Minnesota Lawyers Mutual Insurance Company and Subsidiaries - Page 3

            State-Imposed Requirements                                                                 
                  Since its incorporation in 1981, petitioner has been                                 
            regulated by the Minnesota Department of Commerce (the                                     
            department).  Petitioner's affairs, practices, and financial                               
            condition are periodically subject to examination by the                                   
            department’s insurance division.                                                           
                  Each year, petitioner is required to file with both the                              
            department and the National Association of Insurance                                       
            Commissioners (NAIC) a copy of its NAIC annual statement, and to                           
            deliver a statement of actuarial opinion regarding the adequacy                            
            of its reserve levels.  At all times relevant to this case,                                
            petitioner complied with these requirements.                                               
                  Throughout its existence, petitioner was required under                              
            Minnesota State law to maintain a minimum surplus of $1 million.1                          
            Petitioner’s Early Financial Problems and Remedial Actions                                 
                  Between 1982 and 1985, petitioner’s reported surplus                                 
            deteriorated from $1,433,544 to $1,011,148.  Petitioner’s audited                          
            financial statements for 1985, issued by Ernst & Whinney on                                
            May 10, 1986, restated petitioner’s December 31, 1985, surplus as                          
            $7,995 and noted that petitioner did not meet the surplus level                            
            required by Minnesota statutes.                                                            

                  1 Petitioner's surplus is the excess of its assets over its                          
            liabilities, which include the amounts estimated to be necessary                           
            to satisfy its obligations for unpaid losses and allocated loss                            
            expenses.  As a liability item on petitioner's balance sheet, its                          
            loss reserves directly reduce petitioner's surplus.                                        

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Last modified: May 25, 2011