MIDDLESEX MUTUAL ASSURANCE COMPANY A+ HOLYOKE MUTUAL INSURANCE COMPANY IN SALEM A+

Transcription

1 MIDDLESEX MUTUAL ASSURANCE COMPANY A+ HOLYOKE MUTUAL INSURANCE COMPANY IN SALEM A+ A+ Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 1 of 20

2 Ultimate Parent: Illinois Agricultural Association MIDDLESEX MUTUAL ASSURANCE COMPANY 213 Court Street, Middletown, CT Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Stable Best s Financial Size Category: XV The company s rating reflects its pooling arrangement with other pool members of the COUNTRY Financial Property Casualty Group (AMB# ). RATING RATIONALE Rating nale: The ratings are derived from the consolidation of the five property and casualty insurance companies under the direct and indirect control of the Illinois Agricultural Association collectively referred to as the COUNTRY Financial Property Casualty Group (COUNTRY Financial). These companies are COUNTRY Mutual Insurance Company (IL) (the lead), COUNTRY Casualty Insurance Company (IL), COUNTRY Preferred Insurance Company (IL), Holyoke Mutual Insurance Company in Salem (MA), and Middlesex Mutual Assurance Company (CT). The ratings are based on the group s strong risk-adjusted capitalization, generally profitable operating earnings and excellent business profile in the state of Illinois. The ratings also have benefited from improved underwriting performance in recent years, favorable geographic and product line diversification, and competitive advantages from sponsorship by the Illinois Agricultural Association. The outlooks are based on the improved underwriting and operating performance trends, along with an excellent level of risk-adjusted capitalization. Partially offsetting these positive rating factors are a history of below average operating performance, exposure to storms in the Midwest and New England, along with hurricane and tornado activity in the South and Southeast states and earthquake risk near the New Madrid fault line. In addition, increased frequency of weather activity in earlier years has shown that surplus is exposed to an aggregation of events, which resulted in underwriting losses in an earlier part of the five-year period (2011 and 2012). These concerns are partially mitigated by earnings improvement in the group s underwriting performance in recent years ( ) primarily attributed to re-underwriting initiatives taking hold and fewer losses from severe weather-related activity. In addition, the group has put in place risk-reduction measures to improve long-term profitability and reduce exposure to catastrophic events. While COUNTRY Financial is well positioned at its current rating level, negative rating actions could occur if the group s underwriting and operating performance deteriorates markedly or there is a material weakening in the group s risk-adjusted capitalization. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/31/16 A+ 01/24/13 A+ 02/27/15 A+ 02/01/12 A+ 01/28/14 A+ KEY FINANCIAL INDICATORS ($000) Statutory Data Direct Premiums Written Net Premiums Written Pre-tax Operating Income Net Income Total Admitted Assets Policyholders Surplus ,625 96,147-13,685-12, ,935 96, ,174 63,963-3,298 7, , , ,859 75,823 2,199 8, ,801 83, ,876 75,950 2, ,619 84, ,205 74,781 1,568 3, ,333 88,435 Profitability Leverage Liquidity Inv. Pre-tax NA NPW Overall Oper. Yield ROR Inv to Net Liq. Cash (%) (%) Lev PHS Lev. (%) flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Private Passenger Standard Auto & Homeowners Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE All companies within the Group are under the direct and indirect control of the Illinois Agricultural Association (IAA). COUNTRY Mutual is the lead company and it assumed 100 percent of the net underwriting premiums and losses (after other reinsurance) of the other Group members before retaining 92.0 percent of the net consolidated underwriting results and retroceding the remaining 8.0 percent. Holyoke Mutual and Middlesex Mutual assumed 4.6 percent and 3.4 percent, respectively, of the Group s net consolidated underwriting results. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 2 of 20

3 Affiliated with the P&C group is COUNTRY Life Insurance Company (IL), COUNTRY Investors Life Assurance Company (IL), and Cotton States Life Insurance Company (GA). COUNTRY Life concentrates on the sale of traditional whole life and term life products. COUNTRY Life also offers long-term care, disability income, and Medicare supplement products and provides deposit administration funding for existing group pension plans. COUNTRY Investors concentrates on the sale of annuities (single premium immediate, and single and flexible premium deferred), and other interest-sensitive products, including individual universal life insurance. Cotton States Life focused on individual life products, graded death benefit and simplified issue whole life products, and a payroll deduction universal life product through worksite marketing. However, these product lines were discontinued in Scope of Operations: COUNTRY Financial is licensed in 47 states, wrote in 38 states in the Northwest, Midwest, Northeast, South and Southeast. Approximately 51 percent of 2015 direct premium written (DPW) was produced in Illinois and less than 10 percent in each of the other states. The scope of operation is primarily focused on private passenger automobile and homeowners lines, farm and small main street commercial insurance products, including agricultural coverages in Farm Bureau-sponsored states. Business is produced through over 2,400 financial representatives and independent agencies. Under the COUNTRY Financial exclusive agency program, financial representatives are salaried employees for the first part of their career, which can be as long as 60 months, and become exclusive, commissioned independent financial representatives following this period. The companies have an automated auto underwriting (by exception) system, which is initiated by its financial representatives via front-line underwriting. Personal lines coverages include private passenger automobile liability, comprehensive coverage, collision, bodily injury liability, property damage liability, medical expenses, uninsured and underinsured motorist coverage, emergency road service and safety glass coverage. Motorcycle insurance, special tenants coverage and personal umbrella insurance is also offered. In 2015, automobile insurance represented approximately 43 percent of total DPW. Homeowners insurance premiums accounted for approximately 29 percent of total DPW in 2015 and included protection for homes, condominiums and renters for personal property and liability exposures. Optional coverages included identity theft protection, jewelry coverage and insurance for watercraft or recreational motor vehicles. Farm, crop and ranch insurance premiums accounted for approximately 11 percent of 2015 total DPW. Coverages included crop loss, liability and medical payments, home and personal property, outbuildings, and farm personal property. Other commercial lines coverages accounted for approximately 17 percent of 2015 DPW and included business owner policies for small business owners, commercial package policies for medium to larger size accounts, commercial automobile, commercial umbrella and workers compensation insurance. Middlesex Mutual and Holyoke Mutual operate under the group trade name MiddleOak. These companies write a broad array of commercial habitational segments including multi-family housing, apartments, and community associations. Products are currently distributed in 33 states. All business is developed through a network of independent agencies. In New England, Holyoke and Middlesex focused on private passenger automobile, homeowners, and small commercial products, as well as vacation income property. Middlesex and Holyoke also offered a stand-alone ocean marine capability for pleasure yachts and were Write-Your-Own flood carriers. However, in 2015, Middlesex and Holyoke exited the small commercial and vacation income property markets. In addition, COUNTRY Financial sold the remaining personal lines book of business on a renewal rights transaction with MAPFRE USA, which will reduce its exposure to the New England portion of the MiddleOak book of business. This transaction will be completed in the 2nd half As a result, Middlesex and Holyoke will now focus on the commercial habitational market. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Reinsurance DPW Prem Assumed Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , , , , , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: The company is licensed in the District Of Columbia, CT, DE, IL, IN, IA, KY, ME, MD, MA, MI, NH, NY, OH, PA, TN, VT, VA, WV and WI. Business Trends: Direct and net premium written growth has been relatively flat over the current five year period. Home, farm, commercial multi-peril and workers compensation lines have seen the most percentage growth over the last five years while auto lines premiums, both personal and commercial, were down. Rate increases on homeowners and farmowners lines have been necessary to offset losses sustained from the adverse weather trend in recent years while poor economic conditions have adversely impacted policy count growth and premium dollars as some consumers have opted for less coverage or no coverage. Direct premium written for 2015 declined compared to 2014 by only 3.3 percent, driven by the sale of the MiddleOak personal lines on a renewal rights basis. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 3 of 20

