XXXXX Company Name Here XXXXX BEST S RATING REPORT Wilmington, Delaware, United States 19801 AMB #: 050722 NAIC #: N/A FEIN#: 52-2301683 Phone: Fax: Website: www.odygroup.com Odyssey Reinsurance Company A 300 First Stamford Place, Stamford, Connecticut, United States 06902 AMB #: 000539 NAIC #: 23680 FEIN#: 47-0698507 Phone: 203-977-8000 Fax: 203-965-7960 Website: www.odysseyre.com Hudson Excess Insurance Company A Wilmington, Delaware, United States 19801 AMB #: 014995 NAIC #: 14484 FEIN#: 45-5271776 Phone: 212-978-2800 Fax: Website: www.hudsoninsgroup.com A Wilmington, Delaware, United States 19801 AMB #: 003081 NAIC #: 25054 FEIN#: 13-5150451 Phone: 212-978-2800 Fax: 212-344-2973 Website: www.hudsoninsgroup.com Hudson Specialty Insurance Company A 100 William St., 5th Floor, New York, New York, United States 10038 AMB #: 012631 NAIC #: 37079 FEIN#: 75-1637737 Phone: 212-978-2800 Fax: 212-344-2973 Website: www.hudsoninsgroup.com Newline Insurance Company Limited A Corn Exchange, 55 Mark Lane, London EC3R 7NE, United Kingdom AMB #: 078187 NAIC #: N/A AIIN#: AA-1120062 Phone: 44-20-7090-1700 Fax: 44-20-7090-1701 Website: www.newlinegroup.com Financial Strength Rating A M BEST A Excellent Page 1 of 24 Printed June 15, 2018
Credit Report Report Release Date: Rating Effective Date: June 1, 2018 February 28, 2018 Disclosure Information: Refer to rating unit members for each company s Rating Disclosure Form Analytical Contacts A.M. Best Rating Services, Inc. Darian Ryan Senior Financial Analyst Darian.Ryan@ambest.com Jennifer Marshall, CPCU, ARM Director Jennifer.Marshall@ambest.com +1(908) 439-2200 Ext. 5449 +1(908) 439-2200 Ext. 5327 Ultimate Parent: 058364 - Fairfax Financial Holdings Limited A.M. Best Rating Unit: 050722 - RATING RATIONALE: The consolidated results for AMB #50722 are used for the determination of the ratings for the operating entities outlined below in the "Best's Credit Ratings for Group Members" section. All financial results within this report are for AMB #50722 consolidated financial statements. Best's Credit Ratings for Group Members: Rating Effective Date: February 28, 2018 Best's Financial Best's Issuer Strength Ratings Credit Ratings AMB# Company Rating Outlook Action Rating Outlook Action 050722 Rating Unit 000539 Odyssey Reinsurance Company A Stable Affirmed a+ Stable Affirmed 014995 Hudson Excess Insurance Co A Stable Affirmed a+ Stable Affirmed 003081 A Stable Affirmed a+ Stable Affirmed 012631 Hudson Specialty Ins Co A Stable Affirmed a+ Stable Affirmed 078187 Newline Insurance Company Ltd A Stable Affirmed a+ Stable Affirmed Refer to the following company profile page to view Issue Ratings, (AMB#50722). Rating Rationale: Balance Sheet Strength: Strongest Odyssey Group's BCAR measures in the strongest category and its balance sheet benefits from a consistently strong reserve position, favorable liquidity measures and adequate reinsurance protection. Reserves have historically developed favorably on both a calendar and accident year basis. Page 2 of 24 Printed June 15, 2018
Liquidity measures are favorable and are enhanced by positive cash flows. The group benefits from favorable financial flexibility of its parent, Fairfax Financial Holdings and its sizable cash and marketable securities position. Operating Performance: Strong Odyssey Group s operating performance is strong and supported mainly by consistently profitable underwriting performance, which compares favorably to its reinsurance and commercial lines peers. The group has generated a lower than average investment yield over the past five years relative to its peers due in large part to the investment strategy which takes a long-term value-oriented total return approach. The group benefits from the strong operational and financial support of its ultimate holding company, Fairfax Financial Holdings. Business Profile: Neutral Odyssey Group operates in both the traditional reinsurance and specialty insurance sectors, affording it diversification that has been increasingly important to reinsurers. While US based, it has global operations. Within the US its business is diversified geographically and by line of business. Odyssey's management is long tenured and has a track record of producing solid underwriting profitability. The group's exposure to (re)insurance markets and event risk is well defined, dispersed and managed. An offsetting consideration in evaluating the group's business profile is its relatively modest market share within the global reinsurance market, ranking about 29th in the world. While a solid position Odyssey is not viewed as a market leader. Enterprise Risk Management: Appropriate The group has a comprehensive risk management framework, which has been developed over the past several years. Management team is experienced and knowledgeable. Risk management capabilities generally meet or exceed its risk profile. Outlook The group's rating outlook reflects A.M. Best's expectation that the group's strongest balance sheet strength will continue to be supported by strong and stable operating performance, favorable reserve development, diverse business profile and well defined Enterprise Risk Management program. Rating Drivers Factors that could lead to negative rating actions include the following: a reduction in the current favorable financial and liquidity position at the group's parent, Fairfax Financial. A significant reduction in underwriting income due to a deterioration in calendar year performance given less favorable accident year results as well as less favorable reserve development. A significant reduction in the group's investment returns given losses associated with the group's investment strategy. Financial Data Notes: Time Period: Annual - 2017 Status: N/A Data as of: 05/21/2018 Page 3 of 24 Printed June 15, 2018
