Guardian Life Insurance Company of America

Transcription

1 Guardian Life Insurance Company of America Report Revision Date: 11/22/2013 Rating and Commentary 1 Best's Credit Rating: 10/25/2013 Rating Rationale: 10/25/2013 Report Commentary: 11/19/2013 Financial 2 Time Period: 1st Quarter Last Updated: 05/30/2014 Status: As Received General Information 3 Corporate Structure: 10/26/2012 States Licensed: 10/23/2001 Officers and Directors: 11/22/2013 Best's Credit Rating Methodology Disclaimer Best's Rating Guide Additional Online Resources Related News Rating Activity and Announcements Company Overview Archived AMB Credit Reports Corporate Changes & Retirements AMB Country Risk Reports - United States 1 The Rating and Commentary dates outline the most recent updates to the company's Best's Credit Rating, Rating Rationale, and Report Commentary for key rating and business changes. Report Commentary may include significant changes to the Business Profile, Risk Management, Operating Performance, Balance Sheet Strength, or Reinsurance sections of the report. 2 The Financial dates reflect the current status of the financial tables and charts found within the AMB Credit Report, including whether the data was loaded "As Received" or had been run through A.M. Best "Quality Cross Checks". 3 The General Information dates cover key changes made to Corporate Structure, States Licensed, or Officers and Directors. Page 1 of 32 Print Date: June 09, 2014

2 Ultimate Parent: Guardian Life Ins Co of America Guardian Life Insurance Company of America 7 Hanover Square, New York, New York, United States Tel.: Web: Fax: AMB #: Ultimate Parent: NAIC #: FEIN#: Northeast Regional Office: 3900 Burgess Place, Bethlehem, Pennsylvania 18017; Midwest Regional Office: 2300 East Capital Drive, Appleton, Wisconsin 54915; Western Regional Office: East 777 Magnesium Road, Spokane, Washington Best's Credit Ratings Best's Financial Strength Rating: A++ Best's Issuer Credit Rating: aa+ Rating Effective Date: 10/25/2013 Financial Size Category: XV Outlook: Stable Outlook: Stable Report Revision Date: 11/22/2013 Rating Rationale The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Rating Rationale: The ratings of Guardian Life Insurance Company of America and its direct subsidiaries, Berkshire Life Insurance Company of America and Guardian Insurance and Annuity Company (collectively referred to as Guardian), reflect the group's financial strength as a mutual company which includes superior capitalization, a generally conservative investment portfolio and sound enterprise risk management capabilities. Guardian's core segments (individual life, individual disability and group employee benefits) continue to generate stable operating earnings and cash flows. Offsetting rating factors include heightened competition within group employee benefits and ongoing challenges to reach critical mass within its 401K business. Additionally, Guardian has experienced margin pressure in its interest-sensitive business lines like most insurers. Guardian's capitalization on both an absolute and risk-adjusted basis remains superior. Operating earnings have benefited from stable in-force profits and progress made in reducing its expense levels. Guardian continues to invest in branding, technological innovation and refining its business profile. A.M. Best believes the group is well positioned to withstand some economic shocks and can continue to accumulate capital as a result of a conservative investment portfolio, organic earnings growth and sound enterprise risk management practices including economic capital modeling, stress testing and dynamic hedging. The group's strong capitalization level also promotes financial flexibility in self-funding various distribution-related growth initiatives. These initiatives include refinements to product development, technology, agent recruitment and realignment of channels to allow for tighter collaboration between the design and delivery of products and services to support its career agency field force. Additionally, Guardian continues to make refinements to its business profile including several de-risking initiatives which include exiting long-term care, COLI and more recently limiting variable annuity sales to internal distribution channels. The implementation of health care reform and heightened competition within the employee benefits sector, coupled with ongoing low, albeit recently rising, interest rates, may pose challenges to maintaining favorable premium and earnings trends. Despite these challenges, Guardian continues to make strides in targeting initiatives to support its group dental, group life and disability business segments, although there is some execution risk associated with navigating health care reform successfully. While the ordinary life business segment remains strong, the cost of implementing health care reform may pose challenges to the group market segment and could potentially impact the group's earnings base. Additionally, Guardian needs to continue to invest in its retirement solutions business to reach critical mass and generate meaningful operating earnings. The continued low interest rate environment is impacting spread-based business lines in the life and annuity industry and could continue to pressure Guardian's margins. Finally, Guardian maintains some exposure to real estate-linked assets relative to capital and Page 2 of 32 Print Date: June 09, 2014

