Ultimate Parent: Cameron Associates Inc AMERICAN FIDELITY ASSURANCE COMPANY

Transcription

1 Oklahoma City, Oklahoma A+ PROOF Ultimate Parent: Cameron Associates Inc AMERICAN FIDELITY ASSURANCE COMPANY 2000 N. Classen Boulevard, Suite 10E Oklahoma City, OK 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: IX RATING RATIONALE Rating Rationale: The rating of American Fidelity Assurance Company (American Fidelity) reflects the company s long and established presence in the voluntary worksite market, continued profitable operating results and capital growth, and the evolving development of the organization s business. Offsetting factors include the challenges of operating in a very competitive worksite market, the impact of the extended low interest rate environment on annuity products and the asset concentration risk in its investment portfolio. American Fidelity was formed in 1960 to focus on the emerging voluntary employee benefits market. It remains a leading niche player in the education sector providing voluntary worksite products for accident and health, in addition to life and annuity lines of business. Worksite marketing remains the overwhelming majority of the company s business accounting for nearly nine-tenths of its total earned premium. American Fidelity s disciplined pricing policy has allowed the company to quickly react to pricing issues and minimize potential losses, and has resulted in continued profitable operations. In addition, the company has focused on attracting and retaining customers on a profitable basis through targeted niche markets. The continued profitable operating results have been the primary contributor to surplus growth. In recent years, American Fidelity has invested in the growth of its core operating divisions, traditional and electronic technology, as well as cultural, branding and restructuring programs. As a result, the company has reported reduced staffing requirements, efficiency and some measured improvements in its expense structure. American Fidelity generates the vast majority of its business from the voluntary worksite market. The extended weak economic environment and increased level of competition are ongoing challenges in this market near term and may impact revenue growth. The company will continue to be challenged with the ongoing spread compression due to low interest rates and high minimum guarantee rates on some of its large block of fixed annuities. American Fidelity has a relatively large exposure to commercial mortgage loans. However, A.M. Best acknowledges there are no residential mortgages and no subprime exposure, all are fixed rate, geographically diverse and relatively low loan-to-value. Additionally, there are no loans in foreclosure or past due mortgages, and the real estate exposure is offset by modest below-investment-grade bond exposure relative to the industry and capital. A.M. Best believes that upward rating movement for American Fidelity is unlikely in the near to medium term. Potential for a future negative rating action or an outlook change may develop should the company s operating results indicate a sustained declining trend, emergence of weak profitability from its core lines of business, or a material decline in its risk-adjusted capitalization from current levels. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/26/14 A+ 03/01/11 A+ 04/25/13 A+ 03/05/10 A+ 04/03/12 A A.M. Best Company, Oldwick, NJ Printed April 15, Page 1 of 8

2 KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Net Net Surplus Valuation Premiums Invest Funds Reserve Written Income Net Income Year Assets ,567, ,119 4, , ,995 49, ,780, ,221 5, , ,714 55, ,994, ,994 8, , ,146 55, ,358, ,915 10, , ,353 58, ,709, ,671 19, , ,531 71,728 (*) Within several financial tables of this report, this company is compared against the Multiple Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE American Fidelity Assurance Company (American Fidelity) was formed in 1960 and is owned by American Fidelity Corporation, which is ultimately majority owned by Cameron Associates, Inc. American Fidelity is privately held with 94% of the stock held by the Cameron Family. The company is licensed in 49 states, the District of Columbia, Guam, Puerto Rico and American Samoa. However, there is geographic concentration, with approximately one-half of its premium volume generated from the states of California, Oklahoma, Texas, Kentucky and Mississippi. A.M. Best notes the company continues its expansion into other states which has resulted in improved geographic distribution of premiums. Scope of Operations: American Fidelity writes various forms of life annuity and accident and health insurance. Product lines offered include long-term and short-term disability insurance, hospital indemnity, limited benefit medical, medical stop-loss, group and individual long-term care, individual and group life and health and annuities in the association and group markets. American Fidelity s ordinary life plans