Deputy Liquidator’s First Report and Accounting dated ... · Liquidator's First Report and...

STATE OF MICHIGAN DEPARTMENT OF ATTORNEY GENERAL

P.O. Box 30755 1 LANSING, MICHIGAN 48909

BILL SCHUETTE ATTORNEY GENERAL

April 25, 2017

Via Hand Delivery

Clerk of the Court Ingham County Circuit Court Veterans Memorial Courthouse 313 W. Kalamazoo Lansing, MI 48901

Re: Patrick McPharlin, Director of the Department of Insurance and Financial Services v Affirmative Ins. Company of Michigan; Case No. 15-898-CR; Honorable Clinton Canady III

Dear Clerk of the Court:

Enclosed for filing with the Ingham County Circuit Court is the Deputy Liquidator's First Report and Accounting dated April, 2017 relative to the above-captioned liquidation of Affirmative Insurance Company of Michigan ("AIM").

The report and attached exhibits were prepared by James Gerber, Special Deputy Liquidator of AIM, and his staff. Mr. Gerber has given his approval and authorization for filing the report. I enclose one original, signed by Mr. Gerber on April 24, 2017, together with all exhibits. I also enclose one complete Judge's copy of the report and all exhibits for Judge Canady.

If you or Judge Canady have any questions regarding this filing, please do not hesitate to contact me directly.

Sincerely,

~bfif~ M. Elizabeth Lippitt Assistant Attorney General Corporate Oversight Division (517) 373-1160

Enclosure cc: James Gerber, Special Deputy Liquidator (via ID mail w/o encl.)

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D~ ~a''~ n APR 2 5 2017 uSTATE OF MICHIGAN

COURT FOR THE 30TH JUDICIAL CIRC

INGHAM COUNTY

PATRICK M. MCPHARLIN, DIRECTOR OF THE DEPARTMENT OF INSURANCE AND

FINANCIAL SERVICES, Case No. 15-898-CR

Petitioner, HON. CLINTON CANADY III

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[IN REHABILITATION] AFFIRMATIVE INSURANCE COMPANY OF MICHIGAN,

Respondent.

DEPUTY REHABILITATOR'S FIRST REPORT AND ACCOUNTING

April, 2017

Pursuant to the Rehabilitation Order entered by the Circuit Court on October 29, 2015, the Deputy Rehabilitator hereby respectfully submits his first annual report and accounting to the Court regarding the ongoing Rehabilitation of Affinnative Insurance Company of Michigan ("AIM").

SUMMARY

This report covers significant development for the period of October 29, 2015 through December 31, 2016.

The main developments covered in this report are as follows:

The collection of over $3,073,402 in reinsurance payments since the inception of the Rehabilitation.

The settlement of six lawsuits/claims against AIM with alleged claim amounts totaling over $2 16,778 for the reduced settlement amount of $116,050.

AIM's parent company, Affirmative Insurance Company, being placed into liquidation by the Illinois Department of Insurance on March 30, 2016. The parent company being placed into liquidation has impacted AIM's reinsurance recoveries and cash flow.

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The Illinois Circuit Court overseeing the liquidation of AIM' s parent company AIC entered an order approving the sale of AIM to Enstar Holdings (US), Inc. for $5,025,000 on November 30, 2016. The prospective sale remains pending.

This report is divided into several sections, which are as follows: Background, Legal, Administrative, and Financial.

BACKGROUND

AIM was incorporated on February 14, 2006 and commenced business on May 8, 2006. AIM is a wholly-owned subsidiary of Affirmative Insurance Company, an Illinois domiciled insurer. Affirmative Insurance Company is in turn a wholly-owned subsidiary of Affirmative Insurance Holdings, Inc. ("Affirmative Holdings"), a Delaware corporation. Affirmative Holdings was a publicly traded company trading on the Over-the-Counter market. Affirmative Holdings, through its operating insurance company subsidiaries, sold non-standard automotive insurance policies to individual customers. Affirmative Holdings and its insurance company subsidiaries used independent agents and brokers to market these policies. Affirmative Holdings' subsidiaries also included two underwriting agencies, Affirmative Underwriting Services and Affirmative Insurance Services, and a service company, Affirmative Management Services, which had its own subsidiary, Affirmative Services. Affirmative Holdings and its Affirmative Insurance Company subsidiary (AIM's direct parent) had their main operational headquarters in Addison, Texas.

On June 30, 2015, Affirmative Holdings sold its managing general agency business to Confie Seguros Holding II Company and Confie Insurance Group Holdings ("Confie"). As part of the transaction, Affirmative Holdings and Affirmative Insurance Company entered into a managing general agent agreement with Confie, which expires December 31, 2019. Affirmative Holdings had previously sold its retail agency distribution to Confie in 2013. Confie holds the rights to claims payment and policy-related software and systems used by Affirmative Holdings' insurance company subsidiaries. AIM was previously allowed to use this claims payment and policy-related software without charge, but this changed after Affirmative Holdings filed for Chapter 11 bankruptcy (see below).

AIM stopped writing new insurance business in Michigan in 2011. Since 2011, AJM has been in "run-off' mode, meaning it continues to process and pay valid claims under Michigan's No-Fault Act attributable to auto accidents that occurred while AIM's policies were in force. These NoFault Act claims include bodily injury ("BI") claims and personal injury protection ("PIP") claims, where valid PIP claims provide up to lifetime medical benefits for auto-related injuries.

AIM leases office space in Plymouth, MI and currently employs two claims adjusters. AIM has a reinsurance contract with its parent, Affirmative Insurance Company, under which AIM cedes all claims and losses to Affirmative Insurance Company after cessions to other reinsurers. AIM also participates with the Michigan Catastrophic Claims Association ('MCCA"), a mandatory reinsurance facility that covers PIP claim losses above a specific, statutory retention amount.

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AIM parent, Affirmative Insurance Company, was placed into rehabilitation by the Illinois Department of Insurance on September 16, 2015. Affirmative Casualty Insurance Company, a Louisiana-domiciled affiliate of AIM, was placed into rehabilitation on September 17, 2015. Affirmative Casualty Insurance Company's wholly-owned subsidiary, Affirmative Direct Insurance Company, a New York domiciled insurer, was also placed into rehabilitation on September 17, 2015. Affirmative Holdings filed for protection under Chapter 11 of the U.S. Bankruptcy Code on October 14, 2015. Affirmative Holdings' bankruptcy petition also included seven of its subsidiaries: Affirmative Services, Inc.; Affirmative Management Services, Inc.; Affirmative Insurance Group, Inc.; Affirmative General Agency, Inc.; Affirmative, L.L.C.; Affirmative Insurance Services, Inc.; and Affirmative Underwriting Services, Inc.

On October 29, 2015, this Court granted the rehabilitation petition filed by the Qirector of the Michigan Department of Insurance and Financial Services ("DIFS") and entered a stipulated Order placing AIM into Rehabilitation ("Rehabilitation Order"). The Rehabilitation Order appointed the D IFS Director as Rehabilitator of AIM as required by statute, and further approved the compensation of the Rehabilitator's appointed Special Deputy Rehabilitator, Jaipes Gerber.

On March 10, 2016, Affirmative Holdings' Chapter 11 bankruptcy reorganization proceeding was converted to a Chapter 7 liquidation proceeding. On March 24, 2016, Affirmative Insurance Company was placed into liquidation by the Illinois Department of Insurance. On April 11,

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2016, Affirmative Casualty Insurance Company was placed into liquidation by the Louisiana Department of Insurance.

LEGAL

AIM's major legal activity for the reporting period involved defending disputed No-Fault claims and lawsuits filed against the company. AIM employs two outside law firms to re~resent it in these matters, with consultation and oversight by attorneys from the Michigan Attorney General's office. AIM also filed a Proof of Claim and a Motion for Allowance and Payment of an Administrative Expense Claim against Affirmative Holdings in its bankruptcy proceeding

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The Rehabilitation Order enjoins all parties with claims against AIM from "[i]nstituting or continuing to prosecute any actions or proceedings to determine, enforce, collect, or assert any claims against AIM, its assets, policyholders," etc. This injunction may only be Ffted by order of this Court or the Rehabilitator's agreement to allow an action to procee

Mendelson Orthopedics. P.C. and St . .John Macomb-Oakland Hospital vs. AIM

Plaintiffs filed a lawsuit against AIM based on its denial of payment for medical services provided to an AIM insured. AIM denied coverage because an earlier independent ~edical exam determined that the insured's accident-related injuries were resolved. St. John Macomb-Oakland Hospital sought payment of $67,025 plus interest, costs, and attorney fees, which the parties settled for $49,000. Mendelson Orthopedics sought payment of $31,285 plus interest, costs, and attorney fees, which the parties settled for $22,000. The Court approved these settlements on February 19, 2016.

Total Toxicology vs. AIM

Total Toxicology asserted a claim against AIM for payment of medical services provided to an AIM insured. AIM denied Total Toxicology's claim because the services provided were unreasonable and unnecessary in nature, and/or excessive, unreasonable, and non+customary as to the amounts charged. Total Toxicology sought payment of $12,615, which the parties settled for $6,800. The Court approved this settlement on February 19, 2016.

Carolyn Hope Schilling vs. Garv Shaurah Carpenter. MEEMIC Insurance Company. and AIM

Plaintiff originally filed this Bl/third-party auto negligence lawsuit against AIM's insured for alleged injuries arising from an October 8, 2010 auto accident. AIM' s insured pid not notify AIM of the Complaint and represented himself through case evaluation. On January 22, 2015, Plaintiff filed an Amended Complaint adding AIM as a party, at which time AIM learned of the lawsuit and assumed its insured's defense. Plaintiffs Amended Complaint sought damages exceeding $25,000 plus interest, costs, and attorney fees, along with a declaration lthat AIM was responsible for coverage. AIM denied Plaintiff's claim because her alleged injuries did not satisfy the statutory threshold for third-party tort liability under MCL 500.3135, and/or AIM disputed the amount of Plaintiffs noneconomic tort damages. The parties settled for AIM's payment of $15,000, in exchange for Plaintiff dismissing her lawsuit with prejudice and releasing AIM and its insured from any liability for the October 8, 2010 accident. The Court approved this settlement on April 19, 2016.

In re: The Probate Pro vs. AIM

The Probate Pro asserted a claim against AIM for payment of guardianship legal services 1

provided to the Co-Guardian of AIM's insured in relation to alleged injuries AIM's insured sustained in a July 21, 2010 auto accident. AIM denied The Probate Pro's claim because the services it provided were duplicative and unnecessary. The Probate Pro sought payment of $10,186.87 plus interests, costs, and attorney fees, which the parties settled for $5,000.00. The

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Court approved this settlement on April 19, 2016.

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http:5,000.00http:10,186.87

Encompass Health Care PLLC vs. AIM

Plaintiff filed a lawsuit against AIM based on its denial of payment for Plaintiff's full billed charges relating to medical services provided to an AIM insured. AIM paid Plaintiff's bills in part but denied payment in full because the bills were excessive, unreasonable, and noncustomary as to the amounts charged. Plaintiff sought payment of $65,266 plus interest, costs, and attorney fees, which the parties settled for $16,000. The Court approved this settlement on December 22, 2016.

Bio-Magnetic Resonance, Inc. vs. AIM

Bio-Magnetic Resonance asserted a claim against AIM for payment of medical services provided to an AIM insured. AIM denied coverage because an earlier independent medical exam determined that the insured's accident-related injuries were resolved. Bio-Magnetic Resonance sought payment of $5,400 plus interest, costs, and attorney fees, which the parties settled for $2,250. The settlement was also full and final, releasing AIM from any further liability to BioMagnetic Resonance for services provided to this insured relating to the auto accident at issue. The Court approved this settlement on December 22, 2016.

