Tokio Marine 12-31-15 - Delaware Department of Insurance · examination of Tokio Marine North...

EXAMINATION REPORT

OF

TOKIO MARINE SPECIALTY INSURANCE COMPANY

AS OF

DECEMBER 31, 2015

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TABLE OF CONTENTS SALUTATION .............................................................................................................................. 1 SCOPE OF EXAMINATION ...................................................................................................... 1 SUMMARY OF SIGNIFICANT FINDINGS ............................................................................ 3 COMPANY HISTORY ................................................................................................................ 3 CAPITALIZATION ............................................................................................................................ 3 DIVIDENDS ...................................................................................................................................... 4 MANAGEMENT AND CONTROL ........................................................................................... 4 COMMITTEES .................................................................................................................................. 5 OFFICERS ........................................................................................................................................ 5 CORPORATE RECORDS ................................................................................................................... 5 INSURANCE HOLDING COMPANY SYSTEM .................................................................................... 6 AGREEMENTS WITH AFFILIATES ....................................................................................... 7 MANAGEMENT AGREEMENT ............................................................................................................ 7 SERVICE AGREEMENT ..................................................................................................................... 7 TAX ALLOCATION AGREEMENT ....................................................................................................... 7 UNAFFILIATED AGREEMENTS ............................................................................................. 8 INVESTMENT MANAGEMENT AGREEMENT ...................................................................................... 8 TERRITORY AND PLAN OF OPERATION ........................................................................... 8 REINSURANCE ........................................................................................................................... 9 POOLING AGREEMENT ................................................................................................................... 9 NON-AFFILIATE REINSURANCE ................................................................................................... 10 FINANCIAL STATEMENTS.................................................................................................... 14 STATEMENT OF ASSETS ....................................................................................................... 15 LIABILITIES, SURPLUS AND OTHER FUNDS ................................................................... 16 STATEMENT OF INCOME ..................................................................................................... 17 RECONCILIATION OF CAPITAL AND SURPLUS ............................................................. 18

ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS RESULTING FROM THE

EXAMINATION ......................................................................................................................... 18 COMMENTS ON FINANCIAL STATEMENT ITEMS ........................................................ 18 SUBSEQUENT EVENTS ........................................................................................................... 20 COMPLIANCE WITH PRIOR EXAMINATION RECOMMENDATIONS ...................... 20 SUMMARY OF RECOMMENDATIONS ............................................................................... 20 CONCLUSION ........................................................................................................................... 21

SALUTATION May 15, 2017 Honorable Trinidad Navarro Commissioner of Insurance Delaware Department of Insurance Rodney Building 841 Silver Lake Boulevard Dover, Delaware 19904

Dear Commissioner;

In compliance with instructions and pursuant to statutory provisions contained in

Certificate of Authority No. 16.024, dated March 29, 2016, an examination has been made of the

affairs, financial condition and management of

TOKIO MARINE SPECIALTY INSURANCE COMPANY.

hereinafter referred to as the (Company) or (TMSIC) and incorporated under the laws of the

State of Delaware as a stock company with its home office located at 1807 North Market Street,

Wilmington, Delaware, 19802. The examination was conducted at the administrative office of

the Company located at, One Bala Plaza, Suite 100, Bala Cynwyd, Pennsylvania, 19004. The

report of examination thereon is respectfully submitted.

SCOPE OF EXAMINATION

The Delaware Department of Insurance (Department) performed a risk-focused financial

examination of the Company. The last examination was conducted as of December 31, 2010 by

the Pennsylvania Department of Insurance. This examination covered the period of January 1,

2011 through December 31, 2015, and encompasses a general review of transactions during the

period, the Company’s business policies and practices, as well as management and relevant

Tokio Marine Specialty Insurance Company

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corporate matters, with a determination of the financial condition of the Company at December

31, 2015. Transactions subsequent to the examination date were reviewed where deemed

necessary.

The examination of the Company was performed as part of the multi-state coordinated

examination of Tokio Marine North America, Inc. Group Companies as of December 31, 2015.

The Pennsylvania Department of Insurance (PADOI) was the lead state. To the fullest extent,

the efforts, resources, project material and findings were coordinated and made available to all

examination participants.