include whole life, term and specialty life products. Several years ago, the company exited the non-worksite life insurance market, however, American Fidelity remains active in sales in the U.S. worksite and Latin American life insurance market. While the company sells long-term care insurance, it is fully reinsured on a 100% coinsurance basis on all risk. The overwhelming majority of American Fidelity s business, more than 90%, is worksite marketing of voluntary products through the use of payroll deduction. The company sells these products primarily through a salaried sales force and brokerage operations that are broken into two divisions, operating as one under the Worksite Group: American Fidelity Educational Services (AFES) and Association Worksite Division (AWD). In 2012, the company merged similar departments in AFES and AWD to enhance operation and product synergies, with a focus on lowering expenses and increasing premiums. The Worksite Group implemented COBRA administration and introduced group critical illness in Both AFES and AWD have been operating in these markets for many years and have developed expertise, long-term relationships, and brand name recognition. The AFES business unit has been in the market for over 50 years and is considered a market leader. In addition, AFES has 95 total endorsements, which include major state teacher association endorsements and the National Education Association endorsement. AFES focuses on marketing ancillary insurance products to public school employees. Products include disability income, tax-sheltered annuities, life insurance, cancer expense insurance, long-term care, supplemental medical insurance, accident only and section 125 administrative services. AFES introduced a hospital indemnity product that is qualified for use with a Health Savings Account (HSA). AFES represents more than 63% of American Fidelity s, and its sister company, American Public Life Insurance Company, earned premium revenue. AWD specializes in voluntary payroll deduction programs targeted at selected groups and associations. AWD has 43 state endorsements for auto associations. The division has an established niche in the auto dealer market and has moved into the municipal and health industry niche markets. Available products include short-term and long-term disability income, life insurance, cancer expense insurance, accident only, supplemental medical expense coverage and Section 125 administrative services, which assist employers and employees in building better benefit packages. The expertise gained by the company in worksite marketing of voluntary products is complemented by the Strategic Alliances Division in developing products to meet special situations. Products sold by this division include stop-loss coverage available to employer groups of more than 100 employees, disability income, and a limited benefit medical product available to employers with 51 or more eligible employees. The limited benefit medical product can be offered as voluntary or employer paid. The Life Division also offers worksite life insurance in the United States and individual life insurance in Latin America. The company continues its expansion efforts into the Latin America U.S. dollar insurance market as a source for individual life insurance customers. The products include term life and universal life. American Fidelity utilizes two primary distribution channels, its career agency force and independent agents. More than 80% of its premiums are originated from its career agency force in all product lines (life, supplemental health and annuity). The use of a salaried sales force (career agents) to market the majority of its business has enabled American Fidelity to provide a higher level of customer support to its employer group customers. The ability to service the customer was demonstrated in recent years through the cancer product education program, which has enabled the company to maintain good persistency in this product line. This focus on customer service has also been demonstrated through the use of technology in improved group billings and to speed the processing of applications, claims, and coverage inquiries or changes. The company has implemented a website that allows customer access at any time to verify coverage information, modify coverage, and report claims. Interactive Voice Response (IVR) system is also available to customers at any time. American Fidelity has gained efficiency through the implementation of automatic issue and billing systems, which has resulted in reduction in staffing requirement in the policy processing area. Web based enhancements are being launched internally and for American Fidelity customers increasing efficiency of service. In addition, a fully integrated financial software system was implemented. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , ,001, , Yr CAGR Reinsurance Period Prem Ceded NPW & Deposits Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: The company is licensed in the District of Columbia, American Samoa, Guam, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY. Business Trends: American Fidelity has generated increased premium growth over the past five years. In 2013, American Fidelity reported direct premium growth of 2.3% over 2012, driven by the ordinary life block (worksite individual life), group A&H, group disability, group medical, dread disease and individual accident only. The top product lines of business based on net premium included group A&H (43.3%), Individual A&H (28.9%), individual annuities (17.6%), ordinary life (9.4%), group annuities and group life were nominal. Direct premium growth trends for 2012 were favorable and benefited from an increase in annuity, group disability, dread disease and group medical premiums A.M. Best Company, Oldwick, NJ Printed April 15, Page 2 of 8

3 2013 BY-LINE BUSINESS ($000) Reinsurance DPW Prem Assumed Product Line ($000) (%) ($000) (%) Ordinary life 138, Group life 1, Individual annuities 137, Group annuities 4, Individual A&H 245, Group A&H 473, , Total 1,001, , Reinsurance Prem Ceded NPW Product Line ($000) (%) ($000) (%) Ordinary life 65, , Group life , Individual annuities , Group annuities 4, Individual A&H 19, , Group A&H 191, , Total 276, , BY-LINE RESERVES ($000) Product Line Ordinary life 319, , , , ,895 Group life 12,576 12,577 12,853 12,845 11,756 Supplementary contr Individual annuities 1,339,957 1,249,534 1,142,427 1,055, ,838 Group annuities 29,762 26,234 22,869 20,145 17,705 Deposit type contracts 11,027 11,465 11,989 12,664 13,516 Individual A&H 172, , , , ,416 Group A&H 292, , , , ,715 Total 2,177,769 2,032,758 1,849,611 1,677,836 1,540,870 LIFE POLICIES STATISTICS -Ordinary Policies- -Group Policies- -Group Certificates- Year Issued In Force Issued In Force Issued In Force , , , , , , , , , , , , , , ,766 Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Year Adds Term Credit Group Industrial ,173,240 16,303, ,225 20,982, ,303,925 16,638, ,444 21,481, ,433,720 16,984, ,249 21,903, ,851,565 17,367, ,626 22,770, ,895,001 17,854, ,489 23,330,796 NEW LIFE BUSINESS ISSUED ($000) Year Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,048 2,484,354 14,921 2,925, ,357 1,861,247 5,498 2,269, ,512 1,818,135 4,816 2,205, ,522 1,879,005 8,145 2,273, ,066 1,965,002 3,865 2,376, ORDINARY LIFE STATISTICS Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force ,321 68, ,472 69, ,161 69, ,871 68, ,455 69, First Year Gen l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) , ,001 16, , ,136 14, , ,823 13, , ,860 14, , ,976 14, INDIVIDUAL ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res(%) (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) NPW Year (000) , , ,155 1,056, ,001 1,142, ,289 1,249, ,634 1,340, GROUP ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res (%) (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) NPW Year (000) ,870 17, ,764 20, ,645 22, ,619 26, ,448 29, TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS With Min or No Surrender Surrender Charge 5% With Charge (%) or more (%) MVA (%) No Surrender Allowed (%) Total Annuity Year Res (000) , ,076, ,165, ,275, ,369, A.M. Best Company, Oldwick, NJ Printed April 15, Page 3 of 8

4 SEPARATE ACCOUNT DATA Sep Acct Assets 592, , , , ,002 % Growth S/A Assets/Adm Assets Sep Acct Reserves 591, , , , ,420 % Individual Annuities % Group Annuities Other Liabilities 882 1,087 1,324 1,493 1,541 Sep Acct Surplus S/A Prems & Deposits 50,416 45,507 43,938 51,970 41,356 % Individual Annuities % Group Annuities Sep Acct Fees & Charges 7,551 6,291 5,729 5,014 3,970 % Individual Annuities % Group Annuities Fees & Chgs to Assets% Sep Acct Ben & Wdrwls 42,969 38,390 30,444 44,032 17,476 % Individual Annuities % Group Annuities Ben & Wdrwl to Assets% GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) California 183, , , , ,240 Oklahoma 99,981 99,172 88,630 86,549 79,072 Texas 98,757 97,173 92,753 88,058 91,782 Kentucky 56,577 56,234 53,619 49,299 44,887 Mississippi 54,838 56,263 51,826 51,268 47,158 Indiana 49,113 41,018 32,090 33,050 33,421 Ohio 33,293 30,376 26,546 23,132 19,476 Nevada 31,881 27,644 29,809 24,236 24,591 Alabama 30,821 28,921 29,516 26,339 22,542 Pennsylvania 25,261 23,265 19,061 19,419 21,967 All Other 336, , , , ,178 Total 1,000, , , , ,314 RISK MANAGEMENT The American Fidelity organization has a formal enterprise risk management (ERM) program under the direction of a Chief Risk Officer. ERM is considered a company-wide activity and routinely incorporates risk evaluation into its corporate decision-making process. The company addresses market risk, credit risk, underwriting risk, operational risk, strategic risk and liquidity risk. The ERM program was established in 2008 with an ERM committee and hired a Chief Risk Officer in 2010 to lead the program. To date, the company has established a common risk universe across operating units through a standardized operational and quantitative risk assessment. The