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In addition to these legal activities resolving No-Fault lawsuits/claims, AIM col~aborated with bankruptcy counsel for its parent, Affirmative Insurance Company, to file claims against Affirmative Holdings in its ongoing bankruptcy proceeding. On February 26, 2016, AIM filed a Proof of Claim in the Affirmative Holdings, et al. bankruptcy proceedings in the amount of

I$269,769, representing the shortfall as of December 31, 2015 in a premium deposit/claim payment trust account that resulted from Affirmative Holdings expending these trust funds for other unauthorized purposes. On March 1, 2016, AIM filed a Motion for Allowance and Payment of Administrative Expense Claim ("Administrative Expense Motion"), asserting that $75,488 of the trust account shortfall should be treated and paid as a priority administrative expense because Affirmative Holdings expended these funds for its benefit after filing the bankruptcy petition. Both the Proof of Claim and Administrative Expense Motion also assert a contingent claim against Affirmative Holdings should any taxing authority require AIM to pay taxes that Affirmative Holdings is required to pay under a Consolidated Tax Allocation

!Agreement.

The Administrative Expense Motion remains undecided pursuant to counsels' agreement to adjourn the motion hearing without date. Similarly, the Affirmative Holdings Chapter 7 bankruptcy proceeding is ongoing and there is no indication when pending Proofs bf Claims will be determined. Realistically, the Deputy Rehabilitator does not expect the AIM Rehabilitation estate to receive any payments based on the Proof of Claim or Administrative Expense Motion.

State License

AIM currently maintains its Michigan certificate of authority and files all required financial statements.

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Record Retention

AIM uses Iron Mountain, an off-site storage space, at a monthly rate of $144 per, month. The records currently maintained are closed claims and legal files. All other records and claims information are stored electronically in the ProClaim system managed by Confie, the third-party vendor located in Texas.

ADMINISTRATIVE Claims

AIM currently processes claims in the ProClaim system managed by Confie. Policyholder claims information was previously mailed to a post office box maintained by Confie, scanned by Confie personnel, and forwarded electronically to Plymouth, MI for processing and checkI issuance.

During the course of the rehabilitation, Confie began downsizing personnel in its Texas office and AIM experienced problems receiving claims. In June 2016, AIM mailed letters to claimants and service providers to send policyholder claims information directly to the Plymouth, MI office. I

As of October 2015 when the Rehabilitation Order was entered, there were 110 open claims that consisted of 108 PIP claims and 2 BI claims

Employee Matters

On the date of the Rehabilitation Order, there were two full-time employees in the Plymouth, MI office who adjusted and processed claims. AIM also used an outside contractor to oversee check issuance and legal matters.

FINANCIAL Reinsurance

AIM had several casualty excess-of-loss reinsurance contracts and one catastrophe related contract placed through Guy Carpenter as intermediary. These reinsurance contracts also covered AIM's affiliated companies in the Affirmative Holdings group. i

AIM had a casualty excess-of-loss reinsurance contract with an effective date of August 1, 2010 through July 31, 2011. This contract covered private passenger automobile casualty losses on an occurrence basis for losses exceeding $100,000, with the reinsurers covering the next $900,000. SCOR and Renaissance Re (formerly Platinum Re) participated on a 50%/50% basis for this contract.

AIM had no casualty excess-of-loss reinsurance contract in effect for the period of August 1, 2011 through January 31, 2012.

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AIM had a casualty excess-of-loss reinsurance contract with an effective date of February 1, 2012 through January 31, 2013. This contract covered private passenger automobile casualty losses and automobile physical damage if the auto physical damage occurred in the samei occurrence. AIM retained the first $100,000 and the reinsurer covered the next $900,000 of loss on an occurrence basis. The reinsurer had an aggregate liability of $3,600,000 for all occurrences in the contract year. SCOR had I 00% participation for this contract ye~.

AIM had a casualty excess-of-loss reinsurance contract with an effective date of February 1, 2013 through January 31, 2014. This contract covered private passenger autom0bile casualty losses and automobile physical damage if the auto physical damage occurred in the sameI occurrence. AIM retained the first $100,000 and the reinsurer covered the next $900,000 of loss on an occurrence basis. The reinsurer had an aggregate liability of $3,600,000 for all occurrences in the contract year. SCOR had 100% participation for this contract ye~.

AIM had a casualty excess-of-loss reinsurance contract with an effective date of February 1, 2014 through January 31, 2014. This contract covered private passenger automobile casualty losses and automobile physical damage if the auto physical damage occurred! in the same occurrence. AIM retained the first $100,000 and the reinsurer covered the next $900,000 of loss on an occurrence basis. The reinsurer had an aggregate liability of $3,600,000 for all occurrences in the contract year. SCOR had 100% participation for this contr~ct year. The contract was amended to extend its term through July 1, 2014.

AIM has collected $107,520 in excess-of-loss payments under these various reinsurance contracts from the date of the Rehabilitation Order through December 31, 2016.

AIM is required to participate in the MCCA, along with all other insurance carriers writing automobile business in Michigan. Assessments are paid to the MCCA based on car years and I the rate established by the MCCA governing board. AIM's retention or threshold amount before MCCA reimbursement begins varies by year based on the statutory threshold for the year the policy was issued. Above-threshold Michigan PIP losses are reimbursed by the MCCA. AIM has collected $2,965,882 in reimbursement from the MCCA from the date -of the Rehabilitation Order through December 31, 2016.

AIM has a 100% quota share reinsurance agreement with its parent, Affirmative Insurance Company, effective January 1, 2007. Under this agreement, AIM cedes 100% of its ultimate net liability to Affirmative Insurance Company. Ultimate net liability is AIM's liability after all non-affiliated reinsurance coverage. The reinsurance agreement covers all non-standardI automobile insurance written by AIM. Affirmative Insurance Company also agreeo to reimburse a proportionate share of AIM's unallocated loss expenses. However, after Affirmative Insurance Company was placed into liquidation and declared insolvent on March 24, 2016, the company no longer had sufficient assets to continue paying under this reinsurance agreement cbld stopped all payments to AIM. AIM has since processed and paid valid claims using its o~ funds. The Deputy Rehabilitator expects no further payments from Affirmative Insurance Company under this reinsurance agreement.

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Home Office Lease

AIM leases office space in Plymouth, Ml. When AIM was placed into rehabilitation, the monthly rent was $2,610 per month. The lease was renewed in April 2016 and the rent was reduced to $2,445 per month. The lease is month-to-month.

Expenses

AIM's monthly expenses are $525,000, of which $500,000 is for claims payments and $25,000 is for administrative expenses.

Investments

AIM's NAIC quality ratings on its corporate bond investments as of December 31, 2016 were as follows:

NAIC Class 2 89% NAIC Class 3 11 %

NAIC Class 2 bonds are considered investment grade and NAIC Class 3 bonds are considered below investment grade.

Federal Income Taxes

A Pro-Forma tax return was filed for AIM in June 2016, for the tax year ending December 31, 2015. I

State and Local Taxes

AIM's 2015 and 2016 Michigan annual returns were filed in January 2017.

EXHIBITS

The following exhibits are attached to this Court Report:

Exhibit A Annual Statement for 2016 Exhibit B Professional Expenses-November 1, 2015-December 31, 2016

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CONCLUSION

The major goals for 2017 are:

Close the sale of AIM to Enstar. Terminate this Rehabilitation proceeding and close the Rehabilitation estate.,

The Deputy Rehabilitator would like to thank past and present employees of AIM for their professionalism and assistance during the Rehabilitation.

Respectfully submitted,

James Gerber Deputy Rehabilitator Affirmative Insurance Company of Michigan Dated: April __zy~ 2017

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EXHIBIT A

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PROPERTY ANO CASUALTY COMPANIES-ASSOCIATION EDITION

ANNUAL STATEMENT FOR THE VEAR ENDED DECEMBER 31, 2016 OF THE CONDITION ANO AFFAIRS OF THE

AFFIRMATIVE INSURANCE COMPANY OF MICHIGAN NAIC Group Coda

OivanlZed under !ho Laws of CounayotDomlcle

20-4352159

StD1U1oly Homo 0fflce 30600 Tetoqmph Road, &Ito 1260 Slnqham fDlms , Ml. US 48025 (Sfnl01 and Numbcsf) (City or Town, State, Counuy and Zip Codo)

Main Admlnlmll!ve Ofllce 30600 Telegraph Road. SuiUJ 1260 {Slreet and NIJnb8r)

Bingham fDfflll Ml. US 48025 517.284-8664 (Cily OI Town, &me, Counuy and Zip Codo) (mil Codo) (Telophone Numbor)

Man Address 30600 Telegraph Road, Suito 1260 Bingham Farms Ml US 48025 (Stroot end Number or P.O. Box) (Cey or Town, S1alD. Country and 211) Coda)

409 Plyrngujh Road. Suite 129

P!fmc!uth t Ml. U$ 48170 517284-8664 (Cily OI Town, &me, Coun\ly nnd Zip Codo)

lmofnet Wobslto Address

Slatuto,y Statement Comac:t James GoTbBr 517-284-8664 (Namo) (Area Codo) (Telophono Nurnbof}

2~119 (FAX Numbcrr)

OFFlCERS None Company in Rehabillta1ion

None Campany in RGhnbilltatlon

DIRECTORS OR TRUSTEES

None Company In Aohablli1ntion

________..T.Eaexas""'------ SS: Dalas

Tho otlicOfl of tin reporting entity bolng dUly sworn, each doposa and say that thoy ana the described offlcers of said roportlng sntlty, and that an lho repontng ~ stated 8bow, 811 at !ho hore!n closalbod assets ~ tho ellsolulD property of the said raponlng on11ty, tree and ctoar from any liens or Glalma thereon, c,cccpt as heroin sta(od. and thal this s=emont. ~ wHh rolated exhlblls. schodulos and ~ ttwm,in contained, BMOXDd or n:lfemid to, la n ~D and truo l1atutn8nt at aD h 818811 and labllilm and of lho conc:lliOn and affairs ol lhe said reporting entity iss of the n,partlng pcaiod ltlt!ICI abcMJ, and al tis lncomo and dDdudlons thorelr0m tor the period ondod. and have boon CClff-.,lelad In acmrdanco wilh !he NAIC Annual Sla1ement Instructions and Acc0unling Pnldl0a und Proc:ioma manual e,mpe ID !ho extent !hat: (1) au law may differ; or. (2) that mu, IUles or RlglN1icnl ~ dllforences In ~ not ntlatod lo 8CICDUl1llng prm.tlca and procodurea, a00CIRing ID tho tmt o1 thcllr lrdcnnallon. knowlDdgcl and ballet, ivspoalvoly. Futthonnote. tho GCOPO of lhis Bllustation by 1hct dasal>ed officeis also lnclucm the ielalod connpondlng elec:1ronlc filll;I wiltl lhe NAIC, IMlOf'I required. ttim la an exact capy (O'.rCIIPI for lonnattlng dlllorences duo to alearonlc fling) o1 lho enc:losod atmemcnt. The elactronlc filing may bo ruquested t7/ various rogullsU)ra In lieu ol Of In addlll0fl to !he onc:losed s1Bl8mont. i

Yosl X) ,,,a. Is lhla 1111 original ft&ng? ---StibSCrltlod and sworn to before mo llis b. II no,

1. State tho amendment rurnbor_ ----- dayof 2. Dato llled _____, 03/31/2017

3. Number olpagesullachod.__

ANNUAL STATEMENT FOR THE YEAR 2016 OF THE AFFIRMATIVE INSURANCE COMPANY OF MICHIGAN

ASSETS Curren! Yoar Prior Yoar

2 ~ Nol Adminod Asse':s Nm Admi!tod

"5se1s Nonadminod Assets joci to nxlotormination ($ ----- ) - - ---- 1-------16. Roinsuranco :

