PHILADELPHIA INDEMNITY INSURANCE COMPANY TOKIO MARINE SPECIALTY INSURANCE COMPANY

Transcription

1 PHILADELPHIA INSURANCE COMPANIES PHILADELPHIA INDEMNITY INSURANCE COMPANY TOKIO MARINE SPECIALTY INSURANCE COMPANY A++ A A.M. Best Company, Oldwick, NJ Printed July 13, Page 1 of 25

2 Associated With: Tokio Marine Holdings, Inc. PHILADELPHIA INSURANCE COMPANIES One Bala Plaza, Suite 100, Bala Cynwyd, PA Web: Tel: Fax: AMB#: Associated Ultimate Parent#: RATING RATIONALE Rating Rationale: The ratings apply Philadelphia Indemnity Insurance Company and Tokio Marine Specialty Insurance Company, which participate in an intercompany reinsurance pooling agreement and are collectively referred as Philadelphia Insurance Companies. The ratings reflect Philadelphia Insurance Companies superior operating profitability, strong capitalization, and excellent market presence within the specialty commercial marketplace. The ratings also recognize the strategic importance of the group its ultimate parent, Tokio Marine Holdings, Inc. (TMHD), as the group plays an important and strategic role in supporting TMHD s global expansion strategy. Somewhat offsetting these favorable facrs are the company s susceptibility natural catastrophe or terrorism losses and the growth in p-line premium in recent years that is expected continue over the near term and which may pose unanticipated adverse outcomes. Also, the group s business profile is specialty lines insurance with a focus on underserved niche markets, which compels the organization identify and evaluate new opportunities frequently. Results have hisrically outperformed the commercial casualty industry composite in both underwriting and operating results, driven by a focused niche market strategy, energized marketing style, highly disciplined underwriting and successful risk selection. Long-standing relationships with core producers, including preferred agents that have the opportunity earn profit sharing with the favorable performance of their portfolio, have played an important role in the success of the group. Adherence underwriting guidelines, a commitment pricing integrity and advanced enterprise risk management integration have also helped continue drive the generation of operating earnings. A.M. Best believes that the members of the group are well positioned at the current ratings. Looking forward, negative rating action could occur with a substantial decline in operating performance or a loss of risk-adjusted capital from a significant catastrophic loss. The ratings can also be negatively impacted by any negative rating actions on its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd., and/or a change in support from or relationship with TMHD. RATING UNIT MEMBERS Philadelphia Insurance Companies (AMB# ): AMB# COMPANY BEST S FSR POOL % Philadelphia Indemnity Ins Co A Tokio Marine Specialty Ins Co A KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus ,119,286 1,969, , ,898 5,298,449 1,922, ,158,988 2,034, , ,027 5,794,756 1,992, ,390,025 2,236, , ,938 6,428,455 2,158, ,649,278 2,475, , ,815 6,942,157 2,314, ,901,637 2,687, , ,574 7,647,206 2,511,312 Profitability Leverage Liquidity Comb. Ratio Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW PHS Overall Liq. (%) Oper. Cash flow (%) Yr (*) 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 through the A.M. Best Consolidation of statury filings. BUSINESS PROFILE Philadelphia Insurance Companies (the group ) consists of Philadelphia Indemnity Insurance Company (PIIC) and Tokio Marine Specialty Insurance Company (TMSIC) (formerly Philadelphia Insurance Company). Both companies are direct subsidiaries of Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated). Effective December 1, 2008, Philadelphia Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD), through TMHD s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879, and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF. PIIC is a Pennsylvania-domiciled property and casualty insurance company with licenses in 50 states and the District of Columbia. TMSIC is a Delaware-domiciled property and casualty insurance company approved for 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 2 of 25

3 excess and surplus lines business in 49 states, the District of Columbia and the U.S. Virgin Islands. TMSIC s business plan focuses on underwriting the group s niche products on a surplus lines basis in those jurisdictions in which the products are not offered on an admitted basis. PIIC and TMSIC proportionately share all premium, losses and expenses on a pro rata basis, under the terms of an intercompany reinsurance pooling agreement. The pooling percentages of PIIC and TMSIC are 95% and 5%, respectively. The group designs, markets and underwrites specialty commercial property and casualty and professional liability insurance products tailored for the unique exposures of niche markets, providing competitively priced policies, local service relationships, and differentiated coverage features. The group s products include commercial multi-peril package insurance targeting specialized niches, including among others, non-profit organizations, condominium associations, private, vocational and specialty schools, religious organizations, day-care facilities, recreation and outdoor products industry, and health and fitness centers. Other products include commercial aumobile insurance, property insurance for large commercial accounts, inland marine products targeting larger risks such as miscellaneous property floaters, and select classes of professional liability and management liability products. During 2011, the group launched a surety division that began offering surety bonds for contracrs, sub-contracrs, and others in the construction industry as well as other selective commercial surety bonds. In 2012, the group launched an excess and surplus lines division. New products are developed annually complement those that become more mature and competitive. These also take advantage of emerging exposures and developing or changing market niches. A select group of approximately 364 preferred agents and a broader network of approximately 18,000 independent producers complement the group s approximately 140 marketing professionals located in 49 regional and field offices across 13 regions covering the United States. The group s distribution model integrates proactive risk selection in the underwriting process via direct contact with the business prospect and/or policyholder. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) ,119, , , ,158, , , ,390, , , ,649, , , ,901, , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) ,969, ,923, ,034, ,014, ,236, ,123, ,475, ,383, ,687, ,587, Yr CAGR BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Com l MultiPeril 1,532, , Comm l Au Liab 380, , , Oth Liab Occur 356, , Oth Liab CM 330, , Au Physical 143, , , Surety 58, , All Other 99, , Total 2,901, , , Business NPW Retention Product Line ($000) (%) (%) Com l MultiPeril 1,461, Comm l Au Liab 374, Oth Liab Occur 307, Oth Liab CM 306, Au Physical 131, Surety 55, All Other 49, Total 2,687, BY-LINE RESERVES ($000) Product Line Com l MultiPeril 1,840,618 1,685,404 1,558,353 1,406,978 1,218,725 Comm l Au Liab 545, , , , ,809 Oth Liab Occur 470, , , , ,119 Oth Liab CM 415, , , , ,528 Au Physical 8,498 6,871 10,180 6,923 6,384 Surety 15,153 9,322 4, All Other 40,352 31,775 29,095 27,210 18,764 Total 3,336,748 3,048,214 2,792,813 2,497,011 2,122, A.M. Best Company, Oldwick, NJ Printed July 13, Page 3 of 25

