Independent Auditor's Report

Transcription

1 pwc Independent Auditor's Report April28, 2017 To the Board of Directors We have audited the accompanying condensed consolidated financial statements of Centre Solutions (U.S.) Limited, which comprise the condensed consolidated balance sheet as of December 31, 2016, and the related condensed consolidated statement of income and condensed consolidated statement of capital and surplus for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Condensed Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the condensed consolidated financial statements based on the financial reporting provisions of The Insurance Act 1978, amendments thereto and the Insurance Account Rules 2016 with respect to Condensed General Purpose Financial Statements (the "Legislation"). Management is also responsible for the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these condensed consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the condensed consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the condensed consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the condensed consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the condensed consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation ofthe condensed consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. i l PricewaterhouseCoopers Ltd., Chartered Professional Accountants, P.O. Box HM 1171, Hamilton HM EX, Bermuda T' +' ( 44') 2952ooo, F'+' ( 44') 295 '242, "do

2 pwc Basis for Adverse Opinion on InteJ'llational Financial Repm ting Standards As described in Note 3 to the condensed consolidated financial statements, the condensed consolidated financial statements are prepared by the Company based on the financial reporting provisions of the Legislation, which is a basis of accounting other than International Financial Reporting Standards. The effects on the condensed consolidated financial statements of the variances between the basis of accounting described in Note 3 and International Financial Reporting Standards are material. AdveJ se Opinion on InteJ-national Financial Repm ting Standm ds In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on International Financial Reporting Standards" paragraph, the condensed consolidated financial statements referred to above do not present fairly, in accordance with International Financial Reporting Standards, the financial position of the Company and its subsidiaries as of December 31, 2016, or the results of their operations or their cash flows for the year then ended. Opinion on Condensed Consolidated Financial Statements In our opinion, the condensed consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2016, and the results of their operations for the year then ended, in accordance with the financial reporting provisions of the Legislation described in Note 3. f,y..,t..vw-~~.. ~ ~. Chartered Professional Accountants Reference: Auditor's Report on the Condensed Consolidated Financial Statements of Centre Solutions (U.S.) Limited for the year ended December 31, 2016 Page 2 of 2

3 CONDENSED CONSOLIDATED BALANCE SHEET e e (U.S.) I As at expressed in December 31, 2016!United States Dollars LINE No I I CASH AND CASH EQUIVALENTS 2. QUOTED INVESTMENTS: Bonds and Debentures i. Held to maturity li. Other Total Bonds and Debentures Equities I. Common stocks il. Preferred stocks Iii. Mutual funds Total equities (e) Other quoted investments (f) Total quoted investments 3. UNQUOTED INVESTMENTS: Bonds and Debentures i. Held to maturity ii. Other Total Bonds and Debentures Equities i. Common stocks ii. Preferred stocks iii. Mutual funds Total equities (e) Other unquoted Investments (f) Total unquoted investments 95,115,326 ] I 2,252, II [ 2,252,693,230 II II 4. (e) (f) (g) (h) INVESTMENTS IN AND ADVANCES TO AFFILIATES Unregulated entities that conduct ancillary services Unregulated non-financial operating entities Unregulated financial operating entitles Regulated non-insurance financial operating entitles Regulated insurance financial operating entities Total investments in affiliates Advances to affiliates Total investments in and advances to affiliates INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE: First liens Other than first liens Total investments in mortgage loans on real estate POLICY LOANS REAL ESTATE: Occupied by the company (less encumbrances) Other properties (less encumbrances) Total real estate ~ 21,008, ,008,608 I 897,921 II~--, I II I 8. COLLATERAL LOANS 9. INVESTMENT INCOME DUE AND ACCRUED 17,863,546 ] ' '

