TOKIO MARINE AMERICA INSURANCE COMPANY TM SPECIALTY INSURANCE COMPANY TNUS INSURANCE COMPANY TRANS PACIFIC INSURANCE COMPANY A++ A++ A++ A++ New York, New York Printed September 28, 2017 www.ambest.com Page 1 of 32
Ultimate Parent: Tokio Marine Holdings, Inc. TOKIO MARINE AMERICA INSURANCE COMPANY 1221 Avenue of the Americas, Suite 1500, New York, NY 10020-1001 Web: www.tmamerica.com Tel: 212-297-6600 Fax: 212-297-6062 AMB#: 012340 NAIC#: 10945 Ultimate Parent#: 058633 FEIN#: 13-4032666 BEST S CREDIT RATING Best s Financial Strength Rating: A++ Outlook: Stable Best s Financial Size Category: XV RATING RATIONALE Rating nale: The ratings of Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), have been extended Tokio Marine America Insurance Company (TMAIC) as it holds a strategic role within the organization as the primary U.S. insurer that receives explicit support through internal reinsurance. The ratings also reflect the company s strong risk-adjusted capitalization and additional implicit support provided by the parent. Insureds of TMAIC are clients of the parent that have operations in the United States. The ratings for Tokio Marine and Nichido Fire Insurance Company, Limited (TMNF), reflect its strong risk-adjusted capitalization, track record of profitable operating performance and favorable business profile. TMNF s strong risk-adjusted capitalization, as measured by Best s Capital Adequacy (BCAR), was supported by an increase in adjusted capital and surplus. Operating performance remains very profitable, supported by strong improvement in underwriting results, which partially offset a decline in net investment income. TMNF is the main operating entity of Tokio Marine Holdings, Inc., in terms of premium income and net profit contribution. TMNF s extensive and increasing overseas presence, especially in developed markets, supports its profit generation and future growth. In addition, TMNF benefits from geographic and risk diversification. Partially offsetting these positive rating facrs are TMNF s exposure catastrophe risks and its high proportion of equity investments, which could bring volatility its capital and surplus. However, the company actively manages these risks in its enterprise risk management framework. While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a material decline in TMNF s risk-adjusted capitalization due either a consistent deterioration in the company s operating performance or a negative impact from large-scale catastrophe events. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 08/18/17 A++ 08/22/14 A++ 08/19/16 A++ 05/15/14 A++ 08/21/15 A++ 08/22/13 A++ KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus 2012 337,667 263,048-1,325 7,942 1,388,704 499,065 2013 386,036 275,020 15,939 16,038 1,383,526 514,374 2014 393,386 247,956 15,614 25,364 1,349,244 497,319 2015 416,365 308,477 16,066 17,819 1,360,546 510,588 2016 424,538 302,692-6,653-44 1,444,631 539,301 Profitability Leverage Liquidity Comb. Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW Overall Liq. (%) Oper. Cash flow (%) 2012 116.1 3.8-0.5 0.0 0.5 2.3 156.4 108.0 2013 109.2 3.7 6.2 0.0 0.5 2.2 159.6 96.7 2014 113.1 3.6 6.3 0.4 0.5 2.2 158.8 102.5 2015 109.6 3.3 5.4 0.1 0.6 2.3 160.4 103.0 2016 114.6 2.9-2.2 1.9 0.6 2.2 160.3 113.3 5-Yr 112.4 3.5 2.9 (*) Within several financial tables of this report, this company is compared against the Commercial Casualty Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE Tokio Marine America Insurance Company (TMAIC) commenced operations in September, 1999. The company is a New York domiciled property and casualty insurance company and is licensed in all fifty states, the District of Columbia and Puer Rico. The company primarily underwrites commercial lines products and select personal property and casualty coverage. The company is focused on reverse-flow business supporting Japan based clients of the ultimate parent, Tokio Marine & Nichido Fire Insurance Co., Ltd. (Japan) (TMNF). Roughly 70% of gross written premium is reverse-flow business, with the balance domestic sourced business. Major lines include commercial au liability, ocean marine, fire, commercial multi-peril, workers compensation, other liability - occurrence, allied lines and au Printed September 28, 2017 www.ambest.com Page 2 of 32
physical damage. A majority of premiums are written in California where most of TMNF clients do business in the United States, followed by Texas, New York, New Jersey, Florida and Illinois. Personal lines and small commercial business is distributed through a network of independent agents while medium large accounts are placed through brokers. TMAIC provides 100% quota share reinsurance three affiliated insurance companies. Trans Pacific Insurance Company (TPI) writes preferred rate workers compensation, TM Specialty Insurance Company (TMS) provides excess and surplus lines coverages, and TNUS Insurance Company (TNUS) writes direct preferred rate workers compensation and commercial multi-peril business. TPI, TMS, and TNUS are owned in their entirety by TMAIC, and TMAIC is owned in its entirety by Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the state of Delaware, which in turn is owned by TMNF. The ultimate parent is Tokio Marine Holdings, Inc., a public company traded on the Tokyo Sck Exchange. Tokio Marine & Nichido Fire Insurance Company, Ltd. (TMNF), is wholly owned by Tokio Marine Holdings, Inc., one of Japan s largest insurance groups. The group has more than 270 subsidiaries and affiliates that provide primary life, non-life insurance and reinsurance as well as financial and general types of business, including asset management, in the Japanese and overseas markets. Established in 1879 as the first non-life insurance company in Japan, TMNF has approximately one-quarter of the domestic market in terms of net premiums written (NPW) at the end of December 2016. TMNF is the group s main operating subsidiary. Combining results from domestic non-life business and international business, TMNF generated 94% of the group s NPW in fiscal year 2016. Moreover, TMNF