4 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) New York 401, , , , ,612 California 381, , , , ,627 Florida 181, , , , ,548 Texas 180, , , , ,666 Pennsylvania 169, , , , ,753 New Jersey 129, ,067 98,451 93,518 94,644 Massachusetts 127, , ,898 91,448 87,421 Illinois 83,631 76,400 70,352 62,300 62,538 Washingn 66,485 60,216 57,809 51,699 51,619 Connecticut 66,326 61,887 53,720 44,456 45,278 All Other 1,113,914 1,031, , , ,580 Total 2,901,637 2,649,278 2,390,025 2,158,988 2,119,286 RISK MANAGEMENT The Enterprise Risk Management (ERM) structure in place is extensive and well integrated with key risks identified and the specific committees or teams assigned monir and address each risk. It includes the establishment and maintenance of appropriate controls as respects each risk category. The ERM structure is headed up by the executive management team with a specific ERM Committee overseeing both Corporate Governance and Departmental Functions. Each committee reports directly the executive management team. The lead ERM Committee consists of the CEO, CFO, CIO, Chief Actuarial Officer and the direcr of internal audit. A separate Audit Committee reviews the activities/output of the ERM Committee. Every key risk has a risk-based dashboard that is available management at all times. This dashboard details each key risk; denotes the perils or circumstances that could lead the risk arising; quantifies the risk; and shows work in progress as far as addressing the risk. Philadelphia s ERM structure also is fully integrated with that of Tokio Marine. Dashboard calculations are consistent with Tokio Marine s Standard Capital Modeling Manual. Philadelphia s Dynamic Portfolio Optimization program is being evaluated and selectively implemented across other Tokio Marine Group companies. This is proving valuable with the east coast hurricane exposure determinations. OPERATING PERFORMANCE Operating Results: Excellent underwriting results and considerable investment income have produced consistently strong earnings over the past five years, generating pre-tax returns on revenue and surplus that consistently outpace those of the commercial casualty composite. An increasing earned premium base, driven by the expansion of the group s marketing efforts on chosen niche classes of business and the introduction of new products, has led annual underwriting income generation. Consistent underwriting and operating cash flows have facilitated growth in the invested asset base, providing the impetus for greater net investment income generation. In 2011, income production was dampened by higher than normal catastrophe losses. Results have improved since that time primarily as a result of the annual reduction in catastrophe losses. A.M. Best expects the group continue judiciously employing a strategy emphasizing growth in targeted niche areas. New product implementation and an organized, committed approach prospecting should enable the group further capitalize on its leadership position in the specialty commercial lines marketplace. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return , , , , , , , , , , , , , , , , , , , ,757 5-Yr Total 1,752,079 1,263,902 1,306,251 1,290,351 Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating ROR (%) on PHS (%) Ratio (%) ROR (%) on PHS (%) Ratio (%) Yr Avg Underwriting Results: The group has posted excellent underwriting results over the past five years, with a loss ratio over that time that is far superior that of the composite. In 2011, however, the group posted its highest loss ratio in over a decade as a result of a significant increase in catastrophe losses, and a lesser extent smaller reserve releases than in previous years. Despite the impact of Supersrm Sandy, underwriting results in 2012, were greatly improved with the help of higher prior accident year reserve releases and lower catastrophe activity overall. Profitability returned pre-2011 levels in 2013, primarily due lower than normal catastrophe losses. Strictly defined niches, product innovation and individual account underwriting are the operational hallmarks that have led the hisrically favorable results. The group s consistent underwriting performance has been achieved despite some adverse loss reserve development on prior accident years, most recently on accident years 2010 and The group s expense ratio remains on par with the composite, which also helps lead a five-year combined ratio that is over than 10 percentage points more favorable than the composite average. A.M. Best believes the strong underwriting fundamentals will continue provide opportunities generate underwriting profits in the future. The long-held philosophy of Philadelphia Insurance Companies is for the group generate an underwriting profit on each line of business written. Individual account underwriting techniques have been established and strong risk management acumen helps bring about the consistency in underwriting results. Another facr influencing the favorable results in recent years is the 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 4 of 25

5 group s focused and disciplined market expansion. Additionally, the group s marketing strategy has successfully utilized product differentiation and the maintenance of close cusmer contact with agents and insureds cultivate long-term relationships. UNDERWRITING EXPERIENCE Undrw Income ($000) Loss Ratios Expense Ratios Ind Pure Loss LAE Loss LAE & Other Total Div. Comb. Comm. Exp. Exp. Pol. Ratio Comb. Ratio , , , , , Yr Total/Avg 766, BY-LINE LOSS RATIO Product Line 5-Yr Avg Com l MultiPeril Comm l Au Liab Oth Liab Occur Oth Liab CM Au Physical Surety All Other Total DIRECT LOSS RATIO BY STATE 5-Yr Avg New York California Florida Texas Pennsylvania New Jersey Massachusetts Illinois Washingn Connecticut All Other Total Investment Results: investment income has grown annually over the past five years, as the group s growing invested asset base has been strongly influenced by the increases in written premium. Generation of substantial operating cash flow is directly tied the increased investment income. The increased concentration of invested assets in a portfolio emphasizing tax-exempt state and municipal bonds has resulted in a pre-tax investment yield below the composite average. The growth in invested assets has been consistent despite substantial levels of shareholder dividends paid annually the parent organization. INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains ,856 11,672 2, ,980 21, ,555 9, ,812 1, ,678-2,721-17,817 5-Yr Total 984,881 42,348-15,900 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 strong risk-adjusted capitalization, as measured by Best s Capital Adequacy Ratio (BCAR). Growth in surplus has largely kept pace with the increase in premium and loss reserves in recent years, resulting in fairly consistent net underwriting leverage measures that approximate the composite. Annual generation of retained earnings has been the driver of the group s considerable surplus appreciation over the last decade. Recent growth in surplus has been constrained by shareholder dividends in four of the last five years as well as increased catastrophe losses. Annual dividends over the latest five years taled $568 million, including extraordinary dividends of $158 million in both December 2014 and June Both underwriting and investment activities have contributed materially the group s organic earnings production. Going forward, A.M. Best expects the group pursue additional p-line growth resulting from expanded marketing efforts, the continued maturation of recently introduced products, along with the addition of new products. Other opportunities may be created by market dislocation where the group can utilize its ample and diverse distribution force pursue these new business opportunities. A.M. Best expects the group s capitalization remain strong and comfortably supportive of the ratings. Current BCAR: A.M. Best Company, Oldwick, NJ Printed July 13, Page 5 of 25

6 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains ,274 11, ,048 2, ,633 21,721 45, ,350 9,871 98, ,554 1, , ,268-2, ,974-17,817 5-Yr Total 1,752,079 42, ,177-15,900 Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes PHS PHS ,000 5, , ,000 5,214 70, ,000 21, , ,000 3, , ,000 1, , Yr Total -568,000 37, , QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,134 1,470, ,351 1,535, ,488 1,744, ,488 1,900, ,488 2,097,824 Year-End Conditional Adjusted Year PHS PHS ,922, ,923, ,992,715 2,793 1,995, ,158,000 1,513 2,159, ,314,009 1,342 2,315, ,511,312 1,678 2,512,990 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW PHS PHS Gross NPW PHS PHS Gross CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) PHS (%) PHS (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) PHS (%) PHS (%) Ceded Reins. Total , , , , , REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov Foreign Affiliates... 4,305 14,015 8, ,537 US Insurers... 42,827 79,725 47, ,067 Pools/Associations... 2,377 5,624 22,324 30,325 Other Non-US... 5,150 7,903 5, ,763 Total (ex US Affils)... 54, ,267 84, ,692 * Includes Commissions less Funds Withheld Loss : The group has experienced favorable loss reserve development in each of the last ten calendar years, which has enhanced reported results. Over this period, accident year reserve development has been mixed as adverse development has been recorded in four of the last ten accident years. Most of the adverse development was experienced in the 2010 accident year, primarily attributable worse than expected case incurred development mainly for the commercial multi-peril line of business, and a lesser degree, the general liability occurrence line. The 2013 increase in estimated unpaid loss and loss adjustment expenses for the 2011 accident year was primarily attributable higher than expected case incurred development mainly for the commercial multi-peril coverage, the commercial aumobile liability coverage and the other liability occurrence line. However, this partially reversed with the subsequent evaluation of that year during 2014.The level of overall loss reserves has increased in recent years due the continued growth in premium. LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Calendar Year Orig. Loss Developed Thru 14 Develop. Orig. (%) Develop. PHS (%) Develop. NPE (%) Unpaid Res. Develop. (%) ,697,695 1,468, , ,027,127 1,882, , ,367,935 2,259, , ,650,597 2,584, ,211, ,888,083 2,862, ,021, ,164,337 3,164, ,164, A.M. Best Company, Oldwick, NJ Printed July 13, Page 6 of 25

