BEFORE THE INSURANCE COMMISSIONER OF THE STATE .before the insurance commissioner of the state of

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Text of BEFORE THE INSURANCE COMMISSIONER OF THE STATE .before the insurance commissioner of the state of

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    BEFORETHEINSURANCECOMMISSIONEROFTHESTATEOFIOWA )Inthematterofapplicationof ) AMTRUSTFINANCIALSERVICES, )INC.,MICHAELKARFUNKEL, )GEORGEKARFUNKEL, ) FINDINGSOFFACT,BARRYZYSKIND,andLEAH ) CONCLUSIONSOFLAW,KARFUNKEL,TRUSTEEOFTHE ) ANDORDERMICHAELKARFUNKEL2005 ) GRANTORRETAINEDANNUITY ) (IowaCodechapter521A)TRUSTforplantoacquirecontrolof ) DEVELOPERSSURETYAND ) INDEMNITYCOMPANY ) )

    I. INTRODUCTIONAmTrust Financial Services, Inc. (AmTrust Financial),Michael Karfunkel, GeorgeKarfunkel,BarryZyskind,andLeahKarfunkel,TrusteeoftheMichaelKarfunkel2005GrantorRetainedAnnuityTrust (jointly referred to as Applicants)wish to acquirecontrolofDevelopersSuretyandIndemnityCompany(DevelopersSurety).AmTrustFinancial isapublically tradedDelaware corporation. DevelopersSurety isan Iowadomiciledinsurancecompany.ApplicantsproposetoacquirecontrolofDevelopersSuretyinconnectionwithastockpurchaseagreementbetweenApplicantsand theCrowellFamilyLimitedPartnership(Seller). Applicantswill acquire 100percent of the issued and outstandingvotingsecurities of Insco Insurance Services, Inc. (Insco),which is the 100 percent directownerofDevelopersSurety.Followingtheacquisition,ApplicantswillbetheultimatecontrollingpartiesofDevelopersSurety.Pursuant toIowaCodesection521A.3(4)(b) (2013),apublichearingwasheldFriday,December 20, 2013 at the Iowa Insurance Division (Division) for the purpose ofdeterminingwhetherApplicantsproposedacquisitionofcontrolofAmTrustFinancialcomplieswith the statutory requirements set forth in IowaCode section521A.3(4)(a)(2013).

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    II. JURISDICTIONTheCommissionerhas jurisdictionover thismatterunder IowaCode section 521A.3(2013).

    III. EVIDENCEPRESENTEDIn support of the application, Applicants submitted an original and an amendedStatementRegardingtheAcquisitionofControlofaDomesticInsurerwithattachedexhibits (FormA) containing detail relating toApplicants operations. ApplicantsalsosubmittedthetestimonyofStephenUngar,GeneralCounseltoAmTrustFinancial.Mr.Ungartestifiedtothepurposeandinsupportoftheproposedacquisition. Atthecloseofthehearing,theadministrativerecordwasformallyclosed.AllevidencewasadmittedwithoutobjectionandispartoftherecordconsideredbytheCommissionerinissuingthefollowingfindings,conclusions,andorder.No one appeared at the hearing to oppose Applicants request or otherwise offerevidenceorcontradictorquestionApplicantssubmissionofevidence.

    IV. FINDINGSOFFACTThe statutory requirements Applicants acquisition plan must meet are relativelystraightforward. Iowa Code section 521A.3(4)(a) (2013) requires a showing by theApplicantthatthefactsandcircumstancessupportingitsapplicationforacquisitionofcontrolofInsurermeetfivestandards.Briefly, these standards relate to (1)Applicants postacquisition ability to retain anIowalicenseandcontinuewritingexistinglinesofinsurance,(2)effectoftheacquisitionon insurance competition in Iowa, (3) effect of Applicants financial condition onDevelopersSuretyanditspolicyholders,(4)effectofApplicantsanticipatedchangestoDevelopers Suretys operations onDevelopers Suretys policyholders and the publicinterest, and (5) the effect those persons thatApplicant chooses to leadDevelopersSuretyinthefuturewillhaveontheinterestsofDevelopersSuretyspolicyholdersandthepublic.Eachrequirementisdiscussedingreaterdetailbelow.If Applicants establish that its application for acquisition of control meets theserequirements, section 521A.3(4)(a) (2013) requires the Commissioner approve theapplication.

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    Applying thesestandards to theevidencepresentedby therecord,whenviewedasawhole,theCommissionerfindsthefollowingfacts:1. After a change of control, Developers Surety will be able to satisfy Iowalicensurerequirementsandthuscontinuewritingthelineorlinesofinsuranceforwhichitispresentlylicensed.

    IowaCode section521A.3(4)(a)(1) (2013) requiresanapplicant todemonstrate to theCommissionerthat,afterachangeofcontrol,theacquireddomesticinsurerwillbeabletosatisfytherequirementsforissuingalicensetowritethelineorlinesofinsuranceforwhichitispresentlylicensed.AmTrust Financial currently has six subsidiary insurers that are licensed in Iowa.Trans.at15.Mr.Ungartestifiedthatfollowingthechangeofcontrol,DevelopersSuretywillcontinuetomeettherequirementsforholdinganIowacertificateofauthority.Id.TheCommissionerfindsthatApplicantsabilitytosatisfyIowalicensurerequirementsand itsability tocontinuewritingexisting linesof insurance forwhich it ispresentlylicensedwillbeunimpairedafterachangeofcontrol.2. ApplicantsacquisitionofcontrolofDevelopersSuretywillnotsubstantiallylesseninsuranceindustrycompetitionwithinIowa.