3 Rating Rationale (Continued...) surplus, although this allocation has declined in recent years and overall credit risk within the commercial real estate sector has been reduced and compares favorably to mutual peers. The Guardian companies are well positioned at their current ratings. Negative rating actions could occur if capitalization, operating performance, or both fall markedly short of A.M. Best's expectations. Five Rating History BEST'S Date FSR ICR 10/25/2013 A++ aa+ 11/15/2012 A++ aa+ 10/21/2011 A++ aa+ 10/20/2010 A++ aa+ 10/13/2009 A++ aa+ 11/26/2008 A++ aa+ View 25 Rating History Key Financial Indicators Assets Capital Surplus Funds Total Capital Statutory Data ($000) Asset Valuation Reserve Net Premiums Written Net Investment Income Net Income ,065,979 5,011, ,785 6,705,587 1,765, , ,530,717 4,752, ,719 6,011,215 1,728, , ,130,033 4,572, ,385 5,874,608 1,714, , ,178,003 4,430, ,436 5,943,499 1,665, , ,895,175 4,187, ,485 5,925,405 1,551,424 27,732 03/ ,138,061 5,088, ,013 1,800, ,443 42,308 03/ ,521,142 4,796, ,505 1,702, ,430 65,070 (*) Within several financial tables of this report, this company is compared against the Individual Life Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. (*) The most recent data contained in this report is "As Received" indicating that this financial data was recorded as it was received from the company. While the data provided were obtained from sources believed to be reliable, their accuracy cannot be guaranteed. Corporate Overview The Guardian Life Insurance Company of America is one of the largest mutual life insurance companies. The company, together with its subsidiaries (referred to as Guardian or the company) is licensed in all states and the District of Columbia and has been in existence since Guardian has remained committed to improving policyholder value as a mutual life insurance company. Page 3 of 32 Print Date: June 09, 2014

4 Corporate Overview (Continued...) The Guardian Life Insurance Company of America provides a full range of insurance, investment, securities brokerage and other related products and services through a diversified number of affiliated companies. Berkshire Life Insurance Company of America (Berkshire) sells individual disability insurance; First Commonwealth, Inc., is a leading dental managed care organization; The Guardian Insurance and Annuity Company, Inc. (GIAC), sells variable (through affiliated distribution channels) and deferred annuity contracts as well as variable life insurance; and additional affiliates include Innovative Underwriters Inc.; Guardian Investor Services LLC (GIS); Guardian Baillie Gifford Limited; Managed Dental Care of California; Managed DentalGuard, Inc. (Texas); Managed DentalGuard, Inc. (New Jersey); American Financial Systems, Inc.; RS Investment Management Co., LLC, Park Avenue Securities LLC, and Reed Group, Ltd. Corporate Structure AMB# Company Name Domicile % Own Guardian Life Ins Co of Amer NY Berkshire Life Ins Co of Amer MA First Commonwealth Inc First Commonwealth Ins Co IL First Commonwealth Ltd H Svcs IL First Commonwealth of Missouri MO First Commonwlth Ltd H Svcs MI MI Managed Dentalguard Inc OH Guardian Ins & Annuity Co Inc DE Managed Dental Care of CA CA Managed DentalGuard Inc TX Managed DentalGuard Inc NJ Park Avenue Life Ins Co DE Family Service Life Ins Co TX Sentinel American Life Ins Co TX 100 Page 4 of 32 Print Date: June 09, 2014