7 LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Developed Thru 14 Develop. Orig. (%) Acc. Yr Loss Ratio Acc. Yr Comb. Ratio , , , , , , , , , , , , ,064,972 1,082, , ,143,257 1,143,257 1,143, Liquidity: Solid current and overall liquidity has been maintained at levels that exceed the industry composite averages. The group s liquidity reflects increased premium collections and considerable operating cash flow generated annually. The membership of the group s two operating companies with the Federal Home Loan Bank of Pittsburgh (FHLB) provides an additional source of liquidity, if needed. The companies are able utilize established borrowing capacity, based on their FHLB-eligible level of collateral. As of December 31, 2014, the unused borrowing capacity was $523.1 million, which provides an immediately available line of credit. As of the same date, there were no borrowings outstanding with the FHLB. LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. PHS (%) Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. PHS (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) , ,841 17, , ,931-35, , , , , ,491-74, , ,929 29, Yr Total 2,604,749 3,233,562 41,832 Investments: Invested assets represent over 88% of tal admitted assets. Non-invested assets are primarily comprised of uncollected agent s premium balances generated by the increase in premiums. During 2009, the group liquidated its common sck portfolio with the only equities remaining being those that are in concert with its FHLB investment. With the liquidation of the equity portfolio, long-term fixed income holdings comprise more than 98% of invested assets, underscoring the traditionally conservative investment strategy of the group. As of year-end 2014, equity investment leverage remained below 4%. INVESTMENT LEVERAGE ANALYSIS (% OF PHS) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Estate/ Invested Common Inv. Affil. 3-6 Common Bonds Mtg. Assets Scks Inv. Bonds Scks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 6,264,686 5,946,239 5,460,932 5,032,804 4,504,060 US Government Foreign 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 Scks (000) 157,098 3,840 6,461 9,068 11,134 Unaffiliated Common Unaffiliated Preferred A.M. Best Company, Oldwick, NJ Printed July 13, Page 7 of 25

8 INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgage Loans & Real Estate (000) 21,402 Mortgage Loans INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 206,874 47,987 96,334-8,974 26,937 Cash Short-Term Schedule BA Assets All Other REINSURANCE Under its casualty treaty, the group retains the first $3.0 million primary layer of liability on each occurrence and maintains reinsurance coverage up $21.0 million provided in two layers $13.0 million in excess of $3.0 million and $5.0 million in excess of $16.0 million. This coverage is placed with a 20% co-participation being retained. Facultative reinsurance coverage (on an individual risk basis) is purchased for casualty risks in excess of $21.0 million. An excess clash casualty reinsurance agreement provides an additional $15.0 million of coverage in excess of a $5.0 million retention for protection from exposures such as extra-contractual obligations and judgments in excess of policy limits. The group retains the first $5.0 million layer on its property risks plus an additional $5.0 million annual aggregate deductible, with its reinsurers bearing liability up $95.0 million excess of the retention. The first property layer ($5.0 million in excess of $5.0 million and in excess of the $5.0 million annual aggregate deductible) is placed with a 50% co-participation being retained, whereas the remaining $90.0 million of coverage is 100% placed. Aumatic facultative reinsurance coverage is provided on each commercial property risk with limits in excess of $100.0 million up $150.0 million, except for risks located in Florida, Hawaii or Harris County, Texas, where coverage is provided for property losses in excess of $100.0 million up $130.0 million. The property per risk excess of loss treaties also provide a $95.0 million aggregate policy limit for terrorism exposure in excess of a $5.0 million retention. The aumatic facultative facility provides terrorism coverage for $50 million in the aggregate. Catastrophe reinsurance is maintained in excess of a $100.0 million per occurrence retention up $500.0 million. On the first excess layer of the catastrophe contract ($150.0 million in excess of $100.0 million applicable losses occurring nationwide), the group retains a 5% co-participation. This layer is shared with an affiliate, First Insurance Company of Hawaii, whose risk exposure is in Hawaii only. The second excess layer of the catastrophe contract ($200.0 million in excess of $250.0 million applicable also losses occurring nationwide), is 100% placed and is also shared with First Insurance Company of Hawaii. The p layer of the catastrophe program ($50.0 million in excess of $450 million applicable losses occurring in the Northeast only), is also 100% placed. This layer is not shared with any affiliates. CONSOLIDATED BALANCE SHEET (at December 31, 2014) ADMITTED ASSETS ($000) 12/31/14 12/31/13 14% 13% Bonds... 6,264,686 5,946, Preferred sck... 59, Common sck... 97,685 3, Cash & short-term invest... 50,626 21, Other non-affil inv asset ,115 26, Investments in affiliates... 12, Total invested assets... 6,650,061 5,998, Premium balances , , Accrued interest... 69,177 65, All other assets , , Total assets... 7,647,206 6,942, LIABILITIES & SURPLUS ($000) 12/31/14 12/31/13 14% 13% Loss & LAE reserves... 3,336,748 3,048, Unearned premiums... 1,326,384 1,225, Conditional reserve funds... 1,678 1, All other liabilities , , Total liabilities... 5,135,894 4,628, Capital & assigned surplus , , Unassigned surplus... 2,097,824 1,900, Total policyholders surplus... 2,511,312 2,314, Total liabilities & surplus... 7,647,206 6,942, CONSOLIDATED SUMMARY OF 2014 OPERATIONS ($000) Funds Provided from Statement of Income 12/31/14 Operations 12/31/14 Premiums earned... 2,587,133 Premiums collected... 2,643,174 Losses incurred... 1,293,807 Benefit & loss-related pmts 1,080,411 LAE incurred ,046 Undrw expenses incurred 771,936 LAE & undrw expenses paid 965,801 Div policyholders Div policyholders underwriting income 223,205 Undrw cash flow ,823 investment income ,678 Investment income ,736 Other income/expense Other income/expense Pre-tax oper income ,268 Pre-tax cash operations 859,944 Realized capital gains... -2,721 Income taxes incurred ,974 Income taxes pd (recov) ,015 income ,574 oper cash flow , A.M. Best Company, Oldwick, NJ Printed July 13, Page 8 of 25

