Question
January 14, 1992
Dear Ms. OVuka (sic)
Pursuant to our conversation yesterday, enclosed please find a copy of the audited 1990 balance sheet (including the relevant portion of the footnotes) and a preliminary draft of the 1991 balance sheet (for which draft footnotes are not yet available) for the proposed acquired company.
In the 1990 balance sheet, you will see that the sum of the Cash and temporary investments, restricted and the restricted amount set forth in Accounts receivable, including $616,821 restricted in 1990 for premiums payable, is $13,662,369 and the corresponding liability, Premiums payable to insurance companies, is the same amount. Note 4 to the 1990 financial statements explains that the restricted temporary investments are maintained in fiduciary accounts. The matched book is even clearer in the 1991 balance sheet. As you can see, at December 31, 1991, the Cash and temporary investments, restricted is $11,947,644, and the corresponding liability, Premiums payable to insurance companies, is also $11,947,644.
I thought it might be helpful to set forth an excerpt from the agreement between the insurance company and the proposed acquired company which describes the mechanism for the handling of fiduciary funds. In the following excerpt, Administrator refers to the acquired company and Company refers to the insurance company:
All premiums, return premiums, loss payments, reinsurance proceeds and other funds relating to the Business Covered By This Agreement received by Administrator are the property of Company and shall be held by Administrator as trustee for the Company until delivered to Company, the insured, the claimant or the reinsurers as applicable. The trust relationship and Companys ownership of unpaid premiums which have not been collected by Administrator shall not be modified, affected or waived by the keeping of an account on Companys or Administrators books as a creditor and debtor account, the payment of balances at stated periods, the retention of administrative fees by Administrator or the acceptance of net premiums from agents and brokers. Administrator will maintain Companys monies in one or more separate bank accounts and will not mingle such monies with its own funds. Administrator may withdraw such monies to pay reinsurance premiums, return premiums and losses or to pay Administrator its fees and income on such monies.
If you have any questions with respect to the enclosed financial statements or otherwise, please do not hesitate to call me.
Very truly yours,
(redacted)
Nancy OVuka, Esq., (sic)
Federal Trade Commission,
Sixth Street and Pennsylvania Avenue, N.W.,
Room 301,
Washington, D.C. 20580
Encl.
219A
VIA TELECOPY