16 .1 Amounts reeoYOrable from rofnsu-- - -1.251,118( ~--- --- --- 1.254 ,884 ----1690,480

t6.2 Funds held b)' o,, dopo$1lod with rolnsurod companies- -- -- ----- '------- ------ - ------

16.3 Othm amountS recoivablo under rfrinsurance c:ontra...'1:S - --- ------ L---- - - -17. Amounts rocotvobJe rela1ing to urvnsurcd plans __ ____ ____________________ ------- 1.... ----- --

18.1 Cu~cnt lodoral and toroign lrn:ome lax recovorablo 11/ld imores1 thereoo _.. ... - ... - ...- ... -4 ,855 1-.. . _ ..._____...___ ---...- ...- ' ,85.5 - - ..-- 4,855

18.2 No, de1orrod rax nlS'O'l ...--- - - - - ------- -- --- - - L-----------

19. Guararnylunds rocci\able 01 on dopooo ---- -- -- - - - --- - -- ~------20. Eloc:ronic d3ta processing equipmont and wttwaro --- - - -

21, Fumhure end cquip,nont. induding hoahh care do1ivory Mt,Ots

($ ------ ) - -- - - -----

22. Nor adjustmem in as.sets and .wili'!ios duo to foreign er.change rates- ---- - -- ~----- - - - - --'52123. Roc:olvat>f.. trom potcn!, subcl


LIABILITIES, SURPLUS AND OTHER FUNDS 1 2

Current Yoar PnorYear

1. Lemos (Patt2A, Lino 35, Co1Umn8) .--------------------------- ----- ~---

2. Reinsurance paygb!e on paid lossos and loss ad)uslmen1 oxponaos (Schodule F, Part 1, Column 61------- ------- . !----- 3. Lossadjuslment expenaes (Part2A. Una 35, Column 9)_,___,_____,______________ -------

4. CornmisSions payablo,c:omingentcammls:.tonll andCllhof slmlll1rc:MIVDS-------------t----- -----5. Othorcu;,or-.(OJCducln;lDXIIS. liconsolandlea)_______---------------it-------1-----10,131 6. Taxus, Ucenses and fees(excluclng!Dderul andtafeign income IDX8S) ______________ ,___,._______1-----

7.1 CUrrent lodoral and !ct81gnlncome taxoa (lncludlng$ ----- on rvdzedcaplalgalns (tones)) ____ -----

7.2 Netdaferrod car llabllitY--------,,--------------------- _______16 _,__i ___16 a. Botrowud moneys ----- and Interest~$ ___________________,____ i--------9. Unearned premiums (Pan 1A, Uno 38, Column 5) (al!Or docu:tlng unemned premiums lor CGdad rclnsur8ta of

$ ----- and lnc:Mlngwananzy reservos at S ----- and aa:ruod acadsnl and

hoafth oxpoitonce nulng rcrtunds Including$ ------ lor medcal 1cm nulo rebaUt per the Publlc: Hoallh

SeMCGAcll ..-------------------------- ------- ~~------10. Advancopramlum ____________________________________________________ ---l-- 11. OMdcnds cloclared and unpaid:

11.1 Sl0Clcholder8-----------------------------+------ ..,______

112 Polc::yt,oldDnl_,____,,________, , ________ ,-----------11------ ----12. Codc!d relnsuT8nco pnimlums payablo(notolcoclngc:cmmisslons) ______..________,.__----- ----..B,365

13. Funds hold by company under ntlnsurancct treaties (Sc:hld.tlo F, Pan 3, Column 19) _----------- ------- ---:____

14. Amount.a wilhhald Of rcrtalned by company for accomtof olhDnl------------------ ------ ..__,:_______

1S. Remitlanccsand items nolallocalod--------------------------- _------- ----16. Provision lcr n,insuranc:e fincludng S ----- conlliocl) ($c.tleclJlo F, P8t'I 8} ___________ ----- .,.._____

17. Not adjustmcnls in asS81S and latll!iucll clJe lO lor091 CtXChango '81DS ---------------- -------- ------- 18. Orahsoutstandlng _______________,______________________________________ ------ --------

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19. Payisblct lo parent, aubsidlllriol and affillatos-----------..---------------- -----"3.D22 -I ...-. .22,357 20. DoriWIIYoa ..------------------------------..---------- ------ ----- 21. Puyable10fGOCUlillea __________________________________,_______________J25_462 -----

22. Payisblo ta,ICICUltlles lendng ___________________,_____ ------ _,____ 23. Uablity lormnounts hllldundof uninsuroct p1ans _____________________________ ----- ______

24. Capital notos S ------- and lntarestlhctruon S ----- --------- ------- ~------25. Aggreoa10Wl!te-ins forllabllltles ____________________________________________ .... 2 075 329

26. local liabllllloaexduclng f)l'Olededc:oD liablfllloS {UIGS 1 lhrough 2SJ---------------- ___2,444,429 __I __J0,879 'O. ProtectDdcallllabllllies------------------------------1------4------~ 28. Tol8lliabCllloa(Unc,s26and27l-----------------------------;,---2,444,429 40,879 29. Aggn:,galowritcHns torspoclal aurplus funds _____.,_,_______,___________ -----

30. Common capital Glock,._______________________________________ - 7,500000 ___:,_7,500,000

31. Preferrod aipllalaU>Ck ____________________________________________________________________ ----- -I I -

32. ~wrfta.ins for other than spodal aurpluatunda _________________________ ----- ,..,______

33. Su,pluanolas--.-------------------------------;,------- ._,______ 34. Gloss paid In and COl'IUibuuld GUfPQ--------------- ---------- ___1,500,000 ,_,___1,500,000 35. Unassigned funds (surplus) ---------------------------- --11.963,943} _____191,B78 36. Less treasury stock, at 00St.

36.1 ------- aharos common (value included In Une 30 S --..----- 1----...-- ----- ...~-----36.2 -------- shllrel preferred (vakle Included In Una 31 $ ----- >------------ .._______

37. Surplus as regards poac,t,olders {Lln8I 29 U> 35, leu 36) (Pago c, Uno 3$) _____________,___1------7.:.a,036.;.a.,..;,OS/;..;.;...t-----"'9._191;;.;.;878--1

38. TOTALStPaan2 Uno28 Cot!n 9 .(80,486 9,232.757

DETAILS OF WRITE4NS

2501. Recli=ad I.cm Re:ienes l~I were codad 1o Afflrmti'l8 Ins. Co. lo too asset p:ge for non-ada11tlng !he recovenible balnnc:e lre11 AIC ------------------------ ____1,3:12,953

2502. ileclas:ed LIE Raservas thal 118ft ceded lo Alfirmli~ Ins. Co. lo the uset ~ for raHdlitling lhe reco-Alrallle ballllC8 frca AIC ___________________,_______, -- ______682.376

----------------------------------------2598. Summaiy OI remainingwrilcHna lor Uno 25 from CMllflow PII00--------------- ------ -----2589. Tac:a!s ll.lnos 2501 thnJ 2503 Cius 2598)(1.Jne 25 above! 2 015 329

2901. ------------------------------------------- ..--------_______________________,____________,______,_,_,,_____1------2902.

2903. -----------------------------------J------ r-----2996. Summaryoln,malnlngWl1!D-lns10f l.klo29fromoverllowpago._______________________

2999. TCJIBls n in- 2901 11w 2903 nlttt 2998lll lrw 29 abollel

3201.

3202. -------------------------- . --- ------ -i- ---I

3203. -------,----------------,-------,------ ------- ----3298. Surnmaryol remairing'WlillHnll for Uno 32tromCMllflowpaoo ________________,_____ i----,____

3299. Tolnls llhn 3201 lhtu 3203 nwa 3298Kl..ina 32 llbcMll

3


STATEMENT OF INCOME 1 2

Cutren1Year PnotYear

UNOERWRlllNO INCOME

1. Pnimlumseamad (Piv11. Uno 35. ColUIM 4>-----------------------+----- ------ DEDUCTIONS:

2. L0IS8S lncumtd(Pan 2. Une 35, Column 7l-----------------------------+----- t------ 3. Losa 11~nte,cpoosas lnairrecl {Pan 3, Uno25, Column 11----------------------- ----- ------ 4. Octior uncle!Wrillng exponsas lncumld {Pan 3, Uno 25, Column 21---------------- _---526,793 --~-93.861 s. AggfGgatowrile-lrll for ~ngdeduaions__________ -------------+----------- &. TGlal undenvri1lng deductions (Uno$ 2 tt11ougtl 5) 526 193 93 861 7. Not lncomeot pruieaec1 mils ____,_______________________ ----~------~-----

a. Nel undefwriling gain or (Ion) (Una 1 minus Uno 6 plus Line 71----------------+----CS26,193) ___{93,861) lNVl:S'nU:NT tKCOME I

9. Not lrMtslmem lnc:omo eamed (Exhlbll ol Nol m,oslfflGl\1 lncomo, Uno 17) -----------------+---J3,D59 __42,801

10. Nat rcaliZOd capllBt gal111 or (lol;sos) leas capllal gains tax of S ------ (Elchbt of Csp11a1

Gallll (I.asses), __ _______-------------------------------------.. (482)+------265--1 t 1. Nol investtnomgaln (IOISS) (Uncs 9+ 10)--------------------------~----a,m _.,--Af,(116

OTHER INCOME

12. Netgain (loss) from agonlll' or pramlum balances dl8IVDd off (amount reaMmld S ______ amount churget1 aft$ ________ )--------------------------

13. Ananceand NMCOc:hargos natilaJdod tnpramlums __________________-+----------- 14. l\ggreg818'Milo-lnl lor mlscollnneouslncome--.---------- ----------1-----....!258:!!!..l------1 15. T01BI olhsrlncomo (Unao 12 lhroogtl 14)------------------------'l-____...;258=.+---------i 16. NO'l lnccme before dividonds io poli(:yh0ldlKs. l!.1Ulf capital gains IDX and botore all olhcr ledoral and toratgn lncomo taxes I

(Unes8 + 11 + 15)------------------------------____(473,958) _____(46,795)

17. DMdendslD i,ollcyt1oldors -------------------------------t------1--------t 18. Net ina>me, af1or clVldlwlCls ID poBqlhalde,s, allor capllal oalna tax and bs(tlff) all o1her ledlnl and foreign Income taxes

(lino 16 minUS Line 171------------------,--------+-----'473,958) ----(46,7!E) 19. Fodanll 1111dtore1Qn incomo iaxus incurred __________--------------- (14.004)

20. Not Income {Uno 18 minus Uno 191(10 Uno 22) _---------..---------t------''-73...,958__.),.______(32_._,19..,n~ CAPITAL AND SURPLUS ACCOUNT

21. Surplus as regarda polqholdcn. Dec:ernb0r31 pdoryoor(Page4, Uno39, Column2) ____,------~----9,191,878 "'.224,928 22. Net income (lrom Une 20)- (473,958) _,__(32,191)

23. Nettransfenl (to)flOm Proiected Coll ac:counts _______---------------+------ ----- 24. Oiange In net unreaazod capital ga!na or (lo3wl) lass caphnl gmns tax ot $ ------- -------- ,__ ___ -----

125. Chango in net unrealzocl foreign m:hango cspllDI gain (losa) ____---------------- ------ _,______ 26. Change In net dolom,d lnc:cmotax------------------------------- ______.28 27. Change In nonadmllled assets (Eld1iti1 of Nonadmllted Aam, Uno 28, Col. 31------------+----11.681,1182) 128C) 28. Change In J)f'Olllslc>ntor rebls\nnc:o {Pago 3, Line 16. Cmimn2 minus Column 11---------------------- 29. Changeln 1A1l'J)lusnou,s_,___________________________________________ ,__ ___________

30. SUtlllus (contributodto)v.fflldrawnfrom protaclodcol1s----------------- ------ f--9+---31. Cumulatlve otloct ol ctmngn In accounting princlplos ____________________,______________,__._ ----------

32.. Capital cllangM:

32.1 Paid in -----------------------------------------+--------- 32..2 Transferred from surplus (Slock Oiviclond)-.------------------------ -- . ,------- 32.3 TransllMTed to SUIJ)lus------------..------------------- ----- - . ,---

1

33. Surplus~:

33.1 Paid ln-------------------------------1-------- t------ 332T~l0 caplml (SU>dl Olvldend) _______________________________, 1------- 33.3 Transferred frornc:apltal _____________ ----------------t~------1-------

34. Netn:imlttBnces lrornor (lo) HomctOfflce_,_______________--------------------- - ----

35. OMdonds IDstocl-------------i---.!!12::.,155~,al=lli,___...,l(33~,0C9::!!I) 39. Surplus as maards - , Decomber 31 aimma WJ8I' (Uno 21 ,.,,.., Uno 38} IP- 3, Uno :m 7 O:li 058 9 191 878

DETAILS OF WRn'E-INS

0501. ------------------------------------ ------ ----- 0502. -----------------------------------t------~-----0503.