9 Ultimate Parent: Tokio Marine Holdings, Inc. PHILADELPHIA INDEMNITY INSURANCE COMPANY One Bala Plaza, Suite 100, Bala Cynwyd, PA 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 RATING RATIONALE Rating Rationale: The ratings apply Philadelphia Indemnity Insurance Company and Tokio Marine Specialty Insurance Company, which participate in an intercompany reinsurance pooling agreement and are collectively referred as Philadelphia Insurance Companies. The ratings reflect Philadelphia Insurance Companies superior operating profitability, strong capitalization, and excellent market presence within the specialty commercial marketplace. The ratings also recognize the strategic importance of the group its ultimate parent, Tokio Marine Holdings, Inc. (TMHD), as the group plays an important and strategic role in supporting TMHD s global expansion strategy. Somewhat offsetting these favorable facrs are the company s susceptibility natural catastrophe or terrorism losses and the growth in p-line premium in recent years that is expected continue over the near term and which may pose unanticipated adverse outcomes. Also, the group s business profile is specialty lines insurance with a focus on underserved niche markets, which compels the organization identify and evaluate new opportunities frequently. Results have hisrically outperformed the commercial casualty industry composite in both underwriting and operating results, driven by a focused niche market strategy, energized marketing style, highly disciplined underwriting and successful risk selection. Long-standing relationships with core producers, including preferred agents that have the opportunity earn profit sharing with the favorable performance of their portfolio, have played an important role in the success of the group. Adherence underwriting guidelines, a commitment pricing integrity and advanced enterprise risk management integration have also helped continue drive the generation of operating earnings. A.M. Best believes that the members of the group are well positioned at the current ratings. Looking forward, negative rating action could occur with a substantial decline in operating performance or a loss of risk-adjusted capital from a significant catastrophic loss. The ratings can also be negatively impacted by any negative rating actions on its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd., and/or a change in support from or relationship with TMHD. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 06/04/15 A++ 09/19/11 A++ 05/08/14 A++ 07/09/10 A+ 02/28/13 A++ KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus ,078,222 1,870, , ,362 5,004,480 1,806, ,124,704 1,932, , ,959 5,462,757 1,867, ,337,154 2,124, , ,630 6,047,270 2,017, ,547,303 2,351, , ,493 6,526,061 2,156, ,739,950 2,553, , ,111 7,182,217 2,337,376 Profitability Leverage Liquidity Comb. Ratio Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW PHS Overall Liq. (%) Oper. Cash flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Commercial Casualty Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE Philadelphia Insurance Companies (the group ) consists of Philadelphia Indemnity Insurance Company (PIIC) and Tokio Marine Specialty Insurance Company (TMSIC) (formerly Philadelphia Insurance Company). Both companies are direct subsidiaries of Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated). Effective December 1, 2008, Philadelphia 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 9 of 25

10 Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD), through TMHD s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879, and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF. PIIC is a Pennsylvania-domiciled property and casualty insurance company with licenses in 50 states and the District of Columbia. TMSIC is a Delaware-domiciled property and casualty insurance company approved for excess and surplus lines business in 49 states, the District of Columbia and the U.S. Virgin Islands. TMSIC s business plan focuses on underwriting the group s niche products on a surplus lines basis in those jurisdictions in which the products are not offered on an admitted basis. PIIC and TMSIC proportionately share all premium, losses and expenses on a pro rata basis, under the terms of an intercompany reinsurance pooling agreement. The pooling percentages of PIIC and TMSIC are 95% and 5%, respectively. The group designs, markets and underwrites specialty commercial property and casualty and professional liability insurance products tailored for the unique exposures of niche markets, providing competitively priced policies, local service relationships, and differentiated coverage features. The group s products include commercial multi-peril package insurance targeting specialized niches, including among others, non-profit organizations, condominium associations, private, vocational and specialty schools, religious organizations, day-care facilities, recreation and outdoor products industry, and health and fitness centers. Other products include commercial aumobile insurance, property insurance for large commercial accounts, inland marine products targeting larger risks such as miscellaneous property floaters, and select classes of professional liability and management liability products. During 2011, the group launched a surety division that began offering surety bonds for contracrs, sub-contracrs, and others in the construction industry as well as other selective commercial surety bonds. In 2012, the group launched an excess and surplus lines division. New products are developed annually complement those that become more mature and competitive. These also take advantage of emerging exposures and developing or changing market niches. A select group of approximately 364 preferred agents and a broader network of approximately 18,000 independent producers complement the group s approximately 140 marketing professionals located in 49 regional and field offices across 13 regions covering the United States. The group s distribution model integrates proactive risk selection in the underwriting process via direct contact with the business prospect and/or policyholder. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) ,078, , , ,124, , , ,337, , , ,547, , , ,739, , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) ,870, ,827, ,932, ,913, ,124, ,017, ,351, ,264, ,553, ,457, Yr CAGR Terriry: The company is licensed in the District of Columbia and all states BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Com l MultiPeril 1,502, , , Comm l Au Liab 379, , , Oth Liab Occur 280, , , Oth Liab CM 311, , , Au Physical 132, , , Surety 58, , All Other 73, , , Total 2,739, , , Business NPW Retention Product Line ($000) (%) (%) Com l MultiPeril 1,388, Comm l Au Liab 356, Oth Liab Occur 292, Oth Liab CM 291, Au Physical 124, Surety 53, All Other 47, Total 2,553, A.M. Best Company, Oldwick, NJ Printed July 13, Page 10 of 25