We conducted our examination in accordance with the National Association of Insurance

Commissioners (NAIC) Financial Condition Examiners Handbook (Handbook) and generally

accepted statutory insurance examination standards consistent with the Insurance Code and

Regulations of the States of Delaware. The NAIC Handbook requires that we plan and perform

the examination to evaluate the financial condition, assess corporate governance, identify current

and prospective risks of the company and evaluate system controls and procedures used to

mitigate those risks. An examination also includes identifying and evaluating significant risks

that could cause an insurer’s surplus to be materially misstated both currently and prospectively.

All accounts and activities of the company were considered in accordance with the risk-

focused examination process. This may include assessing significant estimates made by

management and evaluating management’s compliance with Statutory Accounting Principles.

The examination does not attest to the fair presentation of the financial statements included

herein. If, during the course of the examination an adjustment is identified, the impact of such

adjustment will be documented separately following the Company’s financial statements.


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This examination report includes significant findings of fact, pursuant to the General

Corporation Law of the State of Delaware as required by 18 Del. C. §321, along with general

information about the insurer and its financial condition. There may be other items identified

during the examination that, due to their nature, are not included within the examination report

but separately communicated to other regulators and/or the Company.

During the course of this examination, consideration was given to work performed by the

Company’s external accounting firm, PricewaterhouseCoopers, LLC, (PwC). Certain auditor

work papers of their 2015 audit have been incorporated into the work papers of the examiners

and have been utilized in determining the scope, areas of emphasis in conducting the

examination and in the area of risk mitigation and substantive testing.

SUMMARY OF SIGNIFICANT FINDINGS

There were no significant findings or material changes in financial statements as a result

of this examination.

COMPANY HISTORY

TMSIC was incorporated on July 15, 1986 as the Wheelways Insurance Company. It was

licensed by PADOI on August 22, 1986 and commenced business on October 23, 1986. On

November 30, 1990, the name was changed to the Philadelphia Insurance Company (PIC).

Effective November 1, 2012, the Company re-domiciled to Delaware and converted from an

approved surplus lines insurer to a domestic surplus lines insurer and changed its name to Tokio

Marine Specialty Insurance Company.

Capitalization

The Company’s Certificate of Incorporation authorizes the issuance of 2,000,000 shares


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of common stock with a $14.25 par value. As of December 31, 2015, the Company had 299,996

common shares issued and outstanding totaling $4,274,943. All outstanding common shares of

the Company are owned by Philadelphia Consolidated Holdings Corp. As of December 31,

2015, the Company reported gross paid in and contributed surplus of $197,772,746.

Dividends

The Company did not declare or pay dividends during the examination period.

MANAGEMENT AND CONTROL

Directors

Pursuant to the general Corporation Laws of the State of Delaware, as implemented by

the Company’s Certificate of Incorporation and bylaws, the property and affairs of the Company

must be managed by or under the direction of its Board of Directors. The Board of Directors

shall consist of not less than three nor more than ten members, the exact number of which

shall initially be fixed from time to time by the Board of Directors o r s h a r e h o l d e r .

Each Director is elected annually by the stockholder and holds office until the next

annual election and until their successors are elected and qualify except as removed for cause

and the successor elected by a special meeting of the stockholder. Directors duly elected and

serving as of December 31, 2015, are as follows:

Name Business Affiliation

Joseph James Maguire, Jr. Chairman, Philadelphia Insurance Companies

Thomas Bruce Meyer Retired

Nobufuni Yasue Vice President and Corporate Liaison, TMNA

Michael Joseph Morris Retired

Robert Daniel O’Leary President and CEO, Tokio Marine Specialty InsCompany


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Donald Arthur Pizer Retired

Karen Ann Gilmer-Pauciello Executive Vice President, CFO and Treasurer, TMNA

Committees Audit Committee Donald A. Pizer, Chairman Michael J. Morris Thomas B. Meyer Officers

Officers were elected in accordance with the bylaws during the period under

examination. The officers of the corporation shall consist of a Chairman of the Board, Chief

Executive Officer, Chief Financial Officer, President, Chief Operating Officer, Secretary,

Treasurer, one or more Vice Presidents including Executive Vice Presidents and Senior Vice

Presidents and such Assistant Secretaries and Assistant Treasurer and other officers as may from

time to time be appointed by or under the authority of the Board of Directors. Any two or more

offices may be held by the same person, but no officer may act in more than one capacity where

action of two or more officers is required. The primary officers serving as of December 31, 2015

were as follows:

Name Title

Robert Daniel O’Leary President and CEO

Karen Ann Gilmer-Pauciello Chief Financial Officer, EVP and Treasurer

Edward Sayago Secretary

Corporate Records

The recorded minutes of the shareholder and Board of Directors were reviewed for the

period under examination. The recorded minutes of the Board of Directors adequately

documented its meetings and approval of Company transactions and events including approval of


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investment transactions in accordance with 18 Del. C. §1304. In addition, review of Company

files indicated that written correspondence was submitted to the Department with regards to the

changes in officers and directors during the period under examination in compliance with 18 Del.

C. §4919.

Insurance Holding Company System

The Company is a member of an insurance holding company system as defined under 18

Del. C. §5001 of the Delaware Insurance Code. The Company is a wholly-owned subsidiary of

Philadelphia Consolidated Holdings Corp., which is a wholly-owned subsidiary of Tokio Marine

North America Inc. (TMNA), whose ultimate parent is Tokio Marine Holdings, Inc.

An abbreviated organizational chart as of December 31, 2015, is as follows (ownership of

subsidiaries is 100% unless otherwise noted):


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AGREEMENTS WITH AFFILIATES

The Company is party to several inter-company agreements and transactions. The

following significant intercompany agreements were in effect as of December 31, 2015:

Management Agreement

Effective March 21, 2012, the Company is party to an Amended and Restated

Management Agreement with Maguire Insurance Agency, Inc. (MIA), an affiliate. Under the

agreement, MIA is the captive Underwriting Manager, managing certain insurance operations for

TMSIC. In 2015, the Company paid $18.3 million to MIA for management services.

Service Agreement

Effective July 3, 2012, the Company is a party to a Service Agreement with TMNA

Services, LLC (TMNAS) an affiliate. Under the agreement, TMNAS provides certain

Accounting, Human Resources, Legal, Actuarial and Enterprise Risk Management services. In

2015 the Company paid $5.3 million to TMNAS for these services.

Tax Allocation Agreement

Effective March 31, 2012, the Company became party to a Tax Allocation Agreement

with TMNA. Each Company shall compute a separate return liability for each taxable year and

pay that liability to TNMA. If the Company’s separate return liability is not a positive number in

any year, or if the Company has a deduction or attribute which is used by TNMA, TNMA shall

pay the amount by which the consolidated tax liability of the group was reduced. Amendments

to the agreement during the exam period were for the inclusion of affiliates into the agreement.

As of December 31, 2015, the Company has a payable of $36,667 to TMNA.


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UNAFFILIATED AGREEMENTS

The Company is party to several unaffiliated agreements (non-reinsurance). The

following is the most significant of the unaffiliated agreements in effect as of December 31,

2015:

Investment Management Agreement

Effective September 12, 1996, the Company entered an Investment Management

Agreement with General Re – New England Asset Management, Inc. (NEAM). Under this

agreement, NEAM provides management services of that portion of the Company’s assets

constituting cash, securities and other assets.

TERRITORY AND PLAN OF OPERATION

Territory

As of December 31, 2015, the Company is licensed in Delaware and approved for excess

and surplus lines business in forty-nine states, the District of Columbia and the U.S. Virgin

Islands.

Plan of Operation

The Company’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. The Company distributes its products through a select group of approximately 364

preferred agents and broader of approximately 18,000 independent producers. The Company’s

direct premiums written were $206.3 million in 2015 as compared to $34.2 million in 2011.

Through the intercompany reinsurance pooling agreement with its affiliate Philadelphia

Indemnity Insurance Company (PIIC), the Company assumes premiums from commercial


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insurance products which 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,

commercial automobile insurance, property insurance for large commercial accounts, inland

marine products, select classes of professional liability and management liability products, and

surety business. The Company’s direct writings are approximately 1.7% of the pool writings.

