Best s Rating Report

Transcription

1 TOKIO MARINE AMERICA INSURANCE COMPANY TM SPECIALTY INSURANCE COMPANY TNUS INSURANCE COMPANY TRANS PACIFIC INSURANCE COMPANY A++ A++ A++ A++ New York, New York Printed September 28, Page 1 of 32

2 Ultimate Parent: Tokio Marine Holdings, Inc. TOKIO MARINE AMERICA INSURANCE COMPANY 1221 Avenue of the Americas, Suite 1500, New York, NY Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A++ Outlook: Stable Best s Financial Size Category: XV RATING RATIONALE Rating nale: The ratings of Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), have been extended Tokio Marine America Insurance Company (TMAIC) as it holds a strategic role within the organization as the primary U.S. insurer that receives explicit support through internal reinsurance. The ratings also reflect the company s strong risk-adjusted capitalization and additional implicit support provided by the parent. Insureds of TMAIC are clients of the parent that have operations in the United States. The ratings for Tokio Marine and Nichido Fire Insurance Company, Limited (TMNF), reflect its strong risk-adjusted capitalization, track record of profitable operating performance and favorable business profile. TMNF s strong risk-adjusted capitalization, as measured by Best s Capital Adequacy (BCAR), was supported by an increase in adjusted capital and surplus. Operating performance remains very profitable, supported by strong improvement in underwriting results, which partially offset a decline in net investment income. TMNF is the main operating entity of Tokio Marine Holdings, Inc., in terms of premium income and net profit contribution. TMNF s extensive and increasing overseas presence, especially in developed markets, supports its profit generation and future growth. In addition, TMNF benefits from geographic and risk diversification. Partially offsetting these positive rating facrs are TMNF s exposure catastrophe risks and its high proportion of equity investments, which could bring volatility its capital and surplus. However, the company actively manages these risks in its enterprise risk management framework. While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a material decline in TMNF s risk-adjusted capitalization due either a consistent deterioration in the company s operating performance or a negative impact from large-scale catastrophe events. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 08/18/17 A++ 08/22/14 A++ 08/19/16 A++ 05/15/14 A++ 08/21/15 A++ 08/22/13 A++ KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus , ,048-1,325 7,942 1,388, , , ,020 15,939 16,038 1,383, , , ,956 15,614 25,364 1,349, , , ,477 16,066 17,819 1,360, , , ,692-6, ,444, ,301 Profitability Leverage Liquidity Comb. Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW Overall Liq. (%) Oper. Cash flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Commercial Casualty Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE Tokio Marine America Insurance Company (TMAIC) commenced operations in September, The company is a New York domiciled property and casualty insurance company and is licensed in all fifty states, the District of Columbia and Puer Rico. The company primarily underwrites commercial lines products and select personal property and casualty coverage. The company is focused on reverse-flow business supporting Japan based clients of the ultimate parent, Tokio Marine & Nichido Fire Insurance Co., Ltd. (Japan) (TMNF). Roughly 70% of gross written premium is reverse-flow business, with the balance domestic sourced business. Major lines include commercial au liability, ocean marine, fire, commercial multi-peril, workers compensation, other liability - occurrence, allied lines and au Printed September 28, Page 2 of 32