4 2015 BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Homeowners 12, , , Priv Pass Auto Liab 7, , , Auto Physical 5, , , Com l MultiPeril 73, , , Farmowners 4, Allied Lines 5, , , Workers Comp 2, All Other 3, , , Total 108, , , Business NPW Retention Product Line ($000) (%) (%) Homeowners 21, Priv Pass Auto Liab 18, Auto Physical 14, Com l MultiPeril 6, Farmowners 4, Allied Lines 2, Workers Comp 2, All Other 3, Total 74, BY-LINE RESERVES ($000) Product Line Homeowners 5,129 4,824 5,269 5,487 8,236 Priv Pass Auto Liab 16,333 16,314 16,714 16,957 22,150 Auto Physical Com l MultiPeril 5,455 6,253 5,635 5,862 7,590 Farmowners 1,454 1,406 1,685 1,490 1,878 Allied Lines , ,137 Workers Comp 3,821 4,149 4,061 3,548 4,788 All Other 5,593 5,785 6,422 5,628 7,828 Total 39,079 39,807 41,876 39,989 53,862 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) Connecticut 34, , , , ,335 New York 13,115 17,479 17,154 14,180 12,473 Massachusetts 9,075 12,659 16,705 18,330 18,051 Michigan 8,540 14,046 18,391 10,598 8,335 Virginia 6,787 8,904 9,662 9,017 8,935 Pennsylvania 5,420 7,695 6,813 4,519 2,281 New Hampshire 3,953 9,163 12,822 13,330 12,951 Tennessee 3,571 5,681 8,058 6,840 5,431 Kentucky 3,378 3,100 2, Maine 3,212 11,214 14,795 16,563 18,415 All Other 16,261 27,684 29,879 24,523 18,847 Total 108, , , , ,625 RISK MANAGEMENT Since 2008, an Enterprise Risk Management (ERM) Policy has been in place and is intended to assist in decision making which ultimately leads to maintaining financial strength by protecting and maximizing the use of capital. The policy defines roles and responsibilities, provides a process for determining minimum risk reporting levels and a methodology to be used to identify, assess, measure, monitor and report risk as well as providing a governance process. ERM is designed to prevent significant reductions to surplus and maintain premium to surplus ratios or statutory risk based capital ratios at reasonable levels over a period of time. A corporate risk management team identifies all top risks and initiates discussion on strategies to mitigate, avoid or accept these risks. New and emerging risks are identified as well as any residual risk after mitigation. Risk management is integrated throughout the organization and is managed by an ERM manager with the full support and guidance of the Board of Directors and Internal Audit. Each risk is assigned to an owner or owners, who report regularly to the ERM manager, who in turn reports to the Chief Financial Officer, Internal Audit and the Board of Directors. Catastrophe Exposure and Management: As a predominant personal lines writer, the primary catastrophe exposures for COUNTRY Financial stem from Midwest tornado/hail storms, hurricane exposure in the Southeast and New England regions and the New Madrid earthquake zone. These exposures are somewhat mitigated through the use of excess of loss, quota share and catastrophe reinsurance. The Group s gross catastrophe exposures for a 250-year earthquake, 100-year hurricane and 100-year tornado/hail storm as depicted in probable maximum loss (PML) analyses are manageable. In addition, the net PMLs after tax for each of these perils are reduced to modest levels of less than 5% of surplus. In addition, as a result of the renewal rights transaction with MAPFRE USA, the Group s exposure to the hurricane exposure has been further reduced. An earthquake/weather perils aggregate Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 4 of 20

5 treaty is also in place to address the Group s exposure to an aggregation of weather events that individually do not exceed its property catastrophe reinsurance retentions yet could have a sizeable adverse impact on surplus. OPERATING PERFORMANCE Operating Results: The group has generally reported favorable operating performance over the current five year period, primarily driven by solid net investment income and realized capital gains from a further improved equity market along with variable underwriting performance. In recent years, the group s operating earnings have improved from earlier part of the five year period, primarily driven by favorable underwriting results, increase in net investment income and realized capital gains. The group s underwriting improved primarily due to the effects of underwriting initiatives and fewer severe weather related losses while net investment income was up mainly due to an increase in the invested asset base and a slight increase in interest rates. COUNTRY Financial s adverse operating results in earlier years were mainly due to a series of frequent and severe weather related events. As a result, the group reported significant underwriting losses in 2011 and 2012, which has significantly impacted operating results. As a result, the group s five year average pre-tax returns on revenue and equity compare unfavorably to the private passenger standard auto and homeowners composite. The group initiated several programs to reduce exposure to catastrophic events and improve earnings through significant rate increases on the homeowners and farmowners lines, underwriting guidelines were strengthened to reduce unprofitable accounts. Additionally, the group also completed its exit from the Florida personal lines market, and expense management continues to be a key focus of management as part of an operational excellence program. Further, it has also sold its renewal rights to MAPFRE USA, which has reduced its exposure to the New England portion of the MiddleOak book of business thus further improving future underwriting results and reduce catastrophe exposure. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Net Total Income Income Income Return ,685-13,662-12,816-17, ,298 4,673 7,622 5, ,199 7,241 8,608 11, ,754-1, , ,568 3,800 3,783 2,213 5-Yr Total -10, , Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating ROR (%) on PHS (%) (%) ROR (%) on PHS (%) (%) Yr Avg Underwriting Results: The group s underwriting performance has improved over the current five year period largely due to underwriting initiatives to improve earnings and reduce exposure to catastrophic events include but are not limited to higher homeowners and farmowners rates and deductibles (including rates and deductibles for earthquake coverages); implementation of a claims experience program, which adds claims surcharges based on the number and types of homeowners claims; and tightening underwriting guidelines especially for mono-line homeowners policies. In addition to new product enhancements, emphasis has been placed on pricing segmentation, cross-selling, technology improvements, expense management and stronger customer service. Also, COUNTRY Financial has exited the Florida property and casualty insurance markets and reduced coastal exposure in the Northeast, which should reduce exposure to hurricanes. Further, the group has sold its renewal rights to MAPFRE USA, which will reduce its exposure to the New England portion of the MiddleOak personal lines book of business thus further improving future underwriting results and reduce catastrophe exposure. The group s underwriting losses in 2012 were primarily attributed to a severe hail storm through southern Illinois in April. In addition, COUNTRY Financial incurred record crop losses from the drought in the Midwest during the summer as well as Superstorm Sandy losses in October. Despite the unprofitable underwriting results for 2012, the year was an improvement compared to 2011, which saw $340.3 million of underwriting losses mainly attributed to a progression of severe weather-related events beginning with heavy snow and strong winter storms in the Northeast, devastating tornadoes through the Southeast and Midwest in April and May, summer hail storms throughout several states, Hurricane Irene in the Northeast in September and a winter storm system in the Northeast in October. However, the group will continue to be challenged by strong competitive pricing pressure and results could still be negatively impacted by severe weather systems. UNDERWRITING EXPERIENCE Net Undrw Loss s Expense s Ind Income Pure ($000) Loss LAE Loss LAE & Net Other Total Div. Comm. Exp. Exp. Pol , , Yr Total/Avg -15, Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 5 of 20

