Back to Top PHILADELPHIA INSURANCE COMPANIES PHILADELPHIA INDEMNITY INSURANCE COMPANY TOKIO MARINE SPECIALTY INSURANCE COMPANY

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PHILADELPHIA INSURANCE COMPANIES

PHILADELPHIA INDEMNITY INSURANCE COMPANY

A++

TOKIO MARINE SPECIALTY INSURANCE COMPANY

A++

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Associated With: Tokio Marine Holdings, Inc.

PHILADELPHIA INSURANCE COMPANIES

One Bala Plaza, Suite 100, Bala Cynwyd, PA 19004-1403

Web: www.phly.com

Tel: 610-617-7900 Fax: 610-617-7940 AMB#: 018667

Associated Ultimate Parent#: 050962

RATING RATIONALE

Rating Rationale: The ratings apply to Philadelphia Indemnity Insurance Company and Tokio Marine Specialty Insurance Company, which participate in an intercompany reinsurance pooling agreement, collectively referred to as Philadelphia Insurance Companies. The ratings reflect Philadelphia Insurance Companies’ superior operating profitability, strong capitalization, solid liquidity and excellent market presence within the specialty commercial marketplace. The ratings also recognize the strategic importance of the group to its ultimate parent, Tokio Marine Holdings, Inc. (TMHD), as the group plays an important and strategic role in supporting TMHD’s global expansion strategy. Somewhat offsetting these favorable factors are the company’s susceptibility to catastrophe losses, and the growth in top-line premium in recent years that is expected to continue over the near term.

Results have historically outperformed the commercial casualty industry composite in both underwriting and operating results, driven by a focused niche market strategy, energized marketing style, highly disciplined underwriting and successful risk selection. Long-standing relationships with core producers, including preferred agents that have the opportunity to earn profit sharing with the favorable performance of their portfolio, have played an important role in the success of the group. Adherence to underwriting guidelines, a commitment to pricing integrity and advanced enterprise risk management integration have also helped continue to drive the generation of operating earnings.

The group currently enjoys strong risk-adjusted capitalization driven by organic growth in policyholders’ surplus despite dividends paid to the parent in four of the last five years. Most recently, results benefited from a relatively calm catastrophe year in 2013, rate increases and measured growth in writings. Going forward, A.M. Best expects further growth in premium and continued earnings production, leading to sustained balance sheet strength. Considering the financial flexibility of TMHD, A.M. Best believes as the group has become more deeply integrated as a strategic member of the organization, it should benefit more readily from TMHD’s financial wherewithal, if needed.

A.M. Best believes that the members of the group are well positioned at the current ratings. Looking forward, negative rating action could occur if capitalization and/or operating performance fall markedly short of A.M. Best’s expectations, primarily as a result of any material increase in frequency and severity of catastrophe losses. The ratings can also be negatively impacted by any negative rating actions on its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd., and/or a change in support from or relationship with TMHD.

RATING UNIT MEMBERS

Philadelphia Insurance Companies (AMB# 018667):

AMB# COMPANY

BEST’S

FSR POOL %

003616 Philadelphia Indemnity Ins Co A++ 95.00

000763 Tokio Marine Specialty Ins Co A++ 5.00

KEY FINANCIAL INDICATORS ($000)

————————————Statutory Data———————————— Period Ending Direct Premiums Written Net Premiums Written Pre-tax Operating Income Net Income Total Admitted Assets Policy-holders’ Surplus 2009 2,011,555 1,877,964 389,691 257,315 4,787,325 1,751,187 2010 2,119,286 1,969,363 358,274 262,898 5,298,449 1,922,522 2011 2,158,988 2,034,538 188,633 165,027 5,794,756 1,992,715 2012 2,390,025 2,236,607 332,350 243,938 6,428,455 2,158,000 2013 2,649,278 2,475,231 424,554 310,815 6,942,157 2,314,009

——Profitability—— ———Leverage——— ——Liquidity—— Period Ending Comb. Ratio Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW to PHS Net Lev. Overall Liq. (%) Oper. Cash flow (%) 2009 85.1 4.0 21.7 0.7 1.1 2.8 157.7 149.4 2010 89.6 4.0 18.6 0.6 1.0 2.8 157.0 138.8 2011 99.5 3.9 9.4 1.0 1.0 2.9 152.5 136.3 2012 92.1 3.8 15.6 0.3 1.0 3.0 150.6 134.8 2013 89.8 3.6 17.8 1.5 1.1 3.1 150.0 133.0 5-Yr 91.3 3.8 16.5 … … … … …

(*) Within several financial tables of this report, this company is compared against the Commercial Casualty Composite.

(*) Data reflected within all tables of this report has been compiled through the A.M. Best Consolidation of statutory filings.

BUSINESS PROFILE

Philadelphia Insurance Companies (the “group”) consists of Philadelphia Indemnity Insurance Company (PIIC) and Tokio Marine Specialty Insurance Company (TMSIC) (formerly Philadelphia Insurance Company). Both companies are direct subsidiaries of Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated). Effective December 1, 2008, Philadelphia Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD), through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879 and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated to Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF.