Key Financial Indicators: Key Financial Indicators (000) Year End Premiums Written 2017 2016 2015 2014 2013 Direct Premiums Written 1,289,551 1,086,119 1,089,892 1,185,239 1,043,864 Gross Premiums Written 2,783,105 2,380,747 2,403,985 2,739,511 2,715,546 Net Premiums Written 2,495,887 2,100,177 2,094,985 2,393,833 2,376,942 Net Income 325,254 160,908 299,294 590,684 136,944 Total Assets 11,207,642 10,182,463 10,396,442 11,021,629 11,025,997 Total Equity 4,012,533 3,833,179 3,958,192 3,983,217 3,730,734 Source: Bestlink - Best's Statement File - Global Local Currency: US Dollar Key Financial Indicators - A.M. Best Ratios (%) Year End 2017 2016 2015 2014 2013 Combined Ratio 97.6 88.9 84.9 84.8 84.2 Net Premiums Written to Equity 62.2 54.8 52.9 60.1 63.7 Liquidity Liquid assets to total liabilities 98.0 104.1 109.6 113.5 103.7 Total investments to total liabilities 110.2 117.4 123.6 125.0 117.0 Source: Bestlink - Best's Statement File - Global Best's Capital Adequacy Ratio Summary - AMB Rating Unit (%) Confidence Level 95.0 99.0 99.5 99.6 BCAR Score 66.5 52.0 45.7 44.1 Source: Best's Capital Adequacy Ratio Model - Universal Credit Analysis: Balance Sheet Strength: Strongest ORC's surplus has risen modestly over the past five year period, even after sizable dividend payments to its parent, ORH. The company's capital position remains solid and is supportive of the group's premium writings and natural catastrophe losses during the most recent five year period. ORC maintains the strongest overall risk-adjusted capital position, as measured by its Best's Capital Adequacy Ratio ("BCAR") analysis. The benefits of surplus generation and moderating premium growth, as well as the divestiture of significant affiliated investments, have led to improved and sustainable capitalization over the five-year period. Odyssey Re's total return operating philosophy has historically supported surplus growth. The fixed income portfolio consists of conservative holdings with solid credit quality and liquidity that further support the group's capitalization. The group's credit risk from reinsurance recoverables is mitigated, due to collateral held in the form of letters of credit and funds held. However, not all recoverables are backed by collateral. A significant risk relating to the capitalization of the group is catastrophe exposure. Management addresses these risks by managing to a 1-in-250-year probable maximum loss and attempts to limit the net after-tax occurrence to any geographic zone to less than 25% of consolidated GAAP equity. The significant financial resources of its ultimate parent company, Fairfax, further enhance Odyssey Re's financial flexibility. Page 4 of 24 Printed June 15, 2018
The group has experienced favorable loss reserve development in each of the past five years. Odyssey Re discounts reserves relating to the indemnity portion of workers' compensation reserves of ORC. Capitalization: Capital Generation Analysis (000) Year End 2017 2016 2015 2014 2013 Common shares, ending balance 492 492 492 477 535 Paid-in capital - End bal 1,738,968 1,746,290 1,747,017 1,639,236 587,994 AOCI - ending balance 37,222 67,581 151,164 381,668 231,057 Other equity, end. bal. 29,299 29,299 29,299 29,299 29,299 Retained earnings, beginning balance 1,989,517 2,030,220 1,932,537 2,881,846 2,747,289 Retained earnings, net income 325,254 160,908 299,294 590,684 136,944 Retained earnings, common dividends 100,000 200,000 200,000...... Retained earnings, preferred dividends 1,611 1,611 1,611 2,188 2,044 Retained Earnings, other -6,608............ Retained earnings, ending balance 2,206,552 1,989,517 2,030,220 1,932,537 2,881,846 Total shareholder equity 4,012,533 3,833,179 3,958,192 3,983,217 3,730,734 Source: Bestlink - Best's Statement File - Global Local Currency: US Dollar Holding Company Assessment: Ultimate Parent: 058364 Fairfax Financial Holdings Limited Fairfax Financial is the ultimate parent of Odyssey as well as several other insurance and non-insurance operations. Fairfax maintains favorable financial flexibility with debt to total capital at 4q17 of 25.6 and interest coverage of -0.4. The lower level of interest coverage is moderated by Fairfax's practice of maintaining sizable amounts of cash and marketable securities at the holding company level. Operating Performance: Strong Odyssey Group has historically generated positive operating performance, driven by favorable underwriting results which compares well with its peer industry composite. The group generates a low investment yield relative to its peers due to the investment strategy. While the defensive investment approach does not impair the group's liquidity or risk adjusted capital position, investment returns are affected by the nature of the investments. The investment portfolio is managed by Hamblin Watsa Investment Counsel Ltd. ("Hamblin Watsa"), which is the investment management subsidiary of Fairfax, the group's ultimate parent. The group's underwriting performance outperforms its US and global peers by a modest margin on a five year average basis. The group's business mix has shifted over the past ten years from a predominantly long-tail portfolio of assumed liability reinsurance to a portfolio with a greater weighting of short-tail classes of business. Growth in the primary specialty insurance operations has led to an increasing share of premiums from the insurance platform compared to prior years. The company has the benefit of adjusting its business mix between primary and reinsurance platforms, which provides increased flexibility as the market changes. The group's underwriting performance remained generally consistent with a slight uptick in expense measures, given the declines in written and earned premium. The decreases are primarily due to a termination of a large Florida property contract and softening market conditions. The provision for incurred losses and loss adjustment expenses benefited from favorable loss activity on business written in the Other Liability Occurrence, Nonproportional Assumed Property, and Nonproportional Assumed Liability lines of business. Page 5 of 24 Printed June 15, 2018