11 BY-LINE RESERVES ($000) Product Line Com l MultiPeril 1,748,587 1,601,134 1,480,433 1,336,629 1,157,788 Comm l Au Liab 518, , , , ,769 Oth Liab Occur 447, , , , ,612 Oth Liab CM 395, , , , ,151 Au Physical 8,073 6,527 9,670 6,577 6,065 Surety 14,396 8,856 3, All Other 38,334 30,186 27,638 25,850 17,827 Total 3,169,910 2,895,803 2,653,173 2,372,161 2,016,213 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) New York 382, , , , ,934 California 341, , , , ,638 Florida 174, , , , ,987 Texas 169, , , , ,882 Pennsylvania 165, , , , ,753 New Jersey 122, ,768 96,329 92,190 93,234 Massachusetts 120, ,631 97,428 89,484 86,303 Illinois 76,779 72,476 69,373 61,925 62,103 Washingn 64,071 58,786 56,732 51,060 50,084 Connecticut 63,226 58,615 52,010 43,353 44,429 All Other 1,058, , , , ,876 Total 2,739,950 2,547,303 2,337,154 2,124,704 2,078,222 RISK MANAGEMENT The Enterprise Risk Management (ERM) structure in place is extensive and well integrated with key risks identified and the specific committees or teams assigned monir and address each risk. It includes the establishment and maintenance of appropriate controls as respects each risk category. The ERM structure is headed up by the executive management team with a specific ERM Committee overseeing both Corporate Governance and Departmental Functions. Each committee reports directly the executive management team. The lead ERM Committee consists of the CEO, CFO, CIO, Chief Actuarial Officer and the direcr of internal audit. A separate Audit Committee reviews the activities/output of the ERM Committee. Every key risk has a risk-based dashboard that is available management at all times. This dashboard details each key risk; denotes the perils or circumstances that could lead the risk arising; quantifies the risk; and shows work in progress as far as addressing the risk. Philadelphia s ERM structure also is fully integrated with that of Tokio Marine. Dashboard calculations are consistent with Tokio Marine s Standard Capital Modeling Manual. Philadelphia s Dynamic Portfolio Optimization program is being evaluated and selectively implemented across other Tokio Marine Group companies. This is proving valuable with the east coast hurricane exposure determinations. OPERATING PERFORMANCE Operating Results: Excellent underwriting results and considerable investment income have produced consistently strong earnings over the past five years, generating pre-tax returns on revenue and surplus that consistently outpace those of the commercial casualty composite. An increasing earned premium base, driven by the expansion of the group s marketing efforts on chosen niche classes of business and the introduction of new products, has led annual underwriting income generation. Consistent underwriting and operating cash flows have facilitated growth in the invested asset base, providing the impetus for greater net investment income generation. In 2011, income production was dampened by higher than normal catastrophe losses. Results have improved since that time primarily as a result of the annual reduction in catastrophe losses. A.M. Best expects the group continue judiciously employing a strategy emphasizing growth in targeted niche areas. New product implementation and an organized, committed approach prospecting should enable the group further capitalize on its leadership position in the specialty commercial lines marketplace. PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return , , , , , , , , , , , , , , , , , , , ,294 5-Yr Total 1,659,023 1,195,720 1,234,555 1,218,655 Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating ROR (%) on PHS (%) Ratio (%) ROR (%) on PHS (%) Ratio (%) Yr Avg Underwriting Results: The group has posted excellent underwriting results over the past five years, with a loss ratio over that time that is far superior that of the composite. In 2011, however, the group posted its highest loss ratio 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 11 of 25

12 in over a decade as a result of a significant increase in catastrophe losses, and a lesser extent smaller reserve releases than in previous years. Despite the impact of Supersrm Sandy, underwriting results in 2012, were greatly improved with the help of higher prior accident year reserve releases and lower catastrophe activity overall. Profitability returned pre-2011 levels in 2013, primarily due lower than normal catastrophe losses. Strictly defined niches, product innovation and individual account underwriting are the operational hallmarks that have led the hisrically favorable results. The group s consistent underwriting performance has been achieved despite some adverse loss reserve development on prior accident years, most recently on accident years 2010 and The group s expense ratio remains on par with the composite, which also helps lead a five-year combined ratio that is over than 10 percentage points more favorable than the composite average. A.M. Best believes the strong underwriting fundamentals will continue provide opportunities generate underwriting profits in the future. The long-held philosophy of Philadelphia Insurance Companies is for the group generate an underwriting profit on each line of business written. Individual account underwriting techniques have been established and strong risk management acumen helps bring about the consistency in underwriting results. Another facr influencing the favorable results in recent years is the group s focused and disciplined market expansion. Additionally, the group s marketing strategy has successfully utilized product differentiation and the maintenance of close cusmer contact with agents and insureds cultivate long-term relationships. UNDERWRITING EXPERIENCE Undrw Income ($000) Loss Ratios Expense Ratios Ind Pure Loss LAE Loss LAE & Other Total Div. Comb. Comm. Exp. Exp. Pol. Ratio Comb. Ratio , , , , , Yr Total/Avg 727, BY-LINE LOSS RATIO Product Line 5-Yr Avg Com l MultiPeril Comm l Au Liab Oth Liab Occur Oth Liab CM Au Physical Surety All Other Total DIRECT LOSS RATIO BY STATE 5-Yr Avg New York California Florida Texas Pennsylvania New Jersey Massachusetts Illinois Washingn Connecticut All Other Total Investment Results: investment income has grown annually over the past five years, as the group s growing invested asset base has been strongly influenced by the increases in written premium. Generation of substantial operating cash flow is directly tied the increased investment income. The increased concentration of invested assets in a portfolio emphasizing tax-exempt state and municipal bonds has resulted in a pre-tax investment yield below the composite average. The growth in invested assets has been consistent despite substantial levels of shareholder dividends paid annually the parent organization. INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains ,769 11,326 2, ,918 20, ,593 8, ,120 1, ,914-2,863-17,817 5-Yr Total 930,314 38,835-15,900 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 A.M. Best Company, Oldwick, NJ Printed July 13, Page 12 of 25

13 BALANCE SHEET STRENGTH Capitalization: The group maintains strong risk-adjusted capitalization, as measured by Best s Capital Adequacy Ratio (BCAR). Growth in surplus has largely kept pace with the increase in premium and loss reserves in recent years, resulting in fairly consistent net underwriting leverage measures that approximate the composite. Annual generation of retained earnings has been the driver of the group s considerable surplus appreciation over the last decade. Recent growth in surplus has been constrained by shareholder dividends in four of the last five years as well as increased catastrophe losses. Annual dividends over the latest five years taled $568 million, including extraordinary dividends of $158 million in both December 2014 and June Both underwriting and investment activities have contributed materially the group s organic earnings production. Going forward, A.M. Best expects the group pursue additional p-line growth resulting from expanded marketing efforts, the continued maturation of recently introduced products, along with the addition of new products. Other opportunities may be created by market dislocation where the group can utilize its ample and diverse distribution force pursue these new business opportunities. A.M. Best expects the group s capitalization remain strong and comfortably supportive of the ratings. QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,102 1,379, ,531 1,434, ,570 1,626, ,570 1,766, ,570 1,946,805 Year-End Conditional Adjusted Year PHS PHS ,806, ,806, ,867,005 2,773 1,869, ,017,179 1,398 2,018, ,156,714 1,323 2,158, ,337,376 1,000 2,338,376 LEVERAGE ANALYSIS Company Industry Composite Res. Res. Gross NPW Gross PHS PHS PHS NPW PHS Current BCAR: CAPITAL GENERATION ANALYSIS ($000) CEDED REINSURANCE ANALYSIS ($000) Source of Surplus Growth Company Industry Composite Pre-tax Realized Unrealized Bus. Reins. Ceded Bus. Reins. Ceded Operating Capital Income Capital Ceded Ret. Recov. Reins. Ret. Recov. Reins. Year Income Gains Taxes Gains Reins. Total (%) PHS (%) PHS (%) (%) PHS (%) PHS (%) ,840 11, ,804 2, , ,311 20,593 43, , ,636 8,039 93, , ,939 1, , , ,297-2, ,323-17, , Yr Total 1,659,023 38, ,303-15, REINSURANCE RECOVERABLES ($000) Source of Surplus Growth Paid & Total Change % Chg Unpaid Unearned Other Reins Contrib. Other in in Losses IBNR Premiums Recov* Recov Year Capital Changes PHS PHS US Affiliates... 95,073 88,465 66, , ,000 6, , Foreign Affiliates... 4,162 12,365 6, , ,000 5,791 60, US Insurers... 40,879 60,645 37, , ,000 20, , Pools/Associations... 2,377 5,624 22,324 30, ,000 4, , Other Non-US... 5,105 6,954 4, , ,000 2, , Total (ex US Affils)... 52,523 85,588 70, ,651 5-Yr Total -568,000 39, , Grand Total , , , ,600 * Includes Commissions less Funds Withheld 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 13 of 25

