CERTIFICATE OF ADOPTION

Notice of the proposed report for the financial examination of

Dated this 17

STATE OF NEBRASKA

DEPARTMENT OF INSURANCE

EXAMINATION REPORT

OF

as of

DECEMBER 31, 2020

Item Page

Salutation .........................................................................................................................................1

Policyholders ........................................................................................................................... 5

Board of Directors ................................................................................................................... 5

Officers ................................................................................................................................... 6

Committees ............................................................................................................................. 7

Transactions with Affiliates ........................................................................................................ 8

Service Agreement .................................................................................................................. 8

Net Worth Agreement ............................................................................................................. 9

Territory and Plan of Operation .................................................................................................. 9

Reinsurance ............................................................................................................................... 10

Assumed ................................................................................................................................ 10

Compliance with Previous Recommendations ......................................................................... 15

Commentary on Current Examination Findings ....................................................................... 15

Summary of Comments and Recommendations ........................................................................... 15

Acknowledgment .......................................................................................................................... 16

1

Omaha, Nebraska

Honorable Eric Dunning

Director of Insurance

Nebraska Department of Insurance

1526 K Street, Suite 200

Lincoln, Nebraska 68508

Dear Sir:

The State of Nebraska last examined the Company as of December 31, 2016. The current

financial condition examination covers the intervening period to and includes the close of

business on December 31, 2020 and such subsequent events and transactions as were considered

pertinent to this report. The State of Nebraska participated in this examination and assisted in

the preparation of this report.

The examination was conducted pursuant to and in accordance with both the NAIC

Financial Condition Examiners Handbook (Handbook) and Section §44-5904(1) of the Nebraska

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evaluate the financial condition and identify prospective risks of the Company by obtaining

information about the Company, including but not limited to: corporate governance, identifying

and assessing inherent risks within the Company, and evaluating system controls and procedures

used to mitigate those risks. The examination also includes assessing the principles used and

presentation and management’s compliance with Statutory Accounting Principles and Annual

Statement Instructions when applicable to domestic state regulations.

The Nebraska Department of Insurance made a general review of the Company’s

been set out in this report under the caption “Description of Company.” All items pertaining to

management and control were reviewed, including provisions for disclosure of conflicts of

interest to the Board of Directors and the departmental organization of the Company. The

Articles of Incorporation and By-Laws were reviewed, including appropriate filings of any

changes or amendments thereto. The minutes of the meetings of the Policyholders, Board of

Directors, and committees held during the examination period were read and noted. Attendance

at meetings, proxy information, election of Directors and Officers, approval of investment

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Data reflecting the Company's growth during the period under review, as developed from

the Company's filed annual statements, is reflected in the financial section of this report under

the caption “Body of Report.”

The Company's reinsurance facilities were ascertained and noted and have been

procedures were tested to the extent deemed necessary through the risk-focused examination

process. The Company’s method of claims handling and procedures pertaining to the adjustment

and payment of incurred losses were also noted.

Touche LLP, the Company’s external auditors, during their audit of the Company’s accounts for

the years ended December 31, 2019 and 2020. Portions of the auditor’s workpapers have been

incorporated into the workpapers of the examiners and have been utilized in determining the

scope and areas of emphasis in conducting the examination. This utilization was performed

pursuant to Title 210 (Rules of the Nebraska Department of Insurance), Chapter 56, Section 013.

Any failure of items to add to the totals shown in schedules and exhibits appearing

throughout this report is due to rounding.

business to be that of an accident indemnity mutual assessment association. Such Articles were

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filed on May 17, 1902. Subsequent amendment to these Articles of Incorporation granted the

Company perpetual existence effective February 1, 1952.

An affiliated entity, Physicians Health Association of America (Physicians Health), was

formed on March 6, 1912. Its nature of business was that of a health indemnity mutual

Omaha, Nebraska with their field of operations being limited to members of the medical and

dental professions residing within the United States. Physicians Health was consolidated with

and merged into Physicians Casualty under the provisions of a Consolidation Agreement, which

The Company’s present name, Physicians Mutual Insurance Company, was adopted by

proper amendment to its Articles of Incorporation, effective March 1, 1962. Its plan of operation

changed at that time from that of an assessment association to a mutual legal reserve accident

and health insurance company. Under provisions of its current charter, and in conformity with

Nebraska Statutes, the Company is authorized to write the kinds of insurance prescribed in

Section 44-201, Subsection (4) of the Nebraska Insurance Statutes (sickness and accident

insurance).

through the use of indentations, and unless otherwise indicated, all subsidiaries are 100% owned):

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Physicians Mutual Insurance Company

Physicians Life Insurance Company

Physicians Mutual Insurance Company Foundation

Physicians Mutual Services Corporation

Seniors Information Network, LLC

National Association of Medicare Members, Inc.