REINSURANCE

The Company reported the following distribution of premiums written for the years

ended December 31, 2015, and the prior examination date of December 31, 2010:

2015 %GPW 2010 % GPWDirect Business 206,287,384$ 59.2% 41,063,858$ 29.4%

Reisurance assumed from affiliates 141,904,399 40.8% 98,468,159 70.6%

Gross premiums written 348,191,783$ 100% 139,532,017$ 100%

Reinsurance ceded to affilaites 171,136,153$ 49.1% 36,300,366$ 26.0%

Reinsurance ceded to non-affiliates 35,151,231 10.1% 4,763,491 3.4%

Total ceded 206,287,384$ 59.2% 41,063,857$ 29.4%

Net premiums written 141,904,399$ 40.8% 98,468,160$ 70.6%

Affiliated Reinsurance

Pooling Agreement

The Company and PIIC have participated in a pooling agreement since October 1, 2004.

Under this agreement, the Company cedes to PIIC 100% of its net insurance business produced,

secured and written and PIIC then cedes to the Company 5% of all the combined net insurance

business produced, secured and written by both companies. Each pool participant has a

contractual right of direct recovery from its reinsurance treaties and its facultative reinsurers.


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Each pool participant also establishes its own provision for reinsurance and write-off of

uncollectible reinsurance relating to its reinsurance treaties and facultative reinsurance.

The pooling participants and their percentage of participation in the pooled results are as

follows:

Company NAIC Code Participation %

Philadelphia Indemnity Insurance Company 18058 95%

Tokio Marine Specialty Insurance Company 23850 5%

Non-Affiliate Reinsurance

The Company’s reinsurance program is placed through intermediaries or directly with the

reinsurer. The Company has multiple active treaties in place on December 31, 2015, which are

categorized as follows (treaties not considered material were not reflected in this examination

report):

Casualty Excess of Loss

The treaty was originally placed by Willis Re, Inc., but the Company changed

intermediaries in August, 2015 such that the 2016 and subsequent renewals will be with Guy

Carpenter & Company, LLC, a licensed reinsurance intermediary. Willis Re, Inc. continued to

administer premium settlements thru the end of the 2015 Contract Year, and they will continue to

process loss notices and collections for all Reinsurance Contracts on which they brokered prior

to 2016, with the Company possibly transfering these “pre-2016” loss handling responsibilities

to Guy Carpenter at some future point in time. The treaty provides that casualty, liability and

fidelity risks in excess of $3,000,000 are ceded up to a limit of $21,000,000 in two layers as

follows:

1st Excess of Loss Layer - $13,000,000 in excess of $3,000,000 with no reinsurer limit.


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2nd Excess of Loss Layer - $5,000,000 in excess of $16,000,000 with a $20,000,000 reinsurer limit, all loss occurrences.

The participants are: Allied World Reinsurance Company, Everest Reinsurance

Company, Endurance Reinsurance Corporation, Munich Re America, Swiss Re, Toa Re

America, Tokio Millennium Re, Ltd. and Transatlantic Reinsurance Company. All reinsurers are

at least “A” rated by A.M. Best, and participate at levels from 3.5% to 21.5% in each layer with a

total placement of 80% (20% co-participation).

Casualty Clash Excess of Loss

The treaty was originally placed by Willis Re, Inc., but the Company changed

intermediaries in August, 2015 such that the 2016 and subsequent renewals will be with Guy

Carpenter & Company, LLC, a licensed reinsurance intermediary. Willis Re, Inc. continued to

administer premium settlements thru the end of the 2015 Contract Year, and they will continue to

process loss notices and collections for all Reinsurance Contracts on which they brokered prior

to 2016, with the Company possibly transfering these “pre-2016” loss handling responsibilities

to Guy Carpenter at some future point in time. Casualty and liability risks are protected from

exposures such as extra-contractual obligations and judgments in excess of policy limits through

two coverage layers as follows:

1st Excess of Loss Layer - $5,000,000 in excess of $5,000,000 with a $10,000,000 reinsurer limit, all loss occurrences and an annual terrorism limit of $5,000,000.

2nd Excess of Loss Layer - $10,000,000 in excess of $10,000,000 with a $20,000,000 reinsurer limit, all loss occurrences and an annual terrorism limit of $10,000,000.

There are nine external reinsurers who fully subscribe each layer at varying percentages.

All the reinsurers are rated “A” by A.M. Best. Also, an errors and omissions insurance policy

provides an additional $10,000,000 of coverage with respect to these exposures.