PIIC is a Pennsylvania-domiciled property and casualty insurance company with licenses in 50 states and the District of Columbia. TMSIC is a Delaware-domiciled property and casualty insurance company approved for excess and surplus lines business in 49 states, the District of Columbia and the U.S. Virgin Islands. TMSIC’s business plan focuses on underwriting the group’s niche products on a surplus lines basis in those jurisdictions in which the products are not offered on an admitted basis. PIIC and TMSIC proportionately share all premium, losses and expenses on a pro rata basis, under the terms of an intercompany reinsurance pooling agreement. The pooling percentages of PIIC and TMSIC are 95% and 5%, respectively.

The group designs, markets and underwrites specialty commercial property and casualty and professional liability insurance products tailored for the unique exposures of niche markets, providing competitively priced policies, local service relationships, and differentiated coverage features. The group’s products include commercial multi-peril package insurance targeting specialized niches, including among others, non-profit organizations, condominium associations, private, vocational and specialty schools, religious organizations, day-care facilities, recreation and outdoor products industry, and health and fitness centers. Other products include commercial automobile insurance, property insurance for large commercial accounts, inland marine products targeting larger risks such as miscellaneous property floaters, and select classes of professional liability and management liability products. During 2011, the group launched a surety division that began offering surety bonds for contractors, sub-contractors, and others in the construction industry as well as other selective commercial surety bonds. In 2012, the group launched an excess and surplus lines division. New products are developed annually to complement those that are more mature and to take advantage of emerging exposures and developing or changing market niches.

A select group of approximately 320 “preferred agents” and a broader network of approximately 14,000 independent producers complement the group’s approximately 105 marketing professionals located in 47 regional and field offices across 13 regions covering the United States. The group’s distribution model integrates proactive risk selection into the underwriting process via direct contact with the business prospect and/or policyholder.

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TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Period Ending ———DPW——— Reinsurance —Prem Assumed— Reinsurance —Prem Ceded— ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) 2009 2,011,555 8.7 5,973 -28.7 139,563 -18.2 2010 2,119,286 5.4 3,011 -49.6 152,934 9.6 2011 2,158,988 1.9 9,160 204.2 133,611 -12.6 2012 2,390,025 10.7 4,563 -50.2 157,981 18.2 2013 2,649,278 10.8 5,879 28.8 179,925 13.9 5-Yr CAGR … 7.4 … -6.8 … 1.1 Period Ending ————NPW———— ————NPE———— ($000) (% Chg) ($000) (% Chg) 2009 1,877,964 11.2 1,795,425 13.7 2010 1,969,363 4.9 1,923,602 7.1 2011 2,034,538 3.3 2,014,022 4.7 2012 2,236,607 9.9 2,123,997 5.5 2013 2,475,231 10.7 2,383,677 12.2 5-Yr CAGR … 7.9 … 8.6 2013 BY-LINE BUSINESS ($000) Reinsurance Reinsurance ———DPW——— —Prem Assumed— —Prem Ceded—

Product Line ($000) (%) ($000) (%) ($000) (%)

Com’l MultiPeril 1,414,018 53.4 … … 66,947 37.2

Comm’l Auto Liab 352,381 13.3 4,863 82.7 7,946 4.4

Oth Liab CM 316,207 11.9 … … 21,756 12.1

Oth Liab Occur 310,731 11.7 … … 37,001 20.6

Auto Physical 123,625 4.7 932 15.9 2,236 1.2 All Other 132,316 5.0 84 1.4 44,038 24.5 Total 2,649,278 100.0 5,879 100.0 179,925 100.0 Business ———NPW——— Retention Product Line ($000) (%) (%) Com’l MultiPeril 1,347,071 54.4 95.3

Comm’l Auto Liab 349,298 14.1 97.8

Oth Liab CM 294,450 11.9 93.1

Oth Liab Occur 273,730 11.1 88.1

Auto Physical 122,321 4.9 98.2 All Other 88,362 3.6 66.7 Total 2,475,231 100.0 93.2 BY-LINE RESERVES ($000) Product Line 2013 2012 2011 2010 2009 Com’l MultiPeril 1,685,404 1,558,353 1,406,978 1,218,725 1,032,216 Comm’l Auto Liab 472,469 424,977 377,887 320,809 260,667 Oth Liab CM 462,572 453,063 424,596 367,528 310,500 Oth Liab Occur 379,800 313,006 252,850 190,119 156,629

Auto Physical 6,871 10,180 6,923 6,384 4,860

All Other 41,097 33,234 27,778 18,764 24,006

Total 3,048,214 2,792,813 2,497,011 2,122,329 1,788,879

GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000)

2013 2012 2011 2010 2009 New York 362,833 321,690 281,844 263,612 243,343 California 348,270 321,587 298,503 287,627 272,953 Florida 165,318 143,988 121,235 110,548 101,634 Texas 162,022 147,069 140,815 141,666 138,984 Pennsylvania 150,956 139,109 126,956 118,753 105,956 New Jersey 115,067 98,451 93,518 94,644 94,296 Massachusetts 114,553 100,898 91,448 87,421 84,089 Illinois 76,400 70,352 62,300 62,538 58,950 Colorado 64,413 58,281 53,479 52,186 48,242 Missouri 63,057 58,147 52,546 51,162 48,611 All Other 1,026,388 930,454 836,346 849,128 814,497 Total 2,649,278 2,390,025 2,158,988 2,119,286 2,011,555 RISK MANAGEMENT

The Enterprise Risk Management (ERM) structure in place is extensive and well integrated with key risks identified and the specific committees or teams assigned to monitor and address each key risk including establishment and maintenance of key controls as respects to each risk category. The ERM structure is headed up by the executive management team with a specific ERM Committee overseeing both Corporate Governance and Departmental Functions, and reporting directly to the executive management team. The ERM Committee consists of the CEO, CFO, CIO, Chief Actuarial Officer and the director of internal audit. A separate Audit Committee reviews the activities/output of the ERM Committee. Every key risk has a risk-based “dashboard” that is available to management at all times. This dashboard details each key risk; denotes the perils or circumstances that could lead to the risk arising; quantifies the risk; and shows work in progress as far as addressing the risk.