3 physical damage. A majority of premiums are written in California where most of TMNF clients do business in the United States, followed by Texas, New York, New Jersey, Florida and Illinois. Personal lines and small commercial business is distributed through a network of independent agents while medium large accounts are placed through brokers. TMAIC provides 100% quota share reinsurance three affiliated insurance companies. Trans Pacific Insurance Company (TPI) writes preferred rate workers compensation, TM Specialty Insurance Company (TMS) provides excess and surplus lines coverages, and TNUS Insurance Company (TNUS) writes direct preferred rate workers compensation and commercial multi-peril business. TPI, TMS, and TNUS are owned in their entirety by TMAIC, and TMAIC is owned in its entirety by Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the state of Delaware, which in turn is owned by TMNF. The ultimate parent is Tokio Marine Holdings, Inc., a public company traded on the Tokyo Sck Exchange. Tokio Marine & Nichido Fire Insurance Company, Ltd. (TMNF), is wholly owned by Tokio Marine Holdings, Inc., one of Japan s largest insurance groups. The group has more than 270 subsidiaries and affiliates that provide primary life, non-life insurance and reinsurance as well as financial and general types of business, including asset management, in the Japanese and overseas markets. Established in 1879 as the first non-life insurance company in Japan, TMNF has approximately one-quarter of the domestic market in terms of net premiums written (NPW) at the end of December TMNF is the group s main operating subsidiary. Combining results from domestic non-life business and international business, TMNF generated 94% of the group s NPW in fiscal year Moreover, TMNF is the group s strategic hub with regard overseas market expansion. The production from overseas business has increased from about 5% more than 35% of overall NPW during the past ten years. Overseas operating subsidiaries include Philadelphia Consolidated Holding Corp., Delphi Financial Group Inc., and HCC Insurance Holdings, Inc., in North America; and Tokio Marine Kiln Group Limited and Tokio Millennium Re AG in Europe. In the Japanese market, TMNF s domestic non-life underwriting portfolio, in terms of NPW, consisted of voluntary aumobile, which accounted for approximately half of the portfolio, followed by compulsory au liability insurance (CALI), fire, personal accident and marine. Fiscal year 2017 is the last year of Tokio Marine group s mid-term business plan, named To Be a Good Company The group is expected reach its major targets set forth in this plan: an adjusted ROE in the upper 9% range; adjusted net income of around JPY 400 billion, compared JPY 407 billion in fiscal year 2016; and an enhanced dividend per share. Over the three-year plan, business and risk diversification significantly improved due the remarkable overseas expansion activities. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , , , , , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Terriry: The company is licensed in the District of Columbia, Puer Rico and all states BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Workers Comp 37, , , Comm l Au Liab 63, , , Com l MultiPeril 39, , , Au Physical 27, , Oth Liab Occur 35, , , Ocean Marine 57, , Fire 44, , , Homeowners 10, Priv Pass Au Liab 8, , Allied Lines 31, , , Prod Liab Occur 13, , , Inland Marine 19, , Aircraft 19, , All Other 15, , , Total 424, , , Printed September 28, Page 3 of 32

4 Business NPW Retention Product Line ($000) (%) (%) Workers Comp 69, Comm l Au Liab 58, Com l MultiPeril 44, Au Physical 27, Oth Liab Occur 23, Ocean Marine 22, Fire 13, Homeowners 10, Priv Pass Au Liab 10, Allied Lines 8, Prod Liab Occur 7, Inland Marine 4, Aircraft All Other 1, Total 302, BY-LINE RESERVES ($000) Product Line Workers Comp 321, , , , ,824 Comm l Au Liab 91,457 87,955 73,083 68,641 74,843 Com l MultiPeril 46,906 42,343 36,996 36,280 33,866 Au Physical -2,277-3,872-3,371-3,601-1,409 Oth Liab Occur 147, , , , ,705 Ocean Marine 9,220 9,781 7,272 4,629 14,135 Fire 2,881 3,241 6,096 37,099 53,984 Homeowners 3,401 2,345 2,517 2,130 1,868 Priv Pass Au Liab 12,624 9,371 7,751 7,301 8,390 Allied Lines 28,219 30,911 15,500 8,372 10,498 Prod Liab Occur 38,798 35,055 30,149 32,063 35,517 Inland Marine All Other 63,365 56,394 68,126 66,997 62,966 Total 764, , , , ,538 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) California 123, , , , ,726 Texas 37,002 38,696 35,388 32,293 24,855 New York 26,763 30,336 26,139 29,691 26,868 New Jersey 26,108 25,432 23,013 24,837 19,588 Florida 19,625 17,685 18,150 16,366 14,978 Illinois 18,569 26,178 21,779 21,404 17,311 Georgia 16,038 13,909 11,691 11,936 11,302 Ohio 12,984 13,570 12,632 11,653 10,617 Kentucky 12,084 10,655 9,576 9,736 7,406 Michigan 8,762 7,900 6,238 6,139 6,351 All Other 123, , , ,363 92,666 Total 424, , , , ,667 RISK MANAGEMENT As part of its risk management culture, the organization has an ERM committee and Strategic Planning Department in charge of ERM that define risk categories and manage risk in an integrated manner. Business unit managers meet quarterly monir existing risks and identify emerging risks. Risk moniring is reported by senior management the highest levels of the ultimate parent, which plays a role in defining risk appetite/risk lerances at the corporate and underwriting level. The U.S. based management team measures exposure among all risk correlations by applying a group wide risk quantification model manage insurance risks as well as the aggregation and correlation of all major risks. TMNF s risk management is in line with the Tokio Marine Group s ERM framework. The risk appetite statement sets forth that the group will conduct risk taking mainly in insurance underwriting and investments while ensuring a balance between risk and capital that enables it continue doing business even under stress scenarios. The group takes strategic management decisions and deploys capital based on an analysis of capital efficiency. Therefore, the results of group companies are regularly reviewed achieve sustainable growth of profits in each business domain. The group has developed its own internal economic solvency capital model quantify its capital adequacy and ensure financial soundness, with risk capital calculations based on 99.95% value at risk (VaR). Capital buffers are managed in order provide flexibility for business investments, share repurchases or changes in the regulary and operating environments. The group runs stress tests on scenarios ensure that the capitalization is sufficient absorb any potential losses. Printed September 28, Page 4 of 32

