003840 - Germania Insurance Company

Report Revision Date: 07/15/2013 Rating and Commentary 1 Best's Credit Rating: 12/18/2012 Rating Rationale: 12/18/2012 Report Commentary: 07/15/2013 Financial 2 Time Period: 2nd Quarter - 2013 Last Updated: 08/24/2013 Status: Quality Cross Checked General Information 3 Corporate Structure: N/A States Licensed: 01/15/2002 Officers and Directors: 06/04/2012 Best's Credit Rating Methodology Disclaimer Best's Rating Guide Additional Online Resources Related News Rating Activity and Announcements Company Overview Archived AMB Credit Reports Corporate Changes & Retirements AMB Country Risk Reports - United States 1 The Rating and Commentary date outlines the most recent updates to the Company's Rating, Rationale, and Report Commentary for key rating and business changes. Report commentary may include significant changes to Business Review, Financial Performance/Earnings, Capitalization, Investment/Liquidity, or Reinsurance sections of the report. 2 The Financial date reflects the current status of the financial tables found within the body of the Report, including whether the data was loaded as received or had been run through our quality control cross-check process. 3 The General Information date covers key areas that may have changed such as corporate structure, states licensed or officers and directors. Page 1 of 28 Print Date: September 03, 2013

Ultimate Parent: Germania Farm Mutual Insurance Assn Germania Insurance Company 507 Highway 290 East, Brenham, Texas, United States 77833 Tel.: 979-836-5224 Web: www.germaniainsurance.com Fax: 979-277-1900 AMB #: 003840 Ultimate Parent: 003687 NAIC #: 36854 FEIN#: 74-1991338 Best's Credit Ratings Best's Financial Strength Rating: A- Best's Issuer Credit Rating: a- Rating Effective Date: 12/18/2012 Financial Size Category: VIII Outlook: Stable Outlook: Stable Report Revision Date: 07/15/2013 Rating Rationale Rating Rationale: The ratings of Germania Farm Mutual Insurance Association have been extended to Germania Insurance Company as it is fully integrated into the Germania group's strategic and operational plans. The company benefits from the Germania group's shared common infrastructure and distribution network, use of the highly recognizable brand, and participation in the intercompany reinsurance program. In the group, the company is the sole writer of commercial property and BOP, personal and general liability, as well as standard personal auto, all of which statutorily cannot be written by Germania Farm Mutual Insurance Association. The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). The ratings are based on the consolidated operating results and financial position of Germania Farm Mutual Insurance Association and its wholly owned subsidiaries, Germania Insurance Company, Germania Select Insurance Company, Germania Fire and Casualty Company, and Texas Heritage Insurance Company (Texas Heritage Insurance Company is separately rated by A.M. Best). The ratings and outlooks reflect the group's adequate risk-adjusted capitalization, conservative investment philosophy, and its strong and long-standing market presence in Texas. Partially offsetting these positive rating factors are the group's underwriting losses in most of the last five years, elevated underwriting leverage measures and geographic concentration of risk. The group maintains adequate risk-adjusted capitalization given its current rating level. This is partially due to the group's conservative investment portfolio, which continues to produce favorable investment earnings that have partially mitigated underwriting losses over the last five-year period. The group's operating results have been extremely volatile during the latest five-year period due primarily to frequent and severe weather-related events. In response, the group has been managing its property book of business to reduce weather-related exposure, especially from hurricane-prone areas. In addition, a separately rated stock company, Texas Heritage Insurance Company was created to write dwelling policies previously written by Germania Farm Mutual Insurance Association in a seven-county area, including Harris County (Houston). Subsequently, the group has been reducing policy count in that area by implementing significant rate increases, increased deductibles and stricter underwriting guidelines. The group continues to maintain a strong market presence in Texas and its long-standing agency relationships that have been developed in its 100-plus-year history. Partially offsetting these positive rating factors is the group's unprofitable underwriting performance as well as decline in surplus over the last five years. During the latest five-year period the group has been impacted by a variety of frequent and severe weather-related events. As a result, the group has reported sizeable underwriting losses and its five-year average pretax operating returns on revenue and equity are negative and compare unfavorably to the private passenger standard auto and homeowners composite. In an effort to improve these results, management has implemented several corrective actions which include, rate increases, tighter policy verbiage, mandatory and increased deductibles, improved rural spread of risk, and enhanced policy forms. In addition, the group transformed its auto book of business to "preferred" and "ultra-preferred" Page 2 of 28 Print Date: September 03, 2013

Rating Rationale (Continued...) programs through revised underwriting guidelines. As a single state writer with all of its business produced in Texas, the group is exposed to frequent and severe weather-related events as well as judicial, economic and legislative concerns. The parent company, Germania Farm Mutual Insurance Association operates under Chapter 911 of the Texas Insurance Code. As such, it operates with relative rate and form freedom, which offers a significant competitive advantage by allowing it to respond more quickly to changing market conditions. In future rating cycles, a continuation of adverse operating results coupled with declining capitalization could result in negative pressure on the outlooks or ratings. Five Year Rating History BEST'S Date FSR ICR 12/18/2012 A- a- 12/20/2011 A- a- 12/10/2010 A a 11/13/2009 A a 12/16/2008 A a View 25 Year Rating History Key Financial Indicators Period Ending Premiums Written Direct Net Statutory Data ($000) Pre-tax Operating Income Net Income Total Admitted Assets Policyholder's Surplus 2012 31,503 29,353 8,210 5,865 68,637 32,157 2011 30,377 28,613 5,925 4,525 64,218 26,069 2010 29,324 27,628 5,805 4,254 65,129 36,401 2009 28,271 26,074 5,661 5,501 58,858 32,118 2008 28,450 24,039 18,949 27,264 56,461 26,484 06/2013 16,945 15,837 915 593 68,391 32,844 06/2012 16,213 15,122 2,670 1,704 62,199 27,859 Page 3 of 28 Print Date: September 03, 2013

