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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.
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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):
Tokio Marine Specialty Insurance Company
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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.
Tokio Marine Specialty Insurance Company
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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 $34.2 million in 2011.
Through the intercompany reinsurance pooling agreement with its affiliate Philadelphia
Indemnity Insurance Company (PIIC), the Company assumes premiums from commercial
Tokio Marine Specialty Insurance Company
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insurance products which include commercial multi-peril package insurance targeting
specialized niches, including, among others, non-profit organizations, condominium
associations, private, vocational and specialty schools, religious organizations, day care facilities,
commercial automobile insurance, property insurance for large commercial accounts, inland
marine products, select classes of professional liability and management liability products, and
surety business. The Company’s direct writings are approximately 1.7% of the pool writings.
REINSURANCE
The Company reported the following distribution of premiums written for the years
ended December 31, 2015, and the prior examination date of December 31, 2010:
2015 %GPW 2010 % GPWDirect Business 206,287,384$ 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.
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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,
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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$
Tokio Marine Specialty Insurance Company
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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$
Tokio Marine Specialty Insurance Company
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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
Tokio Marine Specialty Insurance Company
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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.
Tokio Marine Specialty Insurance Company
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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