Essay - Kingfischer Mutual Insurance Company: Case Study Insurance Companies Manage Billions...

Kingfischer Mutual Insurance Company: Case Study

Insurance companies manage billions of dollars worth of policies each year. Most of this money is tied to (1) life and health insurance and (2) property ***** casualty insurance for individuals and corporations. A small percentage of overall revenue is derived from "special markets" such as medical liability, fidelity ***** so on. While special markets constitute the smallest percentage of revenue and income, the c*****e study entitled "Kingf*****cher Mutual Insurance *****" demonstrates that if improperly handled, even such small amounts can lead to disastrous results. The study investigates a hypothetical company (Kingfischer) and another ***** company (Finch) with which they are contracted.

***** is a large mutual ***** and casualty insurer. For five years, they had ***** steady earnings under three main segments: Personal, Commercial and Specialty, ***** the latter accounting for only 10% of revenues ***** only 1% of income. Because the Specialty segment had been performing so poorly, the management was pressured to improve the financial results ***** the Specialty segment. As a result, they initiated a relationship with Finch Co., a company with expert*****e in excess and surplus lines. Kingfischer placed considerable funds in ********** care ***** delegated important responsibilities to them. Finch was instructed ***** reinsure 98% of each policy written. Kingfischer's expectation from the ***** was that the ***** source of income would come ***** "fronting fees," and ***** ***** ***** receive a fee equ*****l to 12% of the premium volume it generated.

In ***** beginning there was extensive growth. Mr. Horton, the manager of Finch Co. had successfully developed many successful relationships with various agents, resulting in premium volume (underwritten by Finch) increasing from $86 million to $116 million ***** 20X2 to 20X4.

***** problems begin for ***** Kingfischer Company with their own internal auditors. Every two *****, Kingfischer's ***** auditors would visit Finch. Generally, the visits were designed only to check internal control, and to assess whe*****r Kingfischer's calculations were consistent with the established contracts. At no time was there a review ***** Finch's financial statements, bank accounts, confirmation with existing policy holders or a review of ***** claims handling process.

Problems continued with their external auditing system. An outside company, Chickadee LLP, evaluated the contract with Finch and concluded that excess and surplus lines were immaterial to Kingfischer's overall business, *****refore *****t worth examining too closely. ***** well, they had evaluated the risk ***** Kingfischer's contract ***** Finch Co. and concluded ***** the involvement carried a very low risk.

***** the auditing process, Kingfischer encouraged Chickadee to rely on Kingfischer's internal auditors whenever possible, believing that they ***** done a thorough investig*****tion during their biannual audits. Chickadee, impressed with ***** internal auditors, ***** with *****. Horton's reputation for honesty and integrity, never once visited *****.

In 20X6, Kingfischer made the decision to exit the ***** segment because of poor overall performance. Mr. Horton had left Finch a year earlier and ***** new ***** was inexperienced. In 20X6, Kingfischer found a new buyer, Wise Old Owl Company,