Key Financial Indicators (Continued...) Period Ending Combined Ratio Profitability Leverage Liquidity Investment Yield Pre-Tax ROR Non- Affiliated Investment Leverage NPW to PHS Net Leverage Overall Liquidity Operating Cash-flow 2012 79.0 3.0 28.4... 0.9 2.0 188.1 128.9 2011 86.2 3.0 21.0... 1.1 2.5 168.3 139.8 2010 87.4 3.9 21.4 0.3 0.8 1.5 226.7 123.1 2009 88.2 4.2 21.4 0.3 0.8 1.6 220.1 117.3 2008 113.0 8.9 30.9 1.8 0.9 2.0 188.4 96.8 5-Yr Avg 90.5 5.0 25.9............... 06/2013 98.9 3.0 6.2 1.3 0.9 2.0 192.5 102.6 06/2012 87.5 3.5 18.7 1.4 1.0 2.3 181.1 118.6 (*) Within several financial tables of this report, this company is compared against the Commercial Casualty Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. Page 4 of 28 Print Date: September 03, 2013

Business Profile The Germania Insurance Company (GIC) was originally formed as an accommodation to its parent, Germania Farm Mutual (GFM), which offers only fire policies. GIC originally offered only personal and farm liability coverage to GFM policyholders. Other lines of business now include commercial property, BOP, commercial liability, commercial auto, standard personal auto, farm and personal umbrella, and inland marine coverage. In 2008, GIC began non-renewing its homeowner and dwelling fire policies with most policies transferring to the GFM property policy. During the third quarter of 2008, GIC was involved in the reorganization of Germania Mutual Group. GIC declared and paid a dividend and returned capital to its parent, GFM. The dividend and return of capital was settled with common stock of Germania Fire & Casualty Company (GFC) and Germania Select Insurance Company (GSC), thereby effectively terminating the Germania Insurance Group. A limited amount of service fee income is generated by Germania General Agency (GGA), a wholly owned subsidiary of GSC, which acts as a general agent allowing Germania agents to place non-standard risks through other carriers. Beginning in November 1999, Germania Mutual Group began utilizing a county mutual to give it additional pricing tiers for its existing auto market through GGA. During the third quarter of 2008, GIC contributed capital, including the stock of GGA to Germania Select Insurance Company. Business is developed through the same independent agents that represent the parent, GFM. Scope of Operations Period Ending Direct Premiums Written Total Premium Composition & Growth Analysis Reinsurance Premiums Assumed Reinsurance Premiums Ceded Net Premiums Written ($000) (%Chg) ($000) (%Chg) ($000) (%Chg) ($000) (%Chg) 2012 31,503 3.7...... 2,150 21.8 29,353 2.6 2011 30,377 3.6...... 1,765 4.1 28,613 3.6 2010 29,324 3.7...... 1,696-22.8 27,628 6.0 2009 28,271-0.6... -99.9 2,197-62.8 26,074 8.5 2008 28,450 19.6 1,492-98.1 5,902 87.5 24,039-75.7 5-Yr CAGR... 5.8... -99.9... -7.3... -21.5 06/2013 16,945 4.5...... 1,108 1.6 15,837 4.7 06/2012 16,213 4.3...... 1,091 21.5 15,122 3.3 Territory The company is licensed in Texas. Business Trends Page 5 of 28 Print Date: September 03, 2013

Business Trends (Continued...) Product Line Direct Premiums Written 2012 By-Line Business ($000) Reinsurance Premiums Assumed Reinsurance Premiums Ceded 003840 - Germania Insurance Company Net Premiums Written ($000) ($000) ($000) ($000) Business Retention % Oth Liab Occur 15,377 48.8...... 1,034 48.1 14,343 48.9 93.3 Auto Physical 4,108 13.0...... 96 4.5 4,012 13.7 97.7 Priv Pass Auto Liab 2,923 9.3...... 36 1.7 2,886 9.8 98.8 Allied Lines 2,653 8.4...... 385 17.9 2,268 7.7 85.5 Fire 2,354 7.5...... 337 15.7 2,017 6.9 85.7 Comm'l Auto Liab 1,905 6.0...... 23 1.1 1,882 6.4 98.8 Com'l MultiPeril 1,692 5.4...... 221 10.3 1,471 5.0 87.0 All Other 490 1.6...... 16 0.8 474 1.6 96.7 Total 31,503 100.0...... 2,150 100.0 29,353 100.0 93.2 2012 Top Product Lines of Business (Net Premiums Written) 5 Years of Net Premiums Written ($000) 1.6% 6.4% 5.0% 7.7% 6.9% 48.9% 30,000 24,039 26,074 27,628 28,613 29,353 9.8% 24,000 13.7% 18,000 Oth Liab Occur Priv Pass Auto Liab Fire Com'l MultiPeril Auto Physical Allied Lines Comm'l Auto Liab All Other 12,000 6,000 0 2008 2009 2010 2011 2012 Page 6 of 28 Print Date: September 03, 2013