company reviews its risk tolerances and risk metrics on a quarterly basis to the Board of Directors and on an as needed basis to the business units. The program continues to evolve and to formalize the monitoring and reporting structures, with a current focus on Own Risk and Solvency Assessment (ORSA) reporting. OPERATING PERFORMANCE Operating Results: American Fidelity has reported operating profitability over the past five years and all lines of business over the past three years. The company s net operating gain before taxes increased dramatically in 2013 and was the result of overall favorable claims experience. On an after tax basis, net income grew to $71.7 million from $58.5 million in the prior year. Net investment income increased modestly in 2013 and other than temporarily impaired related losses continued to decline. Additionally, operating earnings continue to benefit from utilization of Federal Home Loan Bank borrowing to augment investment income which has produced favorable net investment spreads over the last several years. Operating results reflect an increase to general expenses related to bonus accruals for Historically, American Fidelity has maintained higher than competitor expense ratios, but in recent years it has made progress in executing an ongoing multi-year program designed to reduce expenses and maximize operational efficiencies. However, the expense ratio was impacted by a one-time cessation of a closed block of business in Premium would have been $9.7 million higher resulting in a much lower ratio. PROFITABILITY ANALYSIS ($000) Company Pre-tax Net Period Net Oper Operating Net Total Ending Income Gain Income Return ,128 59,432 49,489 47, ,749 64,400 55,889 58, ,791 58,212 55,585 55, ,552 59,822 58,513 57, ,178 72,874 71,728 76,768 5-Yr Total 484, , , ,847 Company Industry Composite Period Operating Operating Operating Operating Ending ROR ROE ROR ROE Yr Avg PROFITABILITY TESTS Comm & Ben Paid Exp to NOG Operating to NPW NPW to Tot NOG to Return on Net Total Year & Dep & Dep Assets Tot Rev Equity Yield Return Year Avg NET OPERATING GAIN ($000) Product Line Ordinary life 7,719 4,172 5,307 5,329 5,220 Group life Supplementary contr Individual annuities 4,387 5,022 5,267 5,368 3,977 Group annuities Individual A&H 25,386 26,332 21,293 18,446 16,891 Group A&H 34,941 23,647 25,736 35,207 33,227 Total 72,874 59,822 58,212 64,400 59,432 ACCIDENT & HEALTH STATISTICS ($000) Net Premiums Net Premiums Loss Exp. Underwriting Year Written Earned Ratio Ratio Results , , , , , , , , , , , , , , ,071 Current Year Experience: Group 339, , ,118 Guarant renew 226, , ,946 Non-renew, S.R Other accident Other A.M. Best Company, Oldwick, NJ Printed April 15, Page 4 of 8

5 INVESTMENT GAINS ($000) Company Net Realized Unrealized Inv Capital Capital Year Income Gains Gains ,995-9,943-2, ,714-8,511 2, ,146-2, ,353-1,309-1, ,531-1,146 5,040 5-Year Total 773,740-23,537 3,643 Company -Industry Composite- Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-Tax Net Realized Unrealized Operating Capital Income Capital Year Gain Gains Taxes Gains ,128-9,943 42,696-2, ,749-8,511 32,349 2, ,791-2,627 35, ,552-1,309 20,730-1, ,178-1,146 38,303 5,040 5-Yr Total 484,398-23, ,658 3,643 Source of Surplus Growth Change Change % Chg in Other in in Year AVR Changes C&S C&S ,824 42, ,742-51,220 5, ,076-44,881 7, ,483-41,688 13, ,076-33,936 33, Yr Total -15, , , QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus , , , , , , , , , ,367 Year-End Asset Valuation Adjusted Year C&S Reserve C&S ,119 4, , ,221 5, , ,994 8, , ,915 10, , ,671 19, ,148 LEVERAGE ANALYSIS Company -Industry Composite- C&S NPW Change C&S to Surplus & Dep in NPW to Surplus Year Liab Relief to Capital & Dep Liab Relief BALANCE SHEET STRENGTH Capitalization: American Fidelity maintains a reasonable level of risk-adjusted capital relative to its insurance and investment risks. The primary contributor to surplus growth has been the company s continued Current BCAR: 199 profitable operating results. However, its surplus growth has been limited by significant dividend payments to the parent organization over the past five CEDED REINSURANCE ANALYSIS years. A.M. Best expects American Fidelity to maintain favorable levels of Company -Industry Compositerisk-adjusted capital to support its business growth and its current insurance Face Affil Unaffil Total Total and investment risks. Amount Reins Reins Reins Surplus Reins Reins Reins American Fidelity Corporation, the parent of American Fidelity, is well Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage capitalized. Its debt is comprised of IPRET Trust Preferreds, bank borrowings ,642, and debt guaranteed by American Fidelity Corporation on behalf of its ,112, subsidiaries. However, the vast majority of debt is related to FHLB borrowing ,627, by American Fidelity and American Public Life, which is a sister company ,195, These FHLB loans are part of an overall spread lending program which is ,780, collateralized with