OPERATING PERFORMANCE

Operating Results: Excellent underwriting results and considerable investment income have produced consistently strong earnings over the past five years, generating pre-tax returns on revenue and surplus that consistently outpace those of the commercial casualty composite. An increasing earned premium base, driven by the expansion of the group’s marketing efforts on chosen niche classes of business and the introduction of new products, has led to annual underwriting income generation. Steady underwriting and operating cash flows have facilitated growth in the invested asset base, providing the impetus for greater net investment income generation. In 2011, income production was dampened by higher than normal catastrophe losses. Results have improved since that time primarily as a result of the annual reduction in catastrophe losses. A.M. Best expects the group to continue judiciously employing a strategy emphasizing growth in targeted niche areas. New product implementation and an organized, committed approach to prospecting should enable the group to further capitalize on its leadership position in the specialty commercial lines marketplace.

PROFITABILITY ANALYSIS ($000)

———————————Company——————————— Pre-tax After-tax

Period Operating Operating Net Total

Ending Income Income Income Return

2009 389,691 258,716 257,315 299,614 2010 358,274 251,226 262,898 265,346 2011 188,633 143,306 165,027 164,980 2012 332,350 234,067 243,938 244,176 2013 424,554 309,009 310,815 310,093 5-Yr Total 1,693,502 1,196,324 1,239,992 1,284,209

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————Company———— ——Industry Composite—— Period Pre-tax Return Operating Pre-tax Return Operating

Ending ROR on PHS Ratio ROR on PHS Ratio

2009 21.7 19.7 77.0 15.4 11.4 84.7 2010 18.6 14.4 80.7 11.2 9.5 88.1 2011 9.4 8.4 90.3 6.7 5.6 93.0 2012 15.6 11.8 82.8 7.6 7.8 91.5 2013 17.8 13.9 81.1 15.0 12.5 84.5 5-Yr Avg 16.5 13.3 82.5 11.2 9.3 88.3

Underwriting Results: The group has posted excellent underwriting results over the past five years, with a loss ratio over that time that is far superior to that of the composite. However, in 2011 the group posted its highest loss ratio in over a decade as a result of a significant increase in catastrophe losses, and to a lesser extent smaller reserve releases than in previous years. Despite the impact of Superstorm Sandy, underwriting results in 2012 were greatly improved with the help of higher prior accident year reserve releases and lower catastrophe activity overall. Profitability returned to pre-2011 levels in 2013 primarily due to lower than normal catastrophe losses. Strictly defined niches, product innovation and individual account underwriting are the operational hallmarks that have led to the historically favorable results. The group’s consistent underwriting performance has been achieved despite some adverse loss reserve development on prior accident years, most recently on accident years 2010 and 2011. The group’s expense ratio remains on par with the composite, which also helps lead to a five-year combined ratio that is more than 10 percentage points less than the composite average. A.M. Best believes the strong underwriting fundamentals will continue to provide opportunities to generate underwriting profits in the future.

The long-held philosophy of Philadelphia Insurance Companies is for the group to generate an underwriting profit on each line of business written. Individual account underwriting techniques have been established and strong risk management acumen helps bring about the consistency in underwriting results. Another factor influencing the favorable results in recent years is the group’s focused and disciplined market expansion. Additionally, the group’s marketing strategy has successfully utilized product differentiation and the maintenance of close customer contact with agents and insureds to cultivate long-term relationships. UNDERWRITING EXPERIENCE Period Ending Net Undrw Income ($000)

—Loss Ratios— —Expense Ratios— Ind Pure Loss LAE Loss & LAE Net Comm. Other Exp. Total Exp. Div. Pol. Comb. Ratio Comb. Ratio 2009 244,048 46.1 10.1 56.2 15.7 13.1 28.9 … 85.1 99.9 2010 187,211 49.5 10.5 60.0 16.3 13.3 29.6 … 89.6 104.3 2011 4,543 58.2 12.0 70.3 15.9 13.3 29.2 … 99.5 107.7 2012 133,744 52.3 10.5 62.8 16.5 12.9 29.4 … 92.1 105.6 2013 217,717 49.4 11.5 61.0 15.9 12.8 28.8 0.0 89.8 98.8 5-Yr Total/Avg 787,263 51.2 11.0 62.2 16.1 13.1 29.2 … 91.3 103.2