5 Business Profile The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Guardian Life Group, (Guardian) through its subsidiaries, provides a full range of products and financial services to customers throughout the United States. Its wide array of product offerings enables its client base to diversify its portfolio through insurance, investment, securities brokerage and other pertinent financial products and services. More specifically, products and services include individual insurance (individual life, individual disability, multi-life), group life and health insurance, retirement solutions (annuities, 401(k), mutual funds), and other related products and services specifically targeting pension, retirement related investments and administration, asset management and securities brokerage. Guardian targets the small business owner, upper-income life insurance and disability income market and the employee benefits. The company's strategy for growth is focused on distribution, including the ongoing expansion and improvement of its career agency system supplemented by growth in the independent agent and broker channels, and further development and support of its worksite channel. Its distribution management team focuses on agent recruitment through turnkey solutions for start-up agencies and sales manager development through a portfolio of training programs and technology driven tools. Guardian's employee benefits portfolio is distributed by the company's group representatives, who work both directly with clients and through brokers. Prior to 2012, its agency distribution was segregated from its core profit centers. In 2012, management implemented an organizational alignment and distribution was integrated into its respective profit centers. This alignment provides for fluent collaboration between the design and delivery of products and service to support its distribution while driving higher productivity; which is evident in the company's sales results. Guardian's financial results are reported through four core profit centers; individual risk business includes life and disability (excluding COLI and BOLI), Group business (non-medical), Retirement Solutions (annuities and 401(k)) and RS Investments (a non-insurance San Francisco investment management firm). RS is a mutual fund company specializing in growth and value mutual funds and institutional accounts, and operates as an independent subsidiary of Guardian Investor Services, LLC. Park Avenue Securities (PAS), a broker-dealer affiliate of Guardian Insurance and Annuity Company (GIAC), offers the RS funds, proprietary and non-proprietary variable annuity and variable life products, equity securities, and non-proprietary mutual funds. Additionally, GIS, an affiliated broker-dealer, offers a full spectrum of investment products. Investment offerings are marketed by Guardian's career agents and independent broker-dealers. Both the insurance and investment products are marketed through the company's career agency force consisting of over 3,000 field representatives. Guardian's career sales force has grown through actively recruiting general agents, regional directors and sales managers, as well as through excellent agent retention. These efforts have helped contribute to the group's whole life sales growth. The company continues to revamp its career training program with a focus on recruiting and succession planning for key agencies to assure continued growth while maintaining talent within its distribution. This stability in the sales force provides a competitive advantage in the upper-income market. The sales organization's strength and stability, as well as its focus on the upper-income market, are evidenced by the fact that Guardian's average case size, premium persistency, average face amount and average premium per policy are significantly higher than its peer group. Within the individual risk segment, Guardian focuses its marketing efforts on the upper-income small business owner and professional life insurance and disability income market. Its broad product portfolio includes traditional participating whole life, universal life, level premium term, and pension trust products. To counteract the low interest rate environment within its individual risk segment, the company is de-risking its interest sensitive business lines (UL and Executive Benefits - BOLI), has exited its Executive Benefits - COLI and long-term care business lines and is limiting sales of variable annuity business to internal distribution within the Retirement Solutions segment. Traditional whole life insurance, Guardian's core product, represents the majority of ordinary life premium production for the group with individual term and universal life providing diversification benefits to its mortality segment. Guardian's agent recruiting and training initiatives, new and enhanced products, improved customer and producer support, and complementary distribution outlets should also provide opportunities in the group's core market. A key initiative for the agency force is The Living Balance Sheet which provides a personal financial Web site for each client with daily aggregation of financial information from over 10,000 financial institutions. This real-time system provides a full financial overview for both the agent and the client. While A.M. Best views the success of the company's strategic initiatives positively, it believes the industry is highly competitive, and Guardian may be challenged to continue its growth trends in the individual marketplace. Guardian's response to a challenging environment include profit center growth initiatives, product innovation, cost reductions, increased government relations initiatives and new initiatives in Group Dental, Life and Disability businesses to mitigate the impact of health care reform. During 2013, Guardian introduced an accelerated death benefit rider for long term care (LTC) to its whole life product which allows the policyholder to accelerate a portion of the policy's death benefit if he or she becomes chronically ill and needs LTC services. Another subsidiary of the group, Berkshire Life Insurance Company of America (Berkshire Life), offers individual disability insurance (DI). The combined life insurance line is managed by Guardian, and the combined DI business is managed by Berkshire. The combined organization is now a leading writer of non-cancelable individual disability insurance in the country. Page 5 of 32 Print Date: June 09, 2014