14 Loss : The group has experienced favorable loss reserve development in each of the last ten calendar years, which has enhanced reported results. Over this period, accident year reserve development has been mixed as adverse development has been recorded in four of the last ten accident years. Most of the adverse development was experienced in the 2010 accident year, primarily attributable worse than expected case incurred development mainly for the commercial multi-peril line of business, and a lesser degree, the general liability occurrence line. The 2013 increase in estimated unpaid loss and loss adjustment expenses for the 2011 accident year was primarily attributable higher than expected case incurred development mainly for the commercial multi-peril coverage, the commercial aumobile liability coverage and the other liability occurrence line. However, this partially reversed with the subsequent evaluation of that year during 2014.The level of overall loss reserves has increased in recent years due the continued growth in premium. LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Orig. Loss Developed Thru 14 Develop. Orig. (%) Develop. PHS (%) Develop. NPE (%) Unpaid Res. Develop. (%) Calendar Year ,612,810 1,395, , ,925,771 1,788, , ,249,541 2,146, , ,518,067 2,455, ,150, ,743,679 2,719, ,920, ,006,121 3,006, ,006, LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Developed Thru 14 Develop. Orig. (%) Acc. Yr Loss Ratio Acc. Yr Comb. Ratio , , , , , , , , , , , , ,011,720 1,028, , ,086,095 1,086,095 1,086, Liquidity: Solid current and overall liquidity has been maintained at levels that exceed the industry composite averages. The group s liquidity reflects increased premium collections and considerable operating cash flow generated annually. The membership of the group s two operating companies with the Federal Home Loan Bank of Pittsburgh (FHLB) provides an additional source of liquidity, if needed. The companies are able utilize established borrowing capacity, based on their FHLB-eligible level of collateral. As of December 31, 2014, the unused borrowing capacity was $523.1 million, which provides an immediately available line of credit. As of the same date, there were no borrowings outstanding with the FHLB. LIQUIDITY ANALYSIS Company Industry Composite Gross Gross Quick Current Overall Agents Bal. Quick Current Overall Agents Bal. Liq. (%) Liq. (%) Liq. (%) PHS (%) Liq. (%) Liq. (%) Liq. (%) PHS (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) , ,356 17, , ,854-28, , ,470 99, , ,733-79, , ,716 42, Yr Total 2,465,690 3,062,129 51,524 Investments: Invested assets represent over 88% of tal admitted assets. Non-invested assets are primarily comprised of uncollected agent s premium balances generated by the increase in premiums. During 2009, the group liquidated its common sck portfolio with the only equities remaining being those that are in concert with its FHLB investment. With the liquidation of the equity portfolio, long-term fixed income holdings comprise more than 98% of invested assets, underscoring the traditionally conservative investment strategy of the group. As of year-end 2014, equity investment leverage remained below 4%. INVESTMENT LEVERAGE ANALYSIS (% OF PHS) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Bonds Estate/ Mtg. Invested Assets Common Scks Inv. Affil. Inv. 3-6 Bonds Common Scks A.M. Best Company, Oldwick, NJ Printed July 13, Page 14 of 25

15 INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 5,869,602 5,603,006 5,148,801 4,750,407 4,256,061 US Government Foreign 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 Scks (000) 157,029 3,594 6,229 8,782 10,782 Unaffiliated Common Unaffiliated Preferred 37.8 INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgage Loans & Real Estate (000) 21,402 Mortgage Loans INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 199,603 29,119 82,120-17,257 11,079 Cash Short-Term Schedule BA Assets All Other HISTORY The company was incorporated under the laws of the Commonwealth of Pennsylvania as the Philadelphia Mutual Insurance Company on February 4, 1927, and began business on March 1 of the same year. The name, Philadelphia Insurance Company, went in effect after the company converted from a mutual company a sck company on December 3, The present title was adopted on June 20, 1990, concurrent with the merger of a former companion carrier, The Preserver Assurance Company. Common capital sck of $3,599,950 consists of 359,995 shares of common sck at a par value of $10 per share. A tal of 1,000,000 shares are authorized. MANAGEMENT The company is wholly owned by Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated), which is also the parent of Tokio Marine Specialty Insurance Company, Liberty American Insurance Company and Liberty American Select Insurance Company. The company maintains joint administrative offices with Tokio Marine Specialty Insurance Company. Effective December 1, 2008, Philadelphia Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD) through TMHD s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879, and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF. Management of the company is under the direction of Robert D. O Leary, Jr., President and Chief Executive Officer. He serves in a similar capacity with the affiliate, Tokio Marine Specialty Insurance Company. The company has an agreement with Maguire Insurance Agency, Inc., which is also wholly owned by Philadelphia Consolidated, provide underwriting, policy service, claims handling and sales support. The company also has an agreement with TMNA Services, LLC, which is wholly owned by TMNA, provide accounting, actuarial, legal, facility maintenance, information technology, human capital and internal audit services. The compensation structure is based on fees consistent with industry standards. Officers: Chairman of the Board, James J. Maguire, Jr.; President and Chief Executive Officer, Robert D. O Leary; Executive Vice President, Treasurer and Chief Financial Officer, Karen A. Gilmer-Pauciello; Executive Vice President and Chief Underwriting Officer, John W. Glomb; Executive Vice 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 15 of 25