is the group s strategic hub with regard overseas market expansion. The production from overseas business has increased from about 5% more than 35% of overall NPW during the past ten years. Overseas operating subsidiaries include Philadelphia Consolidated Holding Corp., Delphi Financial Group Inc., and HCC Insurance Holdings, Inc., in North America; and Tokio Marine Kiln Group Limited and Tokio Millennium Re AG in Europe. In the Japanese market, TMNF s domestic non-life underwriting portfolio, in terms of NPW, consisted of voluntary aumobile, which accounted for approximately half of the portfolio, followed by compulsory au liability insurance (CALI), fire, personal accident and marine. Fiscal year 2017 is the last year of Tokio Marine group s mid-term business plan, named To Be a Good Company 2017. The group is expected reach its major targets set forth in this plan: an adjusted ROE in the upper 9% range; adjusted net income of around JPY 400 billion, compared JPY 407 billion in fiscal year 2016; and an enhanced dividend per share. Over the three-year plan, business and risk diversification significantly improved due the remarkable overseas expansion activities. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) 2012 337,667 1.1 52,613 6.1 127,233-8.9 2013 386,036 14.3 64,990 23.5 176,006 38.3 2014 393,386 1.9 68,422 5.3 213,852 21.5 2015 416,365 5.8 76,074 11.2 183,962-14.0 2016 424,538 2.0 81,962 7.7 203,807 10.8 5-Yr CAGR 4.9 10.6 7.8 NPW NPE ($000) (% Chg) ($000) (% Chg) 2012 263,048 7.8 248,065 6.9 2013 275,020 4.6 257,468 3.8 2014 247,956-9.8 249,178-3.2 2015 308,477 24.4 295,447 18.6 2016 302,692-1.9 301,667 2.1 5-Yr CAGR 4.4 5.4 Terriry: The company is licensed in the District of Columbia, Puer Rico and all states. 2016 BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Workers Comp 37,953 8.9 33,567 41.0 2,263 1.1 Comm l Au Liab 63,680 15.0 2,399 2.9 7,970 3.9 Com l MultiPeril 39,881 9.4 12,673 15.5 8,138 4.0 Au Physical 27,744 6.5 640 0.8 1,376 0.7 Oth Liab Occur 35,962 8.5 10,964 13.4 23,610 11.6 Ocean Marine 57,013 13.4 472 0.6 35,181 17.3 Fire 44,962 10.6 8,363 10.2 39,514 19.4 Homeowners 10,308 2.4 734 0.9 368 0.2 Priv Pass Au Liab 8,210 1.9 2,523 3.1 256 0.1 Allied Lines 31,703 7.5 3,727 4.5 26,522 13.0 Prod Liab Occur 13,301 3.1 1,763 2.2 7,100 3.5 Inland Marine 19,021 4.5 241 0.3 14,728 7.2 Aircraft 19,066 4.5 19,066 9.4 All Other 15,733 3.7 3,897 4.8 17,715 8.7 Total 424,538 100.0 81,962 100.0 203,807 100.0 Printed September 28, 2017 www.ambest.com Page 3 of 32
Business NPW Retention Product Line ($000) (%) (%) Workers Comp 69,257 22.9 97.1 Comm l Au Liab 58,109 19.2 90.6 Com l MultiPeril 44,416 14.7 92.8 Au Physical 27,007 8.9 97.0 Oth Liab Occur 23,317 7.7 54.7 Ocean Marine 22,305 7.4 39.0 Fire 13,811 4.6 26.4 Homeowners 10,673 3.5 96.7 Priv Pass Au Liab 10,477 3.5 97.6 Allied Lines 8,908 2.9 26.0 Prod Liab Occur 7,964 2.6 59.3 Inland Marine 4,533 1.5 23.7 Aircraft All Other 1,915 0.6 11.8 Total 302,692 100.0 67.3 BY-LINE RESERVES ($000) Product Line 2016 2015 2014 2013 2012 Workers Comp 321,783 325,860 340,096 342,403 325,824 Comm l Au Liab 91,457 87,955 73,083 68,641 74,843 Com l MultiPeril 46,906 42,343 36,996 36,280 33,866 Au Physical -2,277-3,872-3,371-3,601-1,409 Oth Liab Occur 147,890 147,001 162,617 159,520 168,705 Ocean Marine 9,220 9,781 7,272 4,629 14,135 Fire 2,881 3,241 6,096 37,099 53,984 Homeowners 3,401 2,345 2,517 2,130 1,868 Priv Pass Au Liab 12,624 9,371 7,751 7,301 8,390 Allied Lines 28,219 30,911 15,500 8,372 10,498 Prod Liab Occur 38,798 35,055 30,149 32,063 35,517 Inland Marine 726 649 214 812 352 All Other 63,365 56,394 68,126 66,997 62,966 Total 764,994 747,036 747,046 762,646 789,538 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) 2016 2015 2014 2013 2012 California 123,592 116,397 119,385 118,617 105,726 Texas 37,002 38,696 35,388 32,293 24,855 New York 26,763 30,336 26,139 29,691 26,868 New Jersey 26,108 25,432 23,013 24,837 19,588 Florida 19,625 17,685 18,150 16,366 14,978 Illinois 18,569 26,178 21,779 21,404 17,311 Georgia 16,038 13,909 11,691 11,936 11,302 Ohio 12,984 13,570 12,632 11,653 10,617 Kentucky 12,084 10,655 9,576 9,736 7,406 Michigan 8,762 7,900 6,238 6,139 6,351 All Other 123,012 115,607 109,395 103,363 92,666 Total 424,538 416,365 393,386 386,036 337,667 RISK MANAGEMENT As part of its risk management culture, the organization has an ERM committee and Strategic Planning Department in charge of ERM that define risk categories and manage risk in an integrated manner. Business unit managers meet quarterly monir existing risks and identify emerging risks. Risk moniring is reported by senior management the highest levels of the ultimate parent, which plays a role in defining risk appetite/risk lerances at the corporate and underwriting level. The U.S. based management team measures exposure among all risk correlations by applying a group wide risk quantification model manage insurance risks as well as the aggregation and correlation of all major risks. TMNF s risk management is in line with the Tokio Marine Group s ERM framework. The risk appetite statement sets forth that the group will conduct risk taking mainly in insurance underwriting and investments while ensuring a balance between risk and capital that enables it continue doing business even under stress scenarios. The group takes strategic management decisions and deploys capital based on an analysis of capital efficiency. Therefore, the results of group companies are regularly reviewed achieve sustainable growth of profits in each business domain. The group has developed its own internal economic solvency capital model quantify its capital adequacy and ensure financial soundness, with risk capital calculations based on 99.95% value at risk (VaR). Capital buffers are managed in order provide flexibility for business investments, share repurchases or changes in the regulary and operating environments. The group runs stress tests on scenarios ensure that the capitalization is sufficient absorb any potential losses. Printed September 28, 2017 www.ambest.com Page 4 of 32
