STATE OF CONNECTICUT

Transcription

1 STATE OF CONNECTICUT INSURANCE DEPARTMENT ORDER ADOPTING REPORT OF EXAMINATION I, Anne Melissa Dowling, Deputy Insurance Commissioner of the State of Connecticut, having fully considered and reviewed the Examination Report (the "Report") of Executive Risk Specialty Insurance Company (the "Company") as of December 31, 2011, do hereby adopt the findings and recommendations contained therein based on the following findings and conclusions, TO WIT: 1. I, Anne Melissa Dowling, Deputy Insurance Commissioner of the State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions of Title 38a of the Connecticut General Statutes ("CGS"). 2. The Company is a domestic insurer authorized to transact the business of insurance in the State of Connecticut. 3. On February 21,2013, the verified Examination Report ofthe Company was filed with the Connecticut Insurance Department. 4. In accordance with Conn. Gen. Statutes 38a-I4(e) (3), the Company was afforded a period of thirty (30) days within which to submit to the Connecticut Insurance Department a written submission or rebuttal with respect to any matters contained in the Report. 5. On April 15, 2013, the Company notified the Department of certain responses and comments relating to matters contained in the Report. 6. Following review ofthe Report, it was deemed necessary and appropriate to modify the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A. P.O. Box 816 Hartford, CT An Equal Opportunity Employer

2 NOW, THEREFORE, it is ordered as follows: 1. That the Examination Report ofthe Company hereby is adopted as filed with the Insurance Department. 2. That the Company shall comply with all of the recommendations set forth in the Report, and that the failure ofthe Company to so comply shall result in sanctions or administrative action as provided by Title 38a ofthe Connecticut General Statutes. Dated at Hartford, Connecticut this 18th day ofapril, 2013 Anne Melissa Dowling Deputy Insurance Commissioner

3 Exhibit A EXAMINATION REPORT OF EXECUTIVE RISK SPECIALTY INSURANCE COMPANY AS OF DECEMBER 31, 2011 BY THE CONNECTICUT INSURANCE DEPARTMENT

4 TABLE OF CONTENTS Salutation Scope of Examination History Organizational Chart Management and Control Related Party Transactions Fidelity Bond and Other Insurance Territory and Plan of Operation Reinsurance Information Technology Controls Accounts and Records Financial Statements Assets Liabilities, Surplus and Other Funds Statement ofincome Losses and Loss Adjustment Expenses Common Capital Stock Gross Paid In and Contributed Surplus Unassigned Funds (Surplus) Recommendation Subsequent Event Conclusion Signature

5 February 21,2013 The Honorable Thomas B. Leonardi Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6 th Floor Hartford, Connecticut Dear Commissioner: In compliance with your instructions and pursuant to the requirements of Section 38a-14 of the Connecticut General Statutes (CGS), the undersigned has conducted a financial examination of the condition and affairs ofthe: EXECUTIVE RISK SPECIALTY INSURANCE COMPANY (hereinafter referred to as the Company or Specialty), a corporation with capital stock, incorporated under the laws of the State of Connecticut and having its statutory home located at 82 Hopmeadow Street, Simsbury, Connecticut and its and main administrative office located 15 Mountain View Road, Warren, New Jersey. The report on such examination is submitted herewith. SCOPE OF EXAMINATION The previous examination of the Company was conducted as of December 31, The current examination which covers the subsequent five year period was conducted at the Company's main administrative office, on a full scope, comprehensive basis in accordance with the procedures outlined in the National Association of Insurance Commissioners (NAIC) Financial Condition Examiners Handbook (Handbook). As part of the examination planning procedures, the Financial Regulation Division of the Connecticut Insurance Department (the Department) reviewed certain material submitted by the Company from 2007 through 2011: Audit reports completed by the certified public accounting firm retained by the Company; Board ofdirector (Board) minutes; Committee minutes; Management's Discussion and Analvsis; Statements ofactuarial Opinion (Opinion); Reports ofthe Company's internal audit department; Documentation supporting Section 404 of the Sarbanes Oxley Act (SOX); and Annual statements filed with the Department.