4 CONDENSED CONSOLIDATED BALANCE SHEET As at expressed in LINE No.... '. December 31, 2016 I United States Dollars I 2o16 I I 2o1s I 10. ACCOUNTS AND PREMIUMS RECEIVABLE: In course of collection Deferred - not yet due Receivables from retrocessional contracts Total accounts and premiums receivable 15, ,564, (e) 12. REINSURANCE BALANCES RECEIVABLE: Foreign affiliates Domestic affiliates Pools & associations All other Insurers Total reinsurance balance receivable FUNDS HELD BY CEDING REINSURERS 2,822,395 ~ 2,388,725 5,2 11 '120 6,847,000 l 13. (e) (f) (g) (h) (i) (j} (k) SUNDRY ASSETS: Derivative instruments Segregated accounts companies- long-term businessvariable annuities Segregated accounts companies - long-term business - other Segregated accounts companies - general business Deposit assets Deferred acquisition costs Net receivables for investments sold Income Tax receivable Prepaid Expense Receivable on Reverse Repurchase Contracts Total sundry assets 20, ,483 14,419,021 13,483 3,651,000 18,247, (a} (e) LETIERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS, , Letters of credit 1 II I ~~:;;~t=t~~ments Total letters of credit, guarantees and other instruments 15. TOTAL 2,433,448,625

5 CONDENSED CONSOLIDATED BALANCE SHEET e e J I As at expressed in December 31, 2016!United States Dollars LINE No. I 2o16 I I 2o1s I TOTAL INSURANCE RESERVES, OTHER LIABILITIES AND STATUTORY CAPITAL AND SURPLUS 16. UNEARNED PREMIUM RESERVE Gross unearned premium reserves Less: Ceded unearned premium reserve i. Foreign affiliates li. Domestic affiliates iii. Pools & associations iv. All other insurers Total ceded unearned premium reserve Net unearned premium reserve 598,391 1 ~~ 598, LOSS AND LOSS EXPENSE PROVISIONS: Gross loss and loss expense provisions Less : Reinsurance recoverable balance I. Foreign affiliates ii. Domestic affiliates iii. Pools & associations iv. All other reinsurers Total reinsurance recoverable balance Net loss and loss expense provisions 67,060,374 1 ~ 54,418,374 54,418,374 12,642, OTHER GENERAL BUSINESS INSURANCE RESERVES 19. TOTAL GENERAL BUSINESS INSURANCE RESERVES 13,240,391 LONG-TERM BUSINESS INSURANCE RESERVES 20. RESERVE FOR REPORTED CLAIMS 21. RESERVE FOR UNREPORTED CLAIMS 8,006,018 j, _J 32,882,874 1, _J 22. POLICY RESERVES- LIFE 23. POLICY RESERVES -ACCIDENT AND HEALTH 2,098,497, POLICYHOLDERS' FUNDS ON DEPOSIT 25. LIABILITY FOR FUTURE POLICYHOLDERS' DIVIDENDS 26. OTHER LONG-TERM BUSINESS INSURANCE RESERVES 27. TOTAL LONG-TERM BUSINESS INSURANCE RESERVES Total Gross Long-Term Business Insurance Reserves Less: Reinsurance recoverable balance on long-term business (i) Foreign Affiliates (ii) Domestic Affiliaties (Iii) Pools and Associations (iv) All Other Insurers Total Reinsurance Recoverable Balance Total Net Long-Term Business Insurance Reserves 2,139,386,000 1,800,413,614 80,153,978 1,880,567, ,818,408

6 CONDENSED CONSOLIDATED BALANCE SHEET - ~.. (U.S.} LIMITED As at December 31, 2016 expressed in I United States Dollars. u. LINE No (e) (f) (g) (h) OTHER LIABILITIES INSURANCE AND REINSURANCE BALANCES PAYABLE COMMISSIONS, EXPENSES, FEES AND TAXES PAYABLE LOANS AND NOTES PAYABLE INCOME TAXES PAYABLE DEFERRED INCOME TAXES AMOUNTS DUE TO AFFILIATES ACCOUNTS PAYABLE AND ACCRUED LIABILITIES FUNDS HELD UNDER REINSURANCE CONTRACTS: DIVIDENDS PAYABLE SUNDRY LIABILITIES: Derivative instruments Segregated accounts companies Deposit liabilities Net [!a:iable for investments [!Urchased 2016 I [ 2015 I 4, I 24,680,185 I 4,756,888 I 1,692,502, 772 I 145,408,330 I 11,063,210 3,651, ,122, LETIERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS: Letters of credit Guarantees Other Instruments Total letters of credit, guarantees and other Instruments I II TOTAL OTHER LIABILITIES TOTAL INSURANCE RESERVES AND OTHER LIABILITIES CAPITAL AND SURPLUS 1,900,654,550 2,172,713, TOTAL CAPITAL AND SURPLUS TOTAL 260,735,276 2,433,448,625