6 Business Profile (Continued...) DI products are sold primarily through the group's core field representative force, independent agents and outside brokers growth initiatives include expanding distribution capabilities through the use of wholesalers to attract brokers and executive benefit plan specialists. With the consolidation of this line through Berkshire, efforts to improve operating fundamentals such as pricing, underwriting, and claims management have resulted in improved loss ratios, which have become more stable, and earnings continue to improve. The disability line strengthens Guardian's product offerings, and the company has placed DI specialists in agency offices to enhance sales efforts. Expanding upon its DI expertise and to provide additional products to its representatives, Berkshire introduced a multi-life DI product for employees of small and medium-sized businesses. The result of these initiatives have resulted in a number one market position for individual non-cancelable disability. Guardian's group insurance segment focuses on the employee benefits market (generally employers less than 5,000 employees). The company's balanced product portfolio includes dental, vision, disability, life, critical illness, cancer and accident coverage sold through 250 group sales representatives in 52 locations nationwide. In light of health care reform, Guardian has recently announced that it has developed a suite of dental benefit products which will be offered on 48 small business health (SHOP) exchanges which are being formed for companies with 50 or less employees. Guardian will participate in state and private exchanges with exchange certified dental programs, but the longer term impact of health care reform remains uncertain at this time. The company previously marketed group medical insurance. The company began its exit of this market in In 2012, the company completed its exit from group medical insurance with a portion going to an unaffiliated insurer. The group medical line represented a declining percentage of companywide premiums and the company will be focusing primarily on its group non-medical business growth initiatives for its group segment include targeted customer growth, channel and worksite expansion and improving operational and technology efficiencies to support its growth strategy. The company also provides dental managed care through its First Commonwealth, Inc. subsidiaries. While the dental line provides product and earnings diversification for Guardian, external factors, broker consolidations and competitive pricing and bundling are impacting the industry and resulting in premium declines for First Commonwealth. In late 2012, First Commonwealth, as a non-insurance subsidiary, acquired 100% interest in Reed Group, Ltd. (Reed). Reed is a leading provider of absence management services and software to employers. This acquisition supports Guardian's customer growth objectives and will enable the company to further penetrate the disability and larger employer market. Guardian's key to transitioning from a medical focus to a multiple non-medical product marketing approach has been training and enhanced administrative support provided to the organization's group sales representatives. New product introductions, technological investments, and upgraded training and support of the company's group sales representatives should continue to provide a platform for growth. The group sales representatives now offer employers complete benefits packages including dental, vision, life and disability. The company's worksite marketing endeavors to work closely with independent brokers to sell voluntary group term life, dental, and disability to employees of existing group clients. Worksite marketing now represents approximately a third of total non-medical product sales. A.M. Best views favorably management's focus on a multi-product strategy utilizing a combination of managed care arrangements, HSAs, its proprietary preferred-provider organization (PPO) dental offering, and its portfolio of non-medical products. In 2013, Guardian introduced a stop loss medical insurance product for companies who self-fund their employee medical coverage. Guardian's retirement business segment includes the variable and fixed annuity products offered by Guardian through GIAC as well as proprietary and non-proprietary mutual funds and 401(k). In 2012, the company strategically repositioned this segment focusing on de-risking its variable annuity business and adding fixed annuity products to the annuity portfolio. Currently, twothirds of sales are variable products, and one-third are fixed products. Variable products with living benefit riders are now only distributed through Guardian's career agency force and fixed products are distributed through the career agency force and select outside direct distribution. In recent years, the company has also placed emphasis on product enhancements and technology improvements to make it easier for producers and customers to access information. For example, the company has developed deferred income annuity products and variable annuities without living benefits and have focused on balancing features and fees ensuring value for plan participants. The company has provided Guardian's 24-hour telephone and voice response capability and integrated customer statement platform to provide for administrative competencies which are vital to competing effectively in the variable product market. In recent years, Guardian developed a full-service 401(k) operation for small to medium-sized employers. The company emphasizes advanced service capabilities and flexible product features for the small/medium case market. The company differentiates itself from mutual fund and bank competitors by offering custom plan designs. During 2013, Guardian introduced Guardian Labs, which is a strategic incubator for identifying emerging trends to identify future product development and marketing opportunities which complement and enhance Guardians core business strategies. Scope of Operations Page 6 of 32 Print Date: June 09, 2014

7 Scope of Operations (Continued...) Period Ending Direct Premiums Written Total Premium Composition & Growth Analysis Reinsurance Premiums Assumed Guardian Life Insurance Company of America Reinsurance Premiums Ceded Net Premiums Written & Deposits ($000) (%Chg) ($000) (%Chg) ($000) (%Chg) ($000) (%Chg) ,712, , , ,797, ,410, , , ,089, ,293, , , ,954, ,324, , , ,051, ,295, , , ,059, Yr CAGR XX 1.2 XX 41.9 XX -0.7 XX /2014 1,802, XX XX XX XX 1,800, /2013 1,709, XX XX XX XX 1,702, Territory The company is licensed in the District of Columbia and all states. Business Trends Product Line Direct Premiums Written 2013 By-Line Business ($000) Reinsurance Premiums Assumed Reinsurance Premiums Ceded Net Premiums Written ($000) (%) ($000) (%) ($000) (%) ($000) (%) Ordinary life 3,650, , , ,471, Group life 426, , , , Individual annuities 24, , Individual A&H 221, , , , Group A&H 2,389, , ,384, Miscellaneous Total 6,712, , , ,705, Page 7 of 32 Print Date: June 09, 2014

8 Business Trends (Continued...) 2013 Top Product Lines of Business (Net Premiums Written) 5 s of Net Premiums Written ($000) 35.6% 7,500,000 6,705, % 5,925,405 5,943,499 5,874,608 6,011,215 6,000, % 0.4% 6.4% 4,500,000 Ordinary life Individual annuities Group A&H Group life Individual A&H 3,000,000 1,500, By-Line Reserves ($000) Product Line Ordinary life 28,860,779 26,948,126 25,141,157 23,488,271 21,893,637 Group life 542, , , , ,632 Supplementary contracts 30,307 32,551 34,446 35,600 37,357 Individual annuities 229, , , , ,197 Group annuities 26,925 25,251 26,635 28,707 27,324 Deposit type contracts 389, , , , ,342 Individual A&H 2,113,837 32,960 49,050 17,869 14,236 Group A&H 909, , , , ,842 Total 33,103,545 29,041,267 27,148,174 25,520,960 23,881,566 Life Policies Statistics Ordinary Policies Group Policies Group Certificates Issued In Force Issued In Force Issued In Force ,192 1,136,973 7,742 42, ,126 2,450, ,268 1,155,954 6,883 39, ,247 2,231, ,174 1,980,422 7,068 37, ,083 1,942, ,323 2,220,648 6,718 36, ,547 1,794, ,321 2,341,237 5,104 36, ,620 1,742,902 Page 8 of 32 Print Date: June 09, 2014