In general, the investment strategy has negatively impacted the group's statutory results with a five year operating ratio in excess of the industry's. The comparative performance is driven in part by statutory accounting rules, which require bonds to be held at cost versus mark to market. Although the value of the bonds would have been somewhat volatile under mark to market valuations, returns would have been more favorable. Another reason is the increase in the financially distressed investments purchased by Fairfax and allocated in part to Odyssey. Financial Performance Summary (000) Year End 2017 2016 2015 2014 2013 Pre-Tax Income 618,301 165,323 418,968 900,179 150,866 Net Income 325,254 160,908 299,294 590,684 136,944 Source: Bestlink - Best's Statement File - Global Local Currency: US Dollar A.M. Best Ratios (%) Year End 2017 2016 2015 2014 2013 Overall Performance: Return on Assets 3.0 1.6 2.8 5.4 1.2 Return on Equity 8.3 4.1 7.5 15.3 3.7 Non-Life Performance: Loss & LAE Ratio 66.0 56.5 53.8 54.5 55.2 Expense Ratio 31.7 32.4 31.1 30.4 29.0 Combined Ratio 97.6 88.9 84.9 84.8 84.2 Combined less Investment Ratio 91.4 79.7 75.5 76.8 75.8 Source: Bestlink - Best's Statement File - Global Combined Ratio (%) 100 80 84.2 84.8 84.9 88.9 97.6 66.0 60 55.2 54.5 53.8 56.5 40 29.0 30.4 31.1 32.4 31.7 20 0 2013 2014 2015 2016 2017 - Combined Ratio - Loss & LAE Ratio - Expense Ratio Page 6 of 24 Printed June 15, 2018
Business Profile: Neutral Odyssey Group includes the U.S. reinsurance and insurance operations of ORH as well as a Lloyd's syndicate ("Newline Syndicate 1218") and Newline Insurance Company Limited ("Newline") which is a UK-based insurance company. Reinsurance operations are led by Odyssey Reinsurance Company ("ORC"), which provides treaty casualty and property reinsurance as well as facultative reinsurance for small to medium-sized regional companies and specialized departments of major insurance companies. Products are provided primarily through the broker market in the U.S. and through brokers and directly with insurers and reinsurers internationally. Specific lines of business include specialty casualty and general casualty; commercial and personal property; marine; aviation and space; accident and health; crop; and surety lines. Facultative casualty reinsurance is also provided for general liability; umbrella liability; directors' and officers' liability; professional liability and commercial automobile in the U.S. and facultative property reinsurance in Latin America. The U.S. insurance operations of Odyssey Group are conducted through ("Hudson"), Hudson Specialty Insurance Company ("Hudson Specialty") and Hudson Excess Insurance Company ("Hudson Excess"). The insurance operations provide coverage on both an admitted and non-admitted basis through in-house underwriting facilities and program administrators. Lines of business include professional liability; multi-peril crop; directors' and officers' liability; marine and energy; personal umbrella; specialty property; personal liability; personal and commercial auto and surety. Where program administrator relationships are used, the group seeks organizations that have a long and successful track record in their particular areas of expertise. Odyssey Group's management has established strong control systems to monitor program administrators, including incentives to produce profitable business. Specialty insurance is offered in London through Newline Syndicate 1218 and Newline Insurance Company Limited. Business is written primarily in non- U.S. liability lines, including professional indemnity, directors' and officers' liability, medical professional liability, financial institutions, cargo and specie, space and liability. Enterprise Risk Management: Appropriate Odyssey Group's enterprise risk management program incorporates the identification of major financial and operational risks, articulation of risk appetite through established upside aims and downside risk tolerances, formulation of risk governance at the Board level, a Chief Risk Officer, development of a stochastic risk management model and the development of an enterprise risk control framework. Core principles of Odyssey Group's enterprise risk management program include a long-term orientation, operating profitability valued over market share, value oriented investing and a compensation structure that supports a long term focus. The group establishes acceptable exposures before risks are assumed. This is done through underwriting and investment guidelines, the establishment of limits and underwriting authority levels and an integrated planning process. Internal audit is responsible for regularly testing and validating key risk controls embedded in the business units. The risk management program includes a framework of several committees including an enterprise risk management committee, reinsurance security committee, investment committee, underwriting risk committees, a Fairfax Financial Holdings Limited ("Fairfax") global risk committee and a Board audit committee. Four full ERM reviews and meetings are conducted annually, with Board briefings throughout the year. Financial Statements: Page 7 of 24 Printed June 15, 2018