7 ... CONDENSED CONSOLIDATED STATEMENT OF INCOME As at expressed in LINE No. December 31, 2016 United Stales Dollar$ GENERAL BUSINESS UNDERWRITING INCOME 1. GROSS PREMIUMS WRITTEN Direct gross premiums written Assu med gross premiums written Total gross premiums wrillen 2. REINSURANCE PREMIUMS CEDED 3. NET PREMIUMS WRITTEN 4. INCREASE (DECREASE) IN UNEARNED PREMIUMS 5. NET PREMIUMS EARNED 6. OTHER INSURANCE INCOME 7. TOTAL GENERAL BUSINESS UNDERWRITING INCOME GENERAL BUSINESS UNDERWRITING EXPENSES 2016 I [ -~ [! ill 1n.ooo I 777,000 ~ 777:!l!! NET LOSSES INCURRED AND NET LOSS EXPENSES 8. INCURRED 9. COMMISSIONS AND BROKERAGE 10. TOTAL GENERAL BUSINESS UNDERWRITING EXPENSES 11. NET UNDERWRITING PROFIT (LOSS) - GENERAL BUSINESS ( !1!29,306,690! ,916 LONG-TERM BUSINESS INCOME 12. GROSS PREMIUMS AND OTHER CONSIDERATIONS: Direct gross premiums and o1her considerations Assum ed gross premiums and other considera tions Total gross premiums and otherconslderallons PREMIUMS CEDED NET PREMIUMS AND OTHER CONSIDERA TIDNS: Uie Annu!Ues Accident and health Total net premiums and other conslderauons ,944,273 ~ I I ,203, OTHER INSURANCE INCOME 16. TOTAL LONG-TERM BUSINESS INCOME 28,203,143 LONG-TERM BUSINESS DEDUCTIONS AND EXPENSES 17. CLAIMS- LIFE 18. POLICYHOLDERS' DIVIDENDS 19. SURRENDERS 20. MATURITIES 21. ANNUITIES 22. ACCIDENT AND HEALTH BENEFITS 23. COMMISSIONS 4 t,960, ] 24. OTHER TOTAL LONG-TERM BUSINESS DEDUCTIONS AND EXPENSES INCREASE (DECREASE) IN POLICY RESERVES (ACTUARIAL LIABILITIES): Life Annuities Acc!denl an~ health Tolallncrease (decrease) in policy resejves TOTAL LONG-TERM BUSINESS EXPENSES NET UNDERWR.ITING PROFIT (LOSS) - long-term BUSINESS 42,461,276 ~ ( ! 39,04 1,696 (10,838,553)

8 CONDENSED CONSOLIDATED STATEMENT OF INCOME... As at December 31, 2016 expressed In United States Dollars LINE No. I 1To1s 29. COMBINED NET UNDERWRITING RESULTS BEFORE THE UNO ERN OTED ITEMS ~362 UNDERNOTED ITEMS COMBINED OPERATING EXPENSE General and administration Personnel cost Olher Total combined operaung expenses COMBINED INVESTMENT INCOME- NET I 9,048,914 I 32. COMBINED OTHER INCOME (DEDUCTIONS) 33. COMBINED INCOME BEFORE TAXES 22,466, COMBINED INCOME TAXES (IF APPLICABLE): Curren\ Deferred Total 35. COMBINED INCOME BEFORE REALIZED GAINS (LOSSES) , COMBINED REALIZED GAINS (LOSSES) I s.3 t 7.sso COMBINED INTEREST CHARGES 38. NET INCOME ~.574