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Property per Risk Excess

The Company has three layers of coverage for 2015, which provide $90,000,000 of loss

coverage in excess of $10,000,000, under two separate treaties. The third and fourth layers of

the treaty are subscribed to by eighteen unaffiliated reinsurers through Willis Re, Inc.; the second

layer treaty is directly written by General Reinsurance Corporation (“GenRe”), an authorized

reinsurer. All the reinsurers except for two (which is rated as NR-4) are rated at least “A-” by

A.M. Best with the two NR-4s being rated AA- and A+ by Standard and Poor. The layers are

defined as follows:

1st Per Risk Excess Layer – No first layer ($5,000,000 in excess of $5,000,000) purchased in 2015.

2nd Per Risk Excess Layer - $5,000,000 in excess of $10,000,000, which is fully subscribed by GenRe. The loss limit on each loss occurrence in this layer is limited to $10,000,000. However, this layer provides for four free reinstatements. The aggregate loss limit for all loss occurrences in this layer is $25,000,000.

3rd Per Risk Excess Layer - $35,000,000 in excess of $15,000,000, which is fully subscribed to by nineteen unaffiliated reinsurers at varying percentages. The loss limit on each loss occurrence in this layer is limited to $35,000,000. However, this layer provides for one paid reinstatement. The aggregate loss limit for all loss occurrences in this layer is $70,000,000.

4th Per Risk Excess Layer - $50,000,000 in excess of $50,000,000, with 70% subscribed to by various unaffiliated reinsurers and 30% with Tokio Marine Kiln (Lloyds) Syndicate 1880). The loss limit on each loss occurrence in this layer is limited to $50,000,000. However, this layer provides for one paid reinstatement. The aggregate loss limit for all loss occurrences in this layer is $100,000,000.

The property excess of loss reinsurance treaties discussed above provide for terrorism

coverage in the aggregate of $90,000,000 in excess of $10,000,000 retention.

Catastrophe Excess of Loss

Effective June 1, 2015, the property catastrophe program for open-market catastrophe

reinsurance coverage is $750,000,000 in excess of a $100,000,000 per occurrence retention. The


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Company has four layers of coverage under the treaty, which is placed through Guy Carpenter &

Company, LLC, a licensed reinsurance intermediary in Pennsylvania. The open-market

catastrophe program has coverage provided by large reinsurers that are rated at least “A-” by

A.M. Best Company. The layers are defined as follows:

1st and 2nd Excess of Loss Layers - $350,000,000 in excess of $100,000,000 for Nationwide catastrophe coverage, with this coverage also being shared with a related affiliated Company, First Insurance Company of Hawaii. On the first Layer of catastrophe coverage ($150,000,000 in excess of $100,000,000), the company has a 5% co-participation, with the remaining 95% placement being placed with an affiliate company (Tokio Marine & Nichido Fire Insurance Co., Ltd. – at 59%) and the remaining 36% being placed with various unaffiliated reinsurers. The second Layer of catastrophe coverage ($200,000,000 in excess of $250,000,000) is also for Nationwide coverage and is shared with First Insurance Company of Hawaii. This Layer is 100% placed with various unaffiliated reinsurers.

3rd and 4th Excess of Loss Layers - $400,000,000 in excess of $450,000,000 for Northeast Only (described below) catastrophe coverage. The Company does not share these layers with any related affiliated Company. The third Layer of catastrophe coverage ($50,000,000 in excess of $450,000,000) is 100% placed with various unaffiliated reinsurers. The fourth Layer of catastrophe coverage ($350,000,000 in excess of $500,000,000) is also 100% placed, with 85% placement being an affiliate (Tokio Marine & Nichido Fire Insurance Co., Ltd.) and the remaining 15% being placed with various unaffiliated reinsurers.

This Northeast Only catastrophic excess of loss coverage will only apply to losses

occurring in the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New

Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont and the Canadian

provinces of Newfoundland, New Brunswick, Nova Scotia and Prince Edward Island.

Facultative

The Company has a Property Facultative Binding Authority Agreement in effect, which

is written directly with GenRe. This agreement covers risks for property losses in excess of

$100,000,000 up to $150,000,000, except for risks located in Florida, Hawaii or Harris County,


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Texas, where coverage for property losses is in excess of $100,000,000 up to $130,000,000. In

addition, this agreement provides for terrorism coverage in the aggregate of $50,000,000.

Facultative reinsurance that is provided on an individual risk basis is placed for property

risks in excess of $150,000,000, except for risks located in Florida, Hawaii or Harris County,

Texas, where facultative reinsurance coverage is placed for property risks in excess of

$130,000,000.