American Fidelity and American Public Life investments, which are reasonably well matched from a duration perspective. Liquidity: American Fidelity has a good liquidity profile as measured by Best s liquidity ratios and its investment portfolio was in an unrealized gain position at year end which provides additional liquidity. Other potential liquidity resources include its participation in the FHLB program with additional access to FHLB advances based on available collateral. While overall liquidity remains adequate, American Fidelity has exposure to real estate-related investments, which are typically less liquid investments. LIQUIDITY ANALYSIS Company Operating Non-Inv Delnq & Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital , , , , , Company Industry Composite Mtg & Cred Affil Ten Lns Invest Quick Current Year & RE to Cap to Capital Liquidity Liquidity A.M. Best Company, Oldwick, NJ Printed April 15, Page 5 of 8

6 Investments: The investment portfolio consists primarily of bonds and mortgage loans which represent nearly 94.7% of the investment portfolio at year end, with bonds comprising 86% and mortgage loans 8.7% of invested assets. In addition, the investment portfolio includes modest amounts of cash and short term investments, real estate, common stock, other invested assets and policy holder loans. Investment yields for the portfolio have continued to trend negatively due to historically low interest rates, which has driven reinvestment yields lower and is an industry-wide issue. INVESTMENT YIELDS Cash & Invest. Net Short- Real Estate Exp. Year Yield Bonds Stocks Mortgages Term Gross Net Ratio Investments - Bond Portfolio: American Fidelity s fixed-income holdings are mainly distributed among the U.S. government, government agency, investment-grade public utility, and corporate sectors. The company maintains a high quality investment portfolio, with nominal exposure to below investment-grade securities. More than one-third of its bond obligations are in mortgage-backed securities, with the majority of these in agency-backed pass-throughs, sequentials, or planned amortization class of collateralized mortgage obligations. American Fidelity holds a modest amount of structured residential mortgage backed securities (RMBS) including prime and ALT- A investments along with some trust preferred collateralized debt obligations. Additionally, American Fidelity participates in an FHLB program which leverages borrowings at preferred low rates which are then invested in Domicile: OK securities of similar duration at higher interest rates to enhance its investment spreads and offset spread compression from lower reinvestment yields. INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 3,368,279 3,166,212 2,924,366 2,758,484 2,597,283 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Hybrid Securities Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 28,661 27,921 27,499 26,454 24,653 Unaffiliated Common Affiliated Common Unaffiliated Preferred Investments - Mortgage Loans and Real Estate: American Fidelity has sizeable exposure to real estate-related investments. These assets, including mortgage loans, represent approximately 99% of the company s total capital and surplus position. The mortgage loan portfolio is composed primarily of commercial mortgages secured by medical office, industrial, office, and retail facilities. The loans are geographically diversified with no problem mortgage loans, reasonable loan to value ratios and solid debt service coverage ratios. INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgages (000) 340, , , , ,098 Commercial Real Estate (000) 12,297 12,726 2,459 2,601 2,608 Property Held for Inc Property Held for Sale INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 169, , , , ,864 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 11/30/1960 Date Commenced: 12/01/1960 MANAGEMENT Officers: Chairman of the Board and Chief Executive Officer, William M. Cameron; Chairman of the Board, William E. Durrett; President and Chief Operating Officer, David R. Carpenter; Executive Vice President, Treasurer and Chief Financial Officer, Robert D. Brearton; Executive Vice Presidents, Alfred L. Litchenburg, Jeanette M. Rice, Gary E. Tredway; Senior Vice President and Controller, Lucy K. Fritts; Senior Vice Presidents, Lawrence D. Alkire, Alex M. Bagby, Ronald J. Byrne, Kimberly A. Fisher, Traci C. Hampton, Keith R. Johnson, Rick D. Summerlin; Vice President and Secretary, Christopher T. Kenney; Vice President and Actuary, Renee M. Bauer. Directors: Gregory S. Allen, John M. Bendheim, Jr., Lynda L. Cameron, William M. Cameron, William E. Durrett, Charles R. Eitel, Theodore M. Elam, Paula Marshall, Tommie J. McDaniel, Stephen M. Prescott, M.D. REGULATORY An examination of the financial condition was made as of December 31, 2010, by the insurance department of Oklahoma. The 2013 annual independent audit of the company was conducted by KPMG, LLP. The annual statement of actuarial opinion is