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Pinnacle Assurance issues clean statutory-basis opinion; GAAP differences and related-party items noted
Summary
Johnson Lambert's audit found no material weaknesses in Pinnacle Assurance's 2024 statutory-basis financial statements, while noting statutory vs. GAAP differences, a surplus note, and related-party transactions with subsidiary CAKE and the Attune software acquisition.
The Legislative Audit Committee reviewed Pinnacle Assurance's audited statutory financial statements for the year ended Dec. 31, 2023 (presented May 27) and heard from Johnson Lambert, the contracted auditors, that they issued an unmodified opinion on the statutory-basis statements and identified no material weaknesses in internal control.
The audit highlights include an increase in admitted assets driven by higher cash and invested assets, modest decreases in liabilities and a net increase in policyholder surplus. Auditors explained differences between statutory accounting principles and generally accepted accounting principles (GAAP): disclosure of non-admitted assets (for example, certain software and private equity), the statutory treatment of a surplus note issued in 2014, and the equity-method accounting for a technology subsidiary, CAKE.
Johnson Lambert noted an adverse opinion would apply if Pinnacle's statements were judged on a GAAP basis because Pinnacle does not prepare GAAP financials for the audited statutory statements. The audit also called out Pinnacle's purchase of Attune software from CAKE as a significant unusual related-party transaction (auditors said it was outside the insurer's normal course of business) and detailed the company's reserve-estimation processes, which involve actuarial support and an audit of reserve methodologies.
Pinnacle executives said the company maintains a conservative capital target and uses an AM Best capital adequacy model; management reported a target range consistent with peer state funds and explained the company's dividend policy, rating implications, and rationale for maintaining surplus levels to protect policyholders and injured workers from unusual loss events.
Committee members asked about surplus size, loss ratios and the company's combined ratio; Pinnacle said its combined ratio is near 100 (underwriting break-even) and that surplus levels are in line with capital adequacy requirements used by rating agencies and state funds.