6 A review of the 2007 through 2011 independent audit reports and a comprehensive analysis of the Company's financial statements and other filings submitted to the Financial Analysis Unit of the Department indicated no material concerns with respect to financial condition or regulatory compliance issues. Workpapers prepared by the Company's independent public accountants, Ernst & Young LLP, in connection with its annual statutory audit, were reviewed and relied upon to the extent deemed appropriate. The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the Handbook. The Handbook requires that we plan and perform the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining information about the Company, including corporate governance, identifying inherent risks within the Company, and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management compliance with Statements of Statutory Accounting Principles (SSAP) and Annual Statement Instructions. All accounts and activities of the Company were considered in accordance with the risk focused examination process. A coordinated examination was performed with all states within the Chubb Group of Insurance Companies (the Group), with the Indiana Department of Insurance (IDOl) as the lead and coordinating state. In addition to the Company, the following companies were concurrently examined: Federal Insurance Company (Federal) Pacific Indemnity Company (Pacific) Executive Risk Indemnity Inc. (Executive) Great Northern Insurance Company (Great Northern) Chubb Custom Insurance Company (Custom) Chubb Indemnity Insurance Company (Indemnity) Chubb National Insurance Company (National) Vigilant Insurance Company (Vigilant) Chubb Insurance Company of New Jersey (Chubb New Jersey) Northwestern Pacific Indemnity Company (Northwestern) Chubb Lloyds Insurance Company of Texas (Lloyds) Texas Pacific Indemnity Company (Texas Pacific) The IDOl retained the services of Noble Consulting Services, Inc. (Noble) to conduct the financial review, including the review of the information technology (IT) control environment. The IDOl also retained the services of Merlinos & Associates, Inc. (Merlinos) to perform the actuarial review. 2

7 Comments in this report are generally limited to exceptions noted or to items considered to be of a material nature. Failure of items in this report to add to totals or for totals to agree with captioned amounts is due to rounding. HISTORY The Chubb Corporation (the Corporation) was incorporated as a business corporation under the laws of the State of New Jersey in June The Corporation is a holding company for a family of property and casualty insurance companies known informally as the Group. In addition to the thirteen domestic property and casualty companies, the Group has various international affiliates. The Group provides property and casualty insurance worldwide through three strategic business units: Chubb Commercial Insurance (CCI); Chubb Personal Insurance (CPI); and Chubb Specialty Insurance (CSI). The Company was incorporated on October 29, 1991, and is a wholly owned subsidiary of Executive which is wholly owned by Federal, which is wholly owned by the Corporation. On March 1, 1995, the Company's name was changed from Executive Re Specialty Insurance Company to its current name. 3

8 ORGANIZATIONAL CHART The following abbreviated organizational chart shows the affiliated compames and subsidiaries as of December 31, 2011: NAIC Domiciliary Co. State/CoW1try The Chubb Corporation Federal Insurance Company IN Executive Risk Indemnity, Inc DE Executive Risk Specialty Insurance Company CT Great Northern Insurance Company IN Chubb Custom Insurance Company DE Pacific Indemnity Company WI Texas Pacific Indenmity Company TX Northwestern Pacific Indemnity Company OR Chubb Insurance Company ofnew Jersey NJ Chubb National Insurance Company IN Chubb Indemnity Insurance Company NY Chubb Lloyds Insurance Company oftexas (A) TX Vigilant Insurance Company NY Chubb De Colombia Compania De Seguros, S.A. (B) Colombia Chubb Investment Holdings Inc. NJ Chubb Argentina De Seguros, S.A. (C) Argentina Chubb Insurance Investment Holdings LTD UK Chubb European Investment Holdings, SLP (D) Scotland Chubb Insurance Company ofaustralia Ltd. Australia Chubb Pacific Underwriting Management Sen/ices PTE, LTD. Singapore PT Asuransi Chubb Indonesia (E) Indonesia CC Canada Holdings LTD. Canada Chubb Insurance Company ofcanada Canada Chubb De Chile Compania De Seguros Generales, S.A. (F) Chile Chubb De Mexico Compania Afianzadora, S.A. DE C.Y. Mexico Chubb De Mexico Compania De Seguros, S.A. DE C.Y. Mexico Federal Insurance Company Escritorio De Representacao No Brasil L~ Brazil Chubb Financial Solutions (Bennuda) LID. Bermuda Chubb Insurance (China) Company Limited China (A) Lloyds Company/Syndicate (B) % Owned by Vigilant, 6.13% Owned by Federal, 4.22% Owned by Chubb Corp, 0.92% Owned by Pacific Indemnity, 0.42% Owned by Great Northern (C) 99.9% Owned by Federal (D) Scottish Limited Partnership. Two partners: Federal Insurance Company - FOW1ding Partner; Vigilant Insurance Company - General PartnlA (E) 80% owned. (F) 99.97% Owned by Federal, 0.03% Owned by The Chubb Corporation (G) 99.99% Owned by Federal Note - Italicized/ont indicates non-insurance affiliate/subsidiary. 4