6 BY-LINE LOSS RATIO Product Line Yr Avg Homeowners Priv Pass Auto Liab Auto Physical Com l MultiPeril Farmowners Allied Lines Workers Comp All Other Total DIRECT LOSS RATIO BY STATE Yr Avg Connecticut New York Massachusetts Michigan Virginia Pennsylvania New Hampshire Tennessee Kentucky Maine All Other Total Investment Results: COUNTRY Financial s investment income has contributed positively to the overall profitability of the group in each of the past five years. The investment portfolio is relatively conservative as a majority of the invested assets consist of long-term fixed income securities followed by common stock investments, and then cash and short-term investments. Bond portfolio consists of an investment grade fixed-income portfolio that provides adequate liquidity to meet claim payment obligations and other capital requirements. These positive factors are partially offset by declining investment yields due to lower market interest rates, which have also adversely impacted the group s net investment income over the past five years. Although declining, the group s five-year average investment yields remains favorable to the personal property composite. In addition, the company s five-year average total returns on invested assets are positive and lag the industry composite. INVESTMENT GAINS ($000) Company Net Realized Unrealized Inv Capital Capital Year Income Gains Gains , , ,948-2, ,917 1,367 2, , , ,570 5-Yr Total 9,277 6,070-6,318 Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: The group maintains a strong risk-adjusted capitalization based upon Best s Capital Adequacy (BCAR) continues to be supportive of the ratings. The strong capital is reflective of moderate underwriting leverage; a large, diverse invested asset base; good product line diversification; overall favorable reserve development and modest growth over the current five year period. In addition, surplus is protected against catastrophic events by a comprehensive reinsurance program and management s extensive risk mitigation measures taken in recent years. When stress tested for a major hurricane, the group s risk-adjusted capitalization continues to support the rating. Although there is minimal asbestos and environmental loss exposure in the reserves, A.M. Best does not anticipate significant loss of surplus from adverse development of these claims based on current data. Capital management is enhanced by COUNTRY Mutual s management having control over all members in the Group and by a corporate enterprise risk management program. The group has reported solid growth in policyholder surplus during the current five-year period at approximately 4% on a five year compound average basis. This is reflective of sound operating earnings primarily driven by investment earnings and capital gains. In recent years, improved underwriting performance has augmented a steady stream of investment income. With the exception of 2011, additions to surplus have been reported in Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 6 of 20

7 four of the last five years. Persistent and sizeable underwriting losses in prior years dampened surplus appreciation over the last five years. Underlying the growth in surplus over the past four years are favorable operating results driven by an improvement in underwriting performance and consistent investment income. A.M. Best will continue to monitor risks to capitalization from a trend of more frequent and/or severe storm activity over the last five years. While this trend has somewhat abated in recent years, with the anticipated continuance of low interest rates holding down investment income growth, future adverse weather activity may be detrimental to underwriting profitability and overall surplus growth. However, these concerns are partially mitigated by the improving underwriting performance trends, bolstered by actions being taken by management to improve profitability and reduce exposure to catastrophic loss. Year-End Conditional Adjusted Year PHS PHS ,990 96, , , ,641 83, ,142 84, ,435 88,435 Underwriting Leverage: The group s underwriting leverage ratios are at acceptable levels given the group s predominantly personal lines homeowners and private passenger auto risk profile. The ratios are an indication of a group s surplus exposure to pricing errors and/or mis-estimation of loss reserves on both a net and gross basis. Leverage ratios have remained relatively stable over the past five years as surplus has supported modest increases in net premium written couple with a slight decrease in its net loss reserves. Leverage ratios were also comparable to the composite averages and well within acceptable risk tolerance levels. Current BCAR: CAPITAL GENERATION ANALYSIS ($000) LEVERAGE ANALYSIS Source of Surplus Growth Company Industry Composite Pre-tax Realized Unrealized Res. Res. Operating Capital Income Capital NPW to to Net Gross NPW to to Net Gross Year Income Gains Taxes Gains PHS PHS Lev. Lev. PHS PHS Lev. Lev , , ,298 2,948-7,972-2, ,199 1,367-5,042 2, , , , ,232-1, Yr Total -10,463 6,070-10,769-6,318 CEDED REINSURANCE ANALYSIS ($000) Source of Surplus Growth Company Industry Composite Net Change % Chg Bus. Reins. Ceded Bus. Reins. Ceded Contrib. Other in in Ceded Ret. Recov. to Reins. to Ret. Recov. to Reins. to Year Capital Changes PHS PHS Reins. Total (%) PHS (%) PHS (%) (%) PHS (%) PHS (%) ,000 2,021 34, , ,052 7, , ,000-2,355-20, , , , ,081 4, , Yr Total 20,000 5,547 25, REINSURANCE RECOVERABLES ($000) QUALITY OF SURPLUS ($000) Paid & Total Unpaid Unearned Other Reins Surplus Other Contributed Unassigned Losses IBNR Premiums Recov* Recov Year Notes Debt Capital Surplus US Affiliates... 64,376 60,152 45, , ,000 5,289 41,701 US Insurers... 5, , ,000 54,638 Pools/Associations ,846 2, ,000 63, ,000 64,142 Total (ex US Affils)... 6, , , ,000 68,435 Grand Total... 70,739 60,923 47, ,154 * Includes Commissions less Funds Withheld Loss : Overall loss reserve development has historically been favorable on both a calendar and accident year basis with redundancies each of Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 7 of 20