9 Business Trends (Continued...) Life Insurance In Force ($000) Guardian Life Insurance Company of America Whole Life & Endowment & Additions Term Credit Group Industrial Total Insurance In Force ,345, ,927, ,787, ,060, ,486, ,042, ,460, ,989, ,601,290 97,081, ,542, ,225, ,380,704 87,577, ,240, ,199, ,529,147 77,888, ,346, ,764,403 New Life Business Issued Whole Life & Endowment & Additions Term Credit Group Industrial Total Insurance Issued Non- Particpt. Particpt. (%) (%) ,744,701 19,753, ,909, ,408, ,236,192 17,594, ,400, ,230, ,635,694 17,484, ,881, ,001, ,920,743 16,962, ,438, ,322, ,382,041 16,612, ,505, ,500, Ordinary Lapse Ratio (%) Renewal Premium Persistency (%) Ordinary Life Statistics Average Ordinary Policy (In Dollars) # of Policies Average Premium Issued In Force Issued In Force ($/M) , ,858 48,192 1,136, , ,277 47,268 1,155, , ,165 46,174 1,980, , ,912 44,323 2,220, , ,261 42,321 2,341, st Premium ($000) 1st Premium / Total Premium 1st Commission / 1st Premium General Expenses / Policies In Force General Expenses / Reserves (%) Return on Reserves (%) , , , , , Page 9 of 32 Print Date: June 09, 2014

10 Business Trends (Continued...) Net Premiums Written ($000) Total Reserves ($000) Individual Annuity Statistics Expenses to Reserves (%) Guardian Life Insurance Company of America Commissions & Expenses to Net Premiums Written (%) Benefits & Withdrawals to Net Premiums Written (%) Benefits & Withdrawals to Reserves (%) , , , , , , , , , , Net Premiums Written ($000) Total Reserves ($000) Group Annuity Statistics Expenses to Reserves (%) Commissions & Expenses to Net Premiums Written (%) Benefits & Withdrawals to Net Premiums Written (%) Benefits & Withdrawals to Reserves (%) , , , , , Total Annuity Actuarial Reserves By Withdrawal Characteristics Total Annuity Reserves ($000) Minimum or No Surrender Charge (%) With Surrender Charge 5% or More (%) With Market Value Adjustment (%) No Surrender Charge Allowed (%) , , , , , Market Share / Market Presence Page 10 of 32 Print Date: June 09, 2014

11 Market Share / Market Presence (Continued...) Guardian Life Insurance Company of America Geographical Breakdown By Direct Premium Writings ($000) New York 1,112,983 1,072,480 1,079,231 1,056,645 1,021,095 California 535, , , , ,520 New Jersey 450, , , , ,273 Florida 355, , , , ,071 Texas 355, , , , ,655 Pennsylvania 301, , , , ,862 Massachusetts 248, , , , ,321 Ohio 217, , , , ,439 Illinois 217, , , , ,906 Georgia 210, , , , ,146 All Other 1,928,743 1,886,019 1,870,351 1,914,930 1,929,453 Total 5,933,940 5,739,717 5,701,429 5,790,621 5,737,739 Page 11 of 32 Print Date: June 09, 2014

12 Risk Management The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Guardian has a formal and disciplined structure to monitor and manage risk. Enterprise Risk Management (ERM) objectives are to manage and aggregate risk on an enterprise-wide level, ensure robust risk management processes, and instill a risk management culture throughout the organization. By accomplishing these objectives, Guardian's ERM efforts allows the entity to maintain excellent financial strength, favorable capitalization and provide its customers with products that optimize the balance between financial risk and return for both policyholders and the enterprise. Guardian operationalizes its enterprise risk management through various Committees all of which report to the Corporate Risk Management Committee (CRMC). Committee's reporting to the CRMC include Investment Risk, Compliance, Operational, Product and Business Unit/Distribution. The CRMC consists of CEO, CFO, COO and other senior executives and is chaired by the CFO. The Chief Actuary functions as the Chief Risk Officer of the Company. Each Committee has a charter defining its mission and how it operates. The Board of Directors has ultimate responsibility to monitor enterprise risks and management's plans to manage those risks, and the Board and each of its principal Committees have written charters containing explicit statements of their responsibilities for monitoring enterprise risks and the Company's plans to manage those risks. Specifically, the Audit and Risk Committee is responsible for monitoring all risks and their related management plans not explicitly covered by other Board committees. The Investment Committee monitors all investment risks and the Product and Distribution Committee monitors product pricing risks, reviews the annual policyholder dividend pay-out and all reinsurance policies. The Company has defined and quantified its ERM practices through a Guardian Corporate Risk Appetite statement which is updated on an annual basis. This statement is enterprise wide, developed in conjunction with the planning process, and is reviewed and approved at both the Corporate Risk Committee as well as the Board of Directors. It reflects all material risks including interest rate, equity market, credit, business and operational. Once the enterprise wide "risk budget" is determined it is then allocated to each profit center which in turn develops its own cascading risk appetite statement to ensure consistency and compliance with the overall enterprise risk budget. The risk appetite statement includes quantitative risk tolerances which mandate minimum RBC ratios, earnings requirements, and place constraints on earnings volatility and capital volatility. In addition, a number of qualitative tolerances are formulated to address operational, business, regulatory and reputational risks. The Company uses various tools to understand and evaluate risks including stress testing and economic capital modeling. Economic capital modeling is performed for all business segments utilizing a set of 2000 integrated scenarios which identify all material business risks using a conditional tail expectation ratio of 99% (i.e. required capital is computed based on the outcomes of the worst 1% scenarios). Finally, in addition to economic capital, the company has completed a preliminary draft review of its Own Risk and Solvency Assessment (ORSA) which will be required by the NAIC in the future. Page 12 of 32 Print Date: June 09, 2014

