TABLE OF CONTENTSSalutation .1Scope of Examination .1Status of Prior Examination Findings .2Subsequent Events .2History.3General.3Membership .3Surplus Notes .4Dividends and Distributions .4Management.5Board of Directors.5Officers .5Committees .5Conflicts of Interest.5Corporate Records .5Captive Manager.6Affiliated Parties and Transactions.6Fidelity Bond and Other Insurance .7Pension and Insurance Plans.7Statutory Deposits.7Territory and Plan of Operation.7Insurance Products and Related Practices.8Reinsurance.9Accounts and Records.9Financial Statements .11Balance Sheet.12Assets .12Liabilities, Surplus and Other Funds .13Statement of Income .14Capital and Surplus Account .15Analysis of Examination Changes to Surplus.15Comparative Financial Position of the Company .16Notes to Financial Statements.17Comments and Recommendations.20Conclusion .33Signatures.34Final Findings of Fact .35Order .40

Washington, D.C.March 25, 2010Honorable Gennet PurcellCommissionerDepartment of Insurance, Securities and BankingGovernment of the District of Columbia810 First Street, NE, Suite 701Washington, D.C. 20002Dear Madam:In accordance with Section 31-3931.14 of the District of Columbia Official Code, we haveexamined the financial condition and activities ofIndemnity Insurance Corporation of DC, Risk Retention Grouphereinafter referred to as the “Company” or “Indemnity,” at the Company’s offices, located at950 Ridgebrook Road, Sparks, Maryland 21152.SCOPE OF EXAMINATIONThis full-scope examination, covering the period from June 17, 2004 through December 31,2008, including any material transactions and/or events noted occurring subsequent to December31, 2008, was conducted by the District of Columbia Department of Insurance, Securities andBanking (“the Department”).Our examination was conducted in accordance with examination procedures established bythe Department and procedures recommended by the National Association of InsuranceCommissioners (“NAIC”) and, accordingly, included such tests of the accounting records andsuch other examination procedures as we considered necessary in the circumstances.Our examination included a review of the Company’s business policies and practices,management and corporate matters, a verification and evaluation of assets and a determination ofthe existence of liabilities. In addition, our examination included tests to provide reasonableassurance that the Company was in compliance with applicable laws, rules and regulations. Inplanning and conducting our examination, we gave consideration to the concepts of materialityand risk, and our examination efforts were directed accordingly.The Company was audited annually by an independent public accounting firm. The firmexpressed unqualified opinions on the Company's financial statements for the calendar years2004 through 2008. We placed substantial reliance on the audited financial statements forcalendar years 2004 through 2007, and consequently performed only minimal testing for thoseperiods. We concentrated our examination efforts on the year ended December 31, 2008. Weobtained and reviewed the working papers prepared by the independent public accounting firm1

related to the audit for the year ended December 31, 2008. We placed reliance, to the extentpossible, on the work of the auditor.STATUS OF PRIOR EXAMINATION FINDINGSThis is the first full-scope examination of the Company.A limited-scope examination of the Company, for the period January 1, 2005 throughDecember 31, 2005, was previously performed. The examination was conducted to addressissues raised regarding the Company’s operations, including transactions with its affiliatedmanaging general agent (“MGA”); production of new business by the Company; and theCompany’s marketing, underwriting, and rating procedures and documentation.In response to the findings identified during the limited-scope examination, the Departmentissued a cease and desist Order against the Company, effective April 14, 2006. The finallimited-scope examination report, dated December 15, 2006, noted 26 findings and 24recommendations. Certain findings in the limited-scope examination report were reviewedduring this full-scope examination.The Company responded to the findings and recommendations in the limited-scopeexamination report, and in October 2006, entered in to a “Consent Agreement and Order”(“Consent Agreement”) with the Department. Under terms of the Consent Agreement theCompany agreed to address the findings and recommendations in the limited-scope examinationreport. The cease and desist Order was simultaneously lifted, and the Company resumed writingbusiness at this time.During this full-scope examination, several areas were noted where the Company had failedto comply with the recommendations made in the prior examination. These areas are addressedwithin this examination report and include the following:Use of policies and forms that were not approved by the Department.Policies written in excess of the limits approved by the Department.Issues with the ownership structure of the Company.Lack of timely remittance of funds from the MGA to the Company.SUBSEQUENT EVENTSLetter of Credit:During the second quarter of 2009, with the approval of the Department, the Companyobtained a letter of credit (“LOC”) in the amount of 47 million. Under the terms of the LOC, itexpired on December 31, 2009. The purpose of the LOC was to support the financial sizecategory assigned to the Company by AM Best. The Department’s approval, which allowed theLOC to be recorded as surplus, was granted with the condition that the LOC not be used to2