5 OPERATING PERFORMANCE Operating Results: TMNF reported a non-consolidated net profit of JPY 249 billion in fiscal year 2016, compared JPY 302 billion in fiscal year This reduction was mainly due a strong decline in investment results, driven by lower dividends received from its subsidiaries. Underwriting results, in contrast, materially improved from JPY 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016, primarily reflecting lower losses related natural catastrophes and lower provisions for catastrophe loss reserves. TMNF s non-consolidated operating ratio increased from 76.0% in fiscal year % in fiscal year 2016 chiefly due lower net investment income. The ratio remains below the five-year average of 83.7%. The company expects achieve a net profit of JPY 270 billion in fiscal year 2017 as a result of an improvement in underwriting results and an increase in dividends from subsidiaries. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return ,325 10,296 7,942 17, ,939 13,422 16,038 16, ,614 20,562 25,364 25, ,066 12,726 17,819 17, ,653-1, ,900 5-Yr Total 39,640 55,202 67,118 78,921 As previously stated in this report, underwriting profit increased from JPY 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016 due a decline in net incurred losses related natural catastrophes and lower provisions for catastrophe loss reserves. TMNF s loss ratio (private insurance, earned income basis) has been improving over the past five years, declining from 66.8% in fiscal year % in fiscal year The trend was mainly driven by improvements in the voluntary au insurance loss ratio over the period. The expense ratio (private insurance basis) remained relatively stable YoY at 32.7% in fiscal year 2016, compared 32.6% in fiscal year 2015, as the decline in NPW was almost fully offset by the decrease in business expenses. The combined ratio (private insurance, E/I basis) declined YoY 90.4% from 92.7% in fiscal year For fiscal year 2017, overall NPW growth (private insurance) is expected be 1.6%, chiefly driven by growth in au insurance and liability insurance. The underwriting profit is expected improve JPY 130 billion, while the loss ratio (private insurance, E/I basis) is expected remain stable at 57.8%. It is anticipated that a decline in net incurred losses related natural catastrophes will be offset by an increase in large losses, which were relatively low in fiscal year The expense ratio is expected remain relatively stable at 32.6% with expenses increasing in line with NPW growth. As a result, expectations are that the combined ratio will remain unchanged at 90.4% in fiscal year UNDERWRITING EXPERIENCE Undrw Loss s Expense s Ind Income Pure ($000) Loss LAE Loss LAE & Other Total Div. Comb. Comm. Exp. Exp. Pol. Comb , , , , , Company Industry Composite 5-Yr Total/Avg -184, Pre-tax Return Operating Pre-tax Return Operating ROR (%) on (%) (%) ROR (%) on (%) (%) Yr Avg Underwriting Results: The company s non-consolidated NPW slightly declined year on year (YoY) from JPY 2,128 billion in fiscal year 2015 JPY 2,116 billion in fiscal year The decline was mainly attributed fire insurance, which had experienced strong demand in fiscal year 2015 ahead of product revisions. On the other hand, au insurance NPW increased by 2%, driven by premium rate hikes and the sales of new policies. Printed September 28, Page 5 of 32