13 Operating Performance The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Operating Results: Guardian Life Group consistently continues to report favorable pre-tax operating earnings supported by stable underwriting and investment income. Investment income has benefited from investment returns on organic capital growth despite the impact of lower reinvestment yields which is resulting in spread compression for the life and annuity industry. Historically, all major business lines have reported statutory pre-tax operating gains over a five-year period which reflects the groups balanced product portfolio which provides meaningfully earnings diversification for Life (individual and group) and accident and health (primarily Dental) which remain as the largest contributors to operating results and account for the majority of the group's overall earnings. In 2013, the group's individual risk business reported growth driven by strong mortality results. Group a&h profitability was driven by premium growth, lower utilization and expenses, strong persistency and some amortization benefits from the Reed acquisition. The Retirement solutions segment reported a modest decline in 2013 pre-tax statutory operating income driven by its group annuities and 401(k) business which reflects continuing levels of investment necessary to reach critical mass. Statutory and GAAP operating earnings have also benefited from targeted expense reductions to achieve efficiencies necessary for technological investment and new business growth. A.M. Best believes that Guardian's initiatives for growth, combined with the organization's superior capitalization, provide it with a high level of flexibility and support in establishing sustainable, profitable growth on both a statutory and GAAP basis. Offsetting the group's strong operating earnings trends are realized capital losses in recent years due to public equity losses associated with hedging GMWB liabilities, which are offset by higher fee income and lower economic liabilities. In 2012, the group has reported strong sales results in its individual life (whole life) business segment and individual disability. Group sales results (dental, disability, life and ADD) increased across all major lines. The Retirement solutions segment and Group 401(k) combined products also contributed to favorable sales results. Statutory and GAAP pre-tax operating gains (excluding realized capital gains/losses) supported by a conservative investment strategy have remained strong despite a challenging environment, which reflects, in part, the nature of statutory accounting. Under statutory accounting, dividends to policyholders (which include realized capital gains on an amortized basis) are reductions to income; however, realized gains do not boost operating income. Hence, operating income is understated when compared to GAAP results, which reports realized gains and losses in income. Period Ending Pre-tax Net Operating Income Profitability Analysis ($000) Company Net Operating Gain Net Income Total Return Operating ROR (%) Operating ROE (%) Industry Composite Operating ROR (%) Operating ROE (%) , , , , , , , , , , , , , , , , , ,193 27, , Yr Avg/Tot 1,444,096 1,001, ,711 1,384, / ,260 39,475 42, , XX XX 03/ ,918 48,305 65,070 97, XX XX Page 13 of 32 Print Date: June 09, 2014

14 Operating Performance (Continued...) Guardian Life Insurance Company of America Operating ROR Comparison with Industry Composite Operating ROE Comparison with Industry Composite Company Operating ROR - Industry Composite Operating ROR - Company Operating ROE - Industry Composite Operating ROE * Industry Composite - Individual Life Composite * Industry Composite - Individual Life Composite Underwriting Results Benefits Paid to NPW & Deposits Commissions & Expenses to NPW & Deposits Profitability Tests (%) NOG to Total Assets NOG to Total Revenues Operating Return on Equity Net Yield Total Return Yr Avg/Tot / / Page 14 of 32 Print Date: June 09, 2014