OPERATING PERFORMANCE Operating Results: TMNF reported a non-consolidated net profit of JPY 249 billion in fiscal year 2016, compared JPY 302 billion in fiscal year 2015. This reduction was mainly due a strong decline in investment results, driven by lower dividends received from its subsidiaries. Underwriting results, in contrast, materially improved from JPY 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016, primarily reflecting lower losses related natural catastrophes and lower provisions for catastrophe loss reserves. TMNF s non-consolidated operating ratio increased from 76.0% in fiscal year 2015 82.0% in fiscal year 2016 chiefly due lower net investment income. The ratio remains below the five-year average of 83.7%. The company expects achieve a net profit of JPY 270 billion in fiscal year 2017 as a result of an improvement in underwriting results and an increase in dividends from subsidiaries. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return 2012-1,325 10,296 7,942 17,773 2013 15,939 13,422 16,038 16,046 2014 15,614 20,562 25,364 25,374 2015 16,066 12,726 17,819 17,828 2016-6,653-1,803-44 1,900 5-Yr Total 39,640 55,202 67,118 78,921 As previously stated in this report, underwriting profit increased from JPY 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016 due a decline in net incurred losses related natural catastrophes and lower provisions for catastrophe loss reserves. TMNF s loss ratio (private insurance, earned income basis) has been improving over the past five years, declining from 66.8% in fiscal year 2012 57.7% in fiscal year 2016. The trend was mainly driven by improvements in the voluntary au insurance loss ratio over the period. The expense ratio (private insurance basis) remained relatively stable YoY at 32.7% in fiscal year 2016, compared 32.6% in fiscal year 2015, as the decline in NPW was almost fully offset by the decrease in business expenses. The combined ratio (private insurance, E/I basis) declined YoY 90.4% from 92.7% in fiscal year 2015. For fiscal year 2017, overall NPW growth (private insurance) is expected be 1.6%, chiefly driven by growth in au insurance and liability insurance. The underwriting profit is expected improve JPY 130 billion, while the loss ratio (private insurance, E/I basis) is expected remain stable at 57.8%. It is anticipated that a decline in net incurred losses related natural catastrophes will be offset by an increase in large losses, which were relatively low in fiscal year 2016. The expense ratio is expected remain relatively stable at 32.6% with expenses increasing in line with NPW growth. As a result, expectations are that the combined ratio will remain unchanged at 90.4% in fiscal year 2017. UNDERWRITING EXPERIENCE Undrw Loss s Expense s Ind Income Pure ($000) Loss LAE Loss LAE & Other Total Div. Comb. Comm. Exp. Exp. Pol. Comb. 2012-45,534 67.5 11.3 78.8 6.5 30.7 37.3 0.1 116.1 105.4 2013-29,849 55.8 18.0 73.8 5.2 30.2 35.3 0.1 109.2 97.7 2014-32,074 61.3 15.4 76.7 4.7 31.6 36.4 0.0 113.1 98.2 2015-32,551 58.9 19.1 78.0 4.9 26.7 31.6 0.0 109.6 99.2 2016-44,349 58.8 16.5 75.4 4.7 34.5 39.2 0.0 114.6 101.8 Company Industry Composite 5-Yr Total/Avg -184,357 60.3 16.2 76.5 5.2 30.7 35.9 112.4 100.4 Pre-tax Return Operating Pre-tax Return Operating ROR (%) on (%) (%) ROR (%) on (%) (%) 2012-0.5 3.0 96.0 9.2 8.1 90.2 2013 6.2 3.2 92.1 18.5 13.3 81.6 2014 6.3 5.0 96.4 15.2 11.9 84.4 2015 5.4 3.5 96.6 14.6 6.6 85.2 2016-2.2 0.4 103.0 12.1 8.1 88.1 5-Yr Avg 2.9 3.0 97.0 13.9 9.6 85.9 Underwriting Results: The company s non-consolidated NPW slightly declined year on year (YoY) from JPY 2,128 billion in fiscal year 2015 JPY 2,116 billion in fiscal year 2016. The decline was mainly attributed fire insurance, which had experienced strong demand in fiscal year 2015 ahead of product revisions. On the other hand, au insurance NPW increased by 2%, driven by premium rate hikes and the sales of new policies. Printed September 28, 2017 www.ambest.com Page 5 of 32
BY-LINE LOSS RATIO Product Line 2016 2015 2014 2013 2012 5-Yr Avg Workers Comp 50.6 53.3 61.1 70.0 71.2 60.7 Comm l Au Liab 67.0 88.0 85.2 70.0-9.9 63.7 Com l MultiPeril 44.5 42.4 30.3 116.7 92.6 62.5 Au Physical 64.2 68.3 66.8 85.0 86.0 71.8 Oth Liab Occur 44.8 13.8 53.3 26.9-99.9 2.2 Ocean Marine 55.3 65.0 65.5 62.5 64.0 62.5 Fire 12.9 5.8 57.2-17.3 143.8 50.8 Homeowners 33.8 26.2 28.6 39.7 27.1 31.0 Priv Pass Au Liab 112.5 78.6 82.5 53.3 78.0 82.2 Allied Lines 47.4 143.9 75.4 34.1 150.4 89.1 Prod Liab Occur 119.5 109.8 1.2-26.3-99.9 32.3 Inland Marine 95.6 64.0 88.5 23.6 970.3 239.1 All Other 527.9-17.6 280.9 299.7 304.8 278.6 Total 58.8 58.9 61.3 55.8 67.5 60.3 DIRECT LOSS RATIO BY STATE 2016 2015 2014 2013 2012 5-Yr Avg California 52.9 32.0 38.9 32.6 292.3 85.8 Texas 59.5 20.8 26.9 93.6-26.8 36.7 New York 44.3 95.2 44.4 205.3 41.1 87.2 New Jersey 55.5 64.3 22.5 67.9 398.5 110.9 Florida 46.2 25.1 37.8 10.0 6.2 26.6 Illinois 57.6 27.5 38.9 50.8-16.4 32.8 Georgia 39.9 47.6 35.1 244.4 480.3 155.0 Ohio 66.4 42.6 35.4 57.8 34.0 47.6 Kentucky 33.1 20.2 42.8 22.7-15.9 22.7 Michigan 23.2-36.9 193.5-8.6-1.6 30.7 All Other 38.6 40.2 56.8 66.8 22.8 44.9 Total 47.7 38.6 44.3 69.2 138.8 65.0 Investment Results: Non-consolidated net investment income decreased by JPY 154 billion in fiscal year 2016 JPY 218 billion. This reduction was mainly driven by lower dividend income from its subsidiaries in comparison the amount received in fiscal year 2015, where TMNF received extra dividends from subsidiaries support the acquisition of HCC Insurance Holdings, Inc. capital gains declined from JPY 116 billion in fiscal year 2015 JPY 88 billion in fiscal year 2016, reflecting lower gains on sales of foreign securities. As part of the ERM initiatives manage investment risks, TMNF continued scale down its exposure business-related equities. The tal amount sold in fiscal year 2016 was worth JPY 117 billion. Gains from the sales of domestic business-related equities reached JPY 85 billion over the year. These gains provide support the company s net investment income amidst the ultra-low interest rate environment in