BY-LINE LOSS RATIO

Product Line 2013 2012 2011 2010 2009 5-Yr Avg

Com’l MultiPeril 46.4 52.2 63.5 53.0 40.9 51.2

Comm’l Auto Liab 59.3 55.8 55.5 52.1 79.7 60.0

Oth Liab CM 51.7 56.7 57.1 49.7 40.2 51.4

Oth Liab Occur 49.7 37.2 39.1 27.6 39.0 39.2

Auto Physical 49.9 61.3 52.0 49.9 44.0 51.6

All Other 46.7 56.2 65.2 38.9 38.4 48.7

Total 49.4 52.3 58.2 49.5 46.1 51.2

DIRECT LOSS RATIO BY STATE

2013 2012 2011 2010 2009 5-Yr Avg New York 63.5 79.1 59.9 47.9 46.9 60.6 California 47.3 48.9 63.8 46.0 39.3 49.3 Florida 48.2 58.8 42.7 40.4 35.8 46.1 Texas 51.3 45.9 55.3 35.8 44.1 46.6 Pennsylvania 66.7 47.7 51.6 45.1 47.5 52.4 New Jersey 48.3 76.6 59.6 42.8 45.9 54.6 Massachusetts 49.2 28.2 58.7 35.7 46.2 43.6 Illinois 60.5 63.1 55.2 31.5 66.8 55.7 Colorado 30.9 61.7 56.2 37.6 62.8 49.1 Missouri 41.3 90.2 56.8 55.6 53.7 59.4 All Other 40.2 42.1 57.4 56.1 43.8 47.6 Total 48.1 52.6 57.4 48.3 44.9 50.3

Investment Results: Net investment income has grown annually over the past five years, as the group’s increasing invested asset base has been strongly influenced by the growth in written premium. Generation of substantial operating cash flow has specifically led to the increased investment income. The increased concentration of invested assets in a portfolio emphasizing tax-exempt state and municipal bonds has resulted in a pre-tax investment yield below the composite average.

INVESTMENT GAINS ($000)

——————————Company——————————

Net Realized Unrealized

Inv Capital Capital

Year Income Gains Gains

2009 145,644 -1,401 42,300 2010 170,856 11,672 2,448 2011 183,980 21,721 -47 2012 198,555 9,871 238 2013 206,812 1,806 -722 5-Yr Total 905,847 43,668 44,217

———————Company——————— Industry Composite Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield

Year (%) (%) (%) (%) (%) (%) 2009 14.6 4.0 4.0 5.2 -9.4 4.4 2010 17.3 4.0 4.3 4.3 3.7 4.5 2011 7.7 3.9 4.3 4.3 -5.0 4.2 2012 7.9 3.8 4.0 4.0 -0.1 4.1 2013 4.2 3.6 3.6 3.6 6.6 4.3 5-Yr Avg 9.6 3.8 4.0 4.2 -1.1 4.3

BALANCE SHEET STRENGTH

Capitalization: The group maintains strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Growth in surplus has largely kept pace with the increase in premium and loss reserves in recent years, resulting in fairly consistent net underwriting leverage measures that approximate the composite. Annual generation of retained earnings has been the driver of the group’s considerable surplus appreciation over the last decade. Recent growth in surplus has been constrained by shareholder dividends in four of the last five years as well as increased catastrophe losses. Annual dividends since 2010 totaling $458 million, including an extraordinary dividend of $158 million in June 2013, have been paid. Both underwriting and investment activities have contributed materially to the group’s organic earnings production.

Going forward, A.M. Best expects the group to pursue additional top-line growth resulting from expanded marketing efforts, the continued maturation of recently introduced products, along with the addition of new products. Other opportunities may be created by market dislocation where the group can utilize its ample and diverse distribution force to pursue these new business opportunities. A.M. Best expects the group’s capitalization to remain strong and comfortably supportive of the ratings.

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CAPITAL GENERATION ANALYSIS ($000) ————————Source of Surplus Growth————————

Pre-tax Realized Unrealized

Operating Capital Income Capital

Year Income Gains Taxes Gains

2009 389,691 -1,401 130,976 42,300 2010 358,274 11,672 107,048 2,448 2011 188,633 21,721 45,327 -47 2012 332,350 9,871 98,283 238 2013 424,554 1,806 115,545 -722 5-Yr Total 1,693,502 43,668 497,179 44,217

—————Source of Surplus Growth—————

Net Change % Chg

Contrib. Other in in

Year Capital Changes PHS PHS

2009 95,000 67,440 462,054 35.8 2010 -100,000 5,989 171,334 9.8 2011 -100,000 5,214 70,194 3.7 2012 -100,000 21,109 165,285 8.3 2013 -158,000 3,916 156,009 7.2 5-Yr Total -363,000 103,668 1,024,876 12.4 QUALITY OF SURPLUS ($000)

Surplus Other Contributed Unassigned

Year Notes Debt Capital Surplus

2009 … … 446,533 1,304,654

2010 … … 452,134 1,470,387

2011 … … 457,351 1,535,365

2012 … … 413,488 1,744,512

2013 … … 413,488 1,900,521

Year-End Conditional Adjusted

Year PHS Reserves PHS 2009 1,751,187 703 1,751,890 2010 1,922,522 524 1,923,046 2011 1,992,715 2,793 1,995,508 2012 2,158,000 1,513 2,159,513 2013 2,314,009 1,342 2,315,351 LEVERAGE ANALYSIS Period Ending

—————Company———— ————Industry Composite———— NPW to

PHS Res.

to

PHS Lev.Net GrossLev. NPW toPHS Res.

to

PHS Lev.Net GrossLev.