Policyholders

Article IV of the Articles of Incorporation states, “every person, corporation, association

or partnership which is a Policyholder of the Company shall be a member and shall be entitled to

one vote in person or by proxy at the annual or special meetings of the members.” Article X of

the Articles of Incorporation states that, “annual meetings of the members shall be held at the

home office of the Company…on the third Saturday of February of each year to receive the

reports of the Officers, to elect Directors and to transact such other business as shall properly

come before such meetings.”

controlling, controlled by, or under common control with the Company and who are not

beneficial owners of a controlling interest in the voting stock of the Company or any affiliated

entity.”

The following persons were serving as Directors at December 31, 2020:

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FINANCIAL STATEMENT

December 31, 2020

Assets Net

Assets Not Admitted

Assets Admitted Assets

Bonds $2,022,929,664 $2,022,929,664

Common stocks 384,511,956 $ 220,572 384,291,384

Properties occupied by the company 16,576,773 16,576,773

Cash and cash equivalents 62,033,899 62,033,899

Receivables for securities 264,013 101,400 162,613

Other amounts receivable under

Current federal and foreign income tax

recoverable and interest thereon 2,220,549 2,220,549

Net deferred tax asset 34,747,312 23,922,613 10,824,699

Guaranty funds receivable 1,910,089 1,910,089

Electronic data processing equipment 23,010,033 22,700,151 309,882

Furniture and equipment 5,225,024 5,225,024

Receivables from parent, subsidiaries and

affiliates 886 886

Health care and other amounts receivable 6,443,272 6,443,272

Funds on deposit 45,258 45,258

Prepaid expenses 21,458,901 21,458,901

Debit suspense 20,574 20,574

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Aggregate reserve for accident and health contracts $1,306,404,544

Contract claims for accident and health 43,642,651

Premiums and annuity considerations for accident and health 10,876,283

Provision for experience rating refunds 8,200,000

Other amounts payable on reinsurance 716,198

Interest maintenance reserve 12,619,101

General expenses due or accrued 12,269,525

Taxes, licenses and fees due or accrued 2,000,609

Remittances and items not allocated 12,702,197

Asset valuation reserve 46,866,457

Minimum post retirement liability 2,446,597

Total liabilities $1,497,026,696

Unassigned funds $1,102,073,981

Total capital and surplus $1,102,073,981

Totals $2,599,100,676

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SUMMARY OF OPERATIONS – 2020

Premiums and annuity considerations $495,514,117

Net investment income 104,933,424

Amortization of interest maintenance reserve 1,338,153

Commissions and expense allowances on reinsurance ceded 4,508,269

Miscellaneous income 725,650

Disability benefits and benefits under accident and health contracts 323,883,744

Totals $522,060,636

Net gain from operations before federal income taxes

and net realized capital gains 84,958,977

Federal income taxes incurred 13,881,580

Net realized capital gains 448,102

Net income $ 71,525,499

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CAPITAL AND SURPLUS ACCOUNT

2017 2018 2019 2020

Capital and surplus, beginning $919,165,915 $951,171,024 $ 993,361,574 $1,037,384,362

Net income $ 39,775,598 $ 52,083,553 $ 47,269,470 $ 71,525,499

Change in net unrealized

Change in net deferred

income tax (32,788,977) (3,113,863) (3,172,753) (1,301,827)

Change in reserve on account

Change in asset valuation reserve (6,883,273) 13,254,365 (16,539,845) (2,907,617)

Unassigned funds (surplus) in the amount of $1,102,073,981, as reported in the

Company's 2020 Annual Statement, has been accepted for examination purposes. Examination

COMPLIANCE WITH PREVIOUS RECOMMENDATIONS

No recommendations were made as a result of the previous examination

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The courteous cooperation extended by the Officers and employees of the Company

during this examination is hereby acknowledged.

In addition to the undersigned, Kim Hurst, CFE, John Wiatr, CFE, Linda Scholl, CISA,

CFE, APIR, Financial Examiners; Gary Evans, CISA, AES, Information Systems Specialist; and