0598. Summary of n,malring write-Ins for Uno Sfrom CMltftowpago _____________ -----~----- t------ 0599. TOlDls ltlftes 0501 lh1u 0503 pus O!"i!Hl\nlM 6 abcYe) 1401. lllsc:elleneaus ln

2


CASH FLOW

1. Pramiumsc:oleeted net al reinsumnce_,_______________________ ____,_$1,225 ---1,026,GS4

2. Net irlve$1ment lncoma _______ -----91,310 m,446

3. t.lsceUanoous Income 2!i8

'4. Total (Unes 1 t1ltough 3) 482 783 1119 939

5. Bonelltundl01a re1a1DC1 paymenis-----------------------------1,261,524 ~--l2,105,439} 6. Net ITanafer8 to SeparateAc:counla, Seoroga!Dd Acc:oun1S and p~Cell Acallmll------------ __...,;___,__J284) ...____,2B4 7. Convniaslons, exponsos paid andaggrogatoWl!te-ina tot dlMluctlona,---------------- _______,526,793 ---'_J13,B61 8. Dividends peld10poficyhoidDrl __________________________________-+------- 1------- 9. Foclend 1.111d foreign Income rues paid (recovel\ld) natal$ ------ laxon capllal g;sins (loascls)---,.--------lf--------1

10. TOUII {Unes Slhrough 9)_--------------------------i-----1,__7il....,_033......,_____.(_.2..01_L._293--'4,1 11. Net cash from apera1l0n$ (Uno4 minus Unit 101-------------------"l----'-1_304_._:!S>-=+)----~3"-13_1_233-=-i

Cm:b from lnYvatmenta

12. Proc:oodS from 1nvoa1mct1111 sold, maiured or rapald:

12.1 Bondi----------------------------------- ---..--Bl0,673 ----B93,184 12.2 Stocks---------------------------------- ------ ------- 12.3 Mcl1gnge laans __________________________________________________ ----- -------

12.4 Roal osmto ----------------------------------- ------

12.5 Oltler Invested IISS4'ts---------------------------- ----- ------'

12.6 Net Qllins or (lossol) on cash, Clllh oqulvalonls and short-tom, invcs1mcnta ---------- ------

12.7 tascallano0us procc,ods ----- . ------- 325.462

12.8 Total irwesimcm prOQOOds (Unos 12.1 to 12.1>------------------------- _____1__.1_~__._tli-t-____&!13___,.__184--1

1s. Cos of lnvoslmel'l1S acqulnld (lanotarm only): I

13.1 Bonds-------------------------__:_____ _,____418,927 _____1,J.Ui,248 13.2Scoc:ks_______________________________________ ------1-----13.3 Mol1Qa98 loans_____________________________________

13.4 Real estate _____________________________________________________________________ -----

13.50lher~Dlaell---------------------------- _ ------ 13.6 ~ applca%ionS ___________________________"11------+-----~

1S.7To181irwestmGnllecquil'Od(llnos13.1to13.6)---------------------,-___....;,4.;;:l8~927~f----..:1...:'1


Underwriting and Investment Exhibit - Part 1 - Premiums Eamed

NONE

Underwriting and Investment Exhibit - Part 1 A - Recapitulation of all Premiums

NONE

Underwriting and Investment Exhibit - Part 1 B - Premiums Written

NONE

6, 7,8


UNDERWRITING AND INVESTMENT EXHIBIT 5 6 7 8

~of LOHN Incurred

Net l..olGOI lh1Ja!d l.olscs Incurred (Col. 7, Part 2) to CUrmntYoar Not t.oa1oa Ur,pald CUrrontYear Promlums Eamod

LN of Business Part 2A , Col. 8 Prior Year Cols.4+56 Col.4 Part 1 1. Rn, ___________ , _____________ ------2. Allodlnos _____ -------------------3. Farmo\llnGra nu~ope,1 ____________________________________ _ 4, HomllOwnonl mlAllploporl . ___ ,, __________ , ___ .. ______ _

5. Convnerclat nu~o port_, ________ .. ________ .. __________________ , ------ 6. Mo11gegeguaranty _______________ .. ___ .. _________ _

8. OCeanmGllne 9.

lnMd rnatlno ______ ,

10. Rll8nCIBI guarani)'---- -------------- 11.1 Med!c8I l)IOfossb\81 labllly ocaJINlnOO ___________ ,, ________________ _

11.2 Modica! prolmslonal lablllr clalma-mado ____ ., _____________ ... _.,, _______ ,,_ ... 12. Earthquako.--------------.. ------------ 13. Oroup DCddenl and hollah ____ _

14. Cnldll acddent and healh (group ard lld\4dual) 15. Olhoracclden! and hoallh _______________________ 1

t---

16. WOtkor8' a,mpen,a1Jon ___ .. _, _______________ .____

17.1 Olhorllnbllty occunenco-------------------- ----- 17.2 Othorllsbllty-dlffle-tnd ______ .. ,_, _____________________ ------ 17.3 &cmawomirs' a,mpansdln _____ .

co 18.1 ProductsllalJllly oocunonco _____________________ _ 18.2 ProducbllDbllly dalmmlllfll------------------- -----

18.1, 19.2 PrtvlllO pas,angereuto llltlllly _____________________________________________ 3,927,419

19.3, 19.4 Commcm:IBI ll1Jto llllblll)'------.. ---------.. ------ 21. Autop~cal dafflago ____ _ 22. AIICnllt (llllpollls)------ 23. R4D1~-------------24. &Jroty _________________________ _ ----- -------28.

lbglaiyandtheft ____________________________________ _

rt. Sollor and madllnerv--------------------.. ------ --- .. ---28. Cl8dll ____ , ______________________________ -------- 29.

ln1ernallonal _____ _

30. Warranly 31. Rehsurance -nanpioportlonalassumodpropony _______________ +---AN~--+--32. Relnaura110D ~IOl)Ol1!onalaa1lln*I llatmy _______________________ _

33.. Relmuranco ~,opolllonal assumed f!nanclal 11'1119-------------.. -34. 35.

-'ogrogmo wrllo-lns fof other llnos of bulnia1 ____________________ , . 1-----,,..,.,,,,....,..,.,,... ______ -+ ___ ~=-~-+--------1~------+-------1-------t-------1 TOTALS 3 927,419 DETAILS OFWRm:.fHS

3401. 3402. 3403. 3498. lbnmary of tomalring wrto~ns foe Uno 34 from overflow P808---------3499. Totals l.&1os 3401 ttvu 3403 34 ht 34 aboW

4

Relnsuranco Relnsuranco Net Pll}ffleolS Business A urned Recove1ed Cols. 1 + 2 -3

1. 2. 3. 4. 5. 6. 8. 9.

10. 11.1 11.2 12. 13. ,... 15. 18. 17.1 17.2 17.3 18.1...

0 18.2 19.1, 19.2 19.3, 19.4

21. 22. 23. 24. 28. 27. 28. 29. 30. 31. 32. 33. 34. 35.

3401. 3402. 3403. 3498. 3499.

ANNUAL STATEMENT FOR THE YEAR 2016 OF THE AFFIRMATIVE INSURANCE COMPANY OF MICHIGAN UNDERWRITING AND INVESTMENT EXHIBIT PART 2A UNPAID LOSSES ANO LOSS ADJUSTMENT EXPENSES

8 9 2 3 5 6

R,e_,,_,,_.,_____,______,____.._,,___.,

PJlec:I Inoa ....-,,-----------..----,.. .. - ... .. ------Fannowne11 lftll~e perl ....----------------... ------------Homoownor9 IIUl~o perl .._ .._____..__..______ _ _______ CommolClal nu~epe,t ________________.._____, Mongageguarantr ______________ Oceanmaitno_..__________,._______.,_,.______ IMfld ITIDrfnD .._ .. ,_,____,__.,,_,__..,_..,_..,_..,_,.___ _ Rnanclal guaranty_,._____,._________,_,____,._,.. Modlcel pn,folalonal labllty DCOJrrenm ____.,,_.,______,, Mecbll l)IQ1es110N11 labllly clalms-ftlade _ ..__,,________t------Earthlplllo ___~-------------- ----- Q'our>acddont and heallh .. , ______________ --------Cffldll accident and health (group and lnclvldual) _______,,_____,.

(B) -------

Qherecddontand hoalth .._,_,,________________ (8) ..______.,, WOfllerl' oompensatlon _________.,___..___.,___ ------.. .. Otherllabllty. 00CU1U11Ce _ ..,_.._________________. Otherllatlllty- d~made ___________ Excosawortio11 acmpensa11on_____ ________.. Procb:tsllabllly-oa:unence_, .. __,,______,___.,,_,___ , ______,,___ ---- Prom:tlllllbllty dalma-mado __,_________________ Private passengerauto labllly ___________________,______20,200,293 _,,._,__J0,839,557 CommOR:lal autolillbllty _______________________, -----Aulophysl(8! dan\age _____________, NICllln (allpollb) _________________________

RdellySuroty __________,,_,,_____,____ -----BwGIB'Y and lhaft ________,,____________________ -------Boller and machinery_.._,,,_,__________________,___ -------Cmdl _______________________

lmarnatklnol.Wamml)' _______

Relnsunirm n0111n,por1lonal aaumad property _____,

RelnsurBl'QJ nonproporUonal assumod llablll)' ------- Relnsurl!nCG ""'mpotllonal assumed flnanelal Ines---

_..xxx_---t--_J()C)(,____ ___)00(,_,.,_

Aggroga1e wrlle.fns for othor lhoo of bualneae ..._______, _ _,____.....,--.-1...,.._____....,_____---+------"----...,...,.......,.~------+---...,.,,..=..,,.,,....,-------1......------1

rarN.s Zl,200,2113 10 839,557 DETAQ.S OF WRflE-Nl

Sommaryof remalri,Q wrto.f,-, for Une 34 tnwn OVC!fflow page _______ Totall Lhe& 1 lhrU3403 3498 n,34 abav9


UNDERWRITING AND INVESTMENT EXHIBIT PART 3 - EXPENSES

3

I. Claim adjuslment MIMCOS'.

1.1 [)Qcl-----------,--------1------- ---1------- ------1.2 Ro!nswancoussumod________________.L...-,-----1---------------1.3 Reinsuiancococled----------------1-------1--------1---------l.-------1

t.4 Nstclalm tsd)uslmenl service (1.1 1.2 1.3) ..------~------ ----- ----- -----2. CommiUlon uncl bnlkonlge:

2.1 Dltec:l exduClng c:onlingent ______________-1-----2.2 RoinsumllCO assumed, oxctuding cormnoeru-------,~----,-- .______1--------a------- I 2.3 Reinsuranco codocl, exclucflng comlngont __------...,________ ----- ------ ...-----2 ... Comingont din,cl ___-----..-------- ---..--- ------ _ ---- -, --2.5 Conl!ngont. ralnsuran0o assumocJ _____ 1--------------2.6 Contif1llOfll n,lnsurancocodod.------------ ----- ------ ----- t-------- I 2.7 Pcllc:yand momberanlp leoa -----------1-------1-------1--------1-------I 2.8 Not commllalon and brolcorago (2,1 + 2.2 2.3 + 2.4 2.5 2.6 2.7) _ ------ ------- ------ ---L---

3. Allowancos ID mamigersanclooents.------------ ------ ------- i-------- -----4. ~"0--------------------- ------ ----- -----5. Boards, bureaus and usaocialionS .. ---------- - ---- ------235 - ---- _____-235 6. Survoys ond undorWrtl!ng rcport5.------------- _ ----- ------- ----- _ -7. Audltol aswrocts reconls--------------------1------ ------ ___ 1 _____ 8. Sala1y and rala1od llems:

8.1 Salarios ____________________~------- ----178,,629 ____1-----178,&!9

8.2Payrollt11ns_ .. ____-------------- --- ------2B.013 _ ---- _____28,013 9. Emplo)'eo relo11ona andwulfara ___________.,_____________..__ ------2,633 ------ --~-J!,633

10. Insurance __________________,______,_,___.______ ------ i------- t-------11. OirOC101Sreca _________________________...______ ------ -----------

12. TmY81anduaY8111oms _____________________._______ 6,711 ------- ___J;,771

l3. Rent and ront IUlml---------------'------- _______2,610 ------ ----.- . .:l,610 14. Equipment------------------1---- --- !t11 ------- - _!t11 15. CostotdopreciadonofEOPOQulpmonlandsoftwaro ... _____,~-- 2,211i ----- .,.....____.2,D

l6. Prinllng and sta11onary___----------- i------- _____4, 133 ------1------4,133 17. ._4,620 ----- -~-- 4,620Postage, telephone andUSlograptl, m:hango and Olq.ln)SS-------- '------ ___

1

1a. l..eQ8I and audiUno------------------ 7 CXXI 7 CXXI 19. T0181s{Unos 3SO 18)--------------,-------- ___..1:Jl.731 i------- ..._____..,.,,_.,,1SI 20. TlllCOS, llc:cnlos and foes:

20.1 State and local Insurance U1XOS doducting guaranty associa1ion

cn,dltao1$ ------ ---------- - --- ---- ------ ----20.21nsuranco~liconllos and ten_______~------ &J,013 ----- _ __m,013

2.0.3GrtxlS guar81\1yassociall0n USIISSINlfllS ____________ ------1------- t-------- t------- I 20.4 All o\hor (uduclng tedetal and foreign inc:omo and real estBl&l----------1------11------f---------l

20.5 Total taxes. llcenscl and l881l (20,1 20.2 + 20.3 +20.4) -------- ----....53,013 ------ ___: ____.511,013

2l. Realastaulelq)CtnS8S ___!,____________,___~-------- ------ ----- -----

22. Rool OS1ZltO IIIXOS--------------------'------- ----- __,_____ ------23. Reimnnomerns by uninsured plana.----------- - --- ----- ------ ------2,. Aggrogaro wrilo-lnl !Clf mllcellanoous ox;,onso11._ ..-------- ----- -----~.023 --------' .on _______......2JI1 ,034 25. TOIDleq,onacslncurrod ____________---------- _____ ----..526,193 ------'.011 'a) ~--.....I{IJ,804

26. Lass unpaid o,iponsn. cum,m ,o81'------------'-------- .______ ..._______------1 Zl. Add~ expenses. prtoryoar ______________---- _____10.131 1--------____10.131

1

28. Amounts fOClllivablo retal!ng to uninsured plans, prior ~r------- ------ ------ ------ -----29. Amounts rocalvable rala1ing to untnsurocl,plana, c:ummt yeBl' i

30. TOTAL EXPENSES PAID llinOIS 25 26 Z1 28 29\ S3i 924 1 011

DETAII.S OF WA11E-1NS

2401, 01her llistellllllGCIUS ~ --------------.J------ _____Jl,851 __.___1,011 ..____.,.a,1162 2402. Other ProfJuicml Service, ---------------11-------- 1-----~,501 ______ ~--202.lin 2403. Off-,slte Storage ----------------'------1-----24,671 ------- i-----....~~.1171 2498. Summaryol romairing wmi,-lns for Une2-4frornOWlftaw pagCl-----1------- .______ 1-------- t-------- I 2499. T01als cunos 2.co, thru 2403 """' 24111M""' 24 eboval 1,011 237,034

(a) lnckldos managomon1 toes al$ ------ 10 affllia!OI and S --------- to non-afflliatas.

11


EXHIBIT OF NET INVESTMENT INCOME 1 2

CcJllec:tad Durina Yoar Earned"'"""' Year 1. U.S. GCMlt'lllt10IU bonds---------..------..----..--..------- (a) _____.J238) . . 1,571 1.1 1.2 =:s~=w==.=:..--:--==:-.:_--::-==:--..:=::...--:--~-==--==----=---:--_:-.= - ~: :-_:___J'Al,979 :::~-: -~ 47,CQ

Bormcf afflla1a ______.. , _______________,___., ___ .________ (a)------ _____..___1.3 2.1 Ptelen'ed IZ0Cka ,unsffiliaScdl_..,_,___.,_______,.._,__.,____.,___________ (b) ----- ------

Prelonedstockscf amau,s________________.._____.,_________ (b) ---- 2.11 CommonllOCks (unnlfilimecl) __________,________________________._______ 1-----2.2

Commonsux:ks cf affillau:s.___.,_________________..__,._________ ---- ------- 2.21 MoftOaooloaM,..,_,______..,_..,_.. , __.,_.. , ______________,,___,_________ (C) ----- ,_.._______3.

4. Real Ostllle-,_.._.,_..____,__.,,_.. , __,_______________________ (d) ----- - -----Conttact loans _____..,_,_.,___..___,_,,_,______...._,________--f ______,__ ------ 5

6 Cash, c:nsn eQUlvalents and anon-tonn invustmonts--------------------- (o} ___S,446 i----..5,446 7 Derivalielns1JUffl8nls ____________ ---- ..------------- (I) ---- ----OlhtJf lnvatod UICIIS____________________________,_______ ______a.

.Aggrogatewrtlo-instcr hMlstinonlll100fflO ________________________________1-----9.

10. Toial llfflM lnwsmnent income 56 187 54 070 11. 1nves1mcn18lq>OIISIJI--------------------..--.----------..------ (g) ___J,011 12. lnvestmonl tal!OS, Ucensasandfoes, oxdudlngledefnl Income la.X8S _______.,________..__________,,_ (g) -----

ln!orutexpcnso______.,,_________,______________..._____,__________,.,___ (h) _I ----- 13.

0epfoclatian onroale=noandattierlnwshMIUA!s_..______,________...,_________, (I) -'----14. Aggn,gatewrlle-4ns IOf doduclionstrom lnvcstmentlnccmo___________________________1-----15. TOU11dodu!:tlonll (lJnn 11 through 15) ____________________________ 1----J,01116.

17. NG't lmlosUnent lna:Jms fLino 10 minus l.flO 161 53,CSJ

0901. --------..---------------..----------- ---..-- ------- 0902. "'----------------------------------0903. ------------------------------- ---1--------..--- --..--- - ..-~---..- -0998. Summaryof remalnlngwrlut-lns icr Uno 9 lrom CMJlflow pago---------------..--... ------ -..~--... .... 0999. T01als ILinoa 0901 ttwu 0900 lllua 0998\ n mo 9 abcMI) 1501. -----..-------------------------------------- --- 1502. --..------------------------ ---------------------- 1503. ------..---------..---------..--.. ..-------- ----t------- 1598. Summary ol remaining wme-lns for Uno 15trom overflow page__________,___________,.___.,______ ---- 1599. Totals runes 1501 thtU 1503 Dhm 1598\ tUnct 15 abowl

(11) lnckldes $ .,_..,_..___ts occrual ol db0ount less$ ____,46,273 nmonizadon cf premium and loss$ __.....2.rm paid fer accruod lnterost on purchmm. lb) lncluctes S ..,_____ occnml ol moount lass$ ____ amorlizadon cS premium andiuss $ ---- paid for accruod divldencts on purttmea,

(c:) lndudos S ---... ... ac:aual of cls00unt l8ss $ ---- amorlizalion cf premium and loss S --- paid tor ICCIUCld lnloteat on pun:huoa.

(di Includes S -----..--.. tor c:ompany'a oc:cupancy ot Its"" blildngs; and m:ckldos S -..----- lntorest on encumbrancel.

(o) lnc:ludos $ --... ..._,_.. l!CCIU31 ol dllcount IBss $ ---- amonizalion of premium and lass 5 ---..--..- paid tor IICCl\lod Interest o1i purchaaea. (f) lncludeS 5 ---... ... accrusl ol clscoun1 lllss $ ----- amonlzmion ol premium.

(Ill lncludos $ ----- invoslmllnt o,:pc,nses and S ______ lnYosUnonl tDXea, liconsea m1d toes, emudlng fodcnl income IBXOI, 81lributa!ll8 co sogregatod and Separate Alx:ounls.

thl lncludBs $ --..-- lnuna1onQIIJ)U notes and$---- lntoroslan c;apltalnou,s.

(II lncludOS $ --..---- de;:lreclmlon on real estate 1111d $ ..... _ .. ___ doprcclatlon on other inV'OSIDd assaia,

EXHIBIT OF CAPITAL GAINS LOSSES 2 3 5

T0181 ACIBllm:I Capital Olher Rollizod Gllin(losa)

II Columna 1 + 1. U.S. Oovammon1 bonds ------ 1.1 BondlaxemptfrofflU.S.tu______ ---- -------1-------1------ 12 Olhcr bonds (unaflilatud) ________________...J,C82l -------1----1.3 Bonds of al'lillates ---- ..-- ----- ------2.1 Prirlcrred gtoc:1cs (unaffiliated) ______,_______.,____, .. __.. _ ..______ 1----2.11 Pretonod S1DCkS of Dffiiates....___,.,_,___... _.,____,__________..___

2.2 Comrnonsloctls(I.Slllffilial8d ______ ------ ____..__

2.21 Common l1Ddla ol a!Wates-------1

3. Mor1gagoloana _____.

4. RCllloslat;D-----------1------1-----5. Conum:1 IOmls ____________, 6. Cash. cash ocpwlenls and sholl-tonn lnYOSVnetntl 7. Dol'lvatlvctmafnrmDnta _________ -------- 8. Other lnvos1od asaais _,___.,___,_,., -------..- ___,__.._____ 9. Aggroglll&wrile4na forcapflal galna (louoa)--. _____.. , ____

10. Teal 181 na (482)

DETAILS OF WRJ'T6.INS

0901. __.,_.._____________ --------- 0902. ____..__.,_______________________..__

0903. ____,,.____..__________,. _________ -"---..