2009 1.1 1.0 2.8 3.0 0.7 1.5 2.9 3.7 2010 1.0 1.1 2.8 3.0 0.7 1.4 2.8 3.6 2011 1.0 1.3 2.9 3.1 0.8 1.5 3.0 3.8 2012 1.0 1.3 3.0 3.2 0.8 1.4 2.9 3.8 2013 1.1 1.3 3.1 3.2 0.8 1.4 3.0 3.8 Current BCAR: 260.5

CEDED REINSURANCE ANALYSIS ($000)

Period Ending

——————Company—————— ——Industry Composite—— Ceded Reins. Total Bus. Ret. (%) Reins. Recov. to PHS (%) Ceded Reins. to PHS (%) Bus. Ret. (%) Reins. Recov. to PHS (%) Ceded Reins. to PHS (%) 2009 393,859 93.1 14.5 22.5 82.7 60.0 83.5 2010 381,470 92.8 11.9 19.8 82.2 56.1 78.4 2011 350,918 93.8 10.9 17.6 82.2 57.8 82.5 2012 415,615 93.4 11.9 19.3 82.3 57.3 82.2 2013 403,383 93.2 8.8 17.4 82.6 54.9 81.0 2013 REINSURANCE RECOVERABLES ($000) Paid & Unpaid

Losses IBNR UnearnedPremiums Recov*Other

Total Reins Recov US Affiliates... 125,291 116,735 106,336 … 348,362 Foreign Affiliates... 7,070 10,476 8,421 320 26,287 US Insurers ... 50,206 56,529 41,734 -23 148,446 Pools/Associations... 966 3,151 19,904 … 24,021 Other Non-US... 1,219 485 2,811 … 4,515 Total (ex US Affils) ... 59,461 70,641 72,870 297 203,269 Grand Total... 184,752 187,376 179,206 297 551,631

* Includes Commissions less Funds Withheld

Loss Reserves: The group has experienced favorable loss reserve development in each of the last ten calendar years, which has enhanced reported results. Over this period, accident year reserve development has been mixed as adverse development has been recorded in four of the last six accident years. Most of the adverse development was experienced in the 2010 accident year, primarily attributable to worse than expected case incurred development mainly for the commercial multi-peril line of business, and to a lesser degree, the general liability occurrence line. The 2013 increase in estimated unpaid loss and loss adjustment expenses for the 2011 accident year was primarily attributable to higher than expected case incurred development mainly for the commercial multi-peril coverage, the commercial automobile liability coverage and the other liability occurrence line. The level of overall loss reserves has increased in recent years due to the continued growth in premium.

LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Calendar Year Orig. Loss Reserves Developed Reserves Thru ’13 Develop. to Orig. (%) Develop. to PHS (%) Develop. to NPE (%) Unpaid Reserves @12/13 Unpaid Res. to Develop. (%) 2008 1,418,267 1,215,915 -14.3 -15.7 77.0 155,138 12.8 2009 1,697,695 1,484,796 -12.5 -12.2 82.7 305,657 20.6 2010 2,027,127 1,910,760 -5.7 -6.1 99.3 595,544 31.2 2011 2,367,936 2,294,871 -3.1 -3.7 113.9 1,094,370 47.7 2012 2,650,597 2,627,852 -0.9 -1.1 123.7 1,823,111 69.4 2013 2,888,083 2,888,083 … … 121.2 2,888,083 100.0 LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru ’13 Develop. to Orig. (%) Unpaid Reserves @12/13 Acc. Yr Loss Ratio Acc. Yr Comb. Ratio 2008 595,833 525,270 -11.8 65,394 51.5 84.3 2009 708,039 667,279 -5.8 150,519 56.0 84.8 2010 817,897 877,910 7.3 289,887 65.6 95.1 2011 951,286 958,689 0.8 498,826 71.9 101.1 2012 998,559 999,433 0.1 728,741 65.9 95.3 2013 1,064,972 1,064,972 … 1,064,972 62.5 91.3

ASBESTOS & ENVIRONMENTAL (A&E) RESERVE ANALYSIS

Year

———————Company——————— —Industry Composite— Net A&E Reserve ($000) Reserve Reten-tion (%) Net IBNR Mix (%) Survival Ratio (3yr) Comb. Ratio Impact (1 yr) Comb. Ratio Impact (3 yr) Survival Ratio (3 yr) Comb. Ratio Impact (1 yr) Comb. Ratio Impact (3 yr) 2009 93 31.5 100.0 … 0.0 … … 0.6 … 2010 … … … 0.7 … 2011 … … … 0.0 9.1 0.5 0.6 2012 … … … 9.1 0.5 0.6 2013 … … … 9.4 0.6 0.5

Liquidity: Solid current and overall liquidity has been maintained at levels that exceed the industry composite averages. The group’s liquidity reflects increased premium collections and considerable operating cash flow generated annually. The membership of the group’s two operating companies with the Federal Home Loan Bank of Pittsburgh (FHLB) provides an additional source of liquidity. The companies are able to utilize established borrowing capacity, based on their FHLB-eligible level of collateral. As of December 31, 2013, the unused borrowing capacity was $613.2 million, which provides an immediately available line of credit. As of the same date, there were no borrowings outstanding with the FHLB.