9 CONDENSED CONSOLIDATED STATEMENT OF CAPITAL AND SURPLUS CENTRE SOLUTIONS (U.S.) LIMITED As at December 31, 2016 expressed in Unlled Slates Dollars LINE No ~ 01~ 1. CAPITAL: Capital Stock (i) Common Shares authorized ;=='--,=="'shares of par value each Issued and fully paid shares (ill (A) Preferredr's"'h,a,re"'s"- :-----, aulhorized I lshare.s of par value.. each tssued and fully paid shares aggregate liquidation value for - ;~~~~ I (B) Preferred shares issued b a subsidiary: authorized shares or par value each issued and fully paid shares aggregate liquidation value for- ~~~; I I (iii) Treasuryi'S"'h,a,re"'s'------, repurchased I lshare.s of par value.. each tssued Contributed surplus Any other fixed capital (I) Hybrid capital instruments (il) Guarantees and others (Iii) Total any other fixed capital Total Capital 37o.ooo ooa I I II I 174,349, SURPLUS: Surplus Beginning of Year a.2ss I (e) Add: Income for the year Less: Dividends paid and payable Add (Deduct) change in unrealized appreciation (depreciation) of Investments Add (Deduct) change In any other surplus 18,144,574 (150,000, ,633 1 (f) Surplus. End of Year 3. MINORITY INTERE ST 4. TOTAL CAPITAL ANO SURPLUS 86,385,472 I II I 260,735,276

10 DECEMBER 31, 2016 General Notes to the Consolidated Financial Statements 1. Centre Solutions (U.S.) Limited is a wholly-owned subsidiary of Centre Group Holdings (U.S.) Limited ("CGHUS"), a holding company incorporated in the United States. The ultimate parent is Zurich Insurance Group Ltd ("Zmich"), a company incorporated in Switzerland. The Company is controlled by CGHUS which, until recently, was controlled by Centre Solutions (Bennuda) Limited, a holding company incorporated in Bermuda, which, until recently, was controlled by Centre Group Holdings Limited, a holding company incorporated in Bermuda, which in tum, until recently, was controlled by CMSH Limited, a holding company incorporated in Bennuda. Pursuant to a reorganization in May 2016, Centre Group Holdings Limited was merged with and into CMSH Limited. On May 30, 2016, Centre Solutions (Betmuda) Limited made a return of capital of all of its share ownership in CGHUS to its direct parent company, CMSH Limited. On May 31, 2016, CMSH Limited was merged with and into its new direct parent company, Zurich Finance Company AG, resulting in CGHUS becoming a direct subsidimy of Zmich Finance Company AG, a holding company incorporated in Switzerland, which in turn is owned by Zurich Versicherungs-Gesellschaft AG, Zurich, Switzerland. Zurich Versicherungs Gesellschaft AG is owned by Zurich Insurance Group Ltd which is also incorporated in Switzerland. The Company's change in ownership shucture was approved by the Be1muda Monetary Authority. Centre Insurance Company, a company incorporated in the state of Delaware and Centre Life Insurance Company, a company incorporated in the state of Massachusetts are wholly-owned subsidiaries of the Company that are consolidated into these fmancial statements. 2. Centre Solutions (U.S.) Limited and its subsidiaries ("the Company") provides nontraditional customized insurance, reinsurance and fmancial solutions for U.S. based clients. The main line of business is stluctured finite reinsurance. The Company also provides reinsurance for health and disability risks, primarily for United States based clients. The Company is cunently in a managed run-off.