6 BY-LINE LOSS RATIO Product Line Yr Avg Workers Comp Comm l Au Liab Com l MultiPeril Au Physical Oth Liab Occur Ocean Marine Fire Homeowners Priv Pass Au Liab Allied Lines Prod Liab Occur Inland Marine All Other Total DIRECT LOSS RATIO BY STATE Yr Avg California Texas New York New Jersey Florida Illinois Georgia Ohio Kentucky Michigan All Other Total Investment Results: Non-consolidated net investment income decreased by JPY 154 billion in fiscal year 2016 JPY 218 billion. This reduction was mainly driven by lower dividend income from its subsidiaries in comparison the amount received in fiscal year 2015, where TMNF received extra dividends from subsidiaries support the acquisition of HCC Insurance Holdings, Inc. capital gains declined from JPY 116 billion in fiscal year 2015 JPY 88 billion in fiscal year 2016, reflecting lower gains on sales of foreign securities. As part of the ERM initiatives manage investment risks, TMNF continued scale down its exposure business-related equities. The tal amount sold in fiscal year 2016 was worth JPY 117 billion. Gains from the sales of domestic business-related equities reached JPY 85 billion over the year. These gains provide support the company s net investment income amidst the ultra-low interest rate environment in Japan. investment yield (including capital gains) declined from 4.4% in fiscal year % in fiscal year 2016, falling behind the five-year average net investment yield of 2.9%. To support its investment income, TMNF has taken initiatives such as outsourcing a portion of its invested assets Delphi Financial Group Inc., its subsidiary with stronger expertise in asset management. INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains ,872-2,354 9, ,105 2, ,498 4, ,574 5, ,819 1,759 1,944 5-Yr Total 208,868 11,916 11,803 Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: TMNF s consolidated adjusted capital and surplus (i.e., shareholders funds + catastrophe reserves + price fluctuation reserves) increased by 6% in fiscal year 2016 JPY 4,224 billion. This increase was mainly driven by retained earnings, which increased by 19% from JPY 1,040 billion in fiscal year 2015 JPY 1,238 billion in fiscal year The company regularly monirs its capital adequacy at both the group and TMNF levels by utilizing its internal economic solvency capital model. Current BCAR: Printed September 28, Page 6 of 32

7 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains ,325-2,354-11,621 9, ,939 2,616 2, ,614 4,802-4, ,066 5,093 3, ,653 1,759-4,849 1,944 5-Yr Total 39,640 11,916-15,561 11,803 Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes ,734 7, , , ,000-7,428-17, ,960-17,520 13, ,814 28, Yr Total -247,774 9, , QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus , , , , , , , , , ,306 Year-End Conditional Adjusted Year Reserves ,065 1, , ,374 2, , ,319 2, , ,588 1, , ,301 4, ,582 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW Gross NPW Gross CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Ceded Reins. Total , , , , , REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Affiliates Foreign Affiliates... 65, ,481 66,006 3, ,954 US Insurers... 85,155 76,548 12, ,472 Pools/Associations Other Non-US... 2,578 13,157 5, ,302 Total (ex US Affils) , ,186 84,736 4, ,693 Grand Total , ,651 84,938 4, ,487 * Includes Commissions less Funds Withheld Loss Reserves: The outstanding claims loss reserve balance on a non-consolidated basis increased by JPY 5 billion JPY 900 billion as at the end of March incurred losses related natural catastrophes alone declined by JPY 20 billion JPY 54 billion at the end of fiscal year Catastrophe loss reserves strengthened by JPY 43 billion JPY 1,067 billion over the same period. LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Calendar Year Orig. Loss Reserves Developed Reserves Thru Latest Year End Develop. Orig. (%) Develop. (%) Develop. NPE (%) Unpaid Year End Unpaid Res. Develop. (%) , , , , , , , , , , , , , , , , , , Printed September 28, Page 7 of 32

8 LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru Latest Year End Develop. Orig. (%) Unpaid Year End Acc. Yr Loss Acc. Yr Comb , , , , , , , , , , , , , , , , , , ASBESTOS & ENVIRONMENTAL (A&E) RESERVE ANALYSIS Company Industry Composite Year A&E Reserve ($000) Reserve Retention (%) IBNR Mix (%) Survival (3 yr) Comb. Impact (1 yr) Comb. Impact (3 yr) Survival (3 yr) Comb. Impact (1 yr) Comb. Impact (3 yr) , XX 18.5 XX XX 1.4 XX , XX 2.8 XX XX 1.5 XX , , , LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Current Overall Agents Bal. Quick Current Overall Agents Bal. Liq. (%) Liq. (%) Liq. (%) (%) Liq. (%) Liq. (%) Liq. (%) (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) ,914 23,798-2, ,666-10, ,668 7,127-5, ,364 10,614-4, ,823 41,836 19, Yr Total -184,435 72,889 8,323 INVESTMENT LEVERAGE ANALYSIS (% OF ) Industry Company Composite Class 3-6 Bonds Real Estate/ Mtg. Other Invested Assets Common Scks Non-Affil. Inv. Affil. Inv. Class 3-6 Bonds Common Scks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total Bonds (000) 1,003, ,072 1,123,806 1,145,635 1,164,357 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Private Issues Public Issues Bond Quality (%) Class Class Class Class INVESTMENTS - EQUITIES Scks (000) 165, , Unaffiliated Common Affiliated Common Printed September 28, Page 8 of 32