Balance Sheet: Balance Sheet: Assets 12/31/2017 12/31/2017 12/31/2016 USD(000) % of total USD(000) Cash And Equivalents 1,940,559 17.3 823,521 Long Term Fixed Maturity Investments 1,940,693 17.3 2,854,070 Equity Investments 1,070,921 9.6 1,187,856 Short Term Investments 2,095,823 18.7 1,742,357 Other Investments 881,879 7.9 843,556 Invested Assets 5,989,316 53.4 6,627,839 Receivables 1,015,668 9.1 1,133,714 Reinsurance Recoverable 896,665 8.0 700,688 Deferred Policy Acquisition Cost 201,994 1.8 165,661 Equity In Unconsolidated Subsidiary 809,638 7.2 398,019 Other Assets 353,802 3.2 333,021 Total Assets 11,207,642 100.0 10,182,463 Liabilities & Surplus 12/31/2017 12/31/2017 12/31/2016 USD(000) % of total USD(000) Property / Casualty Reserves 5,463,595 48.8 4,876,848 Unearned Premium Reserves 909,078 8.1 722,455 Total Policy Reserves 6,372,673 56.9 5,599,303 Debt & Notes Payable 89,857 0.8 89,815 Other Liabilities 732,579 6.5 660,166 Total Liabilities 7,195,109 64.2 6,349,284 Equity - Common Stock 492... 492 Paid-In Capital 1,738,968 15.5 1,746,290 Accumulated Other Comprehensive Income 37,222 0.3 67,581 Retained Earnings 2,206,552 19.7 1,989,517 Other Equity 29,299 0.3 29,299 Total Equity 4,012,533 35.8 3,833,179 Total Liabilities & Equity 11,207,642 100.0 10,182,463 Source: Bestlink - Best's Statement File - Global Local Currency: US Dollar Page 8 of 24 Printed June 15, 2018
Summary of Operations: Statement of Income (000) Statement of Income 12/31/2017 12/31/2016 USD(000) USD(000) Direct Premiums Written 1,289,551 1,086,119 Reins Assumed 1,493,554 1,294,628 Gross Premiums Written 2,783,105 2,380,747 Reins Ceded 287,218 280,570 Net Premiums Written 2,495,887 2,100,177 Change In Unearned Premiums 162,486 26,081 Net Premiums Earned 2,333,401 2,074,096 Net Investment Income 145,111 192,183 Net Realized Gains/(Losses) 378,081-201,915 Total Revenue 2,856,593 2,064,364 Benefits & Reserves 1,539,522 1,171,825 Operating Expenses 742,189 747,305 Total Benefits & Expenses 2,281,711 1,919,130 Earnings before interest & taxes (EBIT) 574,882 145,234 Equity In Income Of Unconsolidated Subsidiaries 46,679 22,890 Interest Expense 3,260 2,801 Pre-Tax Income/(Loss) From Continuing Operations 618,301 165,323 Total Taxes 293,047 4,415 Net Income/(Loss) Before Minority Interest 325,254 160,908 Net Income/(Loss) From Continuing Operations 325,254 160,908 Net Income 325,254 160,908 Source: Bestlink - Best's Statement File - Global Local Currency: US Dollar Page 9 of 24 Printed June 15, 2018
Report Revision Date: June 13, 2018 Company Attributes: Industry: Business Type: Entity Type: Business Status: Insurance Property/Casualty Intermediate Holding Company In Business - Non-Insurer Company History: Date Incorporated: N/A Date Commenced: N/A Domicile: United States: Delaware Insurance subsidiaries of ("ORH") currently include Odyssey Reinsurance Company, Hudson Insurance Company, Hudson Specialty Insurance Company, Hudson Excess Insurance Company, Clearwater Select Insurance Company, Newline Insurance Company Limited and Lloyd's Syndicate 1218. In February 2011, the name of Odyssey America Reinsurance Corporation ("Odyssey America") was changed to Odyssey Reinsurance Company. In the text that follows, information concerning the history of current and former subsidiaries of ORH will be presented. The name of Odyssey America will appear when applicable from a historical perspective. ORH was incorporated on March 21, 2001, to serve as the holding company for the U.S.-based reinsurance subsidiaries of Fairfax. In connection with ORH's initial public offering in June 2001, two wholly-owned subsidiaries of Fairfax transferred 100% of the outstanding shares of Odyssey America to ORH in exchange for common stock of ORH, cash and term notes. Immediately following the initial public offering, approximately 26% of ORH was owned by public shareholders and 74% was owned by Fairfax subsidiaries. In October 2009, then-majority shareholder Fairfax, which at the time owned 72.5% of ORH's common shares, completed a tender offer pursuant to which it acquired all of the outstanding shares of ORH common stock that it did not already own. Fairfax paid minority shareholders of ORH $65 per share, for a total transaction value of approximately $1.1 billion. Upon completion of the tender offer, ORH de-listed its common stock from the New York Stock Exchange, where it had previously traded under the ticker symbol: ORH. Odyssey Reinsurance Corporation was renamed Clearwater Insurance Company effective December 4, 2003. The company is the former Skandia America Reinsurance Corporation, now a Delaware corporation, which was incorporated on May 15, 1974, under the laws of New York to serve as the United States Branch of Skandia Insurance Company Ltd., Stockholm, Sweden. On May 31, 1996, Skandia America Reinsurance Corporation and its subsidiaries, including, were sold to Fairfax for approximately $230 million. Effective January 1, 2011, Odyssey America distributed all of the issued and outstanding shares of common stock of Clearwater to ORH, which in turn exchanged the shares with TIG Insurance Group, Inc., a Fairfax subsidiary, in return for the redemption by TIG of ORH common shares of equal value. Prior to these transactions, Clearwater distributed (by means of a dividend) to Odyssey America all of the issued and outstanding shares of common stock of Hudson (which owned all of the issued and outstanding shares of Hudson Specialty) and Clearwater Select. Hudson and Clearwater Select are now direct subsidiaries of Odyssey Reinsurance Company, and Hudson Specialty remains a direct subsidiary of Hudson. Hudson continues to write business, principally primary property and casualty insurance. On December 29, 2010, prior to the effectiveness of the transaction noted in the previous paragraph, Hudson issued 23,807 shares of newly created 5.5% Series A preferred stock (paying an annual dividend of 5.5% or $55 per share annually) and distributed these shares to Clearwater as a dividend, and Clearwater Select issued 5,492 shares of newly created 5.5% Series A preferred stock (paying an annual dividend of 5.5% or $55 per share annually) and distributed these shares to Clearwater as a dividend. Also in connection with these transactions, effective January 1, 2011, (a) the existing reinsurance agreement between Clearwater (as a reinsurer) and Clearwater Select (as reinsured) was novated to Odyssey America (as reinsurer), (b) Clearwater entered into a Claims Administration Services Agreement with Odyssey America, (c) Clearwater entered into a Management Services Agreement with Riverstone Resources LLC, a Fairfax subsidiary and (d) Clearwater entered into a Financial Support Agreement with Fairfax Inc., a Fairfax subsidiary. Page 10 of 24 Printed June 15, 2018