Japan. investment yield (including capital gains) declined from 4.4% in fiscal year 2015 2.6% in fiscal year 2016, falling behind the five-year average net investment yield of 2.9%. To support its investment income, TMNF has taken initiatives such as outsourcing a portion of its invested assets Delphi Financial Group Inc., its subsidiary with stronger expertise in asset management. INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains 2012 49,872-2,354 9,831 2013 44,105 2,616 8 2014 41,498 4,802 10 2015 38,574 5,093 10 2016 34,819 1,759 1,944 5-Yr Total 208,868 11,916 11,803 Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) 2012-9.4 3.8 3.6 4.6-1.8 4.1 2013-11.6 3.7 3.9 4.0 8.0 4.4 2014-5.9 3.6 4.0 4.1-11.6 3.8 2015-7.0 3.3 3.8 4.0 1.6 3.8 2016-9.7 2.9 3.1 3.3-1.0 3.8 5-Yr Avg -8.8 3.5 3.7 4.0-1.1 4.0 BALANCE SHEET STRENGTH Capitalization: TMNF s consolidated adjusted capital and surplus (i.e., shareholders funds + catastrophe reserves + price fluctuation reserves) increased by 6% in fiscal year 2016 JPY 4,224 billion. This increase was mainly driven by retained earnings, which increased by 19% from JPY 1,040 billion in fiscal year 2015 JPY 1,238 billion in fiscal year 2016. The company regularly monirs its capital adequacy at both the group and TMNF levels by utilizing its internal economic solvency capital model. Current BCAR: 259.0 Printed September 28, 2017 www.ambest.com Page 6 of 32
CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains 2012-1,325-2,354-11,621 9,831 2013 15,939 2,616 2,517 8 2014 15,614 4,802-4,948 10 2015 16,066 5,093 3,340 10 2016-6,653 1,759-4,849 1,944 5-Yr Total 39,640 11,916-15,561 11,803 Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes 2012-225,734 7,928-200,033-28.6 2013-738 15,308 3.1 2014-35,000-7,428-17,054-3.3 2015 12,960-17,520 13,268 2.7 2016 26,814 28,714 5.6 5-Yr Total -247,774 9,056-159,797-5.1 QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus 2012 5,400 493,665 2013 27,650 486,724 2014 33,180 464,140 2015 206,095 304,493 2016 208,996 330,306 Year-End Conditional Adjusted Year Reserves 2012 499,065 1,512 500,577 2013 514,374 2,057 516,431 2014 497,319 2,332 499,651 2015 510,588 1,761 512,349 2016 539,301 4,280 543,582 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW Gross NPW Gross 2012 0.5 1.6 2.3 3.2 0.7 1.4 2.8 3.7 2013 0.5 1.5 2.2 3.3 0.7 1.4 2.7 3.6 2014 0.5 1.5 2.2 3.5 0.7 1.4 2.8 3.6 2015 0.6 1.5 2.3 3.5 0.7 1.4 2.9 3.7 2016 0.6 1.4 2.2 3.5 0.7 1.4 2.9 3.8 CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Ceded Reins. Total 2012 460,266 72.8 71.6 92.2 80.4 60.7 85.2 2013 552,981 66.3 81.7 107.5 78.8 57.5 82.8 2014 634,848 59.0 89.1 127.7 80.2 56.2 81.3 2015 624,971 69.9 86.4 122.4 77.8 58.8 86.9 2016 661,179 67.3 84.9 122.6 76.2 64.8 94.5 2016 REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Affiliates... 127 465 202 794 Foreign Affiliates... 65,799 125,481 66,006 3,668 260,954 US Insurers... 85,155 76,548 12,998 771 175,472 Pools/Associations... 3-38 -35 Other Non-US... 2,578 13,157 5,729-162 21,302 Total (ex US Affils)... 153,532 215,186 84,736 4,239 457,693 Grand Total... 153,659 215,651 84,938 4,239 458,487 * Includes Commissions less Funds Withheld Loss Reserves: The outstanding claims loss reserve balance on a non-consolidated basis increased by JPY 5 billion JPY 900 billion as at the end of March 2017. incurred losses related natural catastrophes alone declined by JPY 20 billion JPY 54 billion at the end of fiscal year 2016. Catastrophe loss reserves strengthened by JPY 43 billion JPY 1,067 billion over the same period. LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Calendar Year Orig. Loss Reserves Developed Reserves Thru Latest Year End Develop. Orig. (%) Develop. (%) Develop. NPE (%) Unpaid Reserves @Latest Year End Unpaid Res. Develop. (%) 2011 693,891 604,545-12.9-12.8 260.6 324,220 53.6 2012 717,461 688,170-4.1-5.9 277.4 363,126 52.8 2013 695,027 696,559 0.2 0.3 270.5 409,944 58.9 2014 680,442 673,418-1.0-1.4 270.3 473,897 70.4 2015 684,712 676,092-1.3-1.7 228.8 569,400 84.2 2016 710,420 710,420 235.5 710,420 100.0 Printed September 28, 2017 www.ambest.com Page 7 of 32
LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru Latest Year End Develop. Orig. (%) Unpaid Reserves @Latest Year End Acc. Yr Loss Acc. Yr Comb. 2011 112,181 113,817 1.5 23,679 79.3 120.2 2012 161,654 135,070-16.4 38,906 102.0 139.3 2013 123,919 125,311 1.1 46,818 87.6 123.1 2014 111,203 110,976-0.2 63,953 73.4 109.8 2015 137,047 132,027-3.7 95,503 75.5 107.2 2016 141,020 141,020 141,020 80.2 119.4 ASBESTOS & ENVIRONMENTAL (A&E) RESERVE ANALYSIS Company Industry Composite Year A&E Reserve ($000) Reserve Retention (%) IBNR Mix (%) Survival (3 yr) Comb. Impact (1 yr) Comb. Impact (3 yr) Survival (3 yr) Comb. Impact (1 yr) Comb. Impact (3 yr) 2012 76,859 90.2 23.0 XX 18.5 XX XX 1.4 XX 2013 78,164 93.1 46.7 XX 2.8 XX XX 1.5 XX 2014 82,747 91.4 47.6 15.4 3.7 8.3 7.4 1.0 1.3 2015 69,602 86.8 45.0 7.6 1.2 2.5 7.6 1.6 1.4 2016 66,519 78.4 42.9 7.1 1.2 1.9 6.3 1.4 1.3 LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Current Overall Agents Bal. Quick Current Overall Agents Bal. Liq. (%) Liq. (%) Liq. (%) (%) Liq. (%) Liq. (%) Liq. (%) (%) 2012 40.0 137.4 156.4 5.5 22.6 106.1 147.0 10.4 2013 31.0 138.5 159.6 5.4 24.0 109.0 148.2 10.2 2014 34.7 138.0 158.8 7.0 24.0 108.2 148.1 10.2 2015 19.8 118.8 160.4 7.8 21.6 104.4 146.2 10.9 2016 19.0 119.4 160.3 7.7 21.0 103.7 145.5 11.8 CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) 2012-10,914 23,798-2,440 96.1 108.0 99.6 113.6 2013-60,666-10,486 906 81.0 96.7 101.7 114.6 2014-55,668 7,127-5,893 80.8 102.5 102.9 113.8 2015-50,364 10,614-4,036 85.6 103.0 101.0 111.9 2016-6,823 41,836 19,785 97.8 113.3 103.0 113.3 5-Yr Total -184,435 72,889 8,323 INVESTMENT LEVERAGE ANALYSIS (% OF ) Industry Company Composite Class 3-6 Bonds Real Estate/ Mtg. Other Invested Assets Common Scks Non-Affil. Inv. Affil. Inv. Class 3-6 Bonds Common Scks 2012 0.0 0.0 6.1 10.3 2013 0.0 0.0 6.7 14.5 2014 0.3 0.0 0.4 7.2 16.1 2015 0.1 0.0 0.1 28.6 8.1 14.6 2016 1.9 0.0 1.9 30.6 10.5 13.5 INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg 0-1 1-5 5-10 10-20 20+ Maturity Government 2.2 3.0 8.1 0.2 0.0 5 Gov t Agencies & Muni 1.8 6.1 23.9 3.4 3.9 9 Industrial & Misc 4.9 27.0 9.7 2.8 2.9 6 Total 8.9 36.0 41.7 6.4 6.9 7 2016 2015 2014 2013 2012 Bonds (000) 1,003,959 980,072 1,123,806 1,145,635 1,164,357 US Government 13.0 14.5 10.8 12.7 21.1 Foreign Government 2.4 4.5 4.3 Foreign - All Other 5.0 5.4 6.3 7.8 7.3 State/Special Revenue - US 39.4 38.8 34.4 24.3 18.2 Industrial & Misc - US 42.5 41.3 46.1 50.7 49.1 Private Issues 9.7 8.2 4.9 0.1 Public Issues 90.3 91.8 95.1 100.0 99.9 Bond Quality (%) 2016 2015 2014 2013 2012 Class 1 92.1 95.1 98.9 99.0 98.5 Class 2 6.9 4.8 1.0 1.0 1.5 Class 3 1.0 0.1 Class 6 0.0 0.0 INVESTMENTS - EQUITIES 2016 2015 2014 2013 2012 Scks (000) 165,095 145,926 116 106 98 Unaffiliated Common 0.1 0.1 100.0 100.0 100.0 Affiliated Common 99.9 99.9 Printed September 28, 2017 www.ambest.com Page 8 of 32
INVESTMENTS - OTHER INVESTED ASSETS 2016 2015 2014 2013 2012 Other Inv Assets (000) 66,572 36,787 40,823 46,715 45,809 Cash 85.0 85.6 71.8 20.6 13.3 Short-Term 14.4 28.2 79.4 86.7 All Other 15.0 HISTORY The company was incorporated on August 13, 1998, under the laws of the State of New York, as TM Casualty Insurance Company. It was licensed on September 23, 1999, write workers compensation and employers liability insurance. Effective March 15, 2012, the company changed its name Tokio Marine America Insurance Company. Paid-in capital of $190,609,748 is comprised of 50,001 shares of common sck at a par value of $100 per share and $185,609,648 of contributed surplus. All authorized shares are issued and outstanding. Tokio Marine & Nichido Fire Insurance Co., Ltd. (United States Branch) (TMNF-US) was established in 1955 with a New York port of entry engage in business on behalf of The Tokio Marine and Fire Insurance Company, Limited, located in Tokyo, Japan. The parent was founded in 1879, and was active in the United States since 1911, although operations were suspended between 1941 and 1955. The Tokio Marine and Fire Insurance Company, Limited, and The Nichido Fire and Marine Insurance Company Limited (Nichido Japan) integrated their management and business under a publicly traded Japanese holding company called Millea Holdings, Inc. (Millea). The companies became wholly owned subsidiaries of Millea on April 1, 2002, in a statury share exchange under Japanese law. When the merger was finalized on Ocber 1, 2004, the merged entity commenced operations as a new property and casualty insurance company, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), with Millea as its publicly traded holding company. Effective July 1, 2008, Millea changed its name Tokio Marine Holdings, Inc. Nichido Japan s U.S. Branch was domesticated on July 1, 2004, in order comply with U.S. insurance regulations prohibiting an alien insurer from maintaining two U.S. branches. On February 11, 2004, TNUS Insurance Company (TNUS) was formed under the laws of the State of New York as the vehicle for the domestication of Nichido Japan s U.S. Branch. Upon domestication, TNUS became a wholly owned subsidiary of TMNF. Effective September 30, 2012, the common sck of Tokio Marine Management, Inc. (TMM), TPI and TMS was transferred by TMNF-US TMNF. Subsequently on November 30, 2012, TMNF contributed the common sck of TMM, TPI, TMS and TNUS TMNA, an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF. Effective November 30, 2013, the common sck of Tokio Marine America Insurance Company (TMAIC) was transferred by TMNF-US TMNF. Effective December 31, 2013, in conjunction with its domestication, TMNF-US merged with and in TMAIC, with TMAIC remaining as the surviving entity. All of the assets and liabilities of TMNF-US were transferred, and assumed by TMAIC. Effective January 1, 2014, the common sck of TMAIC was transferred by TMNF TMNA. Effective December 31, 2015, the common sck of TMM, TPI, TMS and TNUS was transferred by TMNA TMAIC. TMAIC provides quota share reinsurance TPI, TMS and TNUS, whereby 100% of all premiums, losses and loss adjustment expenses are ceded TMAIC. MANAGEMENT Day--day operations of the company is under the direction of a U.S. based management team that receives support from Tokio Marine Management, Inc., a wholly owned subsidiary of Tokio Marine America Insurance Company. Officers: President and Chief Executive Officer, Koki Umeda; Executive Vice President and Chief Financial Officer, Karen A. Gilmer-Pauciello; Senior Vice President and Treasurer, Michael Kelly; Secretary and General Counsel, Edward Sayago. Direcrs: Ann Ginn, B. Steven Goldstein, David Gottschall, Tomoya Kittaka, Adam LaPierre, Lawrence Stern, Koki Umeda. REGULATORY An examination of the financial condition was made as of December 31, 2015, by the insurance department of New York. The 2016 annual independent audit of the company was conducted by PricewaterhouseCoopers, LLP. The annual statement of actuarial opinion is provided by Mark R. Proska, FCAS, MAAA, TMNA Services, LLC. REINSURANCE TMAIC benefits from an extensive reinsurance program. Property per risk excess of loss treaties afford coverage of $225.0 million in excess of a $5.0 million retention. The program consists of structured layers with a minimal percentage retention by TMAIC in select layers. In tal, TMAIC retains $33.5 million. Property catastrophe treaties afford $85.0 million of coverage over a $50.0 retention by TMAIC. This program provides includes earthquake and terrorism coverage only above a predetermined level. Casualty risks are addressed through a combination of excess of loss, umbrella, and clash cover programs. Retention by TMAIC on these programs is limited $9.915 million. For marine exposures, the retention is $2.0 million, with excess of loss treaties providing capacity up $110.0 million. TMNF is a significant participant across all treaties. Facultative reinsurance is also maintained for a certain population of risks. Printed September 28, 2017 www.ambest.com Page 9 of 32