Business Trends (Continued...) By-Line Reserve ($000) Product Line 2012 2011 2010 2009 2008 Oth Liab Occur 12,748 11,897 10,215 7,717 7,614 Auto Physical 292 208 215 182 154 Priv Pass Auto Liab 2,034 1,644 1,497 1,128 808 Allied Lines 418 412 288 286 317 Fire 80 391 45 86 95 Comm'l Auto Liab 440 621 778 338 309 Com'l MultiPeril 156 192 166 214 161 All Other 26 43 105 286 616 Total 16,194 15,408 13,308 10,238 10,073 Market Share / Market Presence Geographical Breakdown By Direct Premium Writings ($000) 2012 2011 2010 2009 2008 Texas 31,503 30,377 29,324 28,271 28,450 Total 31,503 30,377 29,324 28,271 28,450 Page 7 of 28 Print Date: September 03, 2013

Risk Management The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). Enterprise risk management practices are in place and handled by the Board of Directors, Cabinet, and internal auditors. They all have various responsibilities which include, identifying the framework, quantifying and managing risks, as well as communicating to all employees. Management views volatility in the common stock market and catastrophe exposure as two of their top five risks. In response, a conservative investment strategy and an extensive reinsurance program has been maintained to protect surplus from weather-related events and stock market crisis. The group's approach to risk management appears to be in line with expectations for its business profile. However, A.M. Best anticipates that the underwriting volatility may continue to be an issue as the group maintains exposure to both frequency and severity related weather experience for every natural peril other than earthquake. Page 8 of 28 Print Date: September 03, 2013

Operating Performance The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). Operating Results: Overall earnings have been volatile during the latest five year period. These results are primarily due to sizeable underwriting losses that could not be completely offset by net investment income and other income. As a result, five year average pre-tax returns on revenue and equity are negative and compare unfavorably to the private passenger standard auto and homeowners composite. In addition, pre-tax operating losses have been reported three of the last five years. The unfavorable operating results are primarily due to varying weather related events, the financial crisis in 2008 and record low interest rates which have resulted in sizeable underwriting losses and flat to declining net investment income. The overall results have improved in 2012 when compared to 2011 as evidenced by positive pre-tax operating income driven by lower underwriting losses, while other income and net investment income continued to remain favorable. Management has taken several corrective actions which include significant rate increases, de-emphasizing and refining the property book of business, tighter policy verbiage, mandatory and increased deductibles, improved rural spread of risk, enhanced policy forms and improved insurance to value. Going forward, A.M. Best anticipates continued volatility in results due to the inherent exposure to frequent and severe weather related events. However, as management's initiatives gain traction the degree of volatility should decrease. Period Ending Pre-tax Operating Income After-tax Operating Income Net Income Profitability Analysis Company Total Return Pre- Tax ROR Return Operating on PHS Ratio Industry Composite Pre- Tax ROR Return Operating on PHS Ratio 2012 8,210 5,358 5,865 5,903 28.4 20.3 73.1 6.7 7.9 92.4 2011 5,925 3,988 4,525 4,611 21.0 14.8 80.3 6.5 5.6 93.1 2010 5,805 3,967 4,254 4,230 21.4 12.3 79.9 11.1 9.6 88.2 2009 5,661 5,519 5,501 5,657 21.4 19.3 80.5 15.4 11.5 84.6 2008 18,949 15,981 27,264 12,717 30.9 23.5 101.4 16.8-1.0 83.6 5-Yr Avg/Tot 44,550 34,813 47,411 33,119 25.9 18.6 82.0 11.3 6.8 88.4 06/2013 915 546 593 593 6.2 15.8 93.5 XX XX XX 06/2012 2,670 1,676 1,704 1,705 18.7 21.5 81.4 XX XX XX Page 9 of 28 Print Date: September 03, 2013

Operating Performance (Continued...) Pre-Tax ROR Comparison with Industry Composite Return on PHS Comparison with Industry Composite 23.5 37.5 30.0 30.9 28.4 20.0 15.0 19.3 12.3 14.8 20.3 22.5 15.0 16.8 21.4 21.4 21.0 15.4 10.0 5.0 11.5 9.6 5.6 7.9 7.5 0.0 11.1 6.5 6.7 2008 2009 2010 2011 2012 0.0-5.0-1.0 2008 2009 2010 2011 2012 - Company Pre-Tax ROR - Industry Composite Pre-Tax ROR - Company Return on PHS - Industry Composite Return on PHS * Industry Composite - Commercial Casualty Composite * Industry Composite - Commercial Casualty Composite Underwriting Results Underwriting Results: Frequent and severe weather related events have plagued the Texas market place over the last five years. As a result, underwriting losses have been reported in most years and the five year average combined ratio is above break-even and compares unfavorably to the private passenger standard auto and homeowners composite. The exception was 2010 where milder weather patterns resulted in favorable net underwriting income and combined ratio below break-even. The negative underwriting results were driven by a series of differing weather related events which included wildfires, hail storms and hurricanes. The unfavorable underwriting performance has continued in 2012, but improved when compared to prior yearend. In an effort to improve underwriting results, management has taken several corrective actions which include; significant rate increases, exposure reduction along Tier 1 and Tier 2 coastal counties, increased and mandatory deductibles, and insurance-to-value initiatives. In addition, an emphasis on increasing the automobile book of business as well as transforming auto to a "preferred auto program" with stricter underwriting guidelines including credit scoring, re-underwriting of renewal business and expanded rate tiers. Going forward, A.M. Best anticipates that underwriting volatility will continue due to the inherent exposure to frequent and severe weather related events. However, continuation of aggressive underwriting corrective actions may reduce future volatility. Page 10 of 28 Print Date: September 03, 2013