16 President and Chief Claim Officer, William J. Benecke; Executive Vice President and Chief Marketing Officer, Brian J. O Reilly. Direcrs: Karen A. Gilmer-Pauciello, Hiroyuki Haruyama, James J. Maguire, Jr. (Chairman), Bruce Meyer, Michael J. Morris, Robert D. O Leary, Donald A. Pizer. REGULATORY An examination of the financial condition was made as of December 31, 2010, by the insurance department of Pennsylvania. The 2014 annual independent audit of the company was conducted by PricewaterhouseCoopers, LLP. The annual statement of actuarial opinion is provided by Mark R. Proska, FCAS, MAAA, Executive Vice President and Chief Actuarial Officer, TMNA Services, LLC. REINSURANCE Under its casualty treaty, the group retains the first $3.0 million primary layer of liability on each occurrence and maintains reinsurance coverage up $21.0 million provided in two layers $13.0 million in excess of $3.0 million and $5.0 million in excess of $16.0 million. This coverage is placed with a 20% co-participation being retained. Facultative reinsurance coverage (on an individual risk basis) is purchased for casualty risks in excess of $21.0 million. An excess clash casualty reinsurance agreement provides an additional $15.0 million of coverage in excess of a $5.0 million retention for protection from exposures such as extra-contractual obligations and judgments in excess of policy limits. The group retains the first $5.0 million layer on its property risks plus an additional $5.0 million annual aggregate deductible, with its reinsurers bearing liability up $95.0 million excess of the retention. The first property layer ($5.0 million in excess of $5.0 million and in excess of the $5.0 million annual aggregate deductible) is placed with a 50% co-participation being retained, whereas the remaining $90.0 million of coverage is 100% placed. Aumatic facultative reinsurance coverage is provided on each commercial property risk with limits in excess of $100.0 million up $150.0 million, except for risks located in Florida, Hawaii or Harris County, Texas, where coverage is provided for property losses in excess of $100.0 million up $130.0 million. The property per risk excess of loss treaties also provide a $95.0 million aggregate policy limit for terrorism exposure in excess of a $5.0 million retention. The aumatic facultative facility provides terrorism coverage for $50 million in the aggregate. Catastrophe reinsurance is maintained in excess of a $100.0 million per occurrence retention up $500.0 million. On the first excess layer of the catastrophe contract ($150.0 million in excess of $100.0 million applicable losses occurring nationwide), the group retains a 5% co-participation. This layer is shared with an affiliate, First Insurance Company of Hawaii, whose risk exposure is in Hawaii only. The second excess layer of the catastrophe contract ($200.0 million in excess of $250.0 million applicable also losses occurring nationwide), is 100% placed and is also shared with First Insurance Company of Hawaii. The p layer of the catastrophe program ($50.0 million in excess of $450 million applicable losses occurring in the Northeast only), is also 100% placed. This layer is not shared with any affiliates. BALANCE SHEET ADMITTED ASSETS ($000) 12/31/14 12/31/13 14% 13% Bonds... 5,869,602 5,603, Preferred sck... 59, Common sck... 97,616 3, Cash & short-term invest... 45,054 2, Other non-affil inv asset ,416 26, Investments in affiliates... 12, Total invested assets... 6,247,636 5,635, Premium balances , , Accrued interest... 65,074 61, All other assets , , Total assets... 7,182,217 6,526, LIABILITIES & SURPLUS ($000) 12/31/14 12/31/13 14% 13% Loss & LAE reserves... 3,169,910 2,895, Unearned premiums... 1,260,065 1,164, Conditional reserve funds... 1,000 1, All other liabilities , , Total liabilities... 4,844,841 4,369, Capital & assigned surplus , , Unassigned surplus... 1,946,805 1,766, Total policyholders surplus... 2,337,376 2,156, Total liabilities & surplus... 7,182,217 6,526, A.M. Best Company, Oldwick, NJ Printed July 13, Page 16 of 25

17 SUMMARY OF 2014 OPERATIONS ($000) Funds Provided from Statement of Income 12/31/14 Operations 12/31/14 Premiums earned... 2,457,777 Premiums collected... 2,506,038 Losses incurred... 1,229,117 Benefit & loss-related pmts 1,027,413 LAE incurred ,144 Undrw expenses incurred 733,366 LAE & undrw expenses paid 918,159 Div policyholders Div policyholders underwriting income 212,017 Undrw cash flow ,335 investment income ,914 Investment income ,975 Other income/expense Other income/expense Pre-tax oper income ,297 Pre-tax cash operations 808,676 Realized capital gains... -2,863 Income taxes incurred ,323 Income taxes pd (recov)... 90,960 income ,111 oper cash flow ,716 Ultimate Parent: Tokio Marine Holdings, Inc. TOKIO MARINE SPECIALTY INSURANCE COMPANY Wilmingn, DE One Bala Plaza, Suite 100, Bala Cynwyd, PA 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 RATING RATIONALE Rating Rationale: The ratings apply Philadelphia Indemnity Insurance Company and Tokio Marine Specialty Insurance Company, which participate in an intercompany reinsurance pooling agreement and are collectively referred as Philadelphia Insurance Companies. The ratings reflect Philadelphia Insurance Companies superior operating profitability, strong capitalization, and excellent market presence within the specialty commercial marketplace. The ratings also recognize the strategic importance of the group its ultimate parent, Tokio Marine Holdings, Inc. (TMHD), as the group plays an important and strategic role in supporting TMHD s global expansion strategy. Somewhat offsetting these favorable facrs are the company s susceptibility natural catastrophe or terrorism losses and the growth in p-line premium in recent years that is expected continue over the near term and which may pose unanticipated adverse outcomes. Also, the group s business profile is specialty lines insurance with a focus on underserved niche markets, which compels the organization identify and evaluate new opportunities frequently. Results have hisrically outperformed the commercial casualty industry composite in both underwriting and operating results, driven by a focused niche market strategy, energized marketing style, highly disciplined underwriting and successful risk selection. Long-standing relationships with core producers, including preferred agents that have the opportunity earn profit sharing with the favorable performance of their portfolio, have played an important role in the success of the group. Adherence underwriting guidelines, a commitment pricing integrity and advanced enterprise risk management integration have also helped continue drive the generation of operating earnings. A.M. Best believes that the members of the group are well positioned at the current ratings. Looking forward, negative rating action could occur with a substantial decline in operating performance or a loss of risk-adjusted capital from a significant catastrophic loss. The ratings can also be negatively impacted by any negative rating actions on its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd., and/or a change in support from or relationship with TMHD. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 06/04/15 A++ 09/19/11 A++ 05/08/14 A++ 07/09/10 A+ 02/28/13 A++ KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus ,064 98,468 18,434 12, , , , ,727 10,322 10, , , , ,830 17,714 14, , , , ,762 22,615 17, , , , ,382 23,971 17, , , A.M. Best Company, Oldwick, NJ Printed July 13, Page 17 of 25

18 Profitability Leverage Liquidity Comb. Ratio Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW PHS Overall Liq. (%) Oper. Cash flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Surplus Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE Philadelphia Insurance Companies (the group ) consists of Philadelphia Indemnity Insurance Company (PIIC) and Tokio Marine Specialty Insurance Company (TMSIC) (formerly Philadelphia Insurance Company). Both companies are direct subsidiaries of Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated). Effective December 1, 2008, Philadelphia Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD), through TMHD s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879, and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF. PIIC is a Pennsylvania-domiciled property and casualty insurance company with licenses in 50 states and the District of Columbia. TMSIC is a Delaware-domiciled property and casualty insurance company approved for excess and surplus lines business in 49 states, the District of Columbia and the U.S. Virgin Islands. TMSIC s business plan focuses on underwriting the group s niche products on a surplus lines basis in those jurisdictions in which the products are not offered on an admitted basis. PIIC and TMSIC proportionately share all premium, losses and expenses on a pro rata basis, under the terms of an intercompany reinsurance pooling agreement. The pooling percentages of PIIC and TMSIC are 95% and 5%, respectively. The group designs, markets and underwrites specialty commercial property and casualty and professional liability insurance products tailored for the unique exposures of niche markets, providing competitively priced policies, local service relationships, and differentiated coverage features. The group s products include commercial multi-peril package insurance targeting specialized niches, including among others, non-profit organizations, condominium associations, private, vocational and specialty schools, religious organizations, day-care facilities, recreation and outdoor products industry, and health and fitness centers. Other products include commercial aumobile insurance, property insurance for large commercial accounts, inland marine products targeting larger risks such as miscellaneous property floaters, and select classes of professional liability and management liability products. During 2011, the group launched a surety division that began offering surety bonds for contracrs, sub-contracrs, and others in the construction industry as well as other selective commercial surety bonds. In 2012, the group launched an excess and surplus lines division. New products are developed annually complement those that become more mature and competitive. These also take advantage of emerging exposures and developing or changing market niches. A select group of approximately 364 preferred agents and a broader network of approximately 18,000 independent producers complement the group s approximately 140 marketing professionals located in 49 regional and field offices across 13 regions covering the United States. The group s distribution model integrates proactive risk selection in the underwriting process via direct contact with the business prospect and/or policyholder. 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 Terriry: The company is licensed in Delaware. It also operates on a surplus lines or non-admitted basis in the District of Columbia, U.S. Virgin Islands, AL, AK, AZ, AR, CA, CO, CT, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY A.M. Best Company, Oldwick, NJ Printed July 13, Page 18 of 25