Company History: (Continued...) TIG Reinsurance Company ("TIG Re") was incorporated in Nebraska on September 10, 1986. Effective January 2, 1992, the company was re-domesticated to Connecticut. TIG Re was acquired by Fairfax in April of 1999, and subsequently became the parent company of Clearwater, as of October 26, 1999, and adopted the name Odyssey America Reinsurance Corporation before being subsequently renamed Odyssey Reinsurance Company. As a result of this reorganization, Odyssey Reinsurance Company is now the flagship of the group and continues to actively write reinsurance business. Odyssey Reinsurance Company, through its direct ownership of Newline UK Holdings Limited, operates its UK-based subsidiaries, including Newline Underwriting Management Limited, Lloyd's Syndicate 1218 and Newline Insurance Company Limited. On October 28, 2003, Odyssey America purchased General Security Indemnity Company, a shell excess and surplus lines company, which was renamed Hudson Specialty Insurance Company. This company provides the group with the ability to write property and casualty insurance on an excess and surplus lines basis. In December 2003, Odyssey America contributed all of the shares of Hudson Specialty to Clearwater. In July 2010, Clearwater contributed all of the shares of common stock of Hudson Specialty to Hudson. On November 15, 2004, ORH purchased Overseas Partners U.S. Reinsurance Company, a Delaware-domiciled reinsurance company that had been in run-off since 2002, from Overseas Partners Limited. The company was renamed Clearwater Select Insurance Company and was contributed to Clearwater on November 30, 2004. In December 2010, Clearwater contributed all of the shares of common stock of Clearwater Select to Odyssey America. On April 25, 2013, Clearwater Select redomesticated to Connecticut and became a Connecticut domiciled company. As of July 1, 2013, Clearwater Select's principal activity is to provide reinsurance to Odyssey Re group companies. On May 11, 2012, Hudson Excess Insurance Company ("Hudson Excess") was incorporated in the State of Delaware. Hudson Excess is a wholly owned subsidiary of Hudson Specialty Insurance Company and was created to provide property, casualty and marine & transportation business on a non-admitted licensed excess and surplus lines basis in New York. On October 2, 2012, authority to write property and casualty insurance business was granted by the Delaware Insurance Department. Effective July 21, 2015, Hudson Excess converted from a domestic property and casualty to a domestic surplus lines insurer with the approval of the Delaware Insurance Department. Company Management: Last significant update on 06/13/2018 Brian D. Young is the president and chief executive officer of ORH, effective April 1, 2011. Prior to joining the group in 1996, he was a vice president of Transatlantic Reinsurance. Jan Christiansen is executive vice president and chief financial officer of ORH. Prior to joining ORH in 2010, he served as group chief executive officer of Cunningham Lindsey Group Inc. Michael G. Wacek is executive vice president and chief risk officer of ORH. Prior to joining the Group in 1998, he was managing director of St. Paul Reinsurance Company Ltd. in London. Officers President and CEO: Brian D. Young EVP and CFO: Jan Christiansen EVP and Chief Risk Officer: Michael G. Wacek Regulatory: Auditor: The 2017 annual independent audit of the company was conducted by PricewaterhouseCoopers. Page 11 of 24 Printed June 15, 2018
Report Release Date: Rating Effective Date: February 28, 2018 February 28, 2018 Disclosure Information: View A.M. Best s Rating Disclosure Form Analytical Contacts A.M. Best Rating Services, Inc. Darian Ryan Jennifer Marshall, CPCU, ARM Senior Financial Analyst Director Darian.Ryan@ambest.com Jennifer.Marshall@ambest.com +1(908) 439-2200 Ext. 5449 +1(908) 439-2200 Ext. 5327 Ultimate Parent: 058364 - Fairfax Financial Holdings Limited A.M. Best Rating Unit: 050722 - Best's Credit Ratings: Rating Effective Date: February 28, 2018 Best's Financial Strength Rating: A Outlook: Stable Action: Affirmed Best's Issuer Credit Rating: a+ Outlook: Stable Action: Affirmed Five Year Credit Rating History: Best's Financial Strength Ratings Best's Issuer Credit Ratings Date Rating Outlook Action Rating Outlook Action 02/28/2018 A Stable Affirmed a+ Stable Affirmed 10/20/2016 A Stable Affirmed a+ Stable Affirmed 05/05/2015 A Stable Affirmed a+ Stable Affirmed 04/03/2014 A Stable Affirmed a+ Stable Affirmed 03/28/2013 A Stable Affirmed a+ Stable Upgraded Rating Rationale: The company is part of the group given its integration with the other group members, support of the group's strategy and the explicit support provided by the lead member. For more detail regarding the Rating Rationale and Best's Credit Report for the Rating Unit, view (AMB# 050722). Page 12 of 24 Printed June 15, 2018
Financial Data Notes: Time Period: Annual - 2017 Status: A.M. Best Quality Cross Checked Data as of: 06/04/2018 Key Financial Indicators: Key Financial Indicators (000) Year End - December 31 2017 2016 2015 2014 2013 Premiums Written Direct 817,747 679,439 671,468 703,634 614,431 Net 198,435 158,576 149,374 166,582 129,586 Pre-tax Operating Income ($000) 39,222 36,359 29,464 4,352 3,894 Net Income 30,707 36,756 39,972 9,647 6,004 Total Admitted Assets 1,204,068 1,159,905 1,082,816 1,042,652 819,044 Policyholders' Surplus 428,384 453,157 457,868 440,175 413,949 Key Financial Indicators - A.M. Best Ratios (%) Year End - December 31 2017 2016 2015 2014 2013 Profitability Combined Ratio 82.5 88.9 99.1 105.1 109.8 Investment Yield 2.7 4.2 6.8 4.0 3.7 Pre-Tax Return on Revenue 21.5 23.6 19.9 2.8 3.1 Leverage Non-Affiliated Investment Leverage 15.6 17.0 11.2 6.1 2.9 Net Premiums Written to Policyholders' Surplus 0.5 0.3 0.3 0.4 0.3 Net Leverage 2.3 1.9 1.7 1.7 1.3 Liquidity Overall Liquidity 155.9 165.4 174.8 175.0 205.4 Operating Cash-Flow 120.2 146.4 101.2 152.9 94.2 (*) 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 statutory statement. Credit Analysis: Balance Sheet Strength Page 13 of 24 Printed June 15, 2018