8 the past five years. The favorable development is reflective of management s sound reserving practices and continued commitment to reserve adequacy. There is minor exposure to asbestos and environmental claims arising from the assumption of liability insurance from other carriers as well as the sale of commercial multi-peril, farmowners multi-peril, general liability and commercial auto insurance. Asbestos and environmental reserves (net of reinsurance) are minor in relation to the group s surplus level. Internal actuaries meet annually with claims and other personnel to review changes in procedures, claims, case reserving, asbestos and pollution claims, extra contractual obligations and emerging issues. Reserve run-off is monitored on a quarterly basis for any deviations in expected development. External auditors also provide an independent analysis on major lines of business. LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Orig. Loss Developed Thru 15 Develop. to Orig. (%) Develop. to PHS (%) Develop. to NPE (%) Unpaid Res. to Develop. (%) Calendar Year ,635 35, , ,249 37, , ,495 36, , ,252 38, , ,378 36, , ,784 36, , LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Developed Thru 15 Develop. to Orig. (%) Acc. Yr Loss Acc. Yr ,886 18, ,159 18, , ,176 16, , ,581 19, , ,127 17, , ,825 17,825 17, ASBESTOS & ENVIRONMENTAL (A&E) RESERVE ANALYSIS Company Industry Composite Year Net A&E Reserve ($000) Reserve Retention (%) Net IBNR Mix (%) Survival (3 yr) Impact (1 yr) Impact (3 yr) Survival (3 yr) Impact (1 yr) Impact (3 yr) XX 0.0 XX XX 0.3 XX XX 0.0 XX XX 0.3 XX Liquidity: COUNTRY Financial s balance sheet liquidity ratios are sound and generally exceed composite averages. The group s invested assets are predominately invested in high quality fixed income securities and cash. The group s operating cash flows have improved and been positive in recent years largely due to improved operating performance. The group s operating cash flows were negative in 2011 and 2012 when catastrophic underwriting events and an aggregation of weather-related losses resulted in the liquidation of investments to pay claims. LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Current Overall Agents Bal. Quick Current Overall Agents Bal. Liq. (%) Liq. (%) Liq. (%) to PHS (%) Liq. (%) Liq. (%) Liq. (%) to PHS (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Net Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) ,119-15,841-3, ,372-15,495 13, ,376 10, ,884 6,029 5, ,003-18,713-13, Yr Total -31,003-33,679 2,620 Investments: Investing is governed by the corporate investment policy which sets guidelines and constraints upon investment type, quality, quantity and concentration in order to maximize after-tax earnings including realized capital gains, achieve liquidity objectives and protect surplus. Invested assets are generally comprised of non-affiliated long-term bonds, common and preferred stocks, cash and short-term investments, other non-affiliated investments and investments in affiliates including real estate used in operations. Long-term bonds make up the majority of the portfolio (generally between 70 percent and 75 percent of total invested assets), and typically consist of a diverse mix of tax-exempt and taxable municipal bonds, investment grade public corporate securities and private placements, mortgage backed bonds (primarily commercial mortgage backed securities), U.S. Treasury Securities, government agency bonds and other fixed income securities. The effective duration of the bond portfolio is reasonable given the Group s predominately personal lines homeowners and auto risk profile and the current low interest rate environment. Common stocks are classified as industrial and miscellaneous corporate securities and mutual funds. Management invests more heavily in common Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 8 of 20

9 stocks as a percentage of surplus or total invested assets than is typical of other property/casualty companies writing similar lines of business. On average, common stocks represent between 15 percent and 20 percent of total invested assets and 30 percent to 35 percent of surplus. This may result in a greater degree of fluctuation of realized and unrealized gains and losses. Other non-affiliated invested assets include short-term fixed income securities, cash and cash equivalents, securities lending collateral assets, receivables for securities and a small amount of investment real estate. Affiliated investments include minority ownership in Cotton States Life Insurance Company and occupied real estate. INVESTMENT LEVERAGE ANALYSIS (% OF PHS) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Bonds Estate/ Mtg. Invested Assets Common Stocks Inv. Lev. Affil. Inv. 3-6 Bonds Common Stocks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total Bonds (000) 87,385 89,564 88, , ,770 US Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 28,794 32,420 32,281 27,125 49,221 Unaffiliated Common Affiliated Common INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgage Loans & Real Estate (000) Property Held for Inc INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 14,181 28,090 22,397 22,162 7,988 Cash Short-Term All Other 1.8 HISTORY The company was incorporated under the laws of Connecticut in May MANAGEMENT In 1998, Middlesex Mutual entered into a strategic alliance with COUNTRY Mutual Insurance Company. Under this strategic alliance, COUNTRY Mutual obtained the majority of voting representation of the board of directors and management control. Operations are under the direction of Kurt F. Bock, chief executive officer of COUNTRY Mutual, who has been with COUNTRY Financial since 2011 and in his current position since Officers: Chairman, Kurt F. Bock; Vice Chairman and Chief Financial Officer, Miles T. Kilcoin (Interim); Chief Executive Officer, Gary J. Vallo; Executive Vice President and Chief Information Officer, Bradley D. Hildestad; Executive Vice Presidents and Chief Officers, William J. George, Jr. (Sales & Marketing), Kevin E. Reardon (Claims & Services); Executive Vice Presidents, Steven R. Denault (Enterprise Business Services), Doyle J. Williams; Senior Vice Presidents, Christine M. Bussone (Underwriting), Thomas J. Ford (Real Estate), Bruce D. Hale (Strategy & Product Development), Peter D. Kasper (Sales & Marketing), Gregory R. Scruton (Actuarial), Sean E. Sweeney (Information Technology), Suzanne E. Wilson (Human Resources); Vice President and Actuary, Daniel K. Johnson (Corporate Property/Casualty); Vice President and Controller, Miles T. Kilcoin (Corporate); Secretary, General Counsel and Chief Legal Officer, James M. Jacobs; Treasurer, Alan K. Dodds. Directors: Dennis Bisgaard, Kurt F. Bock (Chairman), Steven R. Denault, Suzanne Gruhl, James M. Jacobs, Miles T. Kilcoin, Caleb Loring, III, Doyle J. Williams. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 9 of 20

10 REGULATORY An examination of the financial condition was made as of December 31, 2011, by the insurance department of Connecticut. The 2015 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Daniel K. Johnson, FCAS, MAAA, Vice President and Corporate Property/Casualty Actuary. REINSURANCE For 2015, the Group s occurrence property and auto catastrophe reinsurance treaty had a retention of $100,000,000 with $529,500,000 of limits for COUNTRY Mutual and $512,000,000 for MiddleOak. Also in place are property quota share, property per risk, earthquake\weather perils aggregate cover, casualty/umbrella, and workers compensation excess of loss treaties. COUNTRY Financial also participates in a property catastrophe terrorism pool with other Farm Bureau insurance companies. In addition, several multi-peril crop and crop hail insurance programs are in place. BALANCE SHEET ADMITTED ASSETS ($000) 12/31/15 12/31/14 15% 14% Bonds... 87,385 89, Common stock... 23,172 26, Cash & short-term invest... 14,181 28, Real estate, investment Investments in affiliates... 5,623 6, Total invested assets , , Premium balances... 44,433 79, Accrued interest All other assets... 25,023 22, Total assets , , LIABILITIES & SURPLUS ($000) 12/31/15 12/31/14 15% 14% Loss & LAE reserves... 39,079 39, Unearned premiums... 27,628 29, All other liabilities... 46, , Total liabilities , , Surplus notes... 20,000 20, Unassigned surplus... 68,435 64, Total policyholders surplus... 88,435 84, Total liabilities & surplus , , SUMMARY OF 2015 OPERATIONS ($000) Funds Provided from Statement of Income 12/31/15 Operations 12/31/15 Premiums earned... 76,536 Premiums collected... 63,633 Losses incurred... 47,437 Benefit & loss-related pmts 47,064 LAE incurred... 6,688 Undrw expenses incurred 22,494 LAE & undrw expenses paid 29,479 Div to policyholders... 0 Div to policyholders Net underwriting income -82 Undrw cash flow ,003 Net investment income... 1,651 Investment income... 1,915 Other income/expense Other income/expense Pre-tax oper income... 1,568 Pre-tax cash operations -10,702 Realized capital gains Income taxes incurred... -2,232 Income taxes pd (recov)... 8,011 Net income... 3,783 Net oper cash flow ,713 Ultimate Parent: Illinois Agricultural Association HOLYOKE MUTUAL INSURANCE COMPANY IN SALEM Holyoke Square, Salem, MA Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Stable Best s Financial Size Category: XV The company s rating reflects its pooling arrangement with other pool members of the COUNTRY Financial Property Casualty Group (AMB# ). RATING RATIONALE Rating nale: The ratings are derived from the consolidation of the five property and casualty insurance companies under the direct and indirect control of the Illinois Agricultural Association collectively referred to as the COUNTRY Financial Property Casualty Group (COUNTRY Financial). Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 10 of 20