19 2014 BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Com l MultiPeril 29, , , Comm l Au Liab 1, , , Oth Liab Occur 75, , , Oth Liab CM 19, , , Au Physical 11, , , Surety 2, Prod Liab Occur 15, , Allied Lines 7, , All Other 1, , , Total 161, , , Business NPW Retention Product Line ($000) (%) (%) Com l MultiPeril 73, Comm l Au Liab 18, Oth Liab Occur 15, Oth Liab CM 15, Au Physical 6, Surety 2, Prod Liab Occur Allied Lines All Other 1, Total 134, BY-LINE RESERVES ($000) Product Line Com l MultiPeril 92,031 84,270 77,920 70,349 60,937 Comm l Au Liab 27,286 23,623 21,244 18,894 16,040 Oth Liab Occur 23,530 18,990 15,649 12,643 9,506 Oth Liab CM 20,790 23,129 22,655 21,230 18,376 Au Physical Surety Prod Liab Occur Allied Lines All Other 1,549 1,318 1,332 1, Total 166, , , , ,116 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) California 39,998 25,923 9,476 5,449 3,990 New York 18,563 12,328 5,264 4,687 3,678 Texas 10,128 4,628 2, ,784 New Jersey 7,510 4,299 2,122 1,328 1,410 Illinois 6,852 3, Massachusetts 6,774 4,922 3,470 1,964 1,118 Florida 6,722 3,890 1, Hawaii 4,191 3,091 2,457 2,654 3,046 Pennsylvania 3,999 2,895 9 Colorado 3,683 2,816 1,469 2,037 1,777 All Other 53,268 33,259 22,900 14,863 20,264 Total 161, ,975 52,871 34,284 41,064 RISK MANAGEMENT The Enterprise Risk Management (ERM) structure in place is extensive and well integrated with key risks identified and the specific committees or teams assigned monir and address each risk. It includes the establishment and maintenance of appropriate controls as respects each risk category. The ERM structure is headed up by the executive management team with a specific ERM Committee overseeing both Corporate Governance and Departmental Functions. Each committee reports directly the executive management team. The lead ERM Committee consists of the CEO, CFO, CIO, Chief Actuarial Officer and the direcr of internal audit. A separate Audit Committee reviews the activities/output of the ERM Committee. Every key risk has a risk-based dashboard that is available management at all times. This dashboard details each key risk; denotes the perils or circumstances that could lead the risk arising; quantifies the risk; and shows work in progress as far as addressing the risk. Philadelphia s ERM structure also is fully integrated with that of Tokio Marine. Dashboard calculations are consistent with Tokio Marine s Standard Capital Modeling Manual. Philadelphia s Dynamic Portfolio Optimization program is being evaluated and selectively implemented across other Tokio Marine Group companies. This is proving valuable with the east coast hurricane exposure determinations. OPERATING PERFORMANCE Operating Results: Excellent underwriting results and considerable investment income have produced consistently strong earnings over the past five years, generating pre-tax returns on revenue and surplus that consistently outpace those of the commercial casualty composite. An increasing earned 2015 A.M. Best Company, Oldwick, NJ Printed July 13, Page 19 of 25

20 premium base, driven by the expansion of the group s marketing efforts on chosen niche classes of business and the introduction of new products, has led annual underwriting income generation. Consistent underwriting and operating cash flows have facilitated growth in the invested asset base, providing the impetus for greater net investment income generation. In 2011, income production was dampened by higher than normal catastrophe losses. Results have improved since that time primarily as a result of the annual reduction in catastrophe losses. A.M. Best expects the group continue judiciously employing a strategy emphasizing growth in targeted niche areas. New product implementation and an organized, committed approach prospecting should enable the group further capitalize on its leadership position in the specialty commercial lines marketplace. believes the strong underwriting fundamentals will continue provide opportunities generate underwriting profits in the future. The long-held philosophy of Philadelphia Insurance Companies is for the group generate an underwriting profit on each line of business written. Individual account underwriting techniques have been established and strong risk management acumen helps bring about the consistency in underwriting results. Another facr influencing the favorable results in recent years is the group s focused and disciplined market expansion. Additionally, the group s marketing strategy has successfully utilized product differentiation and the maintenance of close cusmer contact with agents and insureds cultivate long-term relationships. UNDERWRITING EXPERIENCE PROFITABILITY ANALYSIS ($000) Undrw Loss Ratios Expense Ratios Ind Income Pure Other Total Div. Comb. Company ($000) Loss LAE LAE Comm. Exp. Exp. Pol. Ratio Ratio Pre-tax After-tax , Operating Operating Total Income Income Income Return , ,434 12,190 12,536 12, , ,322 8,940 10,067 10, , ,714 12,476 14,308 14,308 5-Yr Total/Avg 38, ,615 17,257 17,322 17, ,971 17,320 17,463 17,463 BY-LINE LOSS RATIO 5-Yr Total 93,056 68,183 71,696 71,696 Product Line 5-Yr Avg Com l MultiPeril Company Industry Composite Comm l Au Liab Pre-tax Return Operating Pre-tax Return Operating Oth Liab Occur ROR (%) on PHS (%) Ratio (%) ROR (%) on PHS (%) Ratio (%) Oth Liab CM Au Physical Surety Prod Liab Occur Allied Lines All Other Yr Avg Total Underwriting Results: The group has posted excellent underwriting results over the past five years, with a loss ratio over that time that is far superior DIRECT LOSS RATIO BY STATE that of the composite. In 2011, however, the group posted its highest loss ratio in over a decade as a result of a significant increase in catastrophe losses, and a lesser extent smaller reserve releases than in previous years. Despite the impact of Supersrm Sandy, underwriting results in 2012, were greatly improved with the help of higher prior accident year reserve releases and lower catastrophe activity overall. Profitability returned pre-2011 levels in 2013, primarily due lower than normal catastrophe losses. Strictly defined niches, product innovation and individual account underwriting are the operational hallmarks that have led the hisrically favorable results. The group s consistent underwriting performance has been achieved despite some adverse loss reserve development on prior accident years, most recently on accident years 2010 and The group s expense ratio remains on par with the composite, which also helps lead a five-year combined ratio that is over than 10 percentage points more favorable than the composite average. A.M. Best California New York Texas New Jersey Illinois Massachusetts Florida Hawaii Pennsylvania Colorado All Other Total Yr Avg A.M. Best Company, Oldwick, NJ Printed July 13, Page 20 of 25