11 DECEMBER 31, The condensed consolidated general purpose financial statements have been prepared in conformity with the fmancial reporting provisions of the Insurance Act 1978, amendments thereto and the Insurance Account Rules 2016 with respect to Condensed General Purpose Financial Statements (the "Legislation"). The condensed consolidated general purpose financial statements are based upon International Financial Repmiing Standards ("IFRS,) but are in accordance with the repmiing requirements of the Legislation, which varies in ce1tain respects from IFRS. The more significant variances are as follows: A consolidated statement of cash flows is not included; A consolidated statement of comprehensive income is not included; The presentation and classification of financial statement line items is in accordance with Schedules IX and XI of the Insurance Account Rules 2016 and differ from the expected presentation and classification under IFRS; and The notes included in the condensed consolidated general purpose financial statements have been prepared in accordance with Schedule X of the Insurance Account Rules 2016 and exclude certain infonnation required under IFRS. The condensed consolidated general purpose financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain amounts recorded in the condensed financial statements reflect estimates and assumptions made by management. These include assumptions regarding economic factors such as interest and discount rates, currency and credit assumptions, and noneconomic factors such as interest and discount rates, cunency and credit assumptions and non-economic factors such as claims frequency and severity expectations. Actual results may differ fi om the estimates made. 4. Significant accounting policies are as follows: Premiums Premiums from short duration contracts are recognized as revenue ratably over the tenns of the contracts. Unearned premiums are computed on the monthly pro-rata method. Future investment income is considered in determining whether a premium deficiency exists. Premiums on credit enhancement insurance are recognized as revenue over the related risk period. Premiums from traditional long duration health and disability policies are recognized as revenues when due over the premium paying periods of the policies. Benefits and expenses are matched with such revenues so as to result in the recognition of profits over the life of the contracts. This match is accomplished by means of the provision for liabilities for future policy

12 DECEMBER 31,2016 benefits and the deferral and subsequent amortization of policy acquisition costs. Policy Acquisition Costs Policy acquisition costs associated with shmt duration contracts include brokerage and cettain other intemal and extemal underwriting expenses which vary with and are directly related to the production of business. Such costs are defened to the extent recoverable fi om future eamed premium and anticipated investment income, and ammtized ratably over the tenus of the related contracts. For traditional long duration health and disability insurance and reinsurance contracts, the costs of acquiring new business, principally commissions and policy issue expenses, all of which vary with and primarily are related to the production of new business, are defetted and ammtized in proportion to anticipated premiums using assumptions consistent with those used in computing policy reserves. Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in eamings in the period such deviations occur. For these contracts, the ammiization periods generally are for the estimated life of the policy. Losses and loss adjustment expenses The general business reserve for losses and loss adjustment expenses represents the estimates of the ultimate cost of all losses incuned but not paid through December 31, 2016 and estimates of the total liability incuned under profit/commutation provisions. These estimates are continually reviewed and, as adjustments become necessmy, such adjustments are reflected in current operations. Since the reserve is based on estimates, the ultimate settlement of losses and the related loss adjustment expenses may vmy from the reserve. Long-term Business Insurance Reserves Future policy benefits under traditional long duration health and disability reinsurance contracts are estimated using a net level premium method and have been computed based upon expected investment yields and assumptions on mmtality, morbidity and withdrawal rates applicable at the time the contracts are issued. These assumptions are based on the ceding company's expe1ience as well as indushy experience and standards and include a margin for adverse deviation. The assumptions vary with the characteristics of the plan of insurance, year of issue, age of insured and other appropriate factors. These estimates are continually reviewed and, as adjustments become necessmy, such adjustments are reflected in cunent operations. The best estimate of future policy benefits includes any liability under

13 DECEMBER 31,2016 profit/commutation provisions of various contracts, which incorporates actual investment income including investment gains and losses. Unrealized gains and losses on investments held to support future policy benefits are recorded as embedded derivatives in accordance with Derivative Implementation Guidance issue B-36 ("DIG B36"). The investments are classified as trading. Funds held on behalf of reinsurance contract holders includes amounts held by the Company for the benefit of assuming companies pursuant to the te1ms of the reinsurance contracts. Interest credited on funds held balances may include realized gains and losses on the Company's trading investment portfolio, depending on contract terms. Defened reinsurance losses represent the deficiency of assets received as compared to the liabilities for future policy benefits assumed in connection with reinsurance of existing blocks of health and disability business. Defened reinsurance losses are amortized over the premium paying period of the related policies using assumptions consistent with those used to compute future policy benefits. Am01tization is included in policy claims and benefits in the consolidated statements of income. (e) Investment Income Investment income is accounted for under the accmal basis. (f) Investments Quoted investments are carried at fair value, with the unrealized gains and losses on available for sale securities rep01ted in a separate component of surplus, and the unrealized gains and losses on securities classified as trading reported as realized gains/(losses) in income. Investments are assessed quarterly whether there is objective evidence that loss events have occulted that negatively affect the estimated future cash flows of the investment. A financial asset is considered impaired if there is objective evidence of impaim1ent as a result of one or more occurred loss events that have an impact on the estimated future cash flows of the financial asset. The evaluation of whether an available-for-sale debt security is impaired requires analysis of the credit standing of a particular issuer and involves management judgment. When assessing impairment of available-for-sale debt securities, the Group places emphasis on issuer specific factors, such as significant financial difficulty, default or delinquency on interest or principal payments. A credit rating downgrade, wmsened liquidity or decline in fair value below the weighted average cost is not by itself considered a loss event,