0998. Summmy of remaining wrmMnS tor Lino 9 trom

owrflow page .....____., __ ,.,_..,_..,_,___ , .. --... - ...---..- _.,_..,_..,_.. , __

0999, Tolllla (Llnos 0901 lhlU 0903 plus 0998) (Unct 9,

abcMt

12

http:BondlaxemptfrofflU.S.tu


EXHIBIT OF NON-ADMITTED ASSETS 2 3

ChMQeinTOll!l Clsrent Yoar Total Prior Year TOUII Nonadmltted As8etl

NonadmlllDCI Assets NonmSmlnuclAsscts ICol 2 Col. 1l

1. Bonds (Schodulo Dl---------------------------- -----2. 8locks (Schoctulo 0):

2.1 Profom>CICIU>Cks.----------------------------- ..______ t------1 2.2Commonatockl---------------------t------------- t-------

3. Mar,;aoct loans on nial os181e (SchedlAo 6)!

3,1 Arstlena ______------------------------- -------

3.2 Other than flr&t lorL--..------------------t-----4. Roalomto (Sc:hodldo A):

4.1 Propettlea occupied by lhoc:ompany __________________1------ 4.2 Pn,J)crtlos hold lor 1ho producllon ot lncoma..._.__________________________ ------- _______

4.3 Prapenlls$ held forsalo---------------------- ------- ... ----5. Cast! (Sc:hoclJto E P8f1 1 ). cmh ocpvalon1s (Scn,dule E Pmt 2) and shorHeml inWISUnents

(SchecllloDA)------------------------- t------ t------- t------6. Contract loans______________ . -------------- ------ -------- ----

- I--7. ~ (Schodulo DBl-----------..----..--------- ---00---- >- ----8. 01111Ynwested ai:sats !Schedulo BA)------------------------ ._ ----9. Recaivablostorseairtticls-------------------t------ .,.,_____

10. Soc:urilles londlng raimlGSled collatoral aascns {Schodulo DL>-------------- ------ ,__________

- ---------- ------- ._. -----11. Aggregate Wll'lo-lm for lnvo1ltOd asseia __...-------00 0 -------1

12. Submls, cash and Invested anots (Lines 1 to 11)------------ -------- .,.__________ ------13. Tltlepl81\Ul(lorTltleinsuretSonly) _____,___________,____-+----- ------ ----- 14. lnlleslmcnllncomoduoandnecrued._________________________________ ------- -----

15. Premiums and considerations:

15.1 Uncolloc:U,d premiums 8nd agents' balancel In Cho COU1M1 ol eolloclion---- ----- ,-------- ___J._______ 152 Dclorrod premuns. agonU' balancoa and lnstallmct111S booked but dcferrod and not )'Ill CM-.------ ------ ---15.3 Aocruod relrOl:pCCIIIIO promiuma 8nd conum:ts IIUtljact lD rodetetmlnml0n _______ ------- ------ ----

16. Roinsumnco:

16.1 Amounts ~fromrelnsurers--------------- ------ ,_..:________ 16.2 Funds hold b','or dclpositod with ralmutod companlcss ----------- _____ ------

16.3 0lher mncun1S lllQSlvablo under rolnsutanco COIIUaCS-----------t------ ------- ------17. Amoun!s tecolvablo relating tounin:sured plans ___________________ ------ --------

18.1 Curront1odoml and fOfeign income tax rocoverablo and lntorest!hereon-------- ------ ------ >---r---18.2 Net~IDXasset---------------------- t------- ------- -----19. Gun,uylUnds racelvabloorondoposlt___________________ t------------- t-----20. Eloc1ronicda1Dprocessingoqulpmonl andaottwaro _______________________ .,._______ -----

21. Fumlturo and equipment, lncludlng health eat& daliYoly assolS __________---- -------- -------

22. Not DC!justmont In assets and llatjljies due 10 ioroign exchllnlt& lato5----------- ------- -----23. Roceivablos fn,m pe,ent. subslclarios and aflllin&as-------------+------1-------- ------24. Hoallhcaro and othcHamounlS 11100MSbie _____________________________ ------

25. Aggrogato witto-ins fOf OU'lllf lhtln lnwested asaots --------------- ----1,682.146 -----.284 ----11,681,8621 26. Total anets oxduclng Soparalo Accoums, SegrGgllted Accounta and Prollldlld Col Accounts i

(Lines 12to25)---------------------- ______1,682.146 _______284 ___(1,681,11112]

'D. FIOrn Sop.wfo Acccu1ts. Sog,ogatecl AcC1oun11 and Protcx:tecl CeD Accaunls---------- -----28. Total llivM 26 and 27> 1 682 11

DETAILS OF WRn'E-INS

1101. -------------------------------- -----------------1102.

1100. 1198. Summa,yof nmalringWJ!to.lns tor Uno 11 from 0118rtlow page------------t------- ------- ,_______

2501. Prtpald Erpenm --------- ---- -------------- .,._____...284_ 284

2502. list RiX'ovenrble frw AffirmllYG Ins. r.o. l:lbjecl to lbHlbissian --------t---1,682, 1


NOTES TO FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

A. Accounting Practices

Tne financial statements of Affirmative Insurance Company of Michigan (the Company) tiave been prepared on the baSis of accounting practices prescribed or permitted by the Michigan Department of Insurance and Financial Services (Department).

Ttle Department recogniZes only statutory accounting practices presaibed or pennitted by the State of Michigan for determining and reporting the nnanctal condition and results of operations or an Insurance company. for determining Its solvency under MIChigan Insurance Law. The National Association of Insurance Commlsslonera (NAIC) Accounting Practices and Procedures manual (NAIC SAP) has been fully adopted by the State of Michigan, as it relates to these financial statements. The CommlSsioner of Insurance has the right to permit practices that deviate from NAIC SAP. but has not adopted any such practices for purposes of prepartng the accompanying financial statements.

A reconciliation of the Company's net income and capital and surplus between NAIC SAP and practices prescrtbed and permmed by tne State of Michigan Is shOWn below:

State of Domiciie 1Ql ~!

NET INCOME (1) Stale basis . Ml (473,959) (32,791) (2) State prescribed practices that increase/(decr~) NAIC SAP (3) State permitted practices that incmase/(decrease) NAlC SAP (4) NAIC SAP basis (473959>. ~7911 .suBel.US. Ml (5) Stale basis 7,036,058 9,191;878 (6) State prescribed practices that increase/(dectease} NAIC SAP (7) State permitted practices that increase/(decrease NAIC SAP (8)NAICSAP 7,036.058 9.191.878

B. use of Estimates

The preparation of financial statements in confonnity WIUl Statutory Accounting Principles requtres management to i

make estimates and assumptions thal affect the reported amounts or assets and liabUltles. It also requires disclosure of contingent assets and liabilities at the date of the fmancial statements and lhe reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.

C. Accounting Policy

Premiums are earned over the terms or the relateo insurance policies and reinsurance contracts. Unearned premium reserves are established to cover the unexpired portion of premiums written. Such reserves are computed by pro rata methods for direct business and are based on reports received from ceding companies for reinsurance assumed.

Expenses Incurred In connection with acquiring new insurance business, induding such acquisition costs ~ sales commissions, are charged to operations as Incurred. Expenses Incurred are reduced for ceding allowances received or receivable.

If ceding commissions received under reinsurance agreements exceed the anticipated acqulslUon costs or the bUstness ceded, the Company wm establish a liablllty, equal to the difference between the anticipated acquisition cost and the reinsurance commissions received, to be amortlZed pro-rata over the life of the reinsurance agreements. 1

Net Investment Income earned consiSts primaruy or interest less Investment related expense. Interest is recognlZed on an accrual basis. Net realized capital gains(losses) are recognlZed on a spedllc Identification basts when securities are sold, redeemed or otherwise disposed. Realized capital losses include write-downs for Impairments considered to be other than temporary.

In addition, the company uses the following accounUng policies:

(1) Short-term investments are stated at amortized cost. which approximates fair value.

(2) Bonds not backed by other loans are stated at amortized cost using the sclentlflc interest melhOd. Noninvestment grade bonds with NAIC designations of 3 through 6 are stated at the lower of amortized cost or fair value. I

(3) The Company has no common stock.S.

(4) The Company has no preferred stocks.

(5) The Company has no mortgage loans on real estate.

(6) The Company has no IOan backed securities.

(7) The Company has no investments In subsidiaries.

(8) The Company has no Investments In Joint ventures. partnerships or limited llablllty companies.

(9) The company has no derivatives.

(10) The Company does not consider anticipated Investment income as a factor When evaluating the need for premium deficiency calculations. The company has no premium deficiency.

14

http:suBel.US



(11) Unpaid losses and loss .adjustment expenses lndude an amount determined from individual case est~ates

and loss reports and an amount. based on past experience. for losses tncurred but not reported. Suchi liablllUes are necessarily based on assumptions and estimates and while management befleves the amount iS adequate. the ultimate liability may be in excess of or less than the amount provided. The methods for making such estimates and for establishing the resulting liability is continually reviewed and any adjustments are reflected in tne period determined.

(12) The Company has not modified itS capltalization policy from the prior period.

(13) The Company does not write major medical insurance wttn prescription drug coverage.

2. Accounting Changes and corrections of Errors

The Company has no material changes In accounting prtnclples ancvor correction of errors.

3. Business combinations and GoodWIII

A. Statutory Purchase Method

The Company has no business combination or gOOdwill relating to any bUsiness combination accounted for under the statutory purchase methOd during the reporting period.

8. Statutory Merger I

The Company has no business combination or gOOdwlll relating to any business combination accounted for under the statutory merger method during the reporting period.

C. Impairment Loss

Not applicable

4. Discontinued Operations

The Company ceased wnttng new business In March 2011 and began to discontinue renewal or policies in June 2011. The business Is currently in run-off.

5. Investments

A. Mortgage Loans. lndud!ng Mezzanine Real Estate Loans

The Company has no mortgage loans.

B. Debt Restructuling

The Company has no debt restructuring.

c. Reverse Mortgages

The Company has no reverse mortgages.

D. Loan-Backed Securtties

The Company has no IOan-backed secuntles.

E. Repurcnase Agreements and/or Securities Lending Transactions

The Company has no repurchase agreements or securities lending transactlOns.

F. Real Estate

The Company haS no investments in real estate.

G. Low-Income Housing Tax Credits (LIHTC}

The Company has no Investment in tow-income houstng.

14.1

ANNUAL STATEMENT FOR THE YEAR 2016 OF THE AFFIRMATNE INSURANCE COMPANY OF MICHIGAN

NOTES TO FINANCIAL STATEMENTS H. Restncted Assets

(1) Restricted Assets (lnduding pledged) summarized by restricted asset category

_.. ~AsMI

c-..

0-SRHlnc:Md 8 ea.....v.. G 1 i; 10

I 2 3 .. 5 Toca!

Gener.II Aca:ut

iG'A)

fJ/A ~ ~

Cell.._... -(al

ICUI

Pia.-d Cd ~

ReAiaed AsMtl

..,__,. Cli!Joaxu'C

As.a ~ ~~

r111 TTabl ASMls

JodrrillDd ~ti,

I Tdal

Mimlllld Anft

a. Suqectccznractull ct,ligm:w,tcrw,ich idvsnat~

b. Cala8alllllkllnMf wcuty~-C. ~ID ~-d ~ID~

e. ~10NPU'INH--~l ~l)da, -11 ~...-q,do\ cc:rir

h. lllllllr.51Ddor ~~ as lo sale-~ RU3cacm!S10d<

i. ~~cmaasux:11 j. D"ldepmillli'lh...._ 3:?5mt'I 32!1.(ll(J m.343 '343i ~(ll(J 3.45 3."-'t



7. Investment tncome

A. Accrued lnvesbnent Income

Toe Company non-admits any investment income due or acaued that ts over 90 days past due.

B. Amounts Nonadmitted

Toe non-admitted amount Is $0.