11 These companies are COUNTRY Mutual Insurance Company (IL) (the lead), COUNTRY Casualty Insurance Company (IL), COUNTRY Preferred Insurance Company (IL), Holyoke Mutual Insurance Company in Salem (MA), and Middlesex Mutual Assurance Company (CT). The ratings are based on the group s strong risk-adjusted capitalization, generally profitable operating earnings and excellent business profile in the state of Illinois. The ratings also have benefited from improved underwriting performance in recent years, favorable geographic and product line diversification, and competitive advantages from sponsorship by the Illinois Agricultural Association. The outlooks are based on the improved underwriting and operating performance trends, along with an excellent level of risk-adjusted capitalization. Partially offsetting these positive rating factors are a history of below average operating performance, exposure to storms in the Midwest and New England, along with hurricane and tornado activity in the South and Southeast states and earthquake risk near the New Madrid fault line. In addition, increased frequency of weather activity in earlier years has shown that surplus is exposed to an aggregation of events, which resulted in underwriting losses in an earlier part of the five-year period (2011 and 2012). These concerns are partially mitigated by earnings improvement in the group s underwriting performance in recent years ( ) primarily attributed to re-underwriting initiatives taking hold and fewer losses from severe weather-related activity. In addition, the group has put in place risk-reduction measures to improve long-term profitability and reduce exposure to catastrophic events. While COUNTRY Financial is well positioned at its current rating level, negative rating actions could occur if the group s underwriting and operating performance deteriorates markedly or there is a material weakening in the group s risk-adjusted capitalization. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/31/16 A+ 01/24/13 A+ 02/27/15 A+ 02/01/12 A+ 01/28/14 A+ KEY FINANCIAL INDICATORS ($000) Statutory Data Direct Premiums Written Net Premiums Written Pre-tax Operating Income Net Income Total Admitted Assets Policyholders Surplus ,494 83,810-8,056-4, ,824 82, , , ,586 81, , ,584 5,568 5, ,335 89, , ,755 6,303 7, ,168 95, , ,174 5,849 4, ,432 99,453 Profitability Leverage Liquidity Inv. Pre-tax NA NPW Overall Oper. Yield ROR Inv to Net Liq. Cash (%) (%) Lev PHS Lev. (%) flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Private Passenger Standard Auto & Homeowners Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE All companies within the Group are under the direct and indirect control of the Illinois Agricultural Association (IAA). COUNTRY Mutual is the lead company and it assumed 100 percent of the net underwriting premiums and losses (after other reinsurance) of the other Group members before retaining 92.0 percent of the net consolidated underwriting results and retroceding the remaining 8.0 percent. Holyoke Mutual and Middlesex Mutual assumed 4.6 percent and 3.4 percent, respectively, of the Group s net consolidated underwriting results. Affiliated with the P&C group is COUNTRY Life Insurance Company (IL), COUNTRY Investors Life Assurance Company (IL), and Cotton States Life Insurance Company (GA). COUNTRY Life concentrates on the sale of traditional whole life and term life products. COUNTRY Life also offers long-term care, disability income, and Medicare supplement products and provides deposit administration funding for existing group pension plans. COUNTRY Investors concentrates on the sale of annuities (single premium immediate, and single and flexible premium deferred), and other interest-sensitive products, including individual universal life insurance. Cotton States Life focused on individual life products, graded death benefit and simplified issue whole life products, and a payroll deduction universal life product through worksite marketing. However, these product lines were discontinued in Scope of Operations: COUNTRY Financial is licensed in 47 states, wrote in 38 states in the Northwest, Midwest, Northeast, South and Southeast. Approximately 51 percent of 2015 direct premium written (DPW) was produced in Illinois and less than 10 percent in each of the other states. The scope of operation is primarily focused on private passenger automobile and homeowners lines, farm and small main street commercial insurance products, including agricultural coverages in Farm Bureau-sponsored states. Business is produced through over 2,400 financial representatives and independent agencies. Under the COUNTRY Financial exclusive agency program, financial representatives are salaried employees for the first part of their career, which can be as long as 60 months, and become exclusive, Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 11 of 20

12 commissioned independent financial representatives following this period. The companies have an automated auto underwriting (by exception) system, which is initiated by its financial representatives via front-line underwriting. Personal lines coverages include private passenger automobile liability, comprehensive coverage, collision, bodily injury liability, property damage liability, medical expenses, uninsured and underinsured motorist coverage, emergency road service and safety glass coverage. Motorcycle insurance, special tenants coverage and personal umbrella insurance is also offered. In 2015, automobile insurance represented approximately 43 percent of total DPW. Homeowners insurance premiums accounted for approximately 29 percent of total DPW in 2015 and included protection for homes, condominiums and renters for personal property and liability exposures. Optional coverages included identity theft protection, jewelry coverage and insurance for watercraft or recreational motor vehicles. Farm, crop and ranch insurance premiums accounted for approximately 11 percent of 2015 total DPW. Coverages included crop loss, liability and medical payments, home and personal property, outbuildings, and farm personal property. Other commercial lines coverages accounted for approximately 17 percent of 2015 DPW and included business owner policies for small business owners, commercial package policies for medium to larger size accounts, commercial automobile, commercial umbrella and workers compensation insurance. Middlesex Mutual and Holyoke Mutual operate under the group trade name MiddleOak. These companies write a broad array of commercial habitational segments including multi-family housing, apartments, and community associations. Products are currently distributed in 33 states. All business is developed through a network of independent agencies. In New England, Holyoke and Middlesex focused on private passenger automobile, homeowners, and small commercial products, as well as vacation income property. Middlesex and Holyoke also offered a stand-alone ocean marine capability for pleasure yachts and were Write-Your-Own flood carriers. However, in 2015, Middlesex and Holyoke exited the small commercial and vacation income property markets. In addition, COUNTRY Financial sold the remaining personal lines book of business on a renewal rights transaction with MAPFRE USA, which will reduce its exposure to the New England portion of the MiddleOak book of business. This transaction will be completed in the 2nd half As a result, Middlesex and Holyoke will now focus on the commercial habitational market. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Reinsurance DPW Prem Assumed Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , , , , , , NPW NPE ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: The company is licensed in AZ, AR, CO, CT, GA, ID, ME, MA, MN, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OR, RI, SC, SD, TX, UT, VT, WA and WY. Credit is allowed for reinsurance as a licensed reinsurer in Illinois. The company is granted standing as an accredited reinsurer in Illinois. Business Trends: Direct and net premium written growth has been relatively flat over the current five year period. Home, farm, commercial multi-peril and workers compensation lines have seen the most percentage growth over the last five years while auto lines premiums, both personal and commercial, were down. Rate increases on homeowners and farmowners lines have been necessary to offset losses sustained from the adverse weather trend in recent years while poor economic conditions have adversely impacted policy count growth and premium dollars as some consumers have opted for less coverage or no coverage. Direct premium written for 2015 declined compared to 2014 by only 3.3 percent, driven by the sale of the MiddleOak personal lines on a renewal rights basis BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Homeowners 2, , , Priv Pass Auto Liab , Auto Physical , Com l MultiPeril 24, , , Farmowners 6, Allied Lines , Workers Comp 2, All Other , Total 28, , , Yr CAGR Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 12 of 20