Underwriting Results (Continued...) Year Net Undrw Income ($000) Pure Loss Underwriting Experience Loss Ratios LAE Loss & LAE Net Comm Expense Ratios Other Exp. Total Exp. Div. Pol. Comb. Ratio 2012 5,968 45.0 9.3 54.3 14.9 9.7 24.7... 79.0 2011 3,773 49.0 11.0 60.0 15.7 10.5 26.3... 86.2 2010 3,265 48.1 11.8 59.9 15.4 12.1 27.6... 87.4 2009 3,208 48.4 11.6 60.0 15.6 12.6 28.2... 88.2 2008 11,320 53.1 8.1 61.2 17.8 34.0 51.9... 113.0 5-Yr Avg 27,534 49.5 9.9 59.4 15.8 15.3 31.1... 90.5 06/2013-104 62.8 11.9 74.7 XX XX 24.2... 98.9 06/2012 1,560 52.4 10.3 62.7 XX XX 24.8... 87.5 Loss Ratio By Line Product Line 2012 2011 2010 2009 2008 5-Yr. Avg. Oth Liab Occur 31.5 37.7 47.3 31.2 28.2 35.3 Auto Physical 63.0 57.0 46.9 61.3 62.0 59.9 Priv Pass Auto Liab 75.1 63.2 73.3 64.8 54.1 59.6 Allied Lines 102.4 97.3 68.8 115.1 72.5 91.2 Fire 23.8 61.6 9.4 47.0 49.6 37.9 Comm'l Auto Liab 26.7 32.9 45.7 27.6 28.3 32.4 Com'l MultiPeril 34.5 33.9 45.8 65.8 92.7 53.4 All Other 36.0 45.8-0.8 57.6 68.3 55.2 Total 45.0 49.0 48.1 48.4 53.1 49.5 Combined Ratio 2012 Pure Loss Ratio by Product Line 102.4 150.0 100 120.0 113.0 80 75.1 90.0 88.2 87.4 86.2 79.0 60 63.0 60.0 30.0 61.2 60.0 59.9 60.0 51.9 54.3 40 20 31.5 23.8 26.7 34.5 36.0 28.2 27.6 26.3 24.7 0.0 2008 2009 2010 2011 2012 - Loss & LAE Ratio - Expense Ratio - Combined Ratio 0 Oth Liab Occur Auto Physical Priv Pass Auto Liab Allied Lines Fire Comm'l Auto Liab Com'l MultiPeril All Other Page 11 of 28 Print Date: September 03, 2013

Underwriting Results (Continued...) Direct Loss Ratios By State 2012 2011 2010 2009 2008 5-Yr. Avg. Texas 42.5 50.0 49.2 48.0 62.2 50.1 Total 42.5 50.0 49.2 48.0 62.2 50.1 Investment Results Investment Results: Stable investment earnings have positively contributed to overall operating performance over the past five years. The group maintains a conservative investment portfolio with an emphasis on quality, diversification and liquidity. As a result of record low interest rates, investment yield has declined over the last five years and the five year average is slightly below the private passenger standard auto and homeowners composite. Net investment income has generally declined in the latest five year period, but is favorable and has partially offset sizeable underwriting losses. The current invested asset mix is anchored by its bond portfolio, which represents 87% of total invested assets at year-end 2012, with an emphasis on taxexempt municipals. The remainder of the current portfolio consists of cash and short-term investments, with a small equity exposure in large cap and value stock funds. In addition, an affiliated life company represents approximately 3% of total invested assets at year-end 2012. The portfolio showed moderate effect from the financial market volatility in late 2008. Investment Gains ($000) Year Net Investment Income ($000) Realized Capital Gains ($000) Unrealized Capital Gains ($000) Company Investment Income Growth Investment Yield Return on Invested Assets Total Return Industry Composite Investment Income Growth Investment Yield 2012 1,709 508 37 2.7 3.0 3.9 4.0-5.4 3.9 2011 1,664 538 86-18.2 3.0 4.0 4.2-5.2 4.2 2010 2,035 287-24 -0.3 3.9 4.5 4.4 3.6 4.5 2009 2,041-18 156-71.4 4.2 4.1 4.5-8.5 4.4 2008 7,130 11,283-14,547 80.1 8.9 24.8 4.7-6.0 4.7 5-Yr Avg/Tot 14,579 12,598-14,292-13.4 5.0 9.5 4.4-4.4 4.4 06/2013 790 47... -9.4 3.0 4.1 4.1 XX XX 06/2012 872 28 1-7.3 3.5 4.4 4.6 XX XX Page 12 of 28 Print Date: September 03, 2013

Investment Results (Continued...) Investment Yield vs Industry Investment Income Growth vs Industry 9.0 8.9 80.0 80.1 7.2 5.4 3.6 1.8 4.7 4.4 4.5 4.2 3.9 4.2 3.9 3.0 3.0 40.0 0.0-40.0-80.0-6.0-8.5-71.4 3.6-0.3-5.2-18.2 2.7-5.4 0.0 2008 2009 2010 2011 2012-120.0 2008 2009 2010 2011 2012 - Company Investment Yield - Industry Composite Investment Yield - Company Investment Income Growth - Industry Composite Investment Income Growth * Industry Composite - Commercial Casualty Composite * Industry Composite - Commercial Casualty Composite Page 13 of 28 Print Date: September 03, 2013