Capitalization: Capital Generation Analysis Year End - December 31 2017 2016 2015 2014 2013 Pre-tax Operating Income ($000) 39,222 36,359 29,464 4,352 3,894 Realized Capital Gains ($000) 396 1,634 11,813 6,419 2,164 Income Taxes ($000) 8,911 1,237 1,305 1,124 55 Unrealized Capital Gains ($000) -6,274-686 14,127 27,641 12,919 Net Contributed Capital ($000) -45,309-41,309-44,009-5,363-1,309 Other Changes ($000) -3,897 529 7,604-5,699-2,566 Change in Policyholders' Surplus -24,773-4,711 17,693 26,226 15,047 ($000) Change in Policyholders' Surplus (%) -5.5-1.0 4.0 6.3 3.8 Liquidity Analysis (%) Company Industry Composite Year End - December 31 Year End - December 31 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 Quick Liquidity 86.5 52.8 16.6 19.6 26.4 20.9 20.9 21.5 23.9 24.0 Current Liquidity 54.4 61.0 60.4 63.9 91.7 103.5 103.6 104.2 108.1 108.8 Overall Liquidity 155.9 165.4 174.8 175.0 205.4 144.9 145.5 146.2 148.1 148.2 Industry Composite: Commercial Casualty Composite - Bestlink - Best's Statement File - P/C, US Asset Liability Management Investments: Bond Portfolio - 2017 Bonds Distribution by Maturity (%) Years Years Average 0-1 1-5 5-10 10-20 20+ Maturity Government 60.3 0.4 0.1 0.1 6.3 2.8 Government Agencies and Municipal Bonds 16.6...... 7.3 4.6 8.1 Industrial and Misc.... 4.3......... 3.0 Total 76.9 4.7 0.1 7.4 10.8 4.4 Page 14 of 24 Printed June 15, 2018
Asset Liability Management Investments: (Continued...) Bond Distribution by Issuer Type Year End - December 31 2017 2016 2015 2014 2013 Bonds ($000) 155,043 322,353 313,924 308,168 284,086 US Government (%) 2.4 18.3 9.3 1.0 1.1 Foreign Government (%) 15.4 7.0......... Foreign-All Other (%) 10.9 4.9 5.7 6.0 2.1 State/Special Revenue-US (%) 71.4 69.8 85.0 93.0 94.8 Industrial and Misc-US (%)............ 2.0 2017 Bond Distribution By Issuer Type 2.4% 15.4% 10.9% US Government (%) Foreign Government (%) Foreign-All Other (%) State/Special Revenue-US (%) 71.4% Reserve Adequacy: Loss and Allocated Loss Adjustment Expense Reserve Development Year End - December 31 Calendar Year: 2017 2016 2015 2014 2013 Original Loss Reserves ($000) 176,633 159,693 151,168 160,062 143,722 Developed Reserves Thru Latest Year End ($000) 176,633 146,688 135,638 139,093 117,380 Development to Original (%)... -8.1-10.3-13.1-18.3 Development to Policyholder Surplus (%)... -2.9-3.4-4.8-6.4 Developed Reserves to Net Premiums Earned (%) 96.9 95.3 91.4 91.0 92.3 Unpaid Reserves @ Latest Year End ($000) 176,633 87,087 52,544 27,459 14,362 Unpaid Reserves to Developed Reserves (%) 100.0 59.4 38.7 19.7 12.2 Page 15 of 24 Printed June 15, 2018
Reserve Adequacy: (Continued...) Year End - December 31 Accident Year: 2017 2016 2015 2014 2013 Original Loss Reserves ($000) 89,546 73,587 68,129 85,812 57,295 Developed Reserves Thru Latest Year End ($000) 89,546 71,813 68,714 82,278 54,721 Development to Original (%)... -2.4 0.9-4.1-4.5 Unpaid Reserves @ Latest Year End ($000) 89,546 34,543 25,085 13,097 3,566 Accident Year Loss Ratio (%) 75.0 74.0 77.2 86.5 87.0 Accident Year Combined Ratio (%) 89.7 91.0 100.3 110.2 110.8 Source: Bestlink - Schedule P (Loss Reserves) - P/C, US Operating Performance Financial Performance Summary (000) Year End - December 31 2017 2016 2015 2014 2013 Pre-tax Operating Income 39,222 36,359 29,464 4,352 3,894 Net Income 30,707 36,756 39,972 9,647 6,004 A.M. Best Ratios (%) Company Industry Composite Year End - December 31 Year End - December 31 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 Operating Ratio 73.5 72.3 72.5 90.7 94.6 89.4 88.1 85.1 84.3 81.5 Realized Return on Invested Assets 2.7 4.5 9.0 5.2 4.1 3.9 4.3 4.2 4.3 6.5 Pre-Tax Return on Revenue 21.5 23.6 19.9 2.8 3.1 10.0 12.1 14.7 15.3 18.6 Return on Surplus 5.5 7.9 12.0 8.7 4.7 8.2 8.1 6.6 12.0 13.3 Loss & LAE Ratio 67.8 71.9 76.0 81.4 86.0 72.6 71.2 68.1 68.2 66.8 Expense Ratio 14.7 17.0 23.1 23.7 23.8 29.9 30.3 30.7 29.6 30.6 Combined Ratio 82.5 88.9 99.1 105.1 109.8 102.8 101.8 99.1 98.1 97.6 Net Investment Yield 2.7 4.2 6.8 4.0 3.7 3.6 3.8 3.8 3.8 4.4 Industry Composite: Commercial Casualty Composite - Bestlink - Best's Statement File - P/C, US Page 16 of 24 Printed June 15, 2018
Combined Ratio (%) 150 120 90 109.8 86.0 105.1 81.4 99.1 76.0 88.9 71.9 82.5 67.8 60 30 23.8 23.7 23.1 17.0 14.7 0 2013 2014 2015 2016 2017 - Combined Ratio - Loss & LAE Ratio - Expense Ratio 2017 Pure Loss Ratio by Product Line (%) 74.4 75 60 45 45.3 53.6 51.4 36.5 30 16.6 15.6 15 0 Allied Lines Oth Liab Occur Comm'l Auto Liab Surety Auto Physical Oth Liab CM All Other Business Profile The following text is derived from Best's Credit Report on (AMB# 050722): Odyssey Group includes the U.S. reinsurance and insurance operations of ORH as well as a Lloyd's syndicate ("Newline Syndicate 1218") and Newline Insurance Company Limited ("Newline") which is a UK-based insurance company. Reinsurance operations are led by Odyssey Reinsurance Company ("ORC"), which provides treaty casualty and property reinsurance as well as facultative reinsurance Page 17 of 24 Printed June 15, 2018