8. Derivative Instruments

The company has no delivaUve instruments.

9. Income Taxes

A. Deferred Tax AsseV(Uablllty)

(1} Components of Net Deferred Tax Asset/(Liability)

( 1 ) Ordina

(a) Gross Deferred Tax Assets (b) StaMory Valuation Allowance Adjustment

( 3 )(COi 1+2) Total

(c) (d)

Adjusted Gross Deferred Tax Assets (1a - 1 b) Deferred Tax Assets Nonadmltted

(e} (f)

Subtotal Net Admitted Deferred Tax Asset ( 1 c - 1 d) Deferred Tax Llablllties 16

(g) Net Admitted Deferred Tax AsseV(Net Deferred Tax Uablllty)(1e - 1f} (16) {16)

(a) Gross Deferred Tax Assets (b) Statutory Valuation Allowance Adjustment (c) Adjusted Gross Deferred Tax Assets (1a-1b) (d) Deferred Tax Assets Nonadmttted

(e} Subtotal Net Admitted Deferred Tax Asset {1 c - 1d)

(f) Deferred Tax Llabtlitles (g) Net Admitted Deferred Tax Asset/(Net Deferred Tax

Liability)(1e- 1()

(a} Gross Deferred Tax Assets (b) Statutory Valuation Allowance Adjusbnent (c) Adjusted Gross Deferred Tax Assets (1a - 1 b) (d) Deferred Tax Assets Nonadmitted (e) Subtotal Net Admitted Deferred Tax Asset (1 c - 1d) {() Deferred Tax Llabllities (g} Net Admitted Deferred Tax Asset/(Net Deferred Tax

Liability)( 1 e - 11)

(2) Admission Galculatton Components

(a) Federal Income Taxes Paid in Prior Yeas Recoverable Through Loss Canybacks

(b) Aqusted Gross Defened Tax Assets Elcpected to be Reaized (Exclu



(4) Ordina

(a) Federal lname Taxes Paid in Prior Years R~ Through UJSS Carr,backs

{b) Aqusted Gross Defared Tax Assets Expected to be Realized (Excluding The Amount Of Deferred Tax Assets From 2(a) aboYe) After App6cation of 1he Thrashold limitation. (The Lesser of 2(b)1 and 2(b)2 below 1. Adjusted Gross Deferred Tax Assets E,cpected to be

Realized Fo!kMulg the Balance Sheet Date.

2. Aqusted Gross Deferred Tax Asse1s Allowed per limitation

Threshold

(c) Adjusted Gross Deferred Tax Assets (Excluding the Amount

Of Deferred Tax Assets From 2(a} and 2(b) above) Offset by GIOSS Deferred Tax Liabilities

(d) Deferred Tax Assets Admitted as lhe Result cl Applicatia\ of SSAP no. 101 Total (2(a) +2(b) +2(c))

( 7) (Col 1-4)

Ital {a) Federal Income Taxes Paid in Prior Ye.n Recoverable

Through Loss Carrybacks

(b) Aqusted Gross Deferred Tax Assets Expected to be Reaized

(Excluding The Amount Of Deferred Tax Asse1S From 2(a)

above) After Application of the Threshold Limitalion. {The

Lesser of 2{b)1 and 2(b)2 below

1. Adjusted Gross Deferred Tax Assets E,cpected to be

Realized Follo\wlg the Balance Sheet Date. 2. ~ed Gross Oefared Tax Assets AJloNed per Limiiation

Threshold (c) Aqusted Gross Deferred Tax Assets (Excluding the Amount

Of Deferred Tax Assets Fran 2{a) and 2(b) above) Offset by

Gross Deferred Tax Uablities

(d) Deferred Tax~ Admitted as the Result or Applic:aticl, of

SSAP no. 101 Total (2(a) + 2(b) + 2(c))

(3) Ottaer Admissibility Criteria 2016

(a) Ra1io Percentage Used lo Delefmine ROOOYefY' Period And Threshold Limitation Amo\n 12.223.228

(b) Amwlt " AcfjUStI Capital and Surplus Used to Detennine ReCOYefY Period and Threshold Limitation in 2(b)2 AbcNe. 7,036.058

(4) Impact of Tax Planning Strategies

e (8)

(Col 2-5) Total

2015

14,060.911

9,191,878

( 6) Col 4+5 Total

1,386,532

(9) (COi 7+8)

Total

I

(331,124)

ThiS is not applleable to ttae Company since the company does not have gross or net deferred tax asset for 2016 and 2015.

B. Deferred Tax Liabilities Not Recogntzed

1. There are no temporary differences for wl'ltcti deferred tax liablllUes (DTL) are not recognlZed. 2. The cumulatiVe amount of eaeh type of temporary difference ls SO. 3. The amount of unrecogniZed DTL for temporaiy differences related to Investments in foreign subsldlar1es and foreign

subsidiaries corporate Joint ventures Ulat essentially pennanent in duratton Is SD. The Company has no Investments tn foreign subsidiaries or rorelgn corporate joint ventures.

4. The amount of the DTL for temporaty differences ottaer than those In nem (3) above that is not recognized Is SO.

C. Current and Deferred Income Taxes:

( 1 ) ( 2) ( 3 ) {Col 1-2) (1) current Income Tax 2016 2015 Change

(a) Federal () (14,004) 14,004 (b) Foreign (c) Subtotal () (14,004) 14,004 (d) Federal income tax on net capttal gains (e) UtllizaliOn of capital loss carry.forwards (f) Other (9) Federal and foreign Income taxes incurred {) {14,004) 14.004

14.4



2. Deferred Tax Assets

(a) Ordinary (1) Discounting of unpaid losses (2) Unearned premium reserves (3) Policyholder reserves (4) Investments (5) Deferred acquisition costs (6) Policyholder dlvidends accrual (7) Fixed assets (8) Compensation and bene11ts accrual (9) Pension accrual (10) Receivable - nonadmitted (11) Net operating IOss carry-forward (12) Tax credit carry-forwaro {13) Other (including Items

Structure BookmarksSTATE OF MICHIGAN DEPARTMENT OF ATTORNEY GENERAL P.O. Box 30755 .

1 LANSING, MICHIGAN 48909 BILL SCHUETTE ATTORNEY GENERAL April 25, 2017 Via Hand Delivery Via Hand Delivery Clerk of the Court Ingham County Circuit Court Veterans Memorial Courthouse 313 W. Kalamazoo Lansing, MI 48901 Re: .Patrick McPharlin, Director of the Department of Insurance and Financial Services v Affirmative Ins. Company of Michigan; Case No. 15-898-CR; Honorable Clinton Canady III Dear Clerk of the Court: Enclosed for filing with the Ingham County Circuit Court is the Deputy Liquidator's First Report and Accounting dated April, 2017 relative to the above-captioned liquidation of Affirmative Insurance Company of Michigan ("AIM"). The report and attached exhibits were prepared by James Gerber, Special Deputy Liquidator of AIM, and his staff. Mr. Gerber has given his approval and authorization for filing the report. I enclose one original, signed by Mr. Gerber on April 24, 2017, together with all exhibits. I also enclose one complete Judge's copy of the report and all exhibits for Judge Canady. If you or Judge Canady have any questions regarding this filing, please do not hesitate to contact me directly. Sincerely,

~bfif~ ~bfif~ M. Elizabeth Lippitt Assistant Attorney General Corporate Oversight Division (517) 373-1160 Enclosure cc: .James Gerber, Special Deputy Liquidator (via ID mail w/o encl.) FigureD~ ~a''~ n D~ ~a''~ n Figure

APR 2 5 2017 Figure

uSTATE OF MICHIGAN COURT FOR THE 30TH JUDICIAL CIRC .INGHAM COUNTY .PATRICK M. MCPHARLIN, DIRECTOR PATRICK M. MCPHARLIN, DIRECTOR PATRICK M. MCPHARLIN, DIRECTOR

OF THE DEPARTMENT OF INSURANCE AND OF THE DEPARTMENT OF INSURANCE AND

FINANCIAL SERVICES, FINANCIAL SERVICES, Case No. 15-898-CR

Petitioner, Petitioner, HON. CLINTON CANADY III

V V

TR[IN REHABILITATION]

AFFIRMATIVE INSURANCE COMPANY AFFIRMATIVE INSURANCE COMPANY

OF MICHIGAN, OF MICHIGAN,

Respondent. Respondent.

DEPUTY REHABILITATOR'S FIRST REPORT AND ACCOUNTING April, 2017 April, 2017 Pursuant to the Rehabilitation Order entered by the Circuit Court on October 29, 2015, the Deputy Rehabilitator hereby respectfully submits his first annual report and accounting to the Court regarding the ongoing Rehabilitation of Affinnative Insurance Company ofMichigan ("AIM").

SUMMARY SUMMARY This report covers significant development for the period of October 29, 2015 through December 31, 2016. The main developments covered in this report are as follows: . . .The collection of over $3,073,402 in reinsurance payments since the inception of the Rehabilitation.

. .The settlement of six lawsuits/claims against AIM with alleged claim amounts totaling over $2 16,778 for the reduced settlement amount of $116,050.

. .AIM's parent company, Affirmative Insurance Company, being placed into liquidation by the Illinois Department of Insurance on March 30, 2016. The parent company being placed into liquidation has impacted AIM's reinsurance recoveries and cash flow.

. .The Illinois Circuit Court overseeing the liquidation of AIM' s parent company AIC entered an order approving the sale of AIM to Enstar Holdings (US), Inc. for $5,025,000 on November 30, 2016. The prospective sale remains pending.

1 This report is divided into several sections, which are as follows: Background, Legal, Administrative, and Financial.

BACKGROUND BACKGROUND AIM was incorporated on February 14, 2006 and commenced business on May 8, 2006. AIM is a wholly-owned subsidiary of Affirmative Insurance Company, an Illinois domiciled insurer. Affirmative Insurance Company is in turn a wholly-owned subsidiary of Affirmative Insurance Holdings, Inc. ("Affirmative Holdings"), a Delaware corporation. Affirmative Holdings was a publicly traded company trading on the Over-the-Counter market. Affirmative Holdings, through its operating insurance company subsidiaries, sold non-On June 30, 2015, Affirmative Holdings sold its managing general agency business to Confie Seguros Holding II Company and Confie Insurance Group Holdings ("Confie"). As part of the transaction, Affirmative Holdings and Affirmative Insurance Company entered into a managing general agent agreement with Confie, which expires December 31, 2019. Affirmative Holdings had previously sold its retail agency distribution to Confie in 2013. Confie holds the rights to claims payment and policy-related software and systAIM stopped writing new insurance business in Michigan in 2011. Since 2011, AJM has been in "run-off' mode, meaning it continues to process and pay valid claims under Michigan's No-Fault Act attributable to auto accidents that occurred while AIM's policies were in force. These NoFault Act claims include bodily injury ("BI") claims and personal injury protection ("PIP") claims, where valid PIP claims provide up to lifetime medical benefits for auto-related injuries. AIM leases office space in Plymouth, MI and currently employs two claims adjusters. AIM has a reinsurance contract with its parent, Affirmative Insurance Company, under which AIM cedes all claims and losses to Affirmative Insurance Company after cessions to other reinsurers. AIM also participates with the Michigan Catastrophic Claims Association ('MCCA"), a mandatory reinsurance facility that covers PIP claim losses above a specific, statutory retention amount. I 2 .AIM parent, Affirmative Insurance Company, was placed into rehabilitation by the Illinois Department of Insurance on September 16, 2015. Affirmative Casualty Insurance Company, a Louisiana-domiciled affiliate of AIM, was placed into rehabilitation on September 17, 2015. Affirmative Casualty Insurance Company's wholly-owned subsidiary, Affirmative Direct Insurance Company, a New York domiciled insurer, was also placed into rehabilitation on September 17, 2015. Affirmative Holdings filed for protection under On October 29, 2015, this Court granted the rehabilitation petition filed by the Qirector of the Michigan Department of Insurance and Financial Services ("DIFS") and entered a stipulated Order placing AIM into Rehabilitation ("Rehabilitation Order"). The Rehabilitation Order appointed the D IFS Director as Rehabilitator of AIM as required by statute, and further approved the compensation of the Rehabilitator's appointed Special Deputy Rehabilitator, Jaipes Gerber. On March 10, 2016, Affirmative Holdings' Chapter 11 bankruptcy reorganization proceeding was converted to a Chapter 7 liquidation proceeding. On March 24, 2016, Affirmative Insurance Company was placed into liquidation by the Illinois Department of Insurance. On April 11, 1 2016, Affirmative Casualty Insurance Company was placed into liquidation by the Louisiana Department of Insurance. LEGAL LEGAL AIM's major legal activity for the reporting period involved defending disputed No-Fault claims and lawsuits filed against the company. AIM employs two outside law firms to re~resent it in these matters, with consultation and oversight by attorneys from the Michigan Attorney General's office. AIM also filed a Proof of Claim and a Motion for Allowance and Payment of an Administrative Expense Claim against Affirmative Holdings in its bankruptcy proceeding I I The Rehabilitation Order enjoins all parties with claims against AIM from "[i]nstituting or continuing to prosecute any actions or proceedings to determine, enforce, collect, or assert any claims against AIM, its assets, policyholders," etc. This injunction may only be Ffted by order of this Court or the Rehabilitator's agreement to allow an action to proceejoci to nxlotormination ($ ----- ) - ----- 1-------16. Roinsuranco : 16.1 Amounts reeoYOrable from rofnsu----1.251,118( ~--------- 1.254,884 ----1690,480 t6.2 Funds held b)' o,, dopo$1lod with rolnsurod companies---------- '------------- ------ -------