9 Annual Shareholders' Meetings MANAGEMENT AND CONTROL The bylaws state that all meetings of the shareholders for the election of the Board and for the transaction of such other business as may properly come before such meetings shall be held each year at such date and at such time and place within or without the state of Connecticut, as may be designated by the Board. Special meetings of the shareholders for any proper purpose may be called at any time by the Board, the president, or any vice president, to be held on such date and at such time and place within or without the state of Connecticut, as the Board, the president, or any vice president, whichever has called the meeting, shall direct. The presence of any meetings of shareholders, in person or by proxy, of the holders of a record of the majority of shares issued and outstanding and entitled to vote shall constitute a quorum for the transaction ofbusiness. Board ofdirectors The bylaws also state that the number of directors shall be fixed from time to time by resolution of the shareholders and be elected at the annual meeting of the shareholders. In addition to the annual meeting ofthe Board, the Board, by resolution, may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Special meetings of the Board shall be held upon the call of the president, any vice president, or a majority ofthe directors in office. At all meetings of the Board, one-third of the entire Board shall constitute a quorum for the transaction ofbusiness. Directors serving the Company at December 31, 2011, were as follows: Name James P. Bronner Robert C. Cox Paul J. Krump William A. Macan Harold L. Morrison, Jr. Dino E. Robusto Title Senior Vice President, Chubb & Son, a division of Federal Insurance Company Executive Vice President, Chubb & Son, a division of Federal Insurance Company Executive Vice President, Chubb Corporation Vice President, Corporate Counsel and Secretary, Chubb Corporation Executive Vice President, Chubb Corporation Executive Vice President, Chubb Corporation 5

10 According to the bylaws, the officers of the Company shall be a president, one or more vice presidents, a secretary, a treasurer, and such other officers as may be appointed. Each officer shall be elected by the Board to hold office until such officer's successor is elected and shall qualify, or until such officer's death, or until such officer has resigned or has been removed. Officers serving the Company at December 31, 2011, were as follows: Name Paul J. Krump Robert C. Cox Richard G. Spiro Walter B. Barnes William A. Macan Douglas A. Nordstrom Title Chairman President and Chief Executive Officer Senior Vice President and Chief Financial Officer Vice President and Actuary Vice President and Secretary Vice President and Treasurer Committees The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Company. RELATED PARTY TRANSACTIONS The Company is party to several related party transaction agreements. The agreements that are material in nature are as follows: Management Agreement The Company has a management agreement with Federal, whereby Federal through its Chubb & Son division acts as manager of the insurance business and provides financial advisory services. Agreement to Allocate Consolidated U.S. Corporation Income Tax (Agreement) The Corporation, pursuant to the agreement dated July 30, 1981, and addendums, files a consolidated federal income tax return on behalf of the Company and various affiliates. Under the terms of the Agreement, each company's income tax liability is calculated in accordance with the ratio of its taxable income to the total taxable income of group members having taxable income. 6

11 In 2011, the Company amended the Agreement with an effective date of January 1,2012, but did not submit the Agreement to the Department for approval. Section 38a-136 of the CGS requires submission to the Department for prior approval of any material affiliated management or service agreements, addenda, or amendments. It is recommended that the Company retroactively file the Agreement with the Department in accordance with Section of the CGS and verify that proper controls are in place to ensure timely filing of future agreements to the Department. It is also recommended that the Agreement comply with the provisions in SSAP No. 96 of the NAIC Accounting Practices and Procedures Manual (Manual). Intercompany Pooling Agreement (Pooling Agreement) The Company is a member of a Pooling Agreement with affiliated insurers. The Pooling Agreement dated October 1, 2006, covers substantially all business. As of December 31, 2011, the Company's pooling participation percentage was.05%. FIDELITY BOND AND OTHER INSURANCE The Company protects itself against loss from any fraudulent or dishonest acts by any employees through a fidelity bond issued by Westchester Fire Insurance Company. The bond has a single loss coverage limit of $15,000,000, with a $25,000,000 deductible. The fidelity bond is adequate to meet the prescribed minimum coverage specified by the Handbook. The Company, through affiliation with Chubb, had additional types of in-force coverage at December 31, 2011, including, but not limited to, Management Indemnity/Directors and Officers Liability (D&O), Professional Indemnity Liability (E&O), Commercial Property Liability, ERISA Liability, Employment Practices Liability, and Workers' Compensation Liability. TERRITORY AND PLAN OF OPERATION The Company is licensed in Connecticut and is authorized to write direct business on a surplus lines basis in all other states and the District of Columbia. The three states with the highest direct premium volume in 2011 were New Jersey, New York, and Connecticut. The Company predominately writes D&O and E&O policies on a claimsmade surplus lines basis. The Corporation ranks among the largest insurance organizations in the United States and is recognized as an industry leader in providing specialized insurance coverages for select commercial customer groups as well as unique products and services for the upscale personal lines market. As of December 31, 2011, the Group's business composition within its three business units was approximately 34% CPI, 43% CCI, and 23% CSI. 7