Balance Sheet Strength Capitalization The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). Capitalization: Overall risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR) is adequate and supports the current rating. The capital position is reflective of the group's generally favorable reserve development, prudent catastrophe risk management, and a conservative investment portfolio, which has produced consistent net investment income during the latest five-year period. These factors are partially offset by the group's exposure to weather catastrophe events, elevated underwriting leverage measures, and decline in surplus in three of the last five years. In addition, change in surplus over the last five years has been negative due to significant unrealized capital losses in 2008 as a result of a downturn in the capital market and unfavorable underwriting performance driven by severe and frequent weather related events along with an extraordinary wildfire event that occurred in 2011. Offsetting this was the realized capital gains and the benefit of favorable income tax treatment. However, in 2012, surplus appreciation was reported due to improved operating performance coupled with realized and unrealized capital gains. Year Pre-tax Operating Income Realized Capital Gains Capital Generation Analysis ($000) Income Taxes Source of Surplus Growth Unrealized Capital Gains Net Contributed Capital Other Changes Change in PHS % Change in PHS 2012 8,210 508 2,852 37... 185 6,087 23.3 2011 5,925 538 1,937 86-15,000 57-10,332-28.4 2010 5,805 287 1,838-24... 53 4,283 13.3 2009 5,661-18 142 156... -23 5,634 21.3 2008 18,949 11,283 2,968-14,547-65,011-3,168-55,461-67.7 5-Yr Total 44,550 12,598 9,737-14,292-80,011-2,897-49,789-17.1 06/2013 915 47 370...... 94 688 2.1 06/2012 2,670 28 994 1... 84 1,789 6.9 Year Surplus Notes Other Debt Quality of Surplus ($000) Contributed Capital Unassigned Surplus Year End Policyholders Surplus Conditional Reserves Adjusted Policyholders Surplus 2012... 9,050-5,550 28,657 32,157... 32,157 2011... 9,050-5,550 22,569 26,069... 26,069 2010... 9,050-5,550 32,901 36,401... 36,401 2009... 9,050-7,050 30,118 32,118... 32,118 2008... 9,050-7,050 24,484 26,484 10 26,494 06/2013... 9,050-5,550 29,344 32,844 25 32,869 06/2012... 9,050-5,550 24,359 27,859... 27,859 Page 14 of 28 Print Date: September 03, 2013

Underwriting Leverage Year NPW to PHS Reserves to PHS Company Net Leverage Leverage Analysis Gross Leverage NPW to PHS Industry Composite Reserves to PHS Net Leverage Gross Leverage 2012 0.9 0.5 2.0 2.2 0.8 1.5 3.0 3.8 2011 1.1 0.6 2.5 2.7 0.8 1.5 3.0 3.9 2010 0.8 0.4 1.5 1.7 0.7 1.5 2.9 3.7 2009 0.8 0.3 1.6 1.8 0.7 1.5 2.9 3.8 2008 0.9 0.4 2.0 2.3 0.9 1.6 3.3 4.3 06/2013 0.9 0.5 2.0 XX XX XX XX XX 06/2012 1.0 0.6 2.3 XX XX XX XX XX Current BCAR: 162.4 Net Leverage vs Industry Gross Leverage vs Industry 4.0 3.2 3.3 2.9 2.9 3.0 3.0 5.0 4.0 4.3 3.8 3.7 3.9 3.8 2.4 2.5 3.0 1.6 0.8 2.0 1.6 1.5 2.0 2.0 1.0 2.3 1.8 1.7 2.7 2.2 0.0 2008 2009 2010 2011 2012 0.0 2008 2009 2010 2011 2012 - Company Net Leverage - Industry Composite Net Leverage - Company Gross Leverage - Industry Composite Gross Leverage * Industry Composite - Commercial Casualty Composite * Industry Composite - Commercial Casualty Composite Page 15 of 28 Print Date: September 03, 2013

Underwriting Leverage (Continued...) Year Ceded Reinsurance Total Ceded Reinsurance Analysis ($000) Business Retention Company Reinsurance Recoverables to PHS Ceded Reinsurance to PHS 003840 - Germania Insurance Company Business Retention Industry Composite Reinsurance Recoverables to PHS Ceded Reinsurance to PHS 2012 5,531 93.2 10.5 17.2 82.6 59.1 84.5 2011 5,526 94.2 14.4 21.2 81.6 59.4 84.5 2010 4,615 94.2 8.0 12.7 81.2 57.6 80.4 2009 4,989 92.2 8.7 15.5 82.6 61.2 84.8 2008 6,096 84.2 13.6 23.0 84.6 70.6 97.6 2012 Reinsurance Recoverables ($000) Paid & Unpaid Losses Incurred But Not Reported (IBNR) Losses Unearned Premiums Other Recoverables * Total Reinsurance Recoverables US Insurers 1,790 1,088 410... 3,288 Other Non-Us 5 88...... 93 Total(ex Us Affils) 1,795 1,176 410... 3,381 Grand Total 1,795 1,176 410... 3,381 * Includes Commissions less Funds Withheld Loss Reserves Loss Reserves: Reserves have generally been favorable as evidenced by consistent redundancies on both a calendar and accident year basis. However, minor deficiencies in accident year of 2008 and 2009, and calendar year of 2009 were reported. Loss reserves are generally short-tailed with duration of approximately 12-24 months. Primary reserve lines include private passenger auto and fire, which represent approximately 43% and 32% respectively of total loss reserves at year-end 2012. Calendar Year Loss and ALAE Reserve Development: Calendar Year ($000) Original Loss Reserves Developed Reserves Thru 2012 Development to Original Development to PHS Development to NPE Unpaid Reserves @ 12/2012 Unpaid Reserves to Development 2012 14,461 14,461...... 50.0 14,461 100.0 2011 13,674 13,219-3.3-1.7 46.9 8,217 62.2 2010 11,856 11,156-5.9-1.9 41.1 3,502 31.4 2009 8,986 10,555 17.5 4.9 40.0 1,229 11.6 2008 8,803 9,678 9.9 3.3 15.8 629 6.5 2007 25,922 22,067-14.9-4.7 23.8 253 1.1 Page 16 of 28 Print Date: September 03, 2013