support additional premium volume. As part of our examination, we confirmed the LOC withthe issuer.During 2009, the Company did not consistently report this LOC in its Quarterly Statementsfiled with the Department. See the “Comments and Recommendations” section of this Report,under the caption “Letter of Credit,” for further comments regarding this condition.Merger of Indemnity Reinsurance Corporation of DC:Effective October 1, 2009, the Company’s affiliate, Indemnity Reinsurance Corporation ofDC (“IRCDC”), merged with and into the Company. All of the assets, liabilities and surplus ofIRCDC were merged with and into the Company. This merger was approved by the Department.As of September 30, 2009, the Company’s reported surplus totaled 2,680,293, and IRCDC’ssurplus as reported to the Department totaled 2,744,892.2009 Cash Infusion:In its 2009 Annual Statement, filed by the Company on February 26, 2010, the Companyreported a cash infusion, totaling 10 million, from Jeffrey B. Cohen. The infusion was reportedin the Annual Statement as “Gross paid in and contributed surplus”.HISTORYGeneral:Indemnity (formerly known as Capitol Specialty Insurance Risk Retention Group, Inc.) is anassociation captive insurance company domiciled in the District of Columbia. The Companyreceived its Certificate of Authority on June 17, 2004.The Company provides general liability, liquor liability and excess liability coverage topolicyholders in the entertainment industry including nightclubs, bars, concert promoters, andspecial events.Membership:According to the Company’s approved business plan, the Company is owned 50 percent byRB Entertainment Ventures, LLC (“RB”), which is a policyholder and is owned by JeffreyCohen, President of the Company; and 50 percent by the International Association ofEntertainment Businesses, Inc. (“IAEB”) whose President is also Jeffrey Cohen. The Companyis authorized to issue class A and class B shares of common stock in accordance with theCompany’s articles of incorporation. Class A and class B shares have equal voting rights. Theowner of the class A shares is RB and the owner of the class B shares is the IAEB.At inception of the Company, class B shares were non-voting. The articles of incorporationwere modified in October 2006 canceling the originally issued 10 shares ( 1 par value) of non-3

voting class B stock and replacing them with voting shares in an equal number to the number ofoutstanding class A ( 1 par value) shares issued at that time (1,000 shares). This change wasaffected in response to the above-mentioned October 2006 Consent Agreement with theDepartment. The intent of this transaction was to create equal ownership percentages (50percent each) between the class A shareholder, RB, and the class B shareholder, the IAEB, aswell as to provide class B shareholders with voting rights, as required by the ConsentAgreement.While this change to the articles of incorporation was filed with and approved by theDepartment, and the Company’s stock ledger reflected the cancellation of the 10 non-votingclass B shares and the issuance of 1,000 class B voting shares, the funds to pay for the additionalclass B shares, to be contributed by the IAEB, were never collected and recorded by theCompany. See the “Comments and Recommendations” section of this Report, under the caption“Common Capital Stock,” for further comments regarding this condition.As indicated above, the class B shareholder is the IAEB, and all policyholders (except for theclass A shareholder, RB) are members of the IAEB. However, the Company has been collectingthe membership fee ( 10) from insureds, on behalf of the IAEB, but has not been remitting thesefees to the IAEB. See the “Comments and Recommendations” section of this Report, under thecaption “Membership,” for further comments regarding this condition.Surplus Notes:The Company issued a surplus note on June 30, 2004 to RB. The note is for 650,000 andbears 6 percent interest. The note is due on demand and is payable in annual interest-onlyinstallments as allowed by the Department. A second surplus note in the amount of 1,000,000was issued to Jeffrey Cohen on May 8, 2008 bearing 6 percent interest. This note is due April15, 2058 and is payable in annual interest-only installments as allowed by the Department.Payments of principal and interest on both notes must be approved by the Department, and nopayments have been requested, approved or made during the examination period. Accruedinterest on the notes totaled 213,719 at December 31, 2008 and was reported as a liability of theCompany. See NOTE 3 in the “Notes to Financial Statements” section of this Report for furthercomments regarding the accrued surplus note interest.On September 12, 2008, via a “Unanimous Written Consent of the Board of Directors” of theCompany, the amount of the second surplus note was modified from 1,000,000 to 900,000,and the issue date was changed from May 8, 2008 to April 15, 2008. The reduction in the surplusnote was done in order to effectuate the transfer of 100,000 to “Common capital stock”. SeeNOTE 4 in the “Notes to Financial Statements” section of this Report for further commentsregarding this capital contribution.Dividends and Distributions:The Company did not declare or pay any dividends or other distributions during the periodunder examination.4