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LIQUIDITY ANALYSIS

Period Ending

—————Company————— ————Industry Composite———— Quick

Liq. (%) Liq. (%)Current Liq. (%)Overall Gross Agents Bal.

to PHS (%) Liq. (%)Quick Liq. (%)Current Liq. (%)Overall Gross Agents Bal. to PHS (%) 2009 19.2 136.7 157.7 6.5 21.0 111.0 146.4 9.0 2010 16.3 137.0 157.0 4.4 21.1 111.4 146.8 8.9 2011 13.0 134.9 152.5 4.1 19.9 109.3 145.1 10.1 2012 12.4 132.9 150.6 3.3 21.9 108.4 145.4 10.8 2013 7.3 132.2 150.0 5.4 22.0 109.5 144.9 10.8

CASH FLOW ANALYSIS ($000)

—————————Company————————— Industry Composite Underw Oper Net Underw Oper Underw Oper

Cash Cash Cash Cash Cash Cash Cash

Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) 2009 595,874 660,290 1,697 148.0 149.4 99.0 110.2 2010 555,913 598,841 17,343 139.8 138.8 96.4 108.5 2011 403,322 593,931 -35,837 124.9 136.3 96.6 107.8 2012 542,498 629,369 105,908 132.7 134.8 99.5 113.0 2013 506,192 651,491 -74,998 127.0 133.0 106.1 117.5 5-Yr Total 2,603,800 3,133,923 14,113 … … … …

Investments: Invested assets represent over 87% of total admitted assets. Non-invested assets are primarily comprised of uncollected agent’s premium balances generated by the increase in premiums. During 2009, the group liquidated its common stock portfolio with the only equities remaining being those that are in concert with its FHLB investment. With the liquidation of the equity portfolio, long-term fixed income holdings comprise more than 98% of invested assets, underscoring the traditionally conservative investment strategy of the group.

INVESTMENT LEVERAGE ANALYSIS (% OF PHS)

Period Ending

—————————Company————————— —Composite—Industry Class 3-6 Bonds Real Estate/ Mtg. Other Invested

Assets CommonStocks Non-Affil.

Inv. Lev. Affil.Inv.

Class 3-6 Bonds CommonStocks

2009 0.0 … … 0.7 0.7 … 5.9 8.6 2010 0.0 … … 0.6 0.6 … 7.0 9.3 2011 0.5 … … 0.5 1.0 … 7.0 9.8 2012 … … … 0.3 0.3 … 6.9 10.5 2013 0.2 … 1.2 0.2 1.5 … 7.5 13.2 INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity

————————Years———————— Yrs-Avg

0-1 1-5 5-10 10-20 20+ Maturity

Government 1.0 1.3 0.7 0.2 0.0 4

Gov’t Agencies & Muni 3.3 22.3 33.6 9.6 7.5 9

Industrial & Misc 1.3 9.2 9.8 0.1 0.1 5

Total 5.5 32.8 44.2 9.9 7.6 8

2013 2012 2011 2010 2009

Bonds (000) 5,946,239 5,460,932 5,032,804 4,504,060 4,044,803

US Government 1.5 3.1 4.0 8.0 9.2

Foreign Government 0.9 0.9 1.0 1.2 1.3

Foreign - All Other 2.4 2.8 2.0 2.4 1.2

State/Special Revenue - US 76.9 78.7 80.6 76.9 78.7 Industrial & Misc - US 18.3 14.6 12.3 11.5 9.6

Private Issues 6.1 2.8 2.0 1.5 1.4 Public Issues 93.9 97.2 98.0 98.5 98.6 Bond Quality (%) 2013 2012 2011 2010 2009 Class 1 96.3 96.7 97.2 97.1 98.7 Class 2 3.6 3.3 2.6 2.8 1.3 Class 3 0.1 … … … … Class 5 … … 0.2 … … Class 6 … … … 0.0 0.0 INVESTMENTS - EQUITIES 2013 2012 2011 2010 2009 Stocks (000) 3,840 6,461 9,068 11,134 11,742 Unaffiliated Common 100.0 100.0 100.0 100.0 100.0

INVESTMENTS - OTHER INVESTED ASSETS

2013 2012 2011 2010 2009

Other Inv Assets (000) 47,987 96,334 -8,974 26,937 9,469

Cash -58.8 18.9 936.8 -54.5 -99.9

Short-Term 103.0 81.0 -99.9 151.6 658.0

Schedule BA Assets 55.6 … … … …

All Other 0.2 0.1 -8.1 3.0 7.1

REINSURANCE

Under its casualty treaty, the group retains the first $3.0 million primary layer of liability on each occurrence and maintains reinsurance coverage up to $21.0 million provided in two layers — $13.0 million in excess of $3.0 million and $5.0 million in excess of $16.0 million. This coverage is placed with a 30% co-participation being retained. Facultative reinsurance coverage (on an individual risk basis) is purchased for casualty risks in excess of $21.0 million. An excess clash casualty reinsurance agreement provides an additional $17.0 million of coverage in excess of a $3.0 million retention for protection from exposures such as extra-contractual obligations and judgments in excess of policy limits.

The group retains the first $5.0 million layer on its commercial property risks, in excess of a $5.0 million annual aggregate deductible, with its reinsurers bearing the remaining liability up to $100.0 million. The group has a 46.75% co-participation on the first excess layer of the per risk treaty subject to a $5.0 million annual aggregate deductible. Automatic facultative reinsurance coverage is provided on each commercial property risk with limits in excess of $100.0 million up to $150.0 million, except for risks located in Florida, Hawaii or Harris County, Texas, where coverage is provided for property losses in excess of $100.0 million up to $130.0 million. Facultative reinsurance coverage is purchased for property risks in excess of $150.0 million except for risks located in Florida, Hawaii or Harris County, Texas, where coverage is purchased for property losses in excess of $130.0 million. The property per risk excess of loss treaties also provide a $95.0 million aggregate policy limit for terrorism exposure in excess of a $5.0 million retention.