12 Chubb Group Reinsurance Pool (Pool) REINSURANCE The Pool is comprised of the Company and eight other affiliates. The Pooling Agreement covers substantially all business with the exception of foreign business, financial guaranty, and the run-off of an aircraft voluntary pool. Each participant company in the Pool retains a share of its direct and assumed business subject to the Pooling Agreement and cedes the remaining share to the other participant companies. Business is apportioned among the participant companies based upon pre-determined rates of participation. The following is a list of the companies within the Pool and their respective participation percentage: Percentage of State of Name of Subsidiary Pool Domicile Federal 68.5% Indiana Pacific 17.0% Wisconsin Executive 8.0% Delaware Great Northern 4.0% Indiana Custom 0.5% Delaware Indemnity 0.5% New York National 0.5% Indiana Specialty 0.5% Connecticut Vigilant 0.5% New York There are four other Group member companies which cede 100% of their business to one of the participating pool members as follows: Texas Pacific and Northwestern cede 100% of their business to Pacific; Chubb New Jersey cedes 100% of its business to Federal; and Lloyds cedes 100% of its business to Great Northern. External Reinsurance Ceded The Group purchases reinsurance on a combined group basis and apportions the cost among each participating pool member in proportion to their designated pool share. The most significant component of the Group's reinsurance program is directed at per-risk (excess of loss) and per-event (catastrophe) risks associated with property risks. Additional specifics regarding each of these elements of the Group's reinsurance program follow: 8

13 Property Per-Risk Reinsurance The Group also reinsures property limits above $25 million through a series of per risk reinsurance layers providing approximately $625 million excess of $25 million per risk. During 2011, the Group placed all but a negligible portion of this reinsurance with various reinsurers. Property Per-Event (Catastrophe) Reinsurance The Group's primary reinsurance program involves the placement of catastrophe protection covering its North American, i.e., United States and Canadian property business. The Group maintains an initial per catastrophe retention of $500 million per event and places approximately 64% ofthe excess above this retention, between $500 million and $1.65 billion, with various reinsurers (supplemental reinsurance coverage). The Group also reduces its overall exposure through two catastrophe bond arrangements: a $150 million arrangement expiring in March 2012, providing coverage for homeowner-related hurricane losses in Florida; a $475 million arrangement, of which a portion expires in March 2014; and the remainder in March 2015, which provides coverage for homeowners and commercial exposures for loss events in the northeastern United States. The combination of catastrophe treaty, the supplemental reinsurance and the catastrophe bond arrangements provide coverage of approximately 64% of losses (net of recoveries from other available reinsurance) between $1.65 billion and $3.55 billion. INFORMATION TECHNOLOGY CONTROLS Noble perfonned the review of the Group's IT controls. The review included the evaluation of general and application controls in the IT environment supporting the financially significant systems. This review was performed in accordance with standards established by the NAIC and included procedures to detennine whether: The Group's responses to Exhibit C of the Handbook (Exhibit C) presented fairly, in all material respects, the aspects of the Group's IT processing controls, including policies and procedures, that may be relevant to its IT internal control structure; The IT controls were suitably designed to achieve the control objectives implicit in Exhibit C; and The IT practices were in compliance with the controls design. 9