Loss Reserves (Continued...) Accident Year Loss and ALAE Reserve Development: Accident Year ($000) Original Loss Reserves Developed Reserves Thru 2012 Development to Original Unpaid Reserves @ 12/2012 003840 - Germania Insurance Company Accident Year Loss Ratio Accident Year Comb. Ratio 2012 6,244 6,244... 6,244 58.6 83.2 2011 7,336 6,834-6.8 4,715 61.5 87.7 2010 6,646 5,572-16.2 2,273 51.4 78.9 2009 4,819 5,432 12.7 600 63.0 91.2 2008 4,944 5,945 20.2 376 70.3 122.1 2007 15,631 13,158-15.8 63 58.5 89.2 Liquidity The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). Liquidity: Liquidity measures are adequate as non-affiliated invested assets exceed overall liabilities. Despite an increase in claim payouts due to significant weather, fire losses and market volatility in recent years, liquidity measures have been stable and remain comparable to the private passenger standard auto and homeowners composite. Significant negative operating cash flows were reported in three of the last five years driven by sizeable underwriting losses partially offset by consistent investment income. However, operating cash flows were positive in 2010 and 2012 due to favorable underwriting cash flows coupled with positive investment income. Year Quick Liquidity Current Liquidity Company Overall Liquidity Liquidity Analysis Gross Agents Balances to PHS Quick Liquidity Industry Composite Current Liquidity Overall Liquidity Gross Agents Balances to PHS 2012 25.4 164.8 188.1 0.5 21.8 108.0 144.9 10.9 2011 25.5 148.0 168.3 0.6 19.9 109.0 144.5 10.3 2010 41.9 198.3 226.7 0.4 20.9 111.2 146.2 9.0 2009 48.6 193.6 220.1 0.5 21.0 110.9 146.0 9.1 2008 40.2 163.6 188.4 0.6 18.6 104.7 140.8 11.9 06/2013 XX 160.1 192.5 0.5 XX XX XX XX 06/2012 XX 150.0 181.1 0.5 XX XX XX XX Page 17 of 28 Print Date: September 03, 2013

Liquidity (Continued...) Quick Liquidity vs Industry Current Liquidity vs Industry 50.0 40.0 40.2 48.6 41.9 200.0 160.0 163.6 193.6 198.3 148.0 164.8 30.0 25.5 25.4 120.0 20.0 10.0 18.6 21.0 20.9 19.9 21.8 80.0 40.0 104.7 110.9 111.2 109.0 108.0 0.0 2008 2009 2010 2011 2012 0.0 2008 2009 2010 2011 2012 - Company Quick Liquidity - Industry Composite Quick Liquidity - Company Current Liquidity - Industry Composite Current Liquidity * Industry Composite - Commercial Casualty Composite * Industry Composite - Commercial Casualty Composite Year Underwriting Cash Flow Operating Cash Flow Cash Flow Analysis ($000) Company Net Cash Flow Underwriting Cash Flow Operating Cash Flow Industry Composite Underwriting Cash Flow Operating Cash Flow 2012 6,741 7,114-2,813 130.1 128.9 98.2 110.7 2011 6,043 8,852 3,914 127.2 139.8 96.5 107.6 2010 6,656 5,663-1,541 132.1 123.1 96.6 108.6 2009 2,618 4,153-2,552 111.4 117.3 98.4 109.5 2008-9,861-2,229 4,339 85.7 96.8 101.2 112.6 5-Yr Total 12,198 23,552 1,347............ 06/2013 2,617 426-3,991 120.5 102.6 XX XX 06/2012 3,508 2,534-6,255 130.8 118.6 XX XX Investments The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). Investments: The investment portfolio is conservative as long-term bonds represent 87% of total invested assets at year-end 2012, mainly comprised of tax-exempt municipals bonds. However, this leaves the portfolio exposed to changes in interest rates as evidenced by a significant drop in yield in 2011. The remainder of the current portfolio consists of cash and short-term investments, with a small common stock exposure in large cap and value stock funds. In addition, an affiliated life company represents approximately 4% of total invested assets at year-end 2012. The investment portfolio showed minimal effect from the financial market volatility in late 2008. Page 18 of 28 Print Date: September 03, 2013

Investments (Continued...) Year Class 3-6 Bonds Investment Leverage Analysis (% of PHS) Real Estate / Mortgages Other Invested Assets Company Common Stock Non - Affiliated Investment Leverage 003840 - Germania Insurance Company Affiliated Investments Industry Composite Class 3-6 Bonds Common Stock 2012.................. 7.1 10.3 2011.................. 7.4 9.5 2010 0.3......... 0.3... 7.2 9.0 2009 0.3......... 0.3... 6.0 8.2 2008 1.8......... 1.8... 5.4 9.1 Investments - Bond Portfolio 2012 Distribution By Maturity Years 0-1 1-5 5-10 10-20 20+ Years Average Maturity Government 0.2 3.1 2.6 0.2... 5.3 Government Agencies & Muni. 7.7 19.8 26.9 6.3 8.8 8.3 Industrial & Misc. 5.0 13.1 6.0 0.2... 3.7 Total 12.9 36.0 35.5 6.7 8.8 7.0 Page 19 of 28 Print Date: September 03, 2013