for small to medium-sized regional companies and specialized departments of major insurance companies. Products are provided primarily through the broker market in the U.S. and through brokers and directly with insurers and reinsurers internationally. Specific lines of business include specialty casualty and general casualty; commercial and personal property; marine; aviation and space; accident and health; crop; and surety lines. Facultative casualty reinsurance is also provided for general liability; umbrella liability; directors' and officers' liability; professional liability and commercial automobile in the U.S. and facultative property reinsurance in Latin America. The U.S. insurance operations of Odyssey Group are conducted through ("Hudson"), Hudson Specialty Insurance Company ("Hudson Specialty") and Hudson Excess Insurance Company ("Hudson Excess"). The insurance operations provide coverage on both an admitted and non-admitted basis through in-house underwriting facilities and program administrators. Lines of business include professional liability; multi-peril crop; directors' and officers' liability; marine and energy; personal umbrella; specialty property; personal liability; personal and commercial auto and surety. Where program administrator relationships are used, the group seeks organizations that have a long and successful track record in their particular areas of expertise. Odyssey Group's management has established strong control systems to monitor program administrators, including incentives to produce profitable business. Specialty insurance is offered in London through Newline Syndicate 1218 and Newline Insurance Company Limited. Business is written primarily in non- U.S. liability lines, including professional indemnity, directors' and officers' liability, medical professional liability, financial institutions, cargo and specie, space and liability. Leverage Analysis Company Industry Composite Year End - December 31 Year End - December 31 A.M. Best Ratios (%) 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 Net Premiums Written to Policyholders' Surplus 0.5 0.3 0.3 0.4 0.3 0.7 0.7 0.7 0.7 0.7 Industry Composite: Commercial Casualty Composite - Bestlink - Best's Statement File - P/C, US 2017 Top Product Lines of Business (Net Premiums Written) 7.9% 7.5% 36.4% 5.5% 2.9% Allied Lines Oth Liab Occur Comm'l Auto Liab Surety Auto Physical Oth Liab CM All Other 8.7% 31.0% Page 18 of 24 Printed June 15, 2018
2017 By-Line Business Product Line Direct Premiums Written Reinsurance Premiums Assumed Reinsurance Premiums Ceded Net Premiums Written ($000) (%) ($000) (%) ($000) (%) ($000) (%) Business Retention (%) Allied Lines 325,046 39.7...... 252,848 40.2 72,199 36.4 22.2 Oth Liab Occur 232,765 28.5 50 0.5 171,228 27.2 61,587 31.0 26.5 Comm'l Auto Liab 76,141 9.3...... 58,901 9.4 17,240 8.7 22.6 Surety 55,852 6.8...... 40,156 6.4 15,696 7.9 28.1 Auto Physical 55,871 6.8...... 40,940 6.5 14,931 7.5 26.7 Oth Liab CM 53,497 6.5...... 42,530 6.8 10,967 5.5 20.5 All Other 18,575 2.3 9,704 99.5 22,464 3.6 5,815 2.9 27.7 Total 817,747 100.0 9,754 100.0 629,066 100.0 198,435 100.0 24.2 Geographical Breakdown By Direct Premium Writings 2017 2016 2015 2014 2013 Aggregate Alien 410,555 380,257 357,992 383,485 351,359 California 81,786 73,835 74,697 74,694 59,370 Texas 52,323 21,440 18,041 17,932 16,120 Tennessee 44,704 31,211 31,615 31,423 25,875 Florida 24,939 18,392 14,735 13,539 6,439 Washington 20,887 20,138 19,247 20,456 13,487 New York 15,821 12,235 11,770 11,946 12,936 Illinois 13,574 9,689 12,813 11,924 9,827 Michigan 12,727 6,728 7,428 7,580 6,120 Indiana 10,672 8,168 9,956 8,913 8,338 All Other 129,759 97,344 113,175 121,740 104,560 Total 817,747 679,439 671,468 703,634 614,431 Page 19 of 24 Printed June 15, 2018
Financial Statements: Balance Sheet: Balance Sheet: Admitted Assets Year End - December 31 2017 ($000) 2016 ($000) 2017 (%) 2016 (%) Bonds 155,043 322,353 12.9 27.8 Preferred Stock............ Common Stock 26,323 42,943 2.2 3.7 Cash and Short-term Invest 237,550 60,571 19.7 5.2 Real Estate, Investment............ Derivatives............ Other Non-Affil Inv Asset 7,869 3,718 0.7 0.3 Investments in Affiliates 195,366 200,945 16.2 17.3 Real Estate, Offices............ Total Invested Assets 622,152 630,530 51.7 54.4 Premium Balances 84,212 62,783 7.0 5.4 Accrued Interest 2,105 3,544 0.2 0.3 All Other Assets 495,598 463,048 41.2 39.9 Total Assets 1,204,068 1,159,905 100.0 100.0 Liabilities & Surplus Year End - December 31 2017 ($000) 2016 ($000) 2017 (%) 2016 (%) Loss and LAE Reserves 190,995 173,320 15.9 14.9 Unearned Premiums 61,594 45,413 5.1 3.9 Derivatives............ Conditional Reserve Funds 3,245 5,485 0.3 0.5 All Other Liabilities 519,850 482,530 43.2 41.6 Total Liabilities 775,684 706,748 64.4 60.9 Surplus notes............ Capital and Assigned Surplus 300,980 300,980 25.0 25.9 Unassigned Surplus 127,403 152,177 10.6 13.1 Total Policyholders' Surplus 428,384 453,157 35.6 39.1 Total Liabilities and Surplus 1,204,068 1,159,905 100.0 100.0 Page 20 of 24 Printed June 15, 2018
Summary of Operations and Operating Cash Flow: Summary of Operations (000) Year End - December 31 Statement of Income 2017 Net Operating Cash Flow 2017 Premiums earned 182,254 Premiums collected 186,064 Losses incurred 96,395 Benefit & loss-related pmts 95,140 LAE incurred 27,233 Undwr expenses incurred 29,157 LAE & undwr expenses paid 58,727 Other expenses incurred... Other income / expense... Dividends to policyholders... Dividends to policyholders... Net underwriting income 29,470 Underwriting cash flow 32,197 Net transfer... Net investment income 16,527 Investment income 18,109 Other income/expense -6,775 Other income/expense -3,285 Pre-tax operating income 39,222 Pre-tax cash operations 47,022 Realized capital gains 396 Income taxes incurred 8,911 Income taxes pd (recov) 12,705 Net income 30,707 Net oper cash flow 34,317 Page 21 of 24 Printed June 15, 2018