The Company also has a Boiler and Machinery Facultative Agreement written directly

with Travelers Indemnity Company, a Pennsylvania authorized reinsurer, which provides for

100% coverage up to a limit of $50,000,000. In addition to the aforementioned facultative

treaties, the Company purchases individual facultative coverage when considered appropriate.

FINANCIAL STATEMENTS

The following financial statements, as reported and filed by the Company with the

Delaware Department of Insurance, are reflected in the following:

Statement of Assets and Liabilities as of December 31, 2015 Statement of Income for the year ended December 31, 2015 Reconciliation of Capital and Surplus for the Period from the Prior Examination as of

December 31, 2010 to December 31, 2015


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STATEMENT OF ASSETS as of December 31, 2015

AssetsNon admitted

AssetsNet Admitted

Assets Notes

Bonds $ 435,529,117 $ 0 $ 435,529,117 1

Common stocks 63,500 63,500Cash, Cash Equivalents and Short-term Investments (1,442,367) (1,442,367)

Subtotals, cash and invested assets $ 434,150,250 $ 0 $ 434,150,250

Investment income due and accrued 4,377,003 4,377,003

Uncollected premiums and agents' balances in the course of collection

22,395,136 - 22,395,136

Deferred Premiums, Agents' Balance booked but not due

30,504,580 148,144 30,356,436

Amounts recoverable from reinsurers 16,851,183 16,851,183

Other amounts receivable under reinsurance companies

178,010 178,010

Net deferred tax asset 9,320,314 766,114 8,554,200

Receivable from parent, subsidiaries and affiliates

403,044 - 403,044

Aggregate write-ins for other than invested assets

51,173 51,173 -

Totals $ 518,230,693 # $ 965,431 # $ 517,265,262


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LIABILITIES, SURPLUS AND OTHER FUNDS as of December 31, 2015

Notes

Losses 144,149,008$ 2Reinsurance payable on paid losses and LAE 17,849,626 Loss adjustment expenses (LAE) 40,810,456 2Commissions payable, contingent commissions 10,549,783 Other expenses 53,575 Taxes, licenses and fees 27,123 Current federal and foreign 36,667 Unearned premiums 70,684,014 Ceded reinsurance payable 34,614,772 Provisions for reinsurance 20,166 Payable to parent, subsidiaries, and affiliates 697,326 Total liabilities 319,492,516$

Common capital stock 4,274,943$ Gross paid in and contributed surplus 18,642,853 Unassigned funds (surplus) 174,854,950 Surplus as regards policyholders 197,772,746$ Totals 517,265,262$


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STATEMENT OF INCOME For the Year Ended December 31, 2015

Notes

Premiums earned 137,539,596$ Losses incurred 65,936,374$ Loss adjustment expenses incurred 17,203,761 Other underwriting expenses incurred 41,435,855 Total underwriting deductions 124,575,990$ Net underwriting gain (loss) 12,963,606$ Net investment income earned 13,609,075 Net realized capital gains or (losses) 128,953 Net investment gain (loss) 13,738,028$ Net gain (loss) from agents' or premiums balances charged off -$ Finance and service charges not included in premiums

Foreign exchange gain (loss) - Miscellaneous other income (1,582) Interest on deposits - Net interest on funds held - Total other income (1,582)$

Net income before dividends to policyholders 26,700,052 Dividends to policyholders 7,925 Net income, after dividends to policyholders 26,692,127$ Federal and foreign income taxes incurred 6,840,913 Net income 19,851,214$

Surplus as regards policyholders, December 31, 2014 173,936,575$ Net income (losses) 19,851,214 Change in net unrealized capital gains (losses) - Change in net deferred income tax (801,865) Change in non-admitted assets 4,128,822 Change in provision for reinsurance 658,000 Surplus adjustment: Paid in - Dividends to stockholders - Net change in capital and surplus for the year 23,836,171$ Surplus as regards policyholders, December 31, 2015 197,772,746$


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RECONCILIATION OF SURPLUS FOR PERIOD SINCE LAST EXAM From December 31, 2010 to December 31, 2015