Investments - Bond Portfolio (Continued...) Bond Distribution By Issuer Type 2012 2011 2010 2009 2008 Bonds (000) 57,506 50,675 54,698 48,246 43,954 US Government 6.4 1.4 3.9 3.9 2.3 State/Special Revenue-US 72.0 73.2 70.5 74.2 70.4 Industrial and Misc-US 21.7 25.5 25.6 21.9 27.3 2012 Bond Distribution By Issuer Type 21.7% 6.4% US Government State/Special Revenue-US Industrial and Misc-US 72.0% Bond Percent Private vs Public 2012 2011 2010 2009 2008 Private Issues 3.1 2.1 0.9 1.0... Public Issues 96.9 97.9 99.1 99.0 100.0 Bond Quality Percent 2012 2011 2010 2009 2008 Class 1 98.8 99.1 98.6 99.0 97.8 Class 2 1.2 0.9 1.2 0.8 1.3 Class 3............ 0.8 Class 4............... Class 6...... 0.2 0.2 0.1 Page 20 of 28 Print Date: September 03, 2013

Investments - Other Invested Assets 2012 2011 2010 2009 2008 Other Invested Assets(000) 1,707 4,519 606 2,147 4,699 Cash 51.8 81.4-99.9-9.6-77.5 Short-Term 48.2 18.6 249.3 109.6 177.5 Schedule BA Assets...... 0.1...... Page 21 of 28 Print Date: September 03, 2013

History This company was incorporated on April 19, 1978 under the laws of Texas and began business on November 29, 1978. During the third quarter of 2008, GIC was involved in the reorganization of Germania Mutual Group. GIC declared and paid a dividend of $39,565,464 and returned capital of $16,753,500 to its parent, GFM. The dividend and return of capital was settled with common stock of Germania Fire & Casualty Company (GFC) and Germania Select Insurance Company (GSC). Also during the third quarter of 2008, GIC redeemed 100% of its outstanding preferred stock for $9,050,000. This stock is currently in Treasury. GIC also issued another 500,000 shares of $1.00 par common stock to its sole stockholder, GFM. Currently, GIC has 1,000,000 shares of common stock authorized, issued and outstanding. GIC has 181,000 shares of preferred stock authorized with 90,500 issued and in Treasury. Management Administration and operations of the company's affairs is under the same management as the parent organization, Germania Farm Mutual Insurance Association, and GFM's other subsidiaries, Germania Life Insurance Company (incorporated in late 1983), Germania Fire & Casualty Company (incorporated in 1985) and Germania Select Insurance Company (incorporated in 2002). All of the officers have been affiliated with the well established parent company for many years. Management and service contracts and all cost sharing arrangements involving GIC consist of a monthly management agreement between GIC and its parent, GFM. All previous management and facilities agreements between GIC and GFC or GSC have been cancelled. Officers And Directors President Paul Ehlert Vice President Blake Lovelace Ralph Beadle Paul Ehlert Bruce E. Germer Fredda Gibbs Lemons Dwayne W. Herring Officers Directors Vice President Gary Weiss Secretary and Treasurer Derrell Krebs Clarence H. Herring, Jr. Derrell Krebs Blake Lovelace Don McAfee Gary Weiss Regulatory An examination of the financial condition was made as of December 31, 2008, by the insurance department of Texas. The 2012 annual independent audit of the company was conducted by Jaynes, Reitmeier, Boyd & Therrell, PC. The annual statement of actuarial opinion is provided by John F. Butcher, FCAS, MAAA, Tillinghast Towers Perrin. Reinsurance The following text is derived from A.M. Best's Credit Report on Germania Mutual Group (AMB# 003876). For 2012, Germania Mutual Group maintains catastrophe coverage through a catastrophe per risk excess of loss that includes Germania Farm Mutual (GFM), Germania Insurance Company (GIC), Germania Fire & Casualty Company (GFC), Germania Select Insurance Company (GSC) and Texas Heritage Insurance Company (THC). This reinsurance program provides $357.5 Page 22 of 28 Print Date: September 03, 2013

Reinsurance (Continued...) million in coverage excess of a $17.5 million retention, with 100% placement on each layer. One automatic reinstatement is in effect for each of the first four layers up to the $150 million limit. Concurrently, there is an underlying internal catastrophe contract between GFM and THC covering 100% of $8 million excess of $5.5 million ultimate net loss to THC. Also, there is a three year structured weather aggregate contract to address potential frequency of storm events, other than hurricanes. There is a $80 million annual aggredate deductible with a $1 million per occurrence franchise deductible. The per occurrence limit per event subject to the contract is $17.5 million. Maximum recovery in any one year is $30 million and for the three year period the maximum recovery is $75 million. Property per risk excess of loss reinsurance is maintained for GFM, GIC and THC for recovery of claims above a retention of $1 million up to $5 million. Facultative arrangements are available for risks in excess of $5 million. Casualty per risk excess of loss reinsurance is maintained for GIC, GFC and GSC with $700,000 of coverage in excess of a $300,000 net retention for any one casualty risk and which includes an additional $4 million limit for ECO, XPL and clash cover losses. Since 1999, GIC has offered personal and farm umbrella coverage. Limits from $1 million up to $5 million are offered. These programs are reinsured under a quota share reinsurance agreement. The first million is covered at 95% and the remaining at 100%. Page 23 of 28 Print Date: September 03, 2013