13 Business NPW Retention Product Line ($000) (%) (%) Homeowners 29, Priv Pass Auto Liab 25, Auto Physical 19, Com l MultiPeril 8, Farmowners 6, Allied Lines 3, Workers Comp 2, All Other 4, Total 101, BY-LINE RESERVES ($000) Product Line Homeowners 6,939 6,526 7,128 7,446 7,230 Priv Pass Auto Liab 22,098 22,072 22,613 22,950 19,316 Auto Physical Com l MultiPeril 7,380 8,461 7,624 7,951 6,638 Farmowners 1,968 1,902 2,280 2,031 1,637 Allied Lines 1, , Workers Comp 5,169 5,613 5,494 4,945 4,274 All Other 7,567 7,826 8,689 8,897 8,029 Total 52,872 53,857 56,656 55,594 48,338 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) New Jersey 9,125 12,423 16,106 13,456 11,016 Arizona 4,048 4,208 3,026 1, Massachusetts 2,720 11,633 16,657 18,629 21,244 Washington 2,266 2,542 2,737 1, Colorado 2,163 2,239 3,777 3,032 1,674 Rhode Island 1,752 5,719 6,615 7,598 8,250 Georgia 1,589 2,479 3,811 3,017 1,698 Arkansas 1,462 1,902 1,480 1, Missouri 1,432 1,834 1,724 1, Oregon 607 1,293 1, All Other 1,472 3,758 4,057 3,279 2,710 Total 28,636 50,031 61,373 55,921 50,494 RISK MANAGEMENT Since 2008, an Enterprise Risk Management (ERM) Policy has been in place and is intended to assist in decision making which ultimately leads to maintaining financial strength by protecting and maximizing the use of capital. The policy defines roles and responsibilities, provides a process for determining minimum risk reporting levels and a methodology to be used to identify, assess, measure, monitor and report risk as well as providing a governance process. ERM is designed to prevent significant reductions to surplus and maintain premium to surplus ratios or statutory risk based capital ratios at reasonable levels over a period of time. A corporate risk management team identifies all top risks and initiates discussion on strategies to mitigate, avoid or accept these risks. New and emerging risks are identified as well as any residual risk after mitigation. Risk management is integrated throughout the organization and is managed by an ERM manager with the full support and guidance of the Board of Directors and Internal Audit. Each risk is assigned to an owner or owners, who report regularly to the ERM manager, who in turn reports to the Chief Financial Officer, Internal Audit and the Board of Directors. Catastrophe Exposure and Management: As a predominant personal lines writer, the primary catastrophe exposures for COUNTRY Financial stem from Midwest tornado/hail storms, hurricane exposure in the Southeast and New England regions and the New Madrid earthquake zone. These exposures are somewhat mitigated through the use of excess of loss, quota share and catastrophe reinsurance. The Group s gross catastrophe exposures for a 250-year earthquake, 100-year hurricane and 100-year tornado/hail storm as depicted in probable maximum loss (PML) analyses are manageable. In addition, the net PMLs after tax for each of these perils are reduced to modest levels of less than 5% of surplus. In addition, as a result of the renewal rights transaction with MAPFRE USA, the Group s exposure to the hurricane exposure has been further reduced. An earthquake/weather perils aggregate treaty is also in place to address the Group s exposure to an aggregation of weather events that individually do not exceed its property catastrophe reinsurance retentions yet could have a sizeable adverse impact on surplus. OPERATING PERFORMANCE Operating Results: The group has generally reported favorable operating performance over the current five year period, primarily driven by solid net investment income and realized capital gains from a further improved equity market along with variable underwriting performance. In recent years, the group s operating earnings have improved from earlier part of the five year period, primarily driven by favorable underwriting results, increase in net investment income and realized capital gains. The group s underwriting improved primarily due to the effects of underwriting initiatives and fewer severe weather related losses while net investment income was up mainly due to an increase in the invested asset base and a slight increase in interest rates. COUNTRY Financial s adverse operating results in earlier years were mainly due to a series of frequent and severe weather related events. As a Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 13 of 20

14 result, the group reported significant underwriting losses in 2011 and 2012, which has significantly impacted operating results. As a result, the group s five year average pre-tax returns on revenue and equity compare unfavorably to the private passenger standard auto and homeowners composite. The group initiated several programs to reduce exposure to catastrophic events and improve earnings through significant rate increases on the homeowners and farmowners lines, underwriting guidelines were strengthened to reduce unprofitable accounts. Additionally, the group also completed its exit from the Florida personal lines market, and expense management continues to be a key focus of management as part of an operational excellence program. Further, it has also sold its renewal rights to MAPFRE USA, which has reduced its exposure to the New England portion of the MiddleOak book of business thus further improving future underwriting results and reduce catastrophe exposure. England portion of the MiddleOak personal lines book of business thus further improving future underwriting results and reduce catastrophe exposure. The group s underwriting losses in 2012 were primarily attributed to a severe hail storm through southern Illinois in April. In addition, COUNTRY Financial incurred record crop losses from the drought in the Midwest during the summer as well as Superstorm Sandy losses in October. Despite the unprofitable underwriting results for 2012, the year was an improvement compared to 2011, which saw $340.3 million of underwriting losses mainly attributed to a progression of severe weather-related events beginning with heavy snow and strong winter storms in the Northeast, devastating tornadoes through the Southeast and Midwest in April and May, summer hail storms throughout several states, Hurricane Irene in the Northeast in September and a winter storm system in the Northeast in October. However, the group will continue to be challenged by strong competitive pricing pressure and results could still be negatively impacted by severe weather systems. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax UNDERWRITING EXPERIENCE Operating Operating Net Total Net Undrw Loss s Expense s Ind Income Income Income Return Income Pure ,056-5,708-4,686-5,870 ($000) Loss LAE Loss & Net Other Total Div. LAE Comm. Exp. Exp. Pol , ,568 4,978 5,695 8, , ,303 5,773 7,032 6, ,849 4,583 4,513 3, Yr Total 9,018 8,633 12,357 14,141 5-Yr Total/Avg -18, Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating BY-LINE LOSS RATIO ROR (%) on PHS (%) (%) ROR (%) on PHS (%) (%) Product Line Yr Avg Homeowners Priv Pass Auto Liab Auto Physical Com l MultiPeril Farmowners Yr Avg Allied Lines Underwriting Results: The group s underwriting performance has improved Workers Comp over the current five year period largely due to underwriting initiatives to All Other improve earnings and reduce exposure to catastrophic events include but are not limited to higher homeowners and farmowners rates and deductibles (including rates and deductibles for earthquake coverages); implementation of a claims experience program, which adds claims surcharges based on the number and types of homeowners claims; and tightening underwriting guidelines especially for mono-line homeowners policies. In addition to new product enhancements, emphasis has been placed on pricing segmentation, cross-selling, technology improvements, expense management and stronger customer service. Also, COUNTRY Financial has exited the Florida property and casualty insurance markets and reduced coastal exposure in the Northeast, which should reduce exposure to hurricanes. Further, the group has sold its renewal rights to MAPFRE USA, which will reduce its exposure to the New Total Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 14 of 20