9 INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 66,572 36,787 40,823 46,715 45,809 Cash Short-Term All Other 15.0 HISTORY The company was incorporated on August 13, 1998, under the laws of the State of New York, as TM Casualty Insurance Company. It was licensed on September 23, 1999, write workers compensation and employers liability insurance. Effective March 15, 2012, the company changed its name Tokio Marine America Insurance Company. Paid-in capital of $190,609,748 is comprised of 50,001 shares of common sck at a par value of $100 per share and $185,609,648 of contributed surplus. All authorized shares are issued and outstanding. Tokio Marine & Nichido Fire Insurance Co., Ltd. (United States Branch) (TMNF-US) was established in 1955 with a New York port of entry engage in business on behalf of The Tokio Marine and Fire Insurance Company, Limited, located in Tokyo, Japan. The parent was founded in 1879, and was active in the United States since 1911, although operations were suspended between 1941 and The Tokio Marine and Fire Insurance Company, Limited, and The Nichido Fire and Marine Insurance Company Limited (Nichido Japan) integrated their management and business under a publicly traded Japanese holding company called Millea Holdings, Inc. (Millea). The companies became wholly owned subsidiaries of Millea on April 1, 2002, in a statury share exchange under Japanese law. When the merger was finalized on Ocber 1, 2004, the merged entity commenced operations as a new property and casualty insurance company, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), with Millea as its publicly traded holding company. Effective July 1, 2008, Millea changed its name Tokio Marine Holdings, Inc. Nichido Japan s U.S. Branch was domesticated on July 1, 2004, in order comply with U.S. insurance regulations prohibiting an alien insurer from maintaining two U.S. branches. On February 11, 2004, TNUS Insurance Company (TNUS) was formed under the laws of the State of New York as the vehicle for the domestication of Nichido Japan s U.S. Branch. Upon domestication, TNUS became a wholly owned subsidiary of TMNF. Effective September 30, 2012, the common sck of Tokio Marine Management, Inc. (TMM), TPI and TMS was transferred by TMNF-US TMNF. Subsequently on November 30, 2012, TMNF contributed the common sck of TMM, TPI, TMS and TNUS TMNA, an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF. Effective November 30, 2013, the common sck of Tokio Marine America Insurance Company (TMAIC) was transferred by TMNF-US TMNF. Effective December 31, 2013, in conjunction with its domestication, TMNF-US merged with and in TMAIC, with TMAIC remaining as the surviving entity. All of the assets and liabilities of TMNF-US were transferred, and assumed by TMAIC. Effective January 1, 2014, the common sck of TMAIC was transferred by TMNF TMNA. Effective December 31, 2015, the common sck of TMM, TPI, TMS and TNUS was transferred by TMNA TMAIC. TMAIC provides quota share reinsurance TPI, TMS and TNUS, whereby 100% of all premiums, losses and loss adjustment expenses are ceded TMAIC. MANAGEMENT Day--day operations of the company is under the direction of a U.S. based management team that receives support from Tokio Marine Management, Inc., a wholly owned subsidiary of Tokio Marine America Insurance Company. Officers: President and Chief Executive Officer, Koki Umeda; Executive Vice President and Chief Financial Officer, Karen A. Gilmer-Pauciello; Senior Vice President and Treasurer, Michael Kelly; Secretary and General Counsel, Edward Sayago. Direcrs: Ann Ginn, B. Steven Goldstein, David Gottschall, Tomoya Kittaka, Adam LaPierre, Lawrence Stern, Koki Umeda. REGULATORY An examination of the financial condition was made as of December 31, 2015, by the insurance department of New York. The 2016 annual independent audit of the company was conducted by PricewaterhouseCoopers, LLP. The annual statement of actuarial opinion is provided by Mark R. Proska, FCAS, MAAA, TMNA Services, LLC. REINSURANCE TMAIC benefits from an extensive reinsurance program. Property per risk excess of loss treaties afford coverage of $225.0 million in excess of a $5.0 million retention. The program consists of structured layers with a minimal percentage retention by TMAIC in select layers. In tal, TMAIC retains $33.5 million. Property catastrophe treaties afford $85.0 million of coverage over a $50.0 retention by TMAIC. This program provides includes earthquake and terrorism coverage only above a predetermined level. Casualty risks are addressed through a combination of excess of loss, umbrella, and clash cover programs. Retention by TMAIC on these programs is limited $9.915 million. For marine exposures, the retention is $2.0 million, with excess of loss treaties providing capacity up $110.0 million. TMNF is a significant participant across all treaties. Facultative reinsurance is also maintained for a certain population of risks. Printed September 28, Page 9 of 32