Common Capital Stock

Aggregate Write Ins for

Special Surplus Funds

Gross Paid-in and

Contributed Surplus

Unassigned Surplus

Total

12/31/2010 $ 4,274,943 $ 2,114,547 $ 18,642,853 $ 91,187,674 $ 116,220,017 12/31/2011 1 9,490,584 9,490,584 12/31/2011 2 212,175- 212,175 - 12/31/2012 1 15,111,065 15,111,065 12/31/2012 2 1,902,372- 1,902,372 - 12/31/2013 1 16,474,201 16,474,201 12/31/2014 1 16,640,708 16,640,708 12/31/2015 1 23,836,171 23,836,171

4,274,943$ -$ 18,642,853$ 174,854,950$ 197,772,746$

1- net income, change in net deferred income tax, change in nonadmitted assets, change in provision for

reinsurance and change in surplus

2- Change in SSAP101

ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS RESULTING FROM THE

EXAMINATION

There were no changes made to the Financial Statements as a result of this Examination.

COMMENTS ON FINANCIAL STATEMENT ITEMS

Note 1-Bonds $435,529,117

Procedures were performed to confirm the existence and ownership of the investments

reported in Schedule D-Part 1 and the other investment schedules. These procedures were

performed without exception. The Company continues to invest primarily in Bonds with ratings

of “1” or “3” per the NAIC Security Valuation Office Manual with maturity dates consistent

with the Company expected reserve payout.


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Designation Percentage of Portfolio NAIC 1 99.36% NAIC 3 .64%

The Company’s Bond portfolio as of December 31, 2015 examination date consisted of

the following classes:

U.S. Treasury Securities 1,501,658$ 0.34%U.S. Government Bonds 2,791,278 0.64%U.S. States, Territories and Possessions Bonds 11,099,479 2.55%U.S Political Subdivisions of States, Territories and Possessions(Direct and Guaranteed) 48,658,153 11.17%U.S. Special Revenue Bonds 185,334,033 42.55%Industrial and Micellaneous Bonds 10,289,300 2.36%Mortgage-Backed Securities (residential and commercial) 79,196,143 18.18%Other Debt and Other Fixed Income Securities (excluding short-term investments) 96,659,073 22.19%

Total Bonds $ 435,529,117 100.00%

Note 2 Losses $144,149,008 LAE 40,810,456

The PADOI retained the services of Merlinos and Associates (Merlinos), to conduct an

evaluation of risks regarding the Company’s loss and LAE reserves as of December 31,

2015. The Merlinos analysis was performed using a risk- focused approach according to the

guidelines contained in the NAIC Handbook. The review does not address the collectability of

reinsurance recoverables.

The conclusions set forth in Merlinos report are based on information provided by the

Company, including the 2015 Annual Statements, the related 2015 Statement of Actuarial

Opinion with underlying actuarial work papers. Merlinos reviewed the audit work papers

regarding carried reserves, evaluated the reconciliation of actuarial data to Schedule P and

evaluated the appointed actuary analysis to evaluate whether segmentation of experience is


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sufficient, and whether assumptions, methodologies and conclusions produce a reasonable

estimate.

The Delaware Department of Insurance appointed INS Consultants, Inc. (INS) to review

the lead state’s actuarial report. No material exceptions were noted during INS’ actuarial review

of the Company’s reserves. The examination determined the Company’s gross and net loss and

loss adjustment expenses reserves were properly stated without material exception as of

December 31, 2015.

SUBSEQUENT EVENTS

Through the examination procedures performed, no significant findings or

recommendations have been identified that are relevant for inclusion within this examination

report.

COMPLIANCE WITH PRIOR EXAMINATION RECOMMENDATIONS

There were no recommendations contained in the prior examination report.

SUMMARY OF RECOMMENDATIONS

There were no recommendations as a result of this examination.


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CONCLUSION

The assistance and cooperation of examiners representing the states on the coordinated

examination is acknowledged. In addition, the assistance of the consulting actuarial firm, INS

Consultants, Inc., the Company’s outside audit firm, PwC and the Company’s management and

staff was appreciated and is acknowledged.

Respectfully submitted,

_____________________________ Albert M. Piccoli, Sr., CFE Examiner In-Charge State of Delaware

Respectfully submitted,

_____________________________ Anthony Cardone, CFE Supervising Examiner State of Delaware

Tokio Marine 12-31-15 - Delaware Department of Insurance · examination of Tokio Marine North...

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