Balance Sheet ($000) Admitted Assets 12/31/2012 12/31/2011 2012 % 2011 % Bonds 57,506 50,675 83.8 78.9 Preferred Stock............ Common Stock............ Cash & Short-Term Invest 1,707 4,519 2.5 7.0 Real estate, investment............ Derivatives............ Other Non-Affil Inv Asset............ Investments in Affiliates............ Real Estate, Offices............ Total Invested Assets 59,212 55,194 86.3 85.9 Premium Balances 6,899 6,683 10.1 10.4 Accrued Interest 387 346 0.6 0.5 Life department............ All Other Assets 2,139 1,994 3.1 3.1 Total Assets 68,637 64,218 100.0 100.0 Liabilities & Surplus 12/31/2012 12/31/2011 2012 % 2011 % Loss & LAE Reserves 16,194 15,408 23.6 24.0 Unearned Premiums 15,020 14,584 21.9 22.7 Conditional Reserve Funds............ Derivatives............ Life department............ All Other Liabilities 5,266 8,156 7.7 12.7 Total Liabilities 36,480 38,148 53.1 59.4 Surplus notes............ Capital & Assigned Surplus 3,500 3,500 5.1 5.5 Unassigned Surplus 28,657 22,569 41.8 35.1 Total Policyholders' Surplus 32,157 26,069 46.9 40.6 Total Liabilities & Surplus 68,637 64,218 100.0 100.0 Page 24 of 28 Print Date: September 03, 2013

Interim Balance Sheet ($000) Admitted Assets 03/31/2013 06/30/2013 Bonds 60,576 58,716 Cash & Short-Term Invest -3,459-2,284 Other Investments...... Total Invested Assets 57,118 56,431 Premium Balances 7,049 7,532 Accrued Interest 504 436 Reinsurance Funds 61 134 All Other Assets 3,140 3,858 Total Assets 67,871 68,391 Liabilities & Surplus 03/31/2013 06/30/2013 Loss & LAE Reserves 15,203 17,716 Unearned Premiums 15,190 16,126 Conditional Reserve Funds 22 25 All Other Liabilities 3,208 1,680 Total Liabilities 33,623 35,547 Capital & Assigned Surp 3,500 3,500 Unassigned Surplus 30,749 29,344 Total Policyholders' Surplus 34,249 32,844 Total Liabilities & Surplus 67,871 68,391 Page 25 of 28 Print Date: September 03, 2013

Summary Of 2012 Operations ($000) Statement of Income 12/31/2012 Funds Provided from Operations 12/31/2012 Premiums earned 28,917 Premiums collected 29,159 Losses incurred 13,024 Benefit & loss-related pmts 12,458 LAE incurred 2,683 Undwr expenses incurred 7,242 LAE & undwr expenses paid 9,960 Other expenses incurred... Other income / expense... Dividends to policyholders... Dividends to policyholders... Net underwriting income 5,968 Underwriting cash flow 6,741 Net transfer... Net investment income 1,709 Investment income 2,059 Other income/expense 533 Other income/expense 533 Pre-tax operating income 8,210 Pre-tax cash operations 9,333 Realized capital gains 508 Income taxes incurred 2,852 Income taxes pd (recov) 2,220 Net income 5,865 Net oper cash flow 7,114 Page 26 of 28 Print Date: September 03, 2013

Interim Income Statement ($000) Period Ended 06/30/2013 Period Ended 06/30/2012 Increase / Decrease Premiums earned 14,731 14,243 488 Losses incurred 9,248 7,459 1,789 LAE incurred 1,752 1,466 286 Undwr expenses incurred 3,835 3,758 77 Other expenses incurred......... Dividends to policyholders......... Net underwriting income -104 1,560-1,664 Net investment income 790 872-82 Other income/expense 229 238-9 Pre-tax operating income 915 2,670-1,755 Realized capital gains 47 28 20 Income taxes incurred 370 994-625 Net income 593 1,704-1,111 Interim Cash Flow ($000) Period Ended 06/30/2013 Period Ended 06/30/2012 Increase / Decrease Premiums collected 15,401 14,899 502 Benefit & loss-related pmts 7,885 6,541 1,344 LAE & undwr expenses paid 4,899 4,849 50 Dividends to policyholders......... Underwriting cash flow 2,617 3,508-891 Net transfer......... Investment income 1,003 1,016-13 Other income/expense 229 238-9 Pre-tax cash operations 3,849 4,762-913 Income taxes pd (recov) 3,423 2,228 1,195 Net oper cash flow 426 2,534-2,108 Page 27 of 28 Print Date: September 03, 2013

A Best's Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. The ratings are not assigned to specific insurance policies or contracts and do not address any other risk, including, but not limited to, an insurer's claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. A Financial Strength Rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. A Best's Debt/Issuer Credit Rating is an opinion regarding the relative future credit risk of an entity, a credit commitment or a debt or debt-like security. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. These credit ratings do not address any other risk, including but not limited to liquidity risk, market value risk or price volatility of rated securities. The rating is not a recommendation to buy, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. In arriving at a rating decision, A.M. Best relies on third-party audited financial data and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. Any and all ratings, opinions and information contained herein are provided "as is," without any express or implied warranty. Visit http://www.ambest.com/ratings/notice.asp for additional information or http://www.ambest.com/terms.html for details on the Terms of Use. Copyright 2013 A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior written permission of the A.M. Best Company. While the data in this report was obtained from sources believed to be reliable, its accuracy is not guaranteed. Page 28 of 28 Print Date: September 03, 2013