Catastrophe reinsurance is maintained in excess of a $100.0 million per occurrence retention up to $500.0 million. On the first excess layer of the catastrophe contract ($150.0 million in excess of $100.0 million applicable to losses occurring Nationwide), the group retains a 10% co-participation; this layer is shared with an affiliate, First Insurance Company of Hawaii, whose risk exposure is in Hawaii only. The second excess layer of the catastrophe contract ($200.0 million in excess of $250.0 million applicable to losses occurring in the Northeast & Hawaii only), is 100% placed; this layer is also shared with First Insurance Company of Hawaii. The top layer of the catastrophe program ($50.0 million aggregate excess of various retentions applicable to losses occurring in the Northeast only), which is also 100% placed, is not shared with any affiliates.

In 2013, PIIC provided reinsurance coverage to an affiliate, Tokio Marine America Insurance Company (TMAIC). Property risks are covered under per risk excess of loss contracts up to a limit of $260.0 million in excess of $20.0 million each loss, on any one risk. PIIC has a share percentage of 67.5% on the first layer of $80.0 million excess of $20.0 million and provides 100% of the coverage on the second layer of $160.0 million excess of $100.0 million. PIIC also provides catastrophe protection under an excess of loss contract in two layers. The first layer covers property and marine risks up to a limit of $100.0 million in excess of $50.0 million per loss occurrence, whereby PIIC reinsures 78.5% of this layer. The second layer covers earthquake losses only, up to a limit of $50.0 million in excess of $150.0 million per loss occurrence, whereby PIIC reinsures 71% of this layer. This reinsurance coverage was 100% retroceded to TMNF. This reinsurance coverage was not provided to TMAIC in 2014.

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CONSOLIDATED BALANCE SHEET (at December 31, 2013) ADMITTED ASSETS ($000) 12/31/13 12/31/12 ’13% ’12% Bonds ... 5,946,239 5,460,932 85.7 84.9 Common stock... 3,840 6,461 0.1 0.1 Cash & short-term invest ... 21,209 96,208 0.3 1.5 Other non-affil inv asset ... 26,778 127 0.4 0.0 Total invested assets... 5,998,066 5,563,727 86.4 86.5 Premium balances ... 662,147 559,188 9.5 8.7 Accrued interest ... 65,077 60,612 0.9 0.9 All other assets... 216,867 244,929 3.1 3.8 Total assets... 6,942,157 6,428,455 100.0 100.0

LIABILITIES & SURPLUS ($000)

12/31/13 12/31/12 ’13% ’12% Loss & LAE reserves ... 3,048,214 2,792,813 43.9 43.4 Unearned premiums... 1,225,870 1,134,315 17.7 17.6 Conditional reserve funds ... 1,342 1,513 0.0 0.0 All other liabilities ... 352,722 341,814 5.1 5.3 Total liabilities ... 4,628,148 4,270,455 66.7 66.4 Capital & assigned surplus... 413,488 413,488 6.0 6.4 Unassigned surplus... 1,900,521 1,744,512 27.4 27.1 Total policyholders’ surplus... 2,314,009 2,158,000 33.3 33.6 Total liabilities & surplus... 6,942,157 6,428,455 100.0 100.0

CONSOLIDATED SUMMARY OF 2013 OPERATIONS ($000) Statement of Income 12/31/13

Funds Provided from

Operations 12/31/13

Premiums earned ... 2,383,677 Premiums collected ... 2,384,305

Losses incurred... 1,178,053 Benefit & loss-related pmts ... 987,605

LAE incurred ... 275,235

Undrw expenses incurred ... 712,432 LAE & undrw expenses paid .... 890,488

Div to policyholders... 240 Div to policyholders... 20

Net underwriting income ... 217,717 Undrw cash flow... 506,192

Net investment income... 206,812 Investment income ... 243,804

Other income/expense ... 25 Other income/expense ... 25

Pre-tax oper income ... 424,554 Pre-tax cash operations... 750,021

Realized capital gains ... 1,806

Income taxes incurred ... 115,545 Income taxes pd (recov)... 98,529

Net income ... 310,815 Net oper cash flow ... 651,491

——

♦

——

Ultimate Parent: Tokio Marine Holdings, Inc.

PHILADELPHIA INDEMNITY INSURANCE COMPANY

One Bala Plaza, Suite 100, Bala Cynwyd, PA 19004-1403

Web: www.phly.com

Tel: 610-617-7900 Fax: 610-617-7940

AMB#: 003616 NAIC#: 18058

Ultimate Parent#: 050962 FEIN#: 23-1738402 BEST’S CREDIT RATING

Best’s Financial Strength Rating: A++ Outlook: Stable Best’s Financial Size Category: XV

The company’s rating reflects its pooling arrangement with other pool members of the Philadelphia Insurance Companies (AMB# 018667).

RATING RATIONALE

The following text is derived from A.M. Best’s Credit Report on Philadelphia Insurance Companies (AMB# 018667).