10 The company manages natural catastrophe risks in order continuously expand profits and better manage its risk portfolio so capital and funds can be effectively allocated more capital-efficient new businesses. The retention level of each product line is decided based on the risk-return balance in line with the company s capacity. The aim is stabilize underwriting results. The company also monirs the reinsurance counterparty risk by selecting reinsurers of sound financial strength and setting corresponding maximum exposure limits. BALANCE SHEET ADMITTED ASSETS ($000) YE 2016 YE % 15% Bonds... 1,003, , Common sck Cash and short-term invest... 56,572 36, Other non-affil inv asset... 10, Investments in affiliates , , Total invested assets... 1,235,626 1,162, Premium balances , , Accrued interest... 9,489 9, All other assets... 92,003 80, Total assets... 1,444,631 1,360, LIABILITIES & SURPLUS ($000) YE 2016 YE % 15% Loss & LAE reserves , , Unearned premiums , , Conditional reserve funds... 4,280 1, All other liabilities... -2,025-36, Total liabilities , , Capital & assigned surplus , , Unassigned surplus , , Total policyholders surplus , , Total liabilities & surplus... 1,444,631 1,360, SUMMARY OF 2016 OPERATIONS ($000) Funds Provided from Statement of Income 2016 Operations 2016 Premiums earned ,667 Premiums collected ,830 Benefit & loss-related pmts Losses incurred , ,352 LAE incurred... 49,922 Undrw expenses incurred LAE & undrw expenses paid 118, ,288 Div policyholders Div policyholders underwriting income -44,349 Undrw cash flow... -6,823 investment income... 34,819 Investment income... 38,802 Other income/expense... 2,877 Other income/expense... 4,133 Pre-tax cash operations Pre-tax oper income... -6,653 36,112 Realized capital gains... 1,759 Income taxes incurred... -4,849 Income taxes pd (recov)... -5,724 income oper cash flow... 41,836 Ultimate Parent: Tokio Marine Holdings, Inc. TM SPECIALTY INSURANCE COMPANY Phoenix, AZ 1221 Avenue of the Americas, Suite 1500, New York, NY Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A++ Outlook: Stable Best s Financial Size Category: XV The company s rating reflects its reinsurance agreement with Tokio Marine America Insurance Company (AMB# ) as a member of the Tokio Marine & Nichido Fire Insurance Co., Ltd. (AMB# ). RATING RATIONALE Rating nale: The ratings for Tokio Marine and Nichido Fire Insurance Company, Limited (TMNF), reflect its strong risk-adjusted capitalization, Printed September 28, Page 10 of 32