15 DIRECT LOSS RATIO BY STATE Yr Avg New Jersey Arizona Massachusetts Washington Colorado Rhode Island Georgia Arkansas Missouri Oregon All Other Total Investment Results: COUNTRY Financial s investment income has contributed positively to the overall profitability of the group in each of the past five years. The investment portfolio is relatively conservative as a majority of the invested assets consist of long-term fixed income securities followed by common stock investments, and then cash and short-term investments. Bond portfolio consists of an investment grade fixed-income portfolio that provides adequate liquidity to meet claim payment obligations and other capital requirements. These positive factors are partially offset by declining investment yields due to lower market interest rates, which have also adversely impacted the group s net investment income over the past five years. Although declining, the group s five-year average investment yields remains favorable to the personal property composite. In addition, the company s five-year average total returns on invested assets are positive and lag the industry composite. INVESTMENT GAINS ($000) Company Net Realized Unrealized Inv Capital Capital Year Income Gains Gains ,313 1,022-1, , , , , ,294 1, , ,066 5-Yr Total 26,323 3,725 1,784 Company Industry Composite Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: The group maintains a strong risk-adjusted capitalization based upon Best s Capital Adequacy (BCAR) continues to be supportive of the ratings. The strong capital is reflective of moderate underwriting leverage; a large, diverse invested asset base; good product line diversification; overall favorable reserve development and modest growth over the current five year period. In addition, surplus is protected against catastrophic events by a comprehensive reinsurance program and management s extensive risk mitigation measures taken in recent years. When stress tested for a major hurricane, the group s risk-adjusted capitalization continues to support the rating. Although there is minimal asbestos and environmental loss exposure in the reserves, A.M. Best does not anticipate significant loss of surplus from adverse development of these claims based on current data. Capital management is enhanced by COUNTRY Mutual s management having control over all members in the Group and by a corporate enterprise risk management program. The group has reported solid growth in policyholder surplus during the current five-year period at approximately 4% on a five year compound average basis. This is reflective of sound operating earnings primarily driven by investment earnings and capital gains. In recent years, improved underwriting performance has augmented a steady stream of investment income. With the exception of 2011, additions to surplus have been reported in four of the last five years. Persistent and sizeable underwriting losses in prior years dampened surplus appreciation over the last five years. Underlying the growth in surplus over the past four years are favorable operating results driven by an improvement in underwriting performance and consistent investment income. A.M. Best will continue to monitor risks to capitalization from a trend of more frequent and/or severe storm activity over the last five years. While this trend has somewhat abated in recent years, with the anticipated continuance of low interest rates holding down investment income growth, future adverse weather activity may be detrimental to underwriting profitability and overall surplus growth. However, these concerns are partially mitigated by the Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 15 of 20

16 improving underwriting performance trends, bolstered by actions being taken by management to improve profitability and reduce exposure to catastrophic loss. increases in net premium written couple with a slight decrease in its net loss reserves. Leverage ratios were also comparable to the composite averages and well within acceptable risk tolerance levels. Current BCAR: LEVERAGE ANALYSIS Company Industry Composite CAPITAL GENERATION ANALYSIS ($000) Res. Res. NPW to to Net Gross NPW to to Net Gross Source of Surplus Growth PHS PHS Lev. Lev. PHS PHS Lev. Lev. Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains ,056 1,022-2,348-1, , , , ,303 1, CEDED REINSURANCE ANALYSIS ($000) , ,267-1,066 Company Industry Composite 5-Yr Total 9,018 3, ,784 Bus. Reins. Ceded Bus. Reins. Ceded Source of Surplus Growth Ceded Ret. Recov. to Reins. to Ret. Recov. to Reins. to Reins. Total (%) PHS (%) PHS (%) (%) PHS (%) PHS (%) Net Change % Chg , Contrib. Other in in , Year Capital Changes PHS PHS , , , , , , ,435 5, REINSURANCE RECOVERABLES ($000) , Paid & Total 5-Yr Total -20-1,996 12, Unpaid Unearned Other Reins Losses IBNR Premiums Recov* Recov QUALITY OF SURPLUS ($000) US Affiliates... 17,221 11,499 14, ,091 Surplus Other Contributed Unassigned US Insurers Year Notes Debt Capital Surplus Pools/Associations ,203 Other Non-US ,628 Total (ex US Affils) ,784 Grand Total... 17,302 11,656 14, , , ,353 * Includes Commissions less Funds Withheld Loss : Overall loss reserve development has historically been Year-End Conditional Adjusted favorable on both a calendar and accident year basis with redundancies each of Year PHS PHS the past five years. The favorable development is reflective of management s ,363 82,363 sound reserving practices and continued commitment to reserve adequacy ,728 81,728 There is minor exposure to asbestos and environmental claims arising from the ,884 89,884 assumption of liability insurance from other carriers as well as the sale of ,278 95,278 commercial multi-peril, farmowners multi-peril, general liability and ,453 99,453 commercial auto insurance. Asbestos and environmental reserves (net of reinsurance) are minor in relation to the group s surplus level. Internal Underwriting Leverage: The group s underwriting leverage ratios are at actuaries meet annually with claims and other personnel to review changes in acceptable levels given the group s predominantly personal lines homeowners procedures, claims, case reserving, asbestos and pollution claims, extra and private passenger auto risk profile. The ratios are an indication of a contractual obligations and emerging issues. Reserve run-off is monitored on group s surplus exposure to pricing errors and/or mis-estimation of loss a quarterly basis for any deviations in expected development. External reserves on both a net and gross basis. Leverage ratios have remained auditors also provide an independent analysis on major lines of business. relatively stable over the past five years as surplus has supported modest Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 16 of 20

17 LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Calendar Year Orig. Loss Developed Thru 15 Develop. to Orig. (%) Develop. to PHS (%) Develop. to NPE (%) Unpaid Res. to Develop. (%) ,568 48, , ,104 50, , ,082 48, , ,106 51, , ,573 49, , ,776 49, , LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Developed Thru 15 Develop. to Orig. (%) Acc. Yr Loss Acc. Yr ,552 24, , ,274 25, , ,590 22, , ,492 25, , ,525 23, , ,119 24,119 24, ASBESTOS & ENVIRONMENTAL (A&E) RESERVE ANALYSIS Company Industry Composite Year Net A&E Reserve ($000) Reserve Retention (%) Net IBNR Mix (%) Survival (3 yr) Impact (1 yr) Impact (3 yr) Survival (3 yr) Impact (1 yr) Impact (3 yr) XX 0.0 XX XX 0.3 XX XX 0.1 XX XX 0.3 XX Liquidity: COUNTRY Financial s balance sheet liquidity ratios are sound and generally exceed composite averages. The group s invested assets are predominately invested in high quality fixed income securities and cash. The group s operating cash flows have improved and been positive in recent years largely due to improved operating performance. The group s operating cash flows were negative in 2011 and 2012 when catastrophic underwriting events and an aggregation of weather-related losses resulted in the liquidation of investments to pay claims. LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Current Overall Agents Bal. Quick Current Overall Agents Bal. Liq. (%) Liq. (%) Liq. (%) to PHS (%) Liq. (%) Liq. (%) Liq. (%) to PHS (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Net Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) ,028-4,093-1, ,002 3,031-1, ,430 5, ,766 3, ,424 1, Yr Total -14,248 14,259 3,992 Investments: Investing is governed by the corporate investment policy which sets guidelines and constraints upon investment type, quality, quantity and concentration in order to maximize after-tax earnings including realized capital gains, achieve liquidity objectives and protect surplus. Invested assets are generally comprised of non-affiliated long-term bonds, common and preferred stocks, cash and short-term investments, other non-affiliated investments and investments in affiliates including real estate used in operations. Long-term bonds make up the majority of the portfolio (generally between 70 percent and 75 percent of total invested assets), and typically consist of a diverse mix of tax-exempt and taxable municipal bonds, investment grade public corporate securities and private placements, mortgage backed bonds (primarily commercial mortgage backed securities), U.S. Treasury Securities, government agency bonds and other fixed income securities. The effective duration of the bond portfolio is reasonable given the Group s predominately personal lines homeowners and auto risk profile and the current low interest rate environment. Common stocks are classified as industrial and miscellaneous corporate securities and mutual funds. Management invests more heavily in common stocks as a percentage of surplus or total invested assets than is typical of other property/casualty companies writing similar lines of business. On average, common stocks represent between 15 percent and 20 percent of total invested assets and 30 percent to 35 percent of surplus. This may result in a greater degree of fluctuation of realized and unrealized gains and losses. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 17 of 20