15 Underwriting Results (Continued...) Net Operating Gain ($000) Product Line Ordinary life 103, ,928 47,945 98,545 29,942 Group life 40,067 41,677 25,107 31,199 21,884 Supplementary contracts 10,171 9,416 12,287 9,732 4,384 Individual annuities 4,572-1,035 5,744 5,806 1,510 Group annuities -36,756-21,772-6,552-6,430-16,389 Individual A&H 1,452 13,404-15,083-15,933-3,706 Credit A&H ,394-1,236-1,762 Group A&H 94,165 68, , ,992 87,712 Other 2, , Total 219, , , , ,193 Net Premiums Written ($000) Accident & Health Statistics Guardian Life Insurance Company of America Net Premiums Earned ($000) Loss Ratio Expense Ratio Underwriting Results ($000) ,784,019 2,754, , ,243,332 2,244, , ,318,838 2,326, , ,535,802 2,538, , ,640,152 2,641, ,206 Current Experience Net Premiums Written ($000) Net Premiums Earned ($000) Loss Ratio Expense Ratio Underwriting Results ($000) Group 2,384,919 2,379, ,567 Collectively renewable Non-cancelable 384, , ,209 Guaranteed renewable 1,086 1, ,084 Non-renewable 13,631 11, ,277 Investment Results Page 15 of 32 Print Date: June 09, 2014

16 Investment Results (Continued...) Net Invest. Income ($000) Realized Capital Gains ($000) Investment Gains Company Unrealized Capital Gains ($000) Guardian Life Insurance Company of America Invest. Income Growth (%) Invest. Yield (%) Return on Invested Assets (%) Total Return (%) Industry Composite Invest. Income Growth (%) Invest. Yield (%) ,765,427 65,955-15, ,728,420 28,976 48, ,714,573-9,671-90, ,665,128-23, , ,551,424-96, , Yr Avg/Tot 8,424,971-34, , / ,443 2,833 63, XX XX 03/ ,430 16,765 32, XX XX Investment Income Growth vs Industry Investment Yield vs Industry Company Investment Income Growth (%) - Industry Composite Investment Income Growth (%) - Company Investment Yield (%) - Industry Composite Investment Yield (%) * Industry Composite - Individual Life Composite * Industry Composite - Individual Life Composite Page 16 of 32 Print Date: June 09, 2014

17 Balance Sheet Strength Capitalization The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Capitalization: Through 2013, Guardian continues to maintain favorable absolute and risk-adjusted capital trends despite modest economic growth, low interest rate environment and the changing distribution landscape requiring capital reinvestment capitalization improved as a result of operating gains, net gains on public/private equities and deferred tax asset offset by hedge realized losses, currency translation losses and new pension plan statutory accounting rules. Capitalization has also increased annually since 2008 as a result of favorable earnings results supported by investment income. Guardian's 5 year CAGR of 4.5% exceeds the industry average of 4%. Guardian has also improved its capital and surplus in recent years due to growth in its asset base resulting in favorable net investment income results while protecting capital despite continued market volatility. This was accomplished by maintaining a defensive position on the investment side and utilizing a dynamic hedging program for public equities. In 2009, capital and surplus increased by approximately 15% which included the issuance of $400 million in new surplus notes at Guardian Life. Guardian's capital position has historically been one of its major strengths, with favorable risk-adjusted capital ratios relative to its current level of insurance and investment risks. The company has taken significant steps in recent years to improve its capital base on both an absolute and risk-adjusted basis. The company reduced its public equity exposure over the last ten years, which previously contributed to significant surplus growth, and strategically refocused on more stable, lower-risk lines of business. These actions have led to the strengthening of Guardian's capital position and an improvement in the quality of capital. A.M. Best notes that the company employs conservative reserving practices and has historically maintained a conservative capital structure, which improves both the quality of the group's capital and its financial flexibility. Financial leverage on a statutory basis which includes the surplus note is 8.3% as of year-end 2012 and Guardian maintains superior interest coverage levels. Pre-Tax Net Operating Gain Realized Capital Gains Capital Generation Analysis Source Of Surplus Growth ($000) Unrealized Income Capital Change in Taxes Gains AVR Other Changes Change in Capital & Surplus % Change in Capital & Surplus ,454 65, ,872-15,121-78,067 67, , ,444 28,976 60,123 48, ,334-3, , ,557-9,671 81,033-90,001 50,051-14, , ,829-23,024 99, , ,950-6, , ,811-96,460 66, , , , , Yr Total 1,444,096-34, , , , ,386 1,353, / ,260 2,833 14,785 63,693-19,228-10,605 76, / ,918 16,765 41,613 32,534-23,786-28,928 44, Page 17 of 32 Print Date: June 09, 2014

18 Capitalization (Continued...) Surplus Notes Other Debt Quality of Surplus ($000) Contributed Capital Guardian Life Insurance Company of America Unassigned Surplus End Capital & Surplus Asset Valuation Reserve Adjusted Capital & Surplus , ,615,810 5,011, ,785 5,697, , ,355,987 4,752, ,719 5,359, , ,176,661 4,572, ,385 5,062, , ,035,021 4,430, ,436 4,970, , ,792,057 4,187, ,485 4,559,450 03/ , ,691,953 5,088, ,013 5,793,066 03/ , ,400,854 4,796, ,505 5,428,408 Underwriting Leverage Capital & Surplus to Liabilities Surplus Relief Leverage Analysis (%) Company NPW & Deposits to Capital Change in NPW & Deposits Industry Composite Capital & Surplus to Liabilities Surplus Relief / XX XX 03/ XX XX Current BCAR: 232 Page 18 of 32 Print Date: June 09, 2014