11 track record of profitable operating performance and favorable business profile. TMNF s strong risk-adjusted capitalization, as measured by Best s Capital Adequacy (BCAR), was supported by an increase in adjusted capital and surplus. Operating performance remains very profitable, supported by strong improvement in underwriting results, which partially offset a decline in net investment income. TMNF is the main operating entity of Tokio Marine Holdings, Inc., in terms of premium income and net profit contribution. TMNF s extensive and increasing overseas presence, especially in developed markets, supports its profit generation and future growth. In addition, TMNF benefits from geographic and risk diversification. Partially offsetting these positive rating facrs are TMNF s exposure catastrophe risks and its high proportion of equity investments, which could bring volatility its capital and surplus. However, the company actively manages these risks in its enterprise risk management framework. While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a material decline in TMNF s risk-adjusted capitalization due either a consistent deterioration in the company s operating performance or a negative impact from large-scale catastrophe events. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 08/18/17 A++ 08/22/14 A++ 08/19/16 A++ 05/15/14 A++ 08/21/15 A++ 08/22/13 A++ KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus , ,773 37, ,025 37, ,477 38, ,198 39,004 39, ,806 Profitability Leverage Liquidity Comb. Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW Overall Liq. (%) Oper. Cash flow (%) Yr 1.8 (*) Within several financial tables of this report, this company is compared against the Surplus Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE TM Specialty was incorporated in Ocber 1998, under the laws of the State of Arizona act as an excess and surplus lines carrier of domestic property and casualty insurance. Effective June 1, 2012, the company ceased writing new business. Tokio Marine & Nichido Fire Insurance Company, Ltd. (TMNF), is wholly owned by Tokio Marine Holdings, Inc., one of Japan s largest insurance groups. The group has more than 270 subsidiaries and affiliates that provide primary life, non-life insurance and reinsurance as well as financial and general types of business, including asset management, in the Japanese and overseas markets. Established in 1879 as the first non-life insurance company in Japan, TMNF has approximately one-quarter of the domestic market in terms of net premiums written (NPW) at the end of December TMNF is the group s main operating subsidiary. Combining results from domestic non-life business and international business, TMNF generated 94% of the group s NPW in fiscal year Moreover, TMNF is the group s strategic hub with regard overseas market expansion. The production from overseas business has increased from about 5% more than 35% of overall NPW during the past ten years. Overseas operating subsidiaries include Philadelphia Consolidated Holding Corp., Delphi Financial Group Inc., and HCC Insurance Holdings, Inc., in North America; and Tokio Marine Kiln Group Limited and Tokio Millennium Re AG in Europe. In the Japanese market, TMNF s domestic non-life underwriting portfolio, in terms of NPW, consisted of voluntary aumobile, which accounted for approximately half of the portfolio, followed by compulsory au liability insurance (CALI), fire, personal accident and marine. Fiscal year 2017 is the last year of Tokio Marine group s mid-term business plan, named To Be a Good Company The group is expected reach its major targets set forth in this plan: an adjusted ROE in the upper 9% range; adjusted net income of around JPY 400 billion, compared JPY 407 billion in Printed September 28, Page 11 of 32

12 fiscal year 2016; and an enhanced dividend per share. Over the three-year plan, business and risk diversification significantly improved due the remarkable overseas expansion activities. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Reinsurance DPW Prem Assumed Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) Yr CAGR Terriry: The company is licensed in Arizona BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Oth Liab Occur Total Business NPW Retention Product Line ($000) (%) (%) Oth Liab Occur Total BY-LINE RESERVES ($000) Product Line Oth Liab Occur All Other 5 Total GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) New York California -17 2,600 All Other 120 Total ,913 RISK MANAGEMENT TMNF s risk management is in line with the Tokio Marine Group s ERM framework. The risk appetite statement sets forth that the group will conduct risk taking mainly in insurance underwriting and investments while ensuring a balance between risk and capital that enables it continue doing business even under stress scenarios. The group takes strategic management decisions and deploys capital based on an analysis of capital efficiency. Therefore, the results of group companies are regularly reviewed achieve sustainable growth of profits in each business domain. The group has developed its own internal economic solvency capital model quantify its capital adequacy and ensure financial soundness, with risk capital calculations based on 99.95% value at risk (VaR). Capital buffers are managed in order provide flexibility for business investments, share repurchases or changes in the regulary and operating environments. The group runs stress tests on scenarios ensure that the capitalization is sufficient absorb any potential losses. OPERATING PERFORMANCE Operating Results: TMNF reported a non-consolidated net profit of JPY 249 billion in fiscal year 2016, compared JPY 302 billion in fiscal year This reduction was mainly due a strong decline in investment results, driven by lower dividends received from its subsidiaries. Underwriting results, in contrast, materially improved from JPY 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016, primarily reflecting lower losses related natural catastrophes and lower provisions for catastrophe loss reserves. TMNF s non-consolidated operating ratio increased from 76.0% in fiscal year % in fiscal year 2016 chiefly due lower net investment income. The ratio remains below the five-year average of 83.7%. The company expects achieve a net profit of JPY 270 billion in fiscal year 2017 as a result of an improvement in underwriting results and an increase in dividends from subsidiaries. Printed September 28, Page 12 of 32