14 Controls for the financially significant applications, systems, and underlying infrastructure in each of the Exhibit C work program areas listed below represented the framework for the scope of this examination. The following control areas were addressed: Planning and Organization Acquisition and Implementation Delivery and Support Monitoring and Evaluate Noble reviewed multiple significant systems of the Group including the key systems of the Company such as: CSI Express - Specialty products policy management system Customarg - Commercial lines policy management system Electronic Premium - Used to rate primarily commercial policies that have unusual products/coverage Claim Information System - Specialty claims system LINES - Personal, commercial, and specialty claims system Claim Financial System - Personal, commercial, and specialty claims system ClaimVision - Application used to process claims The overall assessment of the IT general controls environment for the key financial systems supported an IT reliance-based financial examination. ACCOUNTS AND RECORDS The Company uses the PeopleSoft general ledger and AM BEST software to prepare its statutory statements. The trial balances prepared from the Company's general ledger for the years ended December 31, 2010, and 201l, were agreed to the respective Annual Statements. The Annual Statement for the years ended December 31, 2007, through December 31, 2011, were agreed to each year's independent audit report without material exception. The Company's accounting procedures, practices, and account records were deemed satisfactory. 10

15 FINANCIAL STATEMENTS The following statements as filed by the Company and as detennined by the examination, reflect the assets, liabilities, surplus and other funds, and statement of income of the Company as ofdecember 31, ASSETS Bonds Cash, cash equivalents and short-tenn investments Investment income due and accrued Uncollected premiums and agents' balances in the course of collection Deferred premiums, agents' balances and installments booked but deferred and not yet due Amounts recoverable from reinsurers Net deferred tax asset Aggregate write-ins for other than invested assets Assets $212,237,041 7,114,794 2,403,102 14,156, , ,082 5,607,431 5,555 Nonadmitted Assets $384,635 7,701 2,332, Net Admitted Assets $212,237,041 7,114,794 2,403,102 13,772, , ,082 3,275,155 5,000 Total $242,158,333 $2, $ ,166 LIABILITIES, SURPLUS AND OTHER FlJNDS Losses Loss adjustment expenses Commissions payable, contingent commissions and other similar charges Other expenses (excluding taxes, licenses and fees) Taxes, licenses and fees (excluding federal and foreign income taxes) Current federal and foreign income taxes Unearned premiums Dividends declared and unpaid: Policyholders Ceded reinsurance premiums payable Funds held by company under reinsurance treaties Amount withheld or retained by company for account of others Provisions for reinsurance Payable to parent, subsidiaries and affiliates $61,208,720 20,631, ,825 1,272, , ,117 22,792, ,502 9,479, , ,685 3,829,046 Total liabilities 121,610,580 Aggregate write-ins for special surplus funds 584,142 Common capital stock 4,500,000 Gross paid in and contributed surplus 17,500,000 Unassigned funds (surplus) 95,238,444 Surplus as regards policyholders 117,822,586 Total $

16 EXECUTNE RISK SPECIALTY INSURANCE COMPANY STATEMENT OF INCOME Premiums earned UNDERWRITING INCOME $42,003,870 Losses incurred 22,218,500 Loss adjustment expenses incurred 6,498,913 Other underwriting expenses incurred 12,425,944 Aggregate write-ins for underwriting deductions 1,045 Total underwriting deductions 41,144,402 Net underwriting gain 859,468 INVESTMENT INCOME Net investment income earned 10,442,886 Net realized capital gains 54,306 Net investment gain 10,497,192 OTHER INCOME Net gain (loss) from agents' or premium balances charged off (22.934) Aggregate write-ins for miscellaneous incomes 1,244 Total other income (21,690) Net income before dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes Dividends to policyholders Net income, after dividends to policyholders, after capital gains tax and before all federal and foreign income taxes Federal and foreign income taxes incurred 11,334, ,846 11,179,124 1,544,717 Net income $9,634,407 CAPITAL AND SURPLUS ACCOUNT Surplus as regards policyholders, December 31 prior year $108,416,242 Net income 9,634,407 Change in net unrealized capital gains or (losses) less capital gains tax 2,388 Change in net deferred income tax 91,843 Change in non admitted assets (326,876) Change in provision for reinsurance (7,424) Aggregate write-ins for gains and losses in surplus 12,006 Change in surplus as regards policyholders for the year 9,406,344 Surplus as regards policyholders, December 31 current year $117,822,586 12