Rating Rationale: The ratings apply to Philadelphia Indemnity Insurance Company and Tokio Marine Specialty Insurance Company, which participate in an intercompany reinsurance pooling agreement, collectively referred to as Philadelphia Insurance Companies. The ratings reflect Philadelphia Insurance Companies’ superior operating profitability, strong capitalization, solid liquidity and excellent market presence within the specialty commercial marketplace. The ratings also recognize the strategic importance of the group to its ultimate parent, Tokio Marine Holdings, Inc. (TMHD), as the group plays an important and strategic role in supporting TMHD’s global expansion strategy. Somewhat offsetting these favorable factors are the company’s susceptibility to catastrophe losses, and the growth in top-line premium in recent years that is expected to continue over the near term.

Results have historically outperformed the commercial casualty industry composite in both underwriting and operating results, driven by a focused niche market strategy, energized marketing style, highly disciplined underwriting and successful risk selection. Long-standing relationships with core producers, including preferred agents that have the opportunity to earn profit sharing with the favorable performance of their portfolio, have played an important role in the success of the group. Adherence to underwriting guidelines, a commitment to pricing integrity and advanced enterprise risk management integration have also helped continue to drive the generation of operating earnings.

The group currently enjoys strong risk-adjusted capitalization driven by organic growth in policyholders’ surplus despite dividends paid to the parent in four of the last five years. Most recently, results benefited from a relatively calm catastrophe year in 2013, rate increases and measured growth in writings. Going forward, A.M. Best expects further growth in premium and continued earnings production, leading to sustained balance sheet strength. Considering the financial flexibility of TMHD, A.M. Best believes as the group has become more deeply integrated as a strategic member of the organization, it should benefit more readily from TMHD’s financial wherewithal, if needed.

A.M. Best believes that the members of the group are well positioned at the current ratings. Looking forward, negative rating action could occur if capitalization and/or operating performance fall markedly short of A.M. Best’s expectations, primarily as a result of any material increase in frequency and severity of catastrophe losses. The ratings can also be negatively impacted by any negative rating actions on its parent, Tokio Marine & Nichido Fire Insurance Co., Ltd., and/or a change in support from or relationship with TMHD.

FIVE-YEAR RATING HISTORY Date Best’s FSR Date Best’s FSR 05/08/14 A++ 07/09/10 A+ 02/28/13 A++ 06/12/09 A+ 09/19/11 A++

KEY FINANCIAL INDICATORS ($000)

————————————Statutory Data———————————— Period Ending Direct Premiums Written Net Premiums Written Pre-tax Operating Income Net Income Total Admitted Assets Policy-holders’ Surplus 2009 1,951,370 1,784,066 369,228 243,726 4,517,425 1,647,134 2010 2,078,222 1,870,895 339,840 250,362 5,004,480 1,806,302 2011 2,124,704 1,932,811 178,311 154,959 5,462,757 1,867,005 2012 2,337,154 2,124,777 314,636 229,630 6,047,270 2,017,179 2013 2,547,303 2,351,470 401,939 293,493 6,526,061 2,156,714

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——Profitability—— ———Leverage——— ——Liquidity—— Period Ending Comb. Ratio Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW to PHS Net Lev. Overall Liq. (%) Oper. Cash flow (%) 2009 85.1 4.0 21.6 0.7 1.1 2.8 157.4 149.1 2010 89.6 4.0 18.6 0.6 1.0 2.8 156.5 138.5 2011 99.5 3.9 9.3 1.0 1.0 3.0 152.0 136.9 2012 92.1 3.8 15.6 0.3 1.1 3.0 150.1 135.2 2013 89.8 3.6 17.7 1.6 1.1 3.1 149.4 131.9 5-Yr 91.3 3.8 16.5 … … … … …

(*) 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.

BUSINESS PROFILE

Philadelphia Insurance Companies (the “group”) consists of Philadelphia Indemnity Insurance Company (PIIC) and Tokio Marine Specialty Insurance Company (TMSIC) (formerly Philadelphia Insurance Company). Both companies are direct subsidiaries of Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated). Effective December 1, 2008, Philadelphia Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD), through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879 and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated to Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF.

PIIC is a Pennsylvania-domiciled property and casualty insurance company with licenses in 50 states and the District of Columbia. TMSIC is a Delaware-domiciled property and casualty insurance company approved for excess and surplus lines business in 49 states, the District of Columbia and the U.S. Virgin Islands. TMSIC’s business plan focuses on underwriting the group’s niche products on a surplus lines basis in those jurisdictions in which the products are not offered on an admitted basis. PIIC and TMSIC proportionately share all premium, losses and expenses on a pro rata basis, under the terms of an intercompany reinsurance pooling agreement. The pooling percentages of PIIC and TMSIC are 95% and 5%, respectively.

The group designs, markets and underwrites specialty commercial property and casualty and professional liability insurance products tailored for the unique exposures of niche markets, providing competitively priced policies, local service relationships, and differentiated coverage features. The group’s products include commercial multi-peril package insurance targeting specialized niches, including among others, non-profit organizations, condominium associations, private, vocational and specialty schools, religious organizations, day-care facilities, recreation and outdoor products industry, and health and fitness centers. Other products include commercial automobile insurance, property insurance for large commercial accounts, inland marine products targeting larger risks such as miscellaneous property floaters, and select classes of professional liability and management liability products. During 2011, the group launched a surety division that began offering surety bonds for contractors, sub-contractors, and