, the second agreement will cover $12.5 million

in excess of $100.0 million. As of December 31, 2020, the total earned premium ceded under these

agreements was $5.2 million. This agreement was in place through April 30, 2020.

Reinsurance Agreements due to Named or numbered windstorms

Effective May 1, 2020, the Company entered into three annual Excess of Loss Reinsurance

Agreements with groups of unaffiliated reinsurers through a broker, Capsicum Re. The three agreements

work in conjunction and combined have a maximum recovery of $107.5M for losses arising from a

Named or Numbered windstorms. The first agreement requires the Company to retain the first $5.0

million in losses and surpass $20.0 million in losses from one Loss Occurrence before making a claim to

the reinsurers. However, the first layer only covers 80.25% of the losses arising from a windstorm. The

second and third layer only cover 90% of the losses, so the Company is responsible for the other 10%.

The second agreement covers the remaining 19.75% of losses at a different premium on the first layer,

which nets to 100% coverage on the first layer. In total, the Company can recover up to $95.0 million if

it exceeds the $20.0 million loss threshold. If the Company surpasses $100.0 million in losses, the third

agreement will cover $12.5 million in excess of $100.0 million. The total earned premium ceded under

these three agreement was $15.6 million. As of December 31, 2020, the amount receivable from the

reinsurers is $14.7 million.

Annual Excess of Loss for a Single Loss Occurrence

Effective April 1, 2019 to April 30, 2020, the Company entered into an annual Excess of Loss

Reinsurance Agreement with a group of unaffiliated reinsurers through a broker, Capsicum Re, with a

maximum recovery of up to $3.0 million. The total earned premium ceded under this agreement was

$0.3 million in 2020. As of December 31, 2020, the amount receivable from these reinsurers is $0.5

million. This agreement covers losses related to a single Loss Occurrence, such as a marina fire or a

severe winter storm.

Annual Excess of Loss for a Single Loss Occurrence

Effective May 1, 2020, the Company entered into another annual Excess of Loss Reinsurance

Agreement with a group of unaffiliated reinsurers through a broker, Capsicum Re, with a maximum

recovery of up to $3.0 million. The total earned premium ceded under this agreement was $1.2 million

in 2020. This agreement covers losses related to a single Loss Occurrence, such as a marina fire or a

severe winter storm.

General

All contracts reviewed contained standard insolvency, arbitration, errors and omissions, and

termination clauses where applicable. All contracts contained the clauses necessary to assure reinsurance

credits could be taken.

BODY OF REPORT

GROWTH

The following comparative data reflects the growth of the Company during the period covered

by this examination:

2016 2017 2018 2019 2020

Bonds $ 3,329,654 $ 3,444,942 $ 3,437,882 $ 3,341,196 $ 3,464,398

Common stocks 37,775,040 51,535,560 43,584,560 48,707,460 43,487,540

Cash, cash equivalents and

short-term investments 26,479,760 25,270,055 46,869,838 41,515,375 53,700,924

Admitted assets 119,433,494 149,498,583 161,896,961 177,596,149 228,205,106

Losses 9,045,341 13,684,765 16,782,678 17,885,642 22,242,089

Unearned premium 24,396,054 32,918,120 37,374,681 46,395,896 58,002,280

Total liabilities 71,480,527 95,156,123 91,366,249 102,109,662 173,901,757

Capital and surplus 47,952,967 54,342,460 70,530,712 75,486,487 54,303,349

Premiums earned 30,458,536 49,123,780 63,813,553 67,567,919 75,406,346

Net investment gain 1,821,371 16,901,941 1,676,762 4,574,187 1,197,495

Losses incurred 26,755,568 40,057,997 50,198,954 51,269,685 62,309,675

Net income (4,255,764) 9,703,348 (4,855,862) (3,865,669) (13,530,516)

FINANCIAL STATEMENTS

The following financial statements are based on the statutory financial statements filed by the

Company with the State of Nebraska Department of Insurance and present the financial condition of the

Company for the period ending December 31, 2020. The accompanying comments on financial

statements reflect any examination adjustments to the amounts reported in the annual statements and

should be considered an integral part of the financial statements. A reconciliation of the capital and

surplus account for the period under review is also included.