    IowaCode section521A.3(4)(a)(2) (2013) requiresanapplicant todemonstrate to theCommissionerthattheeffectofacquiringcontrolwillnotsubstantiallylesseninsurancecompetitioninIowa.Mr.Ungar affirmed, as part of his testimony that the proposed transactionwill notcauseanydecreaseofcompetitionwithinIowa.Trans.at26.AmTrustFinancialisoneof the largest workers compensation writers in the United States. Trans. at 14.DevelopersSuretywritesprimarily suretybusinesswithnooverlap inbusinesswithAmTrustFinancial. Id. There arenoplans tomakematerial changes toDevelopersSuretysbusiness.Id.at13.TheCommissioner finds thatApplicants acquisitionof control ofDevelopers SuretywillnotsubstantiallylesseninsurancecompetitioninIowa.

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    3. Applicants financial conditionwill not jeopardize the financial stability ofDevelopersSurety,orprejudicetheinterestsofitspolicyholders.

    Iowa Code section 521A.3(4)(a)(3) (2013) requires an applicant demonstrate to theCommissionerthattheApplicantsfinancialconditionwillnot jeopardizethefinancialstabilityoftheacquireddomesticinsurer,orprejudicetheinterestofitspolicyholders.Postacquisition,DevelopersSuretywillbebackedbyAmTrustFinancialGroupwiththeabilitytoobtaincapitalthroughintercompanyreinsurancearrangements.Id.at16.ApplicantsarepurchasingInscofor$85million,tobepayableincashuponclosing,andsubjecttosomesmallchangesintheamountbasedonadjustmentsinthebookvalueasoftheclosingdate.Trans.at11.Therearenoplanstodeclaredividendsormakeanyotherdistributions. Trans.at13.Inaddition, therearenoplans to liquidate,sellanyassets,consolidateormergewithanyotherparty,ormakeanymaterialchangetothebusinessorcorporatestructureofDevelopersSuretythatwouldbeunfairorunreasonabletopolicyholders.Trans.at1617.There being no evidence of adverse financial impact on Developers Surety, theCommissionerfindsthattheinterestsofDevelopersSuretyspolicyholderswillnotbeprejudicedbyApplicantsfinancialcondition.4. Applicants proposed postacquisition changes in Developers Suretysbusiness,corporatestructure,andmanagementarenotunfairorunreasonableto Developers Suretys policyholders and are not contrary to the publicinterest.

    IowaCode section 521A.3(4)(a)(4) (2013) requires an applicant demonstrate to theCommissioner that the applicants plans or proposals for material changes to theacquireddomesticinsurersbusiness,corporatestructureormanagementarenotunfairorunreasonabletoitspolicyholdersandarenotcontrarytothepublicinterest.Applicants plan on developing Developers Suretys surety business by utilizingAmTrust Financials greater agency force and business resources, while allowingDevelopersSuretytocontinuetooperateasitdidpriortoApplicantspurchase.Trans.at1213.Following the acquisition,Developers Suretysmanagementwill essentially stay thesame,butAmTrustFinancial staffwillbeadded to themanagement team. Id.at13.

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    DevelopersSuretysboardofdirectorswillconsistofasevenpersonboardandincludetwocurrentdirectorsofDevelopersSurety.Trans.at14.The Commissioner finds that Applicants proposed postacquisition changes inDevelopersSuretysbusiness,corporatestructure,andmanagementarenotcontrarytothepublicinterest.5. The competence, experience, and integrity of those individuals who willcontrol Developers Surety after acquisition are sufficient to indicate thatDevelopersSuretypolicyholder interests and thepublic interestwillnotbejeopardizedbyApplicantsacquisitionofcontrolofDevelopersSurety.

    IowaCode section521A.3(4)(a)(5) (2013) requiresanapplicant todemonstrate to theCommissioner that the competence, experience, and integrity of those the applicantselects to control the acquired domestic insurer are sufficient to indicate thatpolicyholdersandthepublicsinterestwillnotbejeopardizedbytheacquisition.Managementbiographies,whicharepartoftherecordofthisproceeding,confirmthatthedirectors and executiveofficersof theApplicantswhowould controlDevelopersSuretyareseasonedandexperiencedindividualsintheinsuranceindustrywithprovenrecordsofcompetence,service,andintegrity.The Commissioner finds that the competence, experience, and integrity of thoseindividuals who will control Developers Surety after acquisition, are sufficient toindicate that thepublic interestwillnotbe jeopardizedbyApplicants acquisitionofcontrolofDevelopersSurety.

    V. CONCLUSIONOFLAWThelegislaturehasvesteddiscretionintheCommissionernotonlytoholdhearingsandmake factual findings, but also to interpret and apply the law. Iowa Code section521A.3(4)(a)(2013)requirestheCommissionerapproveanapplicationforacquisitionofcontrolif,afterapublichearing,theapplicantdemonstratesallfivecriterialistedwithinthatsectiontotheCommissioner.After a careful review of all evidence submitted, theCommissioner concludes,uponsubstantialevidence, thatApplicantshavedemonstrated to theCommissionerall fiverequirements set forth in, and required by, section 521A.3(4)(a) (2013). ApplicantsproposedacquisitionofcontrolofDevelopersSuretyshouldbeapproved.

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    ORDERITISTHEREFOREORDEREDthat:The application of AmTrust Financial Services, Inc., Michael Karfunkel, GeorgeKarfunkel,BarryZyskind,andLeahKarfunkel,TrusteeoftheMichaelKarfunkel2005GrantorRetainedAnnuityTrustforapprovalofaplantoacquirecontrolofDevelopersSuretyandIndemnityCompanyisAPPROVED.This Order shall be considered fina

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