provided by Renee M. Bauer, Vice President & Actuary. Reserve basis: (Current ordinary business): 1980 CSO 4%; 2001 CSO at 4%; CRVM and Net Level valuation. (Group permanent life business): 1958 CSO 3%; CRVM valuation. (Current annuity business): Annuity % and 1994 GAR at 5.5%; CARVM valuation. REINSURANCE The company has an aggregate stop-loss umbrella on its retained group products, which protects the company against aggregate group loss ratio results more adverse than 6% above the historical norm. Group life retention is $500,000; group medical is $350,000; group disability is $6,000 monthly indemnity; group voluntary accidental death is $125,000. The company has an aggregate stop-loss umbrella on individual life, which protects the company against aggregate annual claims exceeding expected by 14%. Company individual life retention is currently $250,000 per life for most business A.M. Best Company, Oldwick, NJ Printed April 15, Page 6 of 8

7 FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2013 Assets Liabilities Total bonds 3,368,279 +Net policy reserves 2,166,741 Total preferred stocks 211 Policy claims 151,331 Total common stocks 28,450 Deposit type contracts 11,027 Mortgage loans 340,055 Interest maint reserve 21,038 Real estate 12,297 Comm taxes expenses 83,809 Contract loans 25,628 Borrowed money 523,032 Cash & short-term inv 122,136 Asset val reserve 19,477 Prems and consids due 83,309 Funds held reinsurance 729,383 Accrued invest income 37,605 Other liabilities 68,514 Other assets 99,054 Tot liab w/o sep accts 3,774,352 Tot assets w/o sep accts 4,117,023 Separate account bus 592,827 Separate account bus 592,827 Total liabilities 4,367,179 Common stock 2,500 Paid in & contrib surpl 5,805 Unassigned surplus 334,367 Assets 4,709,850 Total 4,709,850 +Analysis of reserves; Life $300,983; annuities $1,369,719; supplementary contracts with life contingencies $191; accidental death benefits $155; disability active lives $474; disability disabled lives $16,497; miscellaneous reserves $13,629; accident & health $465,094. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 21,632 Ordinary life 73,664 Annuity benefits 10,013 Individual annuities 137,634 Surrender benefits 90,859 Group life 1,395 Acc & health benefits 282,819 Group annuities 4,448 Int on policy funds 1,785 Acc & health group 338,233 Supplementary contracts 12 Acc & health other 225,513 Incr life reserves 113,734 Total premiums 780,888 Incr a & h reserves 31,715 Net investment income 162,531 Commissions 116,450 Amort interest maint res 2,860 Comm exp reins assumed 16,862 Comm & exp reins ceded 7,162 Insur taxes lic & fees 30,724 Res adj on reins ceded 3,547 General ins expenses 163,172 Reinsurance income 24,286 Net transf to sep acct 205 Other income 9,967 Mgt and/or service fee 371 PROOF Total 991,612 Total 879,981 Gain from operations before FIT & div to policyholders ,631 Dividends to policyholders: life Gains from operations after dividends to policyholders ,178 Federal income taxes incurred... 38,303 Net gain from operations after FIT and dividends... 72,874 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 983,558 Benefits paid 403,519 Long-term bond proceeds 385,975 Comm, taxes, expenses 318,463 Mortgage loan proceeds 49,656 Long-term bonds acquired 569,942 Other cash provided 4,119 Other cash applied 128,293 Incr cash & short-term 3,091 Total 1,423,308 Total 1,423, A.M. Best Company, Oldwick, NJ Printed April 15, Page 7 of 8

8 Why is this Best s Rating Report important to you? PROOF A Rating Report from the A.M. Best Company represents an independent opinion from the leading provider of insurer ratings of a company's financial strength and ability to meet its obligations to policyholders. The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of insurance companies since The Best's Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer's claims-payment policies or procedures; the ability of an insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. A Best's Financial Strength Rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. The company information appearing in this pamphlet is an extract from the complete company report prepared by the A.M. Best Company. A Best's Financial Strength Rating is assigned after a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile. Best's Financial Strength Ratings are assigned according to the following scale: Secure Best's Financial Strength Ratings A++ and A Superior A and A Excellent B++ and B Good Vulnerable Best's Financial Strength Ratings B and B Fair C++ and C Marginal C and C Weak D Poor E Under Regulatory Supervision F In Liquidation S Rating Suspended For the latest Best's Financial Strength Ratings and AMB Credit Reports visit the A.M. Best web site at You may also obtain AMB Credit Reports by calling our Customer Service department at , ext To expedite your request, please provide the company's identification number (AMB #) A.M. Best Company, Oldwick, NJ Printed April 15, Page 8 of 8