18 Other non-affiliated invested assets include short-term fixed income securities, cash and cash equivalents, securities lending collateral assets, receivables for securities and a small amount of investment real estate. Affiliated investments include minority ownership in Cotton States Life Insurance Company and occupied real estate. INVESTMENT LEVERAGE ANALYSIS (% OF PHS) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Bonds Estate/ Mtg. Invested Assets Common Stocks Inv. Lev. Affil. Inv. 3-6 Bonds Common Stocks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total Bonds (000) 125, , , , ,697 US Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Private Issues Public Issues Bond Quality (%) Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 26,528 29,800 29,667 23,971 22,899 Unaffiliated Common Affiliated Common INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgage Loans & Real Estate (000) 3,262 3,269 3,372 3,036 2,984 Property Occupied by Co Property Held for Inc INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 17,824 17,098 16,190 11,181 12,738 Cash Short-Term Schedule BA Assets HISTORY This company was incorporated March 14, 1843, under the laws of Massachusetts, and began business May 23, The word Fire was deleted from the corporate title on January 28, The Salem Mutual Fire Insurance Company, also of Salem, Massachusetts, was merged with and into the company on June 30, MANAGEMENT In 2000, Holyoke Mutual entered into a strategic alliance with COUNTRY Mutual Insurance Company. Under this strategic alliance, COUNTRY Mutual obtained the majority of voting representation of the board of directors and management control. Operations are under the direction of Kurt F. Bock, chief executive officer of COUNTRY Financial, who has been with COUNTRY Financial since 2011 and in his current position since Officers: Chairman, Kurt F. Bock; Vice Chairman and Chief Financial Officer, Miles T. Kilcoin (Interim President); Chief Executive Officer, Gary J. Vallo; Executive Vice President and Chief Information Officer, Bradely D. Hildestad; Executive Vice President and Chief Claim Officer, Kevin E. Reardon; Executive Vice President and Chief Marketing Officer, William J. George, Jr.; Executive Vice Presidents, Steven R. Denault (Enterprise Business Services), Doyle J. Williams; Senior Vice Presidents, Christine M. Bussone (Underwriting), Thomas J. Ford (Real Estate), Bruce D. Hale (Strategy & Product Development), Peter D. Kasper (Sales & Marketing), Gregory R. Scruton (Actuarial), Sean E. Sweeney (Information Technology), Suzanne E. Wilson (Human Resources); Vice President and Actuary, Daniel K. Johnson (Corporate Property/Casualty); Secretary, General Counsel and Chief Legal Officer, James M. Jacobs; Treasurer, Alan K. Dodds. Directors: Dennis Bisgaard, Kurt F. Bock (Chairman), Steven R. Denault, Suzanne Gruhl, James M. Jacobs, Miles T. Kilcoin, Caleb Loring III, Doyle J. Williams. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 18 of 20

19 REGULATORY An examination of the financial condition was made as of December 31, 2011, by the insurance department of Massachusetts. The 2015 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Daniel K. Johnson, FCAS, MAAA, Vice President and Corporate Property/Casualty Actuary. REINSURANCE For 2015, the Group s occurrence property and auto catastrophe reinsurance treaty had a retention of $100,000,000 with $529,500,000 of limits for COUNTRY Mutual and $512,000,000 for MiddleOak. Also in place are property quota share, property per risk, earthquake\weather perils aggregate cover, casualty/umbrella, and workers compensation excess of loss treaties. COUNTRY Financial also participates in a property catastrophe terrorism pool with other Farm Bureau insurance companies. In addition, several multi-peril crop and crop hail insurance programs are in place. BALANCE SHEET ADMITTED ASSETS ($000) 12/31/15 12/31/14 15% 14% Bonds , , Common stock... 25,341 28, Cash & short-term invest... 17,456 16, Real estate, investment... 3, Other non-affil inv asset Investments in affiliates... 1,187 1, Real estate, offices... 3, Total invested assets , , Premium balances... 28,429 35, Accrued interest... 1,334 1, All other assets... 12,734 11, Total assets , , LIABILITIES & SURPLUS ($000) 12/31/15 12/31/14 15% 14% Loss & LAE reserves... 52,872 53, Unearned premiums... 37,379 39, All other liabilities... 25,728 34, Total liabilities , , Capital & assigned surplus Unassigned surplus... 99,353 95, Total policyholders surplus... 99,453 95, Total liabilities & surplus , , SUMMARY OF 2015 OPERATIONS ($000) Funds Provided from Statement of Income 12/31/15 Operations 12/31/15 Premiums earned ,549 Premiums collected ,982 Losses incurred... 64,179 Benefit & loss-related pmts 66,358 LAE incurred... 9,048 Undrw expenses incurred 30,433 LAE & undrw expenses paid 39,922 Div to policyholders... 0 Div to policyholders Net underwriting income -111 Undrw cash flow... -4,424 Net investment income... 5,592 Investment income... 6,021 Other income/expense Other income/expense... 1,457 Pre-tax oper income... 5,849 Pre-tax cash operations 3,053 Realized capital gains Income taxes incurred... 1,267 Income taxes pd (recov)... 1,432 Net income... 4,513 Net oper cash flow... 1,621 Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 19 of 20

20 Why is this Best s Rating Report important to you? A Best s Rating Report from the A.M. Best Company showcases the opinion from the leading provider of insurer ratings of a company s financial strength and ability to meet its obligations to policyholders, as well as its relative credit risk. The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of the insurance companies since A Best s Financial Strength Rating is an independent opinion of an insurer s financial strength and ability to meet its ongoing insurance policy and contract obligations. The Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer s claims-payment policies or procedures; the ability of 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. The 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. 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. The company information appearing in this pamphlet is an extract from the complete company report prepared by the A.M. Best Company or A.M. Best Europe Rating Services Limited. For the latest Best s Financial Strength Ratings along with their definitions and A.M. Best s Terms of Use, visit the A.M. Best website at You may also obtain AMB Credit Reports by visiting our site or calling our Customer Service department at , ext To expedite your request, please provide the company s identification number (AMB#). Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. Printed April 14, Page 20 of 20