17 EXECUTIVE RISK SPECIALTY IJ~SURANCE COMPANY LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) $81,840,250 The captioned liabilities consisted of the following: Losses $61,208,720 LAE 20,631,530 nh840,250 Merlinos performed an actuarial analysis of the Group as of December 31, 20 II. Following the risk-focused approach, the following procedures were performed: Participated in interviews and discussions with key personnel; Determined the frequency and process of reporting actuarial indications to management and/or the Board; Reviewed the 2011 Opinions and the actuarial report supporting the Opinions prepared by the Appointed Actuary; Provided assistance to the examination team in evaluating the Appointed Actuary's reconciliation to Schedule P; Reviewed the external auditor's documentation and analysis relied on to determine that reserves carried by the Group are reasonable; Analyzed the pricing philosophy for certain lines of business, including determination that processes and assumptions used in practice were consistent with this philosophy; and Reviewed the intercompany pooling arrangement to gain comfort that the member companies' annual statements accurately reflect the pooling agreement in effect over the period under examination. Merlinos identified inherent risks for the Group and provided an assessment of potential severity and likelihood for risks with actuarial significance. Company controls were identified that would serve to mitigate these risks and Merlinos evaluated the effectiveness of these controls. For risks which were assessed as having "moderate" or "high" residual risk, Merlinos performed a detailed review of management's support for carried reserves and reviewed the work prepared by the Appointed Actuary. The Company's reserving policy and methodology was adopted and reviewed by the Board/Audit Committee with frequent communications between the Appointed Actuary and Audit Committee. The Company's segmentation of business was concluded to be reasonable. Merlinos also concluded the methodologies used for selecting ultimate losses and LAE were reasonable for the standard exposures other than Mass Tort and Catastrophe. For Mass Tort and Catastrophes, Merlinos concluded that they had no material concerns with the carried reserves or the process relied on to estimate the required reserves. Merlinos found no concern with the pricing process noting favorable profitability over the last five years, appropriate pricing, underwriting and reserving department interactions, evidence of peer reviews and scheduled comprehensive pricing reviews. 13

18 COMMON CAPITAL STOCK $ The common capital stock of the Company consisted of 50,000 shares of authorized; and 45,000 shares issued and outstanding with a par value of $100 per share. All shares are owned by Executive. GROSS PAID IN AND CONTRIBUTED SURPLUS $17.500,000 The balance of this account did not change during the years under examination. UNASSIGNED FUNDS (SURPLUS) $ The following exhibit reflects the balance of this account at December 31, for the years under examination: 2011 $95,238, $85,844, $72,466, $58,165, $49,154,507 The increase in this account was due primarily to net underwriting and investment gains. RECOMMENDATION 6 RELATED PARTY TRANSACTIONS It is recommended that the Company retroactively file the Agreement with the Department in accordance with Section of the CGS and verify that proper controls are in place to ensure timely filing of future agreements to the Department. It is also recommended that the Agreement comply with the provisions in SSAP No. 96 of the Manual. SUBSEQUENT EVENT In October 2012, the Northeastern United States suffered a catastrophic impact from Superstorm Sandy. In early December, the Group announced that it anticipated eventual losses from this event to be approximately $880 million on a pre-tax basis and $570 million on a net-of-tax basis. Each individual member of the Pool will incur losses approximate to their share of the Pool. For Specialty, this equated to gross and net losses of approximately $4.4 million gross and $2.84 million net of tax, respectively. 14

19 EXECUTIVE RISK SPECIAl TV INSURANCE COMPANY CONCLUSION The results of this examination disclosed that as of December 31,2011, the Company had admitted assets of $239,433,166, liabilities of $121,610,580, and capital and surplus of $117,822,586. During the period under examination, admitted assets increased $59,695,153, liabilities increased $762,558, and capital and surplus increased $58,932,595. It was determined that the Company's assets were fairly stated in accordance with guidance outlined in the Manual and were acceptable under Section 38a 102 of the CGS. The liabilities established were adequate to cover the Company's obligations to the policyholders. 15

20 SIGNATURE In addition to the undersigned, William Arfanis, CFE, Susan Gozzo Andrews, FCAS, MAAA, RPLU+, and Ken Roulier, AFE, CISA, AES of the Department participated in this examination. I, Daniel S. Levine, AFE solemnly swear that the foregoing report of examination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as of December 31, 2011, to the best of my information, knowledge and belief. Respectfully submitted, Daniel S. Levine, AFE Examiner-In-Charge State of Connecticut Insurance Department State of Connecticut ss County of Hartford Subscribed and sworn to before me, F\~(+c; Cl C,,- l2j~\ 'j-l t r, Notary Public/Commissioner of the Superior Court, on this ) \'4", day of fvy>l,,\.c" b,, Notary Public/Commissiemcr oftfic 8uI3crior Cottrt 16