13 PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return Yr Total 3,594 2,628 2,674 2,673 result, expectations are that the combined ratio will remain unchanged at 90.4% in fiscal year UNDERWRITING EXPERIENCE Undrw Loss s Expense s Ind Income Pure ($000) Loss LAE Loss LAE & Other Total Div. Comb. Comm. Exp. Exp. Pol. Comb Company Industry Composite 5-Yr Total/Avg Pre-tax Return Operating Pre-tax Return Operating ROR (%) on (%) (%) ROR (%) on (%) (%) DIRECT LOSS RATIO BY STATE Yr Avg New York California All Other Yr Avg Total Underwriting Results: The company s non-consolidated NPW slightly Investment Results: Non-consolidated net investment income decreased by declined year on year (YoY) from JPY 2,128 billion in fiscal year 2015 JPY JPY 154 billion in fiscal year 2016 JPY 218 billion. This reduction was 2,116 billion in fiscal year The decline was mainly attributed fire mainly driven by lower dividend income from its subsidiaries in comparison insurance, which had experienced strong demand in fiscal year 2015 ahead of the amount received in fiscal year 2015, where TMNF received extra product revisions. On the other hand, au insurance NPW increased by 2%, dividends from subsidiaries support the acquisition of HCC Insurance driven by premium rate hikes and the sales of new policies. Holdings, Inc. capital gains declined from JPY 116 billion in fiscal year As previously stated in this report, underwriting profit increased from JPY 2015 JPY 88 billion in fiscal year 2016, reflecting lower gains on sales of 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016 due a foreign securities. decline in net incurred losses related natural catastrophes and lower As part of the ERM initiatives manage investment risks, TMNF provisions for catastrophe loss reserves. continued scale down its exposure business-related equities. The tal TMNF s loss ratio (private insurance, earned income basis) has been amount sold in fiscal year 2016 was worth JPY 117 billion. Gains from the improving over the past five years, declining from 66.8% in fiscal year 2012 sales of domestic business-related equities reached JPY 85 billion over the 57.7% in fiscal year The trend was mainly driven by improvements in year. These gains provide support the company s net investment income the voluntary au insurance loss ratio over the period. amidst the ultra-low interest rate environment in Japan. The expense ratio (private insurance basis) remained relatively stable YoY investment yield (including capital gains) declined from 4.4% in fiscal at 32.7% in fiscal year 2016, compared 32.6% in fiscal year 2015, as the year % in fiscal year 2016, falling behind the five-year average net decline in NPW was almost fully offset by the decrease in business expenses. investment yield of 2.9%. To support its investment income, TMNF has taken The combined ratio (private insurance, E/I basis) declined YoY 90.4% initiatives such as outsourcing a portion of its invested assets Delphi from 92.7% in fiscal year Financial Group Inc., its subsidiary with stronger expertise in asset For fiscal year 2017, overall NPW growth (private insurance) is expected management. be 1.6%, chiefly driven by growth in au insurance and liability insurance. The underwriting profit is expected improve JPY 130 billion, while the loss ratio (private insurance, E/I basis) is expected remain stable at 57.8%. It is anticipated that a decline in net incurred losses related natural catastrophes will be offset by an increase in large losses, which were relatively low in fiscal year The expense ratio is expected remain relatively stable at 32.6% with expenses increasing in line with NPW growth. As a Printed September 28, Page 13 of 32

14 INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains Yr Total 3, Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: TMNF s consolidated adjusted capital and surplus (i.e., shareholders funds + catastrophe reserves + price fluctuation reserves) increased by 6% in fiscal year 2016 JPY 4,224 billion. This increase was mainly driven by retained earnings, which increased by 19% from JPY 1,040 billion in fiscal year 2015 JPY 1,238 billion in fiscal year The company regularly monirs its capital adequacy at both the group and TMNF levels by utilizing its internal economic solvency capital model. Current BCAR: CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains Yr Total 3, Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes ,394 1, Yr Total 1,384 4, QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,600 6, ,600 7, ,600 7, ,600 8, ,600 9,073 Year-End Conditional Adjusted Year Reserves , , ,806 37, ,324 38, ,004 39, ,673 39,673 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW Gross NPW Gross Printed September 28, Page 14 of 32

15 CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Ceded Reins. Total , REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Affiliates ,141 1,495 Foreign Affiliates US Insurers Other Non-US Total (ex US Affils) Grand Total ,141 1,621 * Includes Commissions less Funds Withheld Loss Reserves: The outstanding claims loss reserve balance on a non-consolidated basis increased by JPY 5 billion JPY 900 billion as at the end of March incurred losses related natural catastrophes alone declined by JPY 20 billion JPY 54 billion at the end of fiscal year Catastrophe loss reserves strengthened by JPY 43 billion JPY 1,067 billion over the same period. LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru Latest Year End Develop. Orig. (%) Unpaid Year End Acc. Yr Loss Acc. Yr Comb LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) , , , , , Yr Total 980 4, INVESTMENT LEVERAGE ANALYSIS (% OF ) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Estate/ Invested Common Inv. Affil. 3-6 Common Bonds Mtg. Assets Scks Inv. Bonds Scks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total Printed September 28, Page 15 of 32