14 DECEMBER 31, 2016 but rather incorporated in the impainnent analysis along with other available information. The Company engages in a securities lending program whereby cetiain securities are loaned to other institutions, primmily major brokerage fi1ms, for shmt periods of time. The Company's policy is to require initial collateral in the form of cash equal to 102% of the fair value of the loaned securities. The market value of the loaned securities are then monitored on a daily basis, with additional collateral obtained or refunded as the market value of the loaned securities changes. The collateral is invested by the lending agent in accordance with the Company's guidelines to generate additional income which is shared with the lending agent. The Company is indemnified by the lending agent in the event a bon ower becomes insolvent or fails to return securities. The Company maintains full ownership rights to the securities loaned, and continues to eam interest on them. Accordingly, such securities are included in invested assets. The securities lending collateral is recognized as an asset, while there is a corresponding liability for the obligation to return the collateral. (g) Cash and time deposits The Company defines cash and time deposits as cash and cettain highly liquid shmt-tenn investments with an original maturity date of three months or less from the date of purchase. (h) Commutation Policy Upon commutation of a contract the "loss and loss expense provisions" line on the Company's balance sheet is reduced and a gain or loss is recorded within "net losses incurred and net loss expenses incuned" line within the income statement for the difference between the canied reserve on the contract and the commutation payment. Conmmtations can account for a significant patt of the Company's business. 5. Premium income Investment income Commission income - See 4 above. See 4( e) above. Not applicable. 6. Foreign Currencies Foreign currency monetary assets and liabilities are translated into U.S. Dollars at the rates of exchange prevailing on balance sheet date. Revenues and expenses are translated at the rates prevailing on the date of the transactions. Gains and losses arising from foreign cwtency transactions are credited or charged to income.

15 DECEMBER 31, Not applicable. 13. The fair values hierarchy of investments is based on the following levels: Level 1 - includes assets and liabilities for which fair values are determined directly from unadjusted cunent quoted prices resulting from orderly transactions in active markets for identical assets/liabilities. Level 2 - includes assets and liabilities for which fair values are determined using significant inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable market inputs. Level 3 - includes financial assets for which the fair value is determined using valuation techniques with at least one significant input not being based on observable market data. In circumstances when there is little, if any, market activity for a certain instrument, the Company is required to develop intemal valuation inputs based on the best information available about the assumptions that market participants would use when pricing the asset or liability. This would normally apply in the case of investments in asset backed securities for which vety limited market activity is observed and long-dated derivatives Fair Value for the year ended December Hierarchy Le, ell Le, el2 LeYe13 Total Assets Bonds and Debentures - 2,222,039,103 30,654,127 2,252,693,230 Total Bonds and Debentures $ - $ 2,222, s 30,654,127 s 2,252,693,230 Total assets s - _1 2, s s ,23(} 14. The following table shows fair values of debt securities held at December 31 by contractual maturity: Bonds and for the years ended December Debentures Due within one year $ 48,980,587 Due after one year through five years 652,254,637 Due after five years through ten years 361,908,054 Due after ten years 1,189,549,952 Total $ 2,.252,6!)3 ~2 30 I