MANAGEMENTThe following persons were serving as the Company’s directors as of December 31, 2008:Name and State of ResidencePrincipal OccupationJeffrey B. Cohen, ChairmanMarylandPresidentIDG Companies, LLC*Harvey KnickMarylandVice PresidentIDG Companies, LLC**IDG Companies, LLC is the parent Company of the Company’s managing general agent, TheAgency.The following persons were serving as the Company’s officers as of December 31, 2008:NameTitleJeffrey B. CohenHarvey KnickEvangelia MoniodisPresident and TreasurerVice PresidentAssistant TreasurerCommittees:As of December 31, 2008, the Company’s board of directors had not established anycommittees.Conflicts of Interest:Our review of the conflict of interest statements signed by the Company’s directors andofficers for the period under examination disclosed that there were no conflicts of interestreported that would adversely impact the Company. Furthermore, no additional conflicts ofinterest were identified during our examination.Corporate Records:We reviewed the minutes of the meetings of the board of directors and shareholders for theperiod under examination. Based on our review of minutes provided by the Company, theCompany is not holding regular board meetings nor is there documentation of review andapproval of the Company's significant transactions and events.The Board voted to amend the bylaws in November 2008 through a unanimous writtenconsent of the board of directors to reduce the number of directors from three to two. Howeverthe Company has not yet revised the bylaws as of the date of this report. See the “Comments and5

Recommendations” section of this Report, under the caption, “Maintenance of CorporateRecords,” for further comments regarding the above conditions.CAPTIVE MANAGERB&D Consulting LLC (“B&D”) is the Company’s captive manager, and provides servicesincluding captive management and regulatory compliance services.AFFILIATED PARTIES AND TRANSACTIONSThe Company’s daily business operations are managed by The Agency, which acts as theCompany’s managing general agent and performs various administrative functions includingunderwriting, marketing, accounting, claims management, and overall program managementservices. The Agency’s owner and President, Jeffrey Cohen, is also the owner of RBEntertainment Ventures, the Company’s sole Class A shareholder, as well as 60 percentcontrolling owner of the Company’s affiliated reinsurer, IRCDC. Jeffrey Cohen’s parents,Sandra and Neal Cohen, own the remaining 40 percent of IRCDC.Effective October 10, 2006 the Company entered into a managing general agency agreementwith The Agency. The agreement is continuous until terminated. Under the terms of theagreement, The Agency acts as the Company’s managing general agent, including solicitation,underwriting, and premium collection. Commissions paid by the Company to The Agency areprovided for under a separate cost allocation agreement dated October 1, 2006. In the costallocation agreement, the Company pays The Agency a percentage of the gross net premiumswritten on all lines (gross written premiums less refunds or cancellations).Effective October 16, 2006, the Company also entered into a claims servicing agreementwith The Agency. The agreement is continuous until terminated. The agreement calls forcompensation of a claims servicing fee equal to a percentage of the amount of the Company’sgross written premium.According to the Company, the broker’s commissions paid to The Agency as outlined in thecost allocation agreement were modified on January 1, 2008. However, the cost allocationagreement was not updated to reflect this change. In addition, according to the Company, theclaims servicing fee as outlined in the claims servicing agreement was modified on January 1,2008. However, the claims servicing agreement was not updated to reflect this change. See the“Comments and Recommendations” section of this Report, under the caption “Service Providerand Other Agreements,” for further comments regarding these conditions.During 2008, the Company paid brokerage commissions of 247,489 to The Agency andclaim service fees of 35,651 to The Agency. Brokerage commissions and claim service feeswere changed to 0 percent as of January 1, 2008, and these expenses are associated with theunearned portion (deferred acquisition costs) recorded in 2007 that was recognized in 2008.6