FINANCIAL STATEMENT

December 31, 2020

Assets Net

Assets Not Admitted

Assets Admitted Assets

Bonds $ 3,464,398 $ 3,464,398

Common stocks 43,487,540 43,487,540

Cash and short-term investments 53,700,924 53,700,924

Subtotal, cash and invested assets $100,652,862 $100,652,862

Investment income due and accrued 47,896 47,896

Uncollected premiums and agents’

balances in the course of collection 18,946,623 18,946,623

Deferred premiums, agent’s balances and

installments booked but not deferred and

not yet due 18,917,264 18,917,264

Amounts recoverable for reinsurers 81,643,486 81,643,486

Current federal and foreign income tax 4,193,800 4,193,800

Electronic data processing equipment 20,860 20,860 .

Furniture and equipment 43,908 43,908

Receivable from parent, subs and affiliates 3,222,267 3,222,267

Trade and credit card receivables 580,908 580,908

Miscellaneous prepaid expenses 8,312 8,312

Totals $228,278,186 $73,080 $228,205,106

Liabilities, Surplus, and Other Funds

Losses $ 22,242,089

Commissions payable, contingent commissions, other similar charges 1,760,407

Other expenses 951,968

Taxes, licenses, and fees 2,454,544

Net deferred tax liability 4,321,969

Unearned premiums 58,002,280

Advance premiums 2,045,864

Ceded reinsurance premiums payable 17,574,348

Provision for reinsurance 4,935,000

Payable to parent, subsidiaries, and affiliates 59,613,288

Total liabilities $173,901,757

Common capital stock $ 3,000,000

Gross paid in and contributed surplus 44,009,043

Unassigned funds (Surplus) 7,294,306

Total capital and surplus $ 54,303,349

Totals $228,205,105

STATEMENT OF INCOME – 2020

Underwriting Income

Premiums earned $ 75,406,346

Losses incurred $ 62,309,675

Loss adjustment expenses incurred 3,710,988

Other underwriting expenses incurred 29,317,532

Total underwriting deductions $ 95,338,195

Net underwriting gain/loss $(19,931,849)

Investment Income

Net investment income earned $ 1,195,355

Net realized capital gain 2,140

Net investment gain $ 1,197,495

Other Income

Finance and service charges not included in premiums 1,012,179

Total other income $ 1,012,179

Net income before federal income taxes $(17,722,175)

Federal income taxes incurred 4,191,659

Net income $(13,530,516)

CAPITAL AND SURPLUS ACCOUNT

2016 2017 2018 2019 2020

Capital and surplus, beginning $48,481,771 $47,952,967 $54,342,460 $70,530,712 $75,486,487

Net income $ (4,255,764) $ 9,703,348 $ (4,855,862) $(3,865,669) $(13,530,516)

Change in net unrealized

capital gains or (losses) 3,692,814 (2,961,759) (6,281,290) 9,113,872 (4,123,738)

Change in net deferred income tax 5,207 15,590 2,293,822 967,255 (431,792)

Change in non-admitted assets 28,939 (367,805) 31,582 417,317 160,909

Change in provision for reinsurance (1,677,000) (3,258,000)

Surplus adjustment paid in (1,552,617) 25,000,000

Surplus adjustment transferred

from capital 1,552,617

Prior year surplus adjustment 119

Net change for the year $ (528,804) $ 6,389,493 $16,188,252 $ 4,955,775 $(21,183,137)

Capital and surplus, ending $ 47,952,967 $54,342,460 $70,530,712 $75,486,487 $ 54,303,350

EXAMINATION CHANGES IN FINANCIAL STATEMENTS

Unassigned funds (surplus) in the amount of $7,294,306, as reported in the Company’s 2020

Annual Statement, has been accepted for examination purposes. Examination findings, in the aggregate,

were considered to have no material effect on the Company’s financial condition.

COMPLIANCE WITH PREVIOUS RECOMMENDATIONS

The recommendation appearing in the previous report of examination for the Maryland Insurance

Administration is reflected below together with the remedial actions taken by the Company to comply

therewith:

Board Approval of Investment Transactions – Accordingly, we recommend that the

investment transactions be presented to the Board of Directors for review and ratification and

that evidence be contained in the Boards minutes to support approval or ratification.

Actions: The Company has not complied with this recommendation. This recommendation will

be repeated under the caption “Commentary on Current Examination Findings” in this report.