16 DECEMBER 31, The below table sets forth the related patty transactions reflected in the Statement of Income. All related party transactions are with Zurich affiliate companies. Statement of lror the year ended December Income Affiliate 3rd Party Total Line 4 - Increase (decrease) in tmearned premiums 777, ,000 Line 8 - Inclll'red (28,825,216) (481,474) (29,306,690) Line 13 - Premiums Ceded 44,006,659 4,926,382 48,933,041 Line 22 - Accident and Health Benefits (151,769,945) 190,310,918 38,540,973 Line 23 - Commission (3,948,697) 4.449, ,723 Line 30 - Combined Operating Expense 4,061,4 13 1,766,785 5,828,198 Line 31 - Combined Investment Income (72.114,122) 81,163,036 9,048,9 14 Line 36 - Combined Realized Gains and Losses - - (5,146,113) ,3 17,560 Included in general and administrative expense is $4.1 million of expenses allocated fi-om a Zurich affiliated company. The allocation is based primarily on the usage by the company of facilities and other administrative services provided by or for the affiliate. The Company has investment management fee agreements with Zurich affiliated companies. Aggregated management fee expenses during 2016 under such agreements were $1.3 million. Related party transactions relating to the balance sheet are disclosed on the notes to the consolidated balance sheet below. 16. Not applicable.

17 DECEMBER 31, The Company utilizes reinsurance and retrocessional agreements to reduce its exposure to risk of loss. These agreements provide for recovety of a portion of losses and expenses from reinsurers and retrocessionaires. The Company remains liable to the extent the reinsurers and retrocessionaires do not meet their obligations under these agreements and therefore provisions are made for amounts considered potentially uncollectible. Fixed maturities and cash and cash equivalents with a canying value of $1,868.6 million and $7.8 million respectively at December 31,2016 were on deposit in various trust accounts for the benefit of reinsurance contract holders. The Company continually monitors its positions with, and the credit quality of counterparties to its financial instruments. The counterpat1ies to these instruments expose the Company to credit loss in the event of nonperformance. 89% of the total receivables are due from companies with a stable rating of AA-, A+ or A companies. 11% of the total receivable is due from non-rated companies. As at December 31, 2016 the Company did not anticipate any nonperfom1ance.

18 DECEMBER 31, 2016 Notes to the Consolidated Balance Sheet 1. For restricted assets, see General Notes to the Financial Statements Note See General Notes to the Financial Statements Note 4(f) and Not applicable. 4. Advances to affiliates pettain to the $21.0 million loan to an affiliate which matures on November 30, 2017 and is canied at cost. Interest is computed at a floating rate of USD 3 months LIBOR plus basis points and is payable quatterly i.n anears. 5. Not applicable. 6. Policy loans are stated at the aggregate of the unpaid loan balances, which are not in excess of the cash surrender values of the related policies Not applicable. 9. Accrued investment income due and acctued is $17.9 million. 10. Not applicable. The accounts and premiums receivable balance with affiliates is $0.04 million. 11. Not applicable. 12. The funds held by ceding reinsurers include balances held by affiliates of $6.8 million. 13. Sundry assets mainly relates to income tax receivable balance of $14.4 million. Also included in sundty assets are receivables from reverse repurchase contracts of $3.7 million. The Company patticipates in a securities lending program and invests the collateral received to secure its securities loaned under the securities lending program. In accordance with the agreement with the custodian bank facilitating such lending, collateral is required if the fair value of the collateral drops below 100% during the term of the loan. The aggregate amount ofthe contractually obligated open collateral positions at December 31, 2016 was $3.7 million and were all under 30 day term. The fair value of the reinvested collateral was $3.7 million which was provided by our security lending agent Bank of New Y ark Mellon (BNY Mellon) based on publicly available quoted market pricing. The collateral received is invested in shmttenn reverse repurchase contracts or money market mutual funds and was all under 30 day term. No portion of the collateral received has been sold or repledged during 2016.

19 DECEMBER 31, 2016 Not applicable. 14. Not applicable. 16. See General Notes to the Financial Statements Note 4. The unearned premium balance with affiliates is $0.6 million as at December 31, 2016.