The Company has also entered into a cost sharing agreement with its affiliated reinsurer,IRCDC, effective January 1, 2008. In this agreement, the companies agree to share and allocatecertain operating costs and expenses incurred by the companies. These costs and expenses shallbe mutually determined by the companies, and Indemnity will be responsible for payments of 10percent of all operating costs and expenses, and IRCDC will be responsible for 90 percent ofoperating costs and expenses. The agreement is automatically renewed annually until terminatedby either party.In addition, the Company cedes business to IRCDC. See the “Reinsurance” section of thisReport for further comments regarding the Company’s affiliated reinsurance arrangements.FIDELITY BOND AND OTHER INSURANCEIndemnity maintains directors and officers liability coverage. In addition, the Company hasno employees, but it is added as an insured on the Insurance Designers of Maryland, Inc. crimepolicy, which covers employee dishonesty, depositor’s forgery and computer fraud. The AgencyLLC has also been added as a named insured. These policies provide adequate coverage basedon NAIC guidelines.PENSION AND INSURANCE PLANSThe Company has no employees and therefore has no employee pension or insurance plans.STATUTORY DEPOSITSAs of December 31, 2008, the Company did not have any statutory deposits in the District ofColumbia and was not required to maintain any such deposits. In addition, the Company was notrequired to maintain statutory deposits with any other jurisdictions.TERRITORY AND PLAN OF OPERATIONAs of December 31, 2008, the Company was licensed in the District of Columbia, registeredas a risk retention group in an additional 31 states, and was writing business in 27 states and DC.During 2008, Indemnity wrote premiums totaling 11,046,536. 3,728,976 (34 percent) of theCompany’s written premium in 2008 was in New York, 1,321,769 (12 percent) in Texas, 1,243,793 (11 percent) in Florida, 1,150,700 (10 percent) in DC, 1,024,505 (9 percent) inConnecticut, 457,790 (4 percent) in Nevada, 416,986 (4 percent) in California, and 2 percentor less in Alaska, Arizona, Colorado, Georgia, Hawaii, Idaho, Illinois, Kansas, Kentucky,Massachusetts, Missouri, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma,Oregon, Pennsylvania, Tennessee, Vermont, and Virginia.7

The Company has no employees and its daily business operations are managed by variousservice providers. The Company provides comprehensive general liability coverage on anoccurrence basis to members of the IAEB. Its insureds are pubs, nightclubs, and taverns, specialevents and concert promoters, and entertainers. The Company’s policies include basic coveragefor general liability with a limit of 1,000,000 each occurrence, 2,000,000 general aggregate;and liquor liability with a limit of 1,000,000 each occurrence and 2,000,000 general aggregate.Additional coverage is available for assault and battery, hired car and non-owned auto, andemployee benefits liability with sub-limits up to 1,000,000 each occurrence and aggregate.Defense costs are in addition to the limits except for assault and battery coverage. Deductiblesare offered on an exception basis, currently up to 10,000. The Company also offers excessliability coverage with limits up to 4,000,000 each occurrence and general aggregate. Per theCompany’s approved business plan, 100 percent of excess limits are required to be reinsured.We noted several instances where the Company deviated from the approved business plan,including instances of writing policies with higher than approved limits and instances of theCompany writing polices that were not covered by the Company’s reinsurance. See the“Comments and Recommendations” section of this Report, under the captions “Policies Writtenin Excess of Limits Approved by the Department” and “Lack of Reinsurance Coverage” forfurther comments regarding these conditions.We also noted that the Company made various changes in policy forms and rates that had notbeen filed with or approved by the Department. See the “Comments and Recommendations”section of this Report, under the caption “Changes in Business Plan” for further commentsregarding these conditions.INSURANCE PRODUCTS AND RELATED PRACTICESThis examination was a financial examination, and generally did not include market conductprocedures. An examination of the market conduct affairs of the Company has never beenconducted. A market conduct examination would include detailed reviews of the Company’ssales and advertising, agent licensing, timeliness of claims processing, and complaint handlingpractices and procedures.The scope of our examination did not include market conduct procedures, including, but notlimited to, market conduct procedures in the following areas:Policy FormsFair Underwriting PracticesAdvertising and Sales MaterialsTreatment of Policyholders:o Claims Processing (Timeliness)o Complaints8