The company manages natural catastrophe risks in order continuously expand profits and better manage its risk portfolio so capital and funds can be effectively allocated more capital-efficient new businesses. The retention level of each product line is decided based on the risk-return balance in line with the company s capacity. The aim is stabilize underwriting results. The company also monirs the reinsurance counterparty risk by selecting reinsurers of sound financial strength and setting corresponding maximum exposure limits. BALANCE SHEET ADMITTED ASSETS ($000) YE 2016 YE 2015 16% 15% Bonds... 1,003,959 980,072 69.5 72.0 Common sck... 134 126 0.0 0.0 Cash and short-term invest... 56,572 36,787 3.9 2.7 Other non-affil inv asset... 10,000 0.7 Investments in affiliates... 164,961 145,800 11.4 10.7 Total invested assets... 1,235,626 1,162,786 85.5 85.5 Premium balances... 107,513 108,021 7.4 7.9 Accrued interest... 9,489 9,093 0.7 0.7 All other assets... 92,003 80,645 6.4 5.9 Total assets... 1,444,631 1,360,546 100.0 100.0 LIABILITIES & SURPLUS ($000) YE 2016 YE 2015 16% 15% Loss & LAE reserves... 764,994 747,036 53.0 54.9 Unearned premiums... 138,080 137,363 9.6 10.1 Conditional reserve funds... 4,280 1,761 0.3 0.1 All other liabilities... -2,025-36,202-0.1-2.7 Total liabilities... 905,330 849,958 62.7 62.5 Capital & assigned surplus... 208,996 206,095 14.5 15.1 Unassigned surplus... 330,306 304,493 22.9 22.4 Total policyholders surplus... 539,301 510,588 37.3 37.5 Total liabilities & surplus... 1,444,631 1,360,546 100.0 100.0 SUMMARY OF 2016 OPERATIONS ($000) Funds Provided from Statement of Income 2016 Operations 2016 Premiums earned... 301,667 Premiums collected... 307,830 Benefit & loss-related pmts Losses incurred... 177,489 194,352 LAE incurred... 49,922 Undrw expenses incurred LAE & undrw expenses paid 118,593 120,288 Div policyholders... 12 Div policyholders... 12 underwriting income -44,349 Undrw cash flow... -6,823 investment income... 34,819 Investment income... 38,802 Other income/expense... 2,877 Other income/expense... 4,133 Pre-tax cash operations Pre-tax oper income... -6,653 36,112 Realized capital gains... 1,759 Income taxes incurred... -4,849 Income taxes pd (recov)... -5,724 income... -44 oper cash flow... 41,836 Ultimate Parent: Tokio Marine Holdings, Inc. TM SPECIALTY INSURANCE COMPANY Phoenix, AZ 1221 Avenue of the Americas, Suite 1500, New York, NY 10020-1001 Web: www.tmamerica.com Tel: 212-297-6600 Fax: 212-297-6062 AMB#: 012295 NAIC#: 10738 Ultimate Parent#: 058633 FEIN#: 91-1932966 BEST S CREDIT RATING Best s Financial Strength Rating: A++ Outlook: Stable Best s Financial Size Category: XV The company s rating reflects its reinsurance agreement with Tokio Marine America Insurance Company (AMB# 012340) as a member of the Tokio Marine & Nichido Fire Insurance Co., Ltd. (AMB# 090909). RATING RATIONALE Rating nale: The ratings for Tokio Marine and Nichido Fire Insurance Company, Limited (TMNF), reflect its strong risk-adjusted capitalization, Printed September 28, 2017 www.ambest.com Page 10 of 32
track record of profitable operating performance and favorable business profile. TMNF s strong risk-adjusted capitalization, as measured by Best s Capital Adequacy (BCAR), was supported by an increase in adjusted capital and surplus. Operating performance remains very profitable, supported by strong improvement in underwriting results, which partially offset a decline in net investment income. TMNF is the main operating entity of Tokio Marine Holdings, Inc., in terms of premium income and net profit contribution. TMNF s extensive and increasing overseas presence, especially in developed markets, supports its profit generation and future growth. In addition, TMNF benefits from geographic and risk diversification. Partially offsetting these positive rating facrs are TMNF s exposure catastrophe risks and its high proportion of equity investments, which could bring volatility its capital and surplus. However, the company actively manages these risks in its enterprise risk management framework. While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a material decline in TMNF s risk-adjusted capitalization due either a consistent deterioration in the company s operating performance or a negative impact from large-scale catastrophe events. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 08/18/17 A++ 08/22/14 A++ 08/19/16 A++ 05/15/14 A++ 08/21/15 A++ 08/22/13 A++ KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus 2012 2,913 750 520 37,773 37,530 2013 71 424 284 38,025 37,806 2014 76 657 516 38,477 38,324 2015 76 873 685 39,198 39,004 39,673 2016 76 890 669 39,806 Profitability Leverage Liquidity Comb. Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW Overall Liq. (%) Oper. Cash flow (%) 2012 1.3 0.0 999.9 999.9 2013 1.2 0.0 999.9 689.3 2014 1.8 0.0 999.9 548.7 2015 2.4 0.0 999.9 531.4 2016 2.4 0.2 0.0 999.9 477.3 5-Yr 1.8 (*) Within several financial tables of this report, this company is compared against the Surplus Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE TM Specialty was incorporated in Ocber 1998, under the laws of the State of Arizona act as an excess and surplus lines carrier of domestic property and casualty insurance. Effective June 1, 2012, the company ceased writing new business. Tokio Marine & Nichido Fire Insurance Company, Ltd. (TMNF), is wholly owned by Tokio Marine Holdings, Inc., one of Japan s largest insurance groups. The group has more than 270 subsidiaries and affiliates that provide primary life, non-life insurance and reinsurance as well as financial and general types of business, including asset management, in the Japanese and overseas markets. Established in 1879 as the first non-life insurance company in Japan, TMNF has approximately one-quarter of the domestic market in terms of net premiums written (NPW) at the end of December 2016. TMNF is the group s main operating subsidiary. Combining results from domestic non-life business and international business, TMNF generated 94% of the group s NPW in fiscal year 2016. Moreover, TMNF is the group s strategic hub with regard overseas market expansion. The production from overseas business