20 DECEMBER 31, a) Movements in the General Business loss and loss expense provisions for the cunent and previous years are summarized as follows: As at December expressed in United States Dolla1 s Gross loss and loss expense provisions at beginning of year 68,981,000 Less: Reinsurance recoverable at beginning of year 56,184,000 Net loss and loss expense provisions at begi1ming of year 12,797,000 Net losses incurred and net loss expenses incuned related to: Cunent year 0 Prior years (29,306,690) Total net incurred losses & loss expenses {29,3 06,690} Net losses and loss expenses paid or payable related to: Cunent year 0 Prior years 29,151,690 Total losses and loss expenses paid or payable 29,151,690 Foreign exchange and other 0 Net loss and loss expense provisions at end of year 12,642,000 Add: Reinsurance recoverable at end of year 54,418,374 Gross loss and loss expense provisions at end of year 67,060,374 b) The Company is currently in a managed mn-off, therefore, it is expected to experience changes in the net losses incurred and net loss expenses incuned related to prior years. Net losses recove1y in the year were mainly from the salvage on one contract. No additional premium or retum premiums have been accrued as a result of the prior year effects. c) Fixed maturities with a canying value of $7.4 million at December 31, 2016 were on deposit in various trust accounts for the benefit of reinsurance contract holders. All other amounts were unsecured See General Notes to the Financial Statements Note Not applicable.

21 DECEMBER 31, See General Notes to the Financial Statements Note Not applicable. 27. a) Fixed maturities and cash and cash equivalents with a canying value of $1,868.6 million and $7.8 million respectively at December 31, 2016 were on deposit in various trust accounts for the benefit of reinsurance contract holders. b) There are no unsecured policyholder obligations. 28. Insurance and reinsurance payable balance to affiliates is $0.4 million Not applicable. 31. a) The Company has elected under Internal Revenue Code Section 953 to be treated as a U.S. domestic insurer for federal income tax purposes, and thus is subject to income taxes imposed by U.S. federal authorities. b) Defened federal income taxes are based off temporary differences between the financial statement and tax basis of assets and liabilities, principally the discount on unpaid losses and loss adjustment expenses, unearned premiun1 reserves, defened acquisition costs, differences in book and tax basis of investments, and the future benefit of net operating loss carryovers. The following table shows the details of the deferred income tax provision. Deferred for the year ended December income taxes Reserves for losses and loss adjustment expenses $ 739,701 Life policy benefits (24,946, 119) Reserves for unearned premium 28,867 Deferred acquisition costs 4,475,822 Unrealized (gains)/losses on investments (1,293,765) AcciUals 5,501,706 Other (9,186,397) Deferred income taxes $ (24,680,185)

22 DECEMBER 31, Amounts due to affiliates are unsecured, interest free and have no specific terms of repayment. 33. The accounts payable and accrued liabilities at"e $4.8 million. 34. Funds held under reinsurance contracts to affiliates is $1,692.5 million. 35. Not applicable. 36. Sundry liabilities mainly relates to deposit liabilities of $11.1 million to be offset by cash on account and Payable for securities lending of $3.7 million secured by pledged assets of $3.7 million noted on line 13 U) (see Notes to the consolidated balance sheet Note 13a). These items are of a shott tenn nature. In the normal course of business, the Company enters into reinsurance contracts that include funds withheld balances where interest is eamed based on a portfolio of investments. During 2003, the Company adopted DIG B36 and as the interest earned is not clearly and closely related to the host contract, the embedded derivatives are bifurcated out. These embedded derivatives are in the fonn of total retum swaps. The fair value of the umealized losses is estimated at $145.4 million as at December 31, 2016, and is recorded in derivatives in the liability section of the consolidated balance sheets. 37. Not applicable. Notes to the Consolidated Statement of Income 6. Not applicable. 12. Not applicable. 32. Not applicable The amount comprises of net gains and losses on the sale of quoted bonds, and any impainnent on quoted or unquoted investments and the umealized gains and losses on securities classified as trading.

23 DECEMBER 31, 2016 (expressed in United States dolla1 s) Notes to the Consolidated Statement of Capital and Surplus 1. Authorized capital Authorized capital stock is comprised of 370,000 voting common shares of $1 par value each. Not applicable. Not applicable. Not applicable. Issued capital Issued, called up and fully paid 370,000 voting common shares of $1 par value each. Not applicable. Not applicable. During the year, the Company returned capital of $40.0 million to its parent, Centre Group Holdings (U.S.) Limited. Not applicable. 2. There were no non cash dividends paid during the year. No changes were made to authorized capital stock during 2016 year. -( c) Not applicable.