REINSURANCEEffective January 1, 2008 the Company entered into a “following form” Liability QuotaShare Reinsurance agreement with its affiliate, IRCDC. Under this agreement, Indemnity cedes90 percent of its gross written premium and receives a commission equal to a percentage of grossceded premiums. Indemnity is entitled to recover 90 percent of its net liability for each policy,each occurrence on policies written or renewed between January 1, 2008 and December 31, 2008(and each subsequent year until the agreement is cancelled).In addition, effective February 15, 2008 the Company obtained Liability Excess of LossReinsurance coverage, underwritten by eight Lloyd’s syndicates. Coverage is in the amount of 500,000 excess of 500,000 each occurrence for each insured on losses occurring on all inforce, new and renewal policies issued during the term of the agreement.The Company also obtained a second Liability Excess of Loss Reinsurance contract effectiveAugust 15, 2008. Coverage, underwritten by seven Lloyd’s syndicates, is in the amount of 4,000,000 excess of 1,000,000 each occurrence for each insured on losses under policieswritten or renewed during the term of the agreement.Subsequent to the period of this exam, the Company cancelled the above two Excess of Losstreaties effective February 15, 2009 and rewrote them under a single contract with limits of 4,500,000 excess of 500,000 each occurrence with comparable terms and conditions.In 2008 the ceded reinsurance premium under the above agreements totaled 10,057,354. Asof December 31, 2008, the Company reported “Amounts recoverable from reinsurers” totaling 8,829 (representing amounts recoverable on paid losses), “Reinsurance receivables” totaling 4,612,144 (representing prepaid reinsurance premiums – i.e., ceded unearned premiums), and“Reinsurance loss recoverable” totaling 702,124 (representing estimated amounts recoverableon unpaid losses). If the reinsurers were not able to meet their obligations under the treaties, theCompany would be liable for any defaulted amounts.Our review of the Company’s ceded reinsurance program and contracts disclosed a numberof issues, including a lack of executed copies of certain treaties. See the “Comments andRecommendations” section of this Report, under the caption “Reinsurance” for further commentsregarding these conditions.ACCOUNTS AND RECORDSThe primary locations of the Company’s books and records are at its offices, which are alsothe offices of its managing general agent, The Agency, in Sparks, Maryland.The Company’s general accounting records consist of an automated general ledger andvarious subsidiary ledgers. Our examination disclosed numerous issues regarding theCompany’s record-keeping, and numerous internal control weaknesses and issues in theCompany’s accounting and reporting processes, including issues regarding premium and loss9

data integrity, and lack of controls over intercompany and related-party transactions, premiumreporting and claims processing. These conditions are addressed throughout the “Comments andRecommendations” section of this Report.10

FINANCIAL STATEMENTSThe following financial statements, prepared in accordance with accounting practicesgenerally accepted in the United States (“GAAP”), except for the condition described in NOTE5, reflect the financial condition of the Company as of December 31, 2008, as determined by thisexamination:STATEMENTPAGEBalance Sheet:AssetsLiabilities, Surplus and Other Funds1213Statement of Income14Capital and Surplus Account15Analysis of Examination Changes to Surplus15Comparative Financial Position of the Company16The accompanying Notes to Financial Statements are an integral part of these FinancialStatements.11

BALANCE SHEETASSETSDecember 31, 2008Cash ( 2,286,669), cash equivalents ( 0) and short-term investments ( 0)(NOTE 1) 2,286,669Subtotals, cash and invested assets 2,286,669Investment income due and accrued188Uncollected premiums and agents’ balances in the course of collection3,864,484Reinsurance:Amounts recoverable from reinsurers8,829Current federal and foreign income tax recoverable and interest thereon316,890Net deferred tax asset521,374Electronic data processing equipment and software402,751Aggregate write-ins for other than invested assets:Reinsurance receivablesPrepaid expensesDeferred policy acquisition costsDeductible receivablesReinsurance loss recoverableTotal12 4,612,1446,250131,88923,390702,1245,475,797 12,876,982

LIABILITIES, SURPLUS AND OTHER FUNDSDecember 31, 2008Losses (NOTE 2)Loss adjustment expenses (NOTE 2)Other expenses (excluding taxes, licenses and fees) (NOTE 3)Taxes, licenses and fees (excluding federal and foreign income taxes)Unearned premiumsCeded reinsurance premiums payable (net of ceding commissions)Payable to parent, subsidiaries and affiliatesAggregate write-ins for liabilities:Deferred ceding commissionTotal Liabilities ,3601,457,032 12,176,985 101,0101,550,0000(951,013)Surplus as regards policyholders 699,997Total 12,876,982Common capital stock (NOTE 4)Surplus notes (NOTE 5)Gross paid in and contributed surplus (NOTE 4)Unassigned funds (surplus)13


association captive insurance company domiciled in the District of Columbia. The Company received its Certificate of Authority on June 17, 2004. The Company provides general liability, liquor liability and excess liability coverage to policyholders in the entertainment industry including