19 Underwriting Leverage (Continued...) C&S/Liabilities vs Industry Reinsurance Leverage vs Industry Company C&S/Liabilities - Industry Composite C&S/Liabilities - Company Reinsurance Leverage - Industry Composite Reinsurance Leverage * Industry Composite - Individual Life Composite * Industry Composite - Individual Life Composite Face Amount Reinsurance Ceded Affiliated Reinsurance Recoverable / Capital & Surplus Ceded Reinsurance Analysis Company Unaffiliated Reinsurance Recoverable / Capital & Surplus Total Reinsurance Recoverable / Capital & Surplus Surplus Relief Reinsurance Leverage Industry Composite Total Reinsurance Recoverable / Capital & Surplus Reinsurance Leverage ,505, ,093, ,162, ,509, ,386, Liquidity The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Liquidity: According to the A.M. Best Liquidity model for U.S. Life Insurers, Guardian maintains a high level of liquidity suitable for its diversified risk profile. Both its short-term (30 days) and longer term (six to 12 months) ratios which measures cash needs positions under stressed scenarios exceed 100%. A ratio that exceeds 100% indicates that a higher comfort level exists that a company's exposure to liquidity risk is acceptable. This high degree of liquidity also enables Guardian to meet unexpected needs for cash without the untimely sale of investments, which could result in realized gains/losses due to market volatility. Guardian's quick and current liquidity ratio's measures the proportion of liabilities covered by cash and investments that can be converted quickly to cash are within expectations and are comparable to industry composites. Guardian's noninvestment grade fixed-income securities, mortgage and real estate, and affiliated investments relative to capital are considered favorable when compared to the total industry and mutual company composites. Page 19 of 32 Print Date: June 09, 2014

20 Liquidity (Continued...) Liquidity Analysis Operating Cash Flow ($000) Quick Liquidity Current Liquidity Company Non- Investment Grade Bonds / Capital Delinq & Forclosed Mortgage / Capital Mtg & Cred Ten Lns & RE / Capital Affiliated Investment to Capital Industry Composite Quick Liquidity Current Liquidity ,119, ,101, ,797, ,859, ,928, / ,670 XX XX XX XX 03/ ,094 XX XX XX XX Quick Liquidity vs Industry Current Liquidity vs Industry Company Quick Liquidity (%) - Industry Composite Quick Liquidity (%) - Company Current Liquidity (%) - Industry Composite Current Liquidity (%) * Industry Composite - Individual Life Composite * Industry Composite - Individual Life Composite Investments The following text is derived from A.M. Best's Credit Report on Guardian Life & Health Group (AMB# ). Investments: Guardian maintains a very disciplined investment management process that is designed to meet its investment objectives of maximizing returns and minimizing risks. In recent years, the company has increased investment in private placement debt and commercial mortgages that provide attractive yields over pubic fixed income securities in the current low interest rate environment. As a result, fixed income securities comprise approximately seventy-five percent of the group's invested assets with publicly traded securities accounting for approximately seventy percent of fixed income securities. The portfolio primarily consists of investment grade corporates which constitute 60% of fixed-income holdings, foreign, and government securities, as well as, municipals. The group's level of below investment grade bonds has remained relatively stable and account for 6.3% of the bond portfolio, while the level of below investment grade bonds to surplus has decreased to approximately thirty-five percent. Securitized investments are concentrated in mortgage-backed securities. Page 20 of 32 Print Date: June 09, 2014

21 Investments (Continued...) Based on changes in the company's investment strategy, exposure to public equity securities has declined to less than three percent of total invested assets. Guardian continues to hedge all mark to market assets, which includes public equities with its dynamic hedging program which was designed and implemented over 10 years ago to protect the firm's capital from exposure to declining equity markets. The investment portfolio has very little real estate and private equity holding exposure. Mortgage loans are the second largest asset representing 8.3% of invested assets with favorable experience in recent years declining from a 12.1% allocation in The mortgage portfolio is almost entirely comprised of commercial loans with concentrations in the South Atlantic, Pacific and Middle Atlantic regions. Guardian diligently manages its investment portfolio through stress-test modeling as part of its enterprise risk management process. Investment Yields (%) Net Yield Bonds Stocks Mortgages Cash & Short Term Real Estate Gross Net Investment Expense Ratio Investments - Bond Portfolio 2013 Distribution By Maturity s s Average Maturity Government Government Agencies Industrial & Miscellaneous Affiliated Hybrid Securities Total Page 21 of 32 Print Date: June 09, 2014