COMMENTARY ON CURRENT EXAMINATION FINDINGS

Board Approval of Investment Activity

The examiner reviewed the minutes of the Board of Directors and noted that the Company was

not in compliance with Nebraska Insurance Law 44-5105(3), which requires that the Board of Directors

or a committee thereof formally approves investment activity on a quarterly basis. It is recommended

that the Company comply with Nebraska Insurance Law 44-5105(3) and ensures that the Board of

Directors reviews and approves investment activity on a quarterly basis.

Investment Services Agreement

The Company was not in compliance with SSAP 25(7) which states that “transactions between

related parties must be in the form of a written agreement. The written agreement must provide for the

timely settlement of amounts owed, with a specified due date.” Specifically, the Company is a party to

an Investment Services Agreement with BHI, which requires a payment to be made to BHI. However,

the Company was invoiced by, and made payments to, New England Asset Management, Inc. (NEAM),

an affiliated company. There is no intercompany agreement between the Company and NEAM, which

is not in compliance with SSAP 25(7). It is recommended that the Company enters into a separate

agreement with NEAM to ensure compliance with SSAP 25(7), and with Section §44-2133(2)(d) of the

Nebraska Insurance Statutes, or the Company shall amend its current agreement with BHI to allow for a

payment to another party.

Adjusting and Other Expenses

The Company was not in compliance with SSAP 55, paragraph 6, which states that Adjusting

and Other Expenses (A&O), among other "types of future costs ... shall be considered in determining the

liabilities for unpaid losses and loss adjustment expenses." At December 31, 2020, the Company did not

carry any A&O reserves. No unpaid A&O reserves appears to have caused materially understated gross

and ceded liabilities, but not a materially understated net liability at year-end 2020. In 2021, the

Company began carrying an A&O reserve.

SUBSEQUENT EVENTS

CAPITAL CONTRIBUTION

On February 23, 2021, GEICO Corporation made a capital contribution of $31.5 million to Boat

America Corporation. Boat America Corporation subsequently made a capital contribution of $31.5

million to the Company.

REINSURANCE CEDED

Effective January 1, 2022, the Company commuted all of its reinsurance agreements with NICO,

as well as its named storm treaty with GEICO.

The Company entered into a Loss Portfolio Agreement of Reinsurance, effective January 1, 2022

with its affiliate, GEICO, whereby the Company cedes 100% of outstanding net loss and loss adjustment

expense reserve at January 1, 2022, excluding those amounts ceded to external reinsurers.

Effective January 1, 2022, the Company entered into a Quota Share Agreement with GEICO,

whereby the Company cedes 100% of unearned premium reserves as of January 1, 2022, along with

100% of all premiums written net of general expenses on all business written on and after January 1,

2022 and 100% of all losses and loss adjustment expenses incurred on and after January 1, 2022,

excluding those amounts ceded to external reinsurers in the event of a named storm loss.

SUMMARY OF COMMENTS AND RECOMMENDATIONS

The following comments and recommendations have been made as a result of this examination:

Board Approval of Investment Activity – It is recommended that the Company comply with

Nebraska Insurance Law 44-5105(3) and ensures that the Board of Directors reviews and approves

investment activity on a quarterly basis.

Investment Services Agreement - It is recommended that the Company enters into a separate

agreement with NEAM to ensure compliance with SSAP 25(7), and with Section §44-2133(2)(d) of the

Nebraska Insurance Statutes, or the Company shall amend its current agreement with BHI to allow for a

payment to another party.

ACKNOWLEDGMENT

The courteous cooperation extended by the Officers and employees of the Company during this

examination is hereby acknowledged.

In addition to the undersigned, Mario Ascic, CFE; Jessica Lynch, CFE, MCM; and Mel Heaps,

CFE, Financial Examiners; Lindsey Pittman, CFE, CPA, CISA, MCM, Information Technology

Examiner; all with the firm of Lewis and Ellis, Inc., and Gordon Hay, FCAS, MAAA, CPCU, Actuarial

Examiner with the Nebraska Department of Insurance, participated in this examination and assisted in

the preparation of this report.

Respectfully submitted,

Katerina Bolbas, CFE, CIA, MCM

Examiner-in Charge

Lewis & Ellis, Inc.

Representing the Department of Insurance

State of Nebraska

Andrea Johnson, CFE

Assistant Chief Examiner - Field

Department of Insurance

State of Nebraska