has increased from about 5% more than 35% of overall NPW during the past ten years. Overseas operating subsidiaries include Philadelphia Consolidated Holding Corp., Delphi Financial Group Inc., and HCC Insurance Holdings, Inc., in North America; and Tokio Marine Kiln Group Limited and Tokio Millennium Re AG in Europe. In the Japanese market, TMNF s domestic non-life underwriting portfolio, in terms of NPW, consisted of voluntary aumobile, which accounted for approximately half of the portfolio, followed by compulsory au liability insurance (CALI), fire, personal accident and marine. Fiscal year 2017 is the last year of Tokio Marine group s mid-term business plan, named To Be a Good Company 2017. The group is expected reach its major targets set forth in this plan: an adjusted ROE in the upper 9% range; adjusted net income of around JPY 400 billion, compared JPY 407 billion in Printed September 28, 2017 www.ambest.com Page 11 of 32
fiscal year 2016; and an enhanced dividend per share. Over the three-year plan, business and risk diversification significantly improved due the remarkable overseas expansion activities. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Reinsurance DPW Prem Assumed Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) 2012 2,913-60.7 2,913-60.7 2013 71-97.6 71-97.6 2014 76 7.1 76 7.1 2015 76 76 2016 76 76 5-Yr CAGR -60.0-60.0 NPW NPE ($000) (% Chg) ($000) (% Chg) 2012 100.0 2013 2014 2015 2016 5-Yr CAGR -99.9 Terriry: The company is licensed in Arizona. 2016 BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Oth Liab Occur 76 100.0 76 100.0 Total 76 100.0 76 100.0 Business NPW Retention Product Line ($000) (%) (%) Oth Liab Occur Total BY-LINE RESERVES ($000) Product Line 2016 2015 2014 2013 2012 Oth Liab Occur 7 15 69 All Other 5 Total 7 20 69 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) 2016 2015 2014 2013 2012 New York 76 76 76 88 194 California -17 2,600 All Other 120 Total 76 76 76 71 2,913 RISK MANAGEMENT TMNF s risk management is in line with the Tokio Marine Group s ERM framework. The risk appetite statement sets forth that the group will conduct risk taking mainly in insurance underwriting and investments while ensuring a balance between risk and capital that enables it continue doing business even under stress scenarios. The group takes strategic management decisions and deploys capital based on an analysis of capital efficiency. Therefore, the results of group companies are regularly reviewed achieve sustainable growth of profits in each business domain. The group has developed its own internal economic solvency capital model quantify its capital adequacy and ensure financial soundness, with risk capital calculations based on 99.95% value at risk (VaR). Capital buffers are managed in order provide flexibility for business investments, share repurchases or changes in the regulary and operating environments. The group runs stress tests on scenarios ensure that the capitalization is sufficient absorb any potential losses. OPERATING PERFORMANCE Operating Results: TMNF reported a non-consolidated net profit of JPY 249 billion in fiscal year 2016, compared JPY 302 billion in fiscal year 2015. This reduction was mainly due a strong decline in investment results, driven by lower dividends received from its subsidiaries. Underwriting results, in contrast, materially improved from JPY 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016, primarily reflecting lower losses related natural catastrophes and lower provisions for catastrophe loss reserves. TMNF s non-consolidated operating ratio increased from 76.0% in fiscal year 2015 82.0% in fiscal year 2016 chiefly due lower net investment income. The ratio remains below the five-year average of 83.7%. The company expects achieve a net profit of JPY 270 billion in fiscal year 2017 as a result of an improvement in underwriting results and an increase in dividends from subsidiaries. Printed September 28, 2017 www.ambest.com Page 12 of 32
PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return 2012 750 504 520 520 2013 424 279 284 284 2014 657 503 516 516 2015 873 669 685 685 2016 890 672 669 668 5-Yr Total 3,594 2,628 2,674 2,673 result, expectations are that the combined ratio will remain unchanged at 90.4% in fiscal year 2017. UNDERWRITING EXPERIENCE Undrw Loss s Expense s Ind Income Pure ($000) Loss LAE Loss LAE & Other Total Div. Comb. Comm. Exp. Exp. Pol. Comb. 2012 272 99.5 2013-6 93.4 2014 20 86.5 2015 86.9 2016-7 92.8 Company Industry Composite 5-Yr Total/Avg 279 91.8 Pre-tax Return Operating Pre-tax Return Operating ROR (%) on (%) (%) ROR (%) on (%) (%) 2012 1.4 22.8 9.6 76.2 DIRECT LOSS RATIO BY STATE 2013 0.8 41.3 14.7 59.5 2016 2015 2014 2013 2012 5-Yr Avg 2014 1.4 30.4 11.8 68.4 New York 33.6-16.7 59.1-66.3-2.0 0.5 2015 1.8 29.5 5.2 69.4 California -99.9-22.4-49.0 2016 1.7 20.9 7.0 77.6 All Other 999.9-99.9-99.9 5-Yr Avg 1.4 28.5 9.6 70.6 Total 40.3-16.7-99.9-90.3-25.0-37.1 Underwriting Results: The company s non-consolidated NPW slightly Investment Results: Non-consolidated net investment income decreased by declined year on year (YoY) from JPY 2,128 billion in fiscal year 2015 JPY JPY 154 billion in fiscal year 2016 JPY 218 billion. This reduction was 2,116 billion in fiscal year 2016. The decline was mainly attributed fire mainly driven by lower dividend income from its subsidiaries in comparison insurance, which had experienced strong demand in fiscal year 2015 ahead of the amount received in fiscal year 2015, where TMNF received extra product revisions. On the other hand, au insurance NPW increased by 2%, dividends from subsidiaries support the acquisition of HCC Insurance driven by premium rate hikes and the sales of new policies. Holdings, Inc. capital gains declined from JPY 116 billion in fiscal year As previously stated in this report, underwriting profit increased from JPY 2015 JPY 88 billion in fiscal year 2016, reflecting lower gains on sales of 14 billion in fiscal year 2015 JPY 116 billion in fiscal year 2016 due a foreign securities. decline in net incurred losses related natural