16.3 Othm amountS recoivablo under rfrinsurance c:ontra...'1:S ---- ------ L-------17. Amounts rocotvobJe rela1ing to urvnsurcd plans ____ ____________________ ------- 1.... -------__

18.1 Cu~cnt lodoral and toroign lrn:ome lax recovorablo 11/ld imores1 thereoo _.. ...-...-...-... -4 ,855 1-.. . _ ..._____...___ ---...-...- ' ,85.5 --..-- 4,855 18.2 No, de1orrod rax nlS'O'l ...--------------------- L-----------19. Guararnylunds rocci\able 01 on dopooo ----------------- ~------20. Eloc:ronic d3ta processing equipmont and wttwaro ------ .21, Fumhure end cquip,nont. induding hoahh care do1ivory Mt,Ots .($ ------) ----------22. Nor adjustmem in as.sets and .wili'!ios duo to foreign er.change rates- ------- ~-----------'52123. 23. 23. Roc:olvat>f..trom potcn!, subclme, af1or clVldlwlCls ID poBqlhalde,s, allorcapllal oalna tax and bs(tlff) all o1her ledlnl and foreign Income taxes (lino 16 minUS Line 171------------------,--------+-----'473,958)----(46,7!E)

19. 19. Fodanll 1111dtore1Qn incomo iaxus incurred __________---------------.(14.004)

20. .20. .Not Income {Uno 18 minus Uno 191(10 Uno 22) _---------..---------t------''-73...,958__.),.______(32_._,19..,n~ CAPITAL AND SURPLUS ACCOUNT

21. 21. Surplus as regarda polqholdcn. Dec:ernb0r31 pdoryoor(Page4, Uno39, Column2) ____,------~----9,191,878 "'.224,928

22. 22. Net income (lrom Une 20)-.(473,958) _,__(32,191)

23. Nettransfenl (to)flOm Proiected Coll ac:counts _______---------------+-----------24. 24. 24. Oiange In net unreaazod capital ga!na or (lo3wl) lass caphnl gmns tax ot $ ---------------,__ ___ -----

25. 25. Chango in net unrealzocl foreign m:hango cspllDI gain (losa) ____---------------------- _,______

26. 26. Change In net dolom,d lnc:cmotax-------------------------------______.28

27. 27. Change In nonadmllled assets (Eld1iti1 of Nonadmllted Aam, Uno 28, Col. 31------------+----11.681,1182) 28C) 1

28. 28. Change In J)f'Olllslc>ntor rebls\nnc:o {Pago 3, Line 16. Cmimn2 minus Column 11----------------------

129. Changeln 1A1l'J)lusnou,s_,___________________________________________ ,__ ___________ 30. SUtlllus (contributodto)v.fflldrawnfrom protaclodcol1s----------------- ------f--9+---31. Cumulatlve otloct ol ctmngn In accounting princlplos ____________________,______________,__._ ----------32.. Capital cllangM: 32.1 Paid in -----------------------------------------+---------32..2 Transferred from surplus (Slock Oiviclond)-.-------------------------- .,-------32.3 TransllMTed to SUIJ)lus------------..------------------------ -. ,---1 33. Surplus~: 33.1 Paid ln-------------------------------1--------t------332T~l0caplml (SU>dl Olvldend) _______________________________, .1-------33.3 Transferred frornc:apltal _____________ ----------------t~------1-------34. Netn:imlttBnces lrornor (lo) HomctOfflce_,_______________--------------------- -----35. 35. 35. OMdonds IDstocl-------------i---.!!12::.,155~,al=lli,___...,l(33~,0C9::!!I) 39. Surplus as maards -, Decomber 31 aimma WJ8I' (Uno 21 ,.,,.., Uno 38} IP-3, Uno :m .7 O:li 058 9 191 878 DETAILS OF WRn'E-INS 0501. -----------------------------------------------0502. -----------------------------------t------~-----0503. .0598. Summary of n,malring write-Ins for Uno Sfrom CMltftowpago _____________ -----~-----t------0599. TOlDls ltlftes 0501 lh1u 0503 pus O!"i!Hl\nlM 6 abcYe) 1401. lllsc:elleneaus ln------------------------- _____1__.1_~__._tli-t-____&!13___,.__184--1 1s. Cos of lnvoslmel'l1S acqulnld (lanotarm only): I 13.1 Bonds-------------------------__:_____ _,____418,927 _____1,J.Ui,248 13.2Scoc:ks_______________________________________ ------1-----13.3 Mol1Qa98 loans_____________________________________ Figure13.4 Real estate _____________________________________________________________________ ----- 13.50lher~Dlaell----------------------------_ ------13.6 ~applca%ionS ___________________________"11------+-----~ 1S.7To181irwestmGnllecquil'Od(llnos13.1to13.6)---------------------,-___....;,4.;;:l8~927~f----..:1...:'1acddont and heallh .. , ______________ --------Cffldll accident and health (group and lnclvldual) _______,,_____,. Earthlplllo ___~-------------------Q'our>acddont and heallh .. , ______________ --------Cffldll accident and health (group and lnclvldual) _______,,_____,. (B) -------

Qherecddontand hoalth .._,_,,________________ Qherecddontand hoalth .._,_,,________________ (8) ..______.,,

WOfllerl' oompensatlon _________.,___..___.,___ WOfllerl' oompensatlon _________.,___..___.,___ ------.. ..

Otherllabllty. 00CU1U11Ce _ ..,_.._________________. Otherllabllty. 00CU1U11Ce _ ..,_.._________________.

Otherllatlllty-d~made ___________ Otherllatlllty-d~made ___________

Excosawortio11 acmpensa11on_____ Excosawortio11 acmpensa11on_____ ________..

Procb:tsllabllly-oa:unence_, .. __,,______,___.,,_,___ , Procb:tsllabllly-oa:unence_, .. __,,______,___.,,_,___ , ______,,___ ----

Prom:tlllllbllty dalma-mado __,_________________ Prom:tlllllbllty dalma-mado __,_________________

Private passengerauto labllly ___________________,______20,200,293 Private passengerauto labllly ___________________,______20,200,293 _,,._,__J0,839,557

CommOR:lal autolillbllty _______________________, CommOR:lal autolillbllty _______________________, -----

Aulophysl(8! dan\age _____________, Aulophysl(8! dan\age _____________,

NICllln (allpollb) _________________________ NICllln (allpollb) _________________________

RdellyRdelly

Suroty __________,,_,,_____,____ Suroty __________,,_,,_____,____ -----

BwGIB'Y and lhaft ________,,____________________ BwGIB'Y and lhaft ________,,____________________ -------

Boller and machinery_.._,,,_,__________________,___ -------Boller and machinery_.._,,,_,__________________,___ -------

Cmdl _______________________ Cmdl _______________________

lmarnatklnol.Wamml)' _______ lmarnatklnol.Wamml)' _______

Relnsunirm n0111n,por1lonal aaumad property _____, RelnsurBl'QJ nonproporUonal assumod llablll)' ------- Relnsurl!nCG ""'mpotllonal assumed flnanelal Ines---Relnsunirm n0111n,por1lonal aaumad property _____, RelnsurBl'QJ nonproporUonal assumod llablll)' ------- Relnsurl!nCG ""'mpotllonal assumed flnanelal Ines---_..xxx_---t--_J()C)(,____ ___)00(,_,.,_

Aggroga1e wrlle.fns for othor lhoo of bualneae ..._______, _ _,____.....,--.-1...,.._____....,_____---+------"----...,...,.......,.~------+---...,.,,..=..,,.,,....,-------1......------1 .rarN.s Zl,200,2113 10 839,557 DETAQ.S OF WRflE-Nl Sommaryof remalri,Q wrto.f,-, for Une 34 tnwn OVC!fflow page _______ Totall Lhe& 1 lhrU3403 3498 n,34 abav9 FigureANNUAL STATEMENT FOR THE YEAR 2016 OF THE AFFIRMATIVE INSURANCE COMPANY OF MICHIGAN UNDERWRITING AND INVESTMENT EXHIBIT PART 3 -EXPENSES 3 I. Claim adjuslment MIMCOS'. 1.1 [)Qcl-----------,--------1----------1-------------Figure

1.2 Ro!nswancoussumod________________.L...-,-----1---------------1.3 Reinsuiancococled----------------1-------1--------1---------l.-------1 t.4 Nstclalm tsd)uslmenl service (1.1 1.2 1.3)..------~---------------- -----2. CommiUlon uncl bnlkonlge: 2.1 Dltec:l exduClng c:onlingent ______________-1-----2.2 RoinsumllCO assumed, oxctuding cormnoeru-------,~----,--.______-I 1--------a------

2.3 Reinsuranco codocl, exclucflng comlngont __------...,________ -----------...-----2 ... Comingont din,cl ___-----..-----------..---------_ ---- -, --2.5 Conl!ngont. ralnsuran0o assumocJ _____ 1--------------2.6 Contif1llOfll n,lnsurancocodod.------------ ----------------t--------I 2.7 Pcllc:yand momberanlp leoa -----------1-------1-------1--------1-------I 2.8 2.8 2.8 Not commllalon and brolcorago (2,1 + 2.2 2.3 + 2.4 2.5 2.6 2.7)_ ------------------- ---L---

3. 3. Allowancos ID mamigersanclooents.-------------------------i-------- -----4. ~"0-------------------------------------

5. Boards, bureaus and usaocialionS .. ---------------------235 ----- _____-235 6. Survoys ond undorWrtl!ng rcport5.-------------_ ----------------- _ -7. Audltol aswrocts reconls--------------------1------------ ___ _____ 1

8. Sala1y and rala1od llems: 8.1 Salarios ____________________~-----------178,,629 ____1-----178

Deputy Liquidator’s First Report and Accounting dated ... · Liquidator's First Report and...

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