Report Revision Date: June 13, 2018 Company Attributes: Industry: Business Type: Entity Type: Organization Type: Business Status: Marketing Type: Financial Size: Insurance Property/Casualty Operating Company Stock In Business - Actively Underwriting Broker XV ($2 Billion or greater) Company History: Date Incorporated: 01/16/1918 Date Commenced: 1918 Domicile: United States: Delaware This company was incorporated with the temporary title of Delaware under the laws of Delaware on May 1, 1978 to act as the vehicle for the transfer of the corporate domicile of from New York, New York to Wilmington, Delaware, effective as of December 31, 1978. The predecessor company was originally incorporated on January 16, 1918, under the laws of New York and began business on December 14, 1918. The United States branch of Skandia Insurance Company Ltd., Stockholm, Sweden (the "US branch") acquired complete financial control of that predecessor company on August 25, 1939. The US branch, concurrent with its domestication in New York on July 1, 1974, passed direct stock ownership to Skandia America Reinsurance Corporation (now known as Clearwater Insurance Company), New York, New York. From November 1977 until February 1996, Skandia America Reinsurance Corporation was a subsidiary of Skandia America Corporation, a wholly owned holding company of Skandia US Holding Corporation, which was a wholly owned holding company affiliate of Skandia Insurance Company Ltd. (named Skandia Insurance Company Ltd. from 1989 to 1993). On February 21, 1996, Skandia America Corporation entered into an agreement to sell the former Skandia America Reinsurance Corporation (now known as Clearwater Insurance Company) and its subsidiaries, including (Hudson), to Fairfax Financial Holdings Limited, a Canadian financial services holding company. The acquisition became effective on May 31, 1996. Effective January 1, 2011, Clearwater dividended the shares of Hudson to Odyssey America Reinsurance Corporation (a company that was subsequently renamed Odyssey Reinsurance Company in February 2011), and Hudson is now a direct, wholly owned subsidiary of Odyssey Reinsurance Company, which is wholly owned by (ORH). Fairfax is the ultimate 100% shareholder of ORH. Primary insurance business was conducted until 1932. In 1935, the company became a professional reinsurer. In 1981, the company began to underwrite excess and special risk business. From 1985 to 1989, the company ceased writing new and renewal business. In 1990, the company began writing specialty insurance business. Paid-up capital of $7.5 million consists of 25,000 common shares at $300 par value each. All authorized shares are outstanding. Company Operations: Licensed Territory: (Current since 02/01/2010).The company is licensed in the District of Columbia, Puerto Rico, U.S. Virgin Islands and all states. Page 22 of 24 Printed June 15, 2018
Company Operations: (Continued...) 2017 Rank Top 5 Lines of Business by NPW 1 Allied Lines 36.4% 2 Oth Liab Occur 31.0% 3 Comm'l Auto Liab 8.7% 4 Surety 7.9% 5 Auto Physical 7.5% 2017 Rank Top 5 Geographic Distribution by DPW 1 Aggregate Alien 50.2% 2 United States: CA 10.0% 3 United States: TX 6.4% 4 United States: TN 5.5% 5 United States: FL 3.0% Company Management: Last significant update on 02/26/2018 The Company's chairman is Brian D. Young, who is also the chairman of the board of Clearwater Select Insurance Company, Hudson Specialty Insurance Company, Hudson Excess Insurance Company and Odyssey Reinsurance Company. Management of the Company's affairs is directed by its president and chief operating officer, Christopher L. Gallagher. Officers CEO: Brian D. Young President and COO: Christopher L. Gallagher EVP and Chief Actuary: Elizabeth A. Sander EVP: Jan Christiansen EVP: Alane Robinson Carey EVP: Christopher T. Suzrez SVP and CFO: Min Huang SVP, Corporate Secretary and General Counsel: Dina G. Daskalakis SVP and Controller: Anthony J. Slowski SVP: Francis D. Cerasoli SVP: James J. Danbrowney SVP: Matthew J. Deneen SVP: James T. Donovan SVP: Daniel J. Gasser SVP: Ronald O. Honken SVP: Margaret M. C. Killeen SVP: Peter H. Lovell SVP: Jeffrey M. Rubin SVP: William F. Schmidt SVP: Leslie D. Shore SVP: Anthony Terracciano SVP: Jean M. Willig Directors Jan Christiansen Christopher L. Gallagher Michael G. Wacek Brian D. Young (Chairman) Page 23 of 24 Printed June 15, 2018
Regulatory: Auditor: PricewaterhouseCoopers, LLC An examination of the financial condition was made as of December 31, 2014, by the insurance department of Delaware. The 2016 annual independent audit of the company was conducted by PricewaterhouseCoopers, LLC. The annual statement of actuarial opinion is provided by Elizabeth A. Sander, FCAS, MAAA, Executive Vice President & Chief Actuary. A Best's Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. The ratings are not assigned to specific insurance policies or contracts and do not address any other risk, including, but not limited to, an insurer's claims-payment policies or procedures; the ability of the 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 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. A Best's Issue/Issuer Credit Rating is an opinion regarding the relative future credit risk of an entity, a credit commitment or a debt or debt-like security. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. These credit ratings do not address any other risk, including but not limited to liquidity risk, market value risk or price volatility of rated securities. The rating is not a recommendation to buy, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. In arriving at a rating decision, A.M. Best relies on third-party audited financial data and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. Any and all ratings, opinions and information contained herein are provided "as is," without any express or implied warranty. Visit http:///ratings/notice.asp for additional information or http:///terms.html for details on the Terms of Use. For current rating visit /ratings Best s Credit Rating Methodology Disclaimer Best s Credit Rating Guide Copyright 2018 A.M. Best Company, Inc. and/or its affiliates. All rights reserved. No portion of this content may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior written permission of A.M. Best. While the content was obtained from sources believed to be reliable, its accuracy is not guaranteed. For additional details, refer to our Terms of Use available at A.M. Best website: /terms. Page 24 of 24 Printed June 15, 2018