catastrophes and lower As part of the ERM initiatives manage investment risks, TMNF provisions for catastrophe loss reserves. continued scale down its exposure business-related equities. The tal TMNF s loss ratio (private insurance, earned income basis) has been amount sold in fiscal year 2016 was worth JPY 117 billion. Gains from the improving over the past five years, declining from 66.8% in fiscal year 2012 sales of domestic business-related equities reached JPY 85 billion over the 57.7% in fiscal year 2016. The trend was mainly driven by improvements in year. These gains provide support the company s net investment income the voluntary au insurance loss ratio over the period. amidst the ultra-low interest rate environment in Japan. The expense ratio (private insurance basis) remained relatively stable YoY investment yield (including capital gains) declined from 4.4% in fiscal at 32.7% in fiscal year 2016, compared 32.6% in fiscal year 2015, as the year 2015 2.6% in fiscal year 2016, falling behind the five-year average net decline in NPW was almost fully offset by the decrease in business expenses. investment yield of 2.9%. To support its investment income, TMNF has taken The combined ratio (private insurance, E/I basis) declined YoY 90.4% initiatives such as outsourcing a portion of its invested assets Delphi from 92.7% in fiscal year 2015. Financial Group Inc., its subsidiary with stronger expertise in asset For fiscal year 2017, overall NPW growth (private insurance) is expected management. be 1.6%, chiefly driven by growth in au insurance and liability insurance. The underwriting profit is expected improve JPY 130 billion, while the loss ratio (private insurance, E/I basis) is expected remain stable at 57.8%. It is anticipated that a decline in net incurred losses related natural catastrophes will be offset by an increase in large losses, which were relatively low in fiscal year 2016. The expense ratio is expected remain relatively stable at 32.6% with expenses increasing in line with NPW growth. As a Printed September 28, 2017 www.ambest.com Page 13 of 32
INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains 2012 478 17 2013 430 5 2014 636 13 2015 873 16 2016 897-4 -1 5-Yr Total 3,315 46-1 Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) 2012-7.3 1.3 1.4 1.4-11.7 3.9 2013-10.1 1.2 1.2 1.2 29.5 5.1 2014 48.1 1.8 1.8 1.8-43.9 2.8 2015 37.2 2.4 2.4 2.4 8.6 3.1 2016 2.7 2.4 2.4 2.4-8.4 2.8 5-Yr Avg 13.0 1.8 1.9 1.8-8.3 3.5 BALANCE SHEET STRENGTH Capitalization: TMNF s consolidated adjusted capital and surplus (i.e., shareholders funds + catastrophe reserves + price fluctuation reserves) increased by 6% in fiscal year 2016 JPY 4,224 billion. This increase was mainly driven by retained earnings, which increased by 19% from JPY 1,040 billion in fiscal year 2015 JPY 1,238 billion in fiscal year 2016. The company regularly monirs its capital adequacy at both the group and TMNF levels by utilizing its internal economic solvency capital model. Current BCAR: 259.0 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains 2012 750 17 247 2013 424 5 144 2014 657 13 153 2015 873 16 204 2016 890-4 218-1 5-Yr Total 3,594 46 966-1 Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes 2012 1,394 1,914 5.4 2013-8 276 0.7 2014 2 518 1.4 2015-6 679 1.8 2016 2 670 1.7 5-Yr Total 1,384 4,057 2.2 QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus 2012 30,600 6,930 2013 30,600 7,206 2014 30,600 7,724 2015 30,600 8,404 2016 30,600 9,073 Year-End Conditional Adjusted Year Reserves 2012 37,530 0 37,530 2013 37,806 37,806 2014 38,324 38,324 2015 39,004 39,004 2016 39,673 39,673 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW Gross NPW Gross 2012 0.0 0.0 0.1 0.3 0.6 1.2 2.0 2013 0.0 0.0 0.0 0.2 0.5 1.1 1.9 2014 0.0 0.0 0.3 0.4 1.1 1.9 2015 0.0 0.0 0.3 0.4 1.1 1.9 2016 0.0 0.0 0.0 0.3 0.4 1.2 2.0 Printed September 28, 2017 www.ambest.com Page 14 of 32
CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Ceded Reins. Total 2012 5,438 7.2 14.5 34.9 56.5 78.9 2013 576 1.5 1.5 26.7 55.5 78.5 2014 97 0.2 0.3 27.1 53.1 76.0 2015 86 0.2 0.2 29.1 52.0 76.2 2016 137 0.3 0.3 30.5 55.0 80.2 2016 REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Affiliates... 25 329 1,141 1,495 Foreign Affiliates... 2 5 7 US Insurers... 70 70 Other Non-US... 49 49 Total (ex US Affils)... 2 124 126 Grand Total... 27 453 1,141 1,621 * Includes Commissions less Funds Withheld Loss Reserves: The outstanding claims loss reserve balance on a non-consolidated basis increased by JPY 5 billion JPY 900 billion as at the end of March 2017. incurred losses related natural catastrophes alone declined by JPY 20 billion JPY 54 billion at the end of fiscal year 2016. Catastrophe loss reserves strengthened by JPY 43 billion JPY 1,067 billion over the same period. LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru Latest Year End Develop. Orig. (%) Unpaid Reserves @Latest Year End Acc. Yr Loss Acc. Yr Comb. 2011-99.9 2012 2013 2014 2015 2016 LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) 2012 999.9 999.9 999.9 62.7 155.5 202.0 8.6 2013 999.9 999.9 999.9 78.1 167.0 206.1 9.0 2014 999.9 999.9 999.9 87.1 172.5 213.3 9.6 2015 999.9 999.9 999.9 85.1 166.5 210.2 11.0 2016 999.9 999.9 999.9 85.3 165.1 208.3 11.1 CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) 2012-133 714 2,844-99.9 999.9 97.3 115.5 2013 240 884-3,291 528.5 689.3 72.0 95.3 2014 460 1,001-253 -99.9 548.7 138.2 150.3 2015 235 1,086 637 742.0 531.4 116.5 130.5 2016 177 1,040-170 440.5 477.3 107.6 114.9 5-Yr Total 980 4,726-232 INVESTMENT LEVERAGE ANALYSIS (% OF ) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Estate/ Invested Common Inv. Affil. 3-6 Common Bonds Mtg. Assets Scks Inv. Bonds Scks 2012 4.9 29.8 2013 2.1 41.7 2014 1.8 45.6 2015 1.6 41.1 2016 0.2 0.2 2.3 38.0 INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg 0-1 1-5 5-10 10-20 20+ Maturity Government 0.2 9.6 5.8 0.2 0.0 5 Gov t Agencies & Muni 2.8 6.7 19.4 3.2 5.8 10 Industrial & Misc 11.3 11.5 21.6 1.6 0.3 5 Total 14.2 27.7 46.9 5.0 6.1 7 Printed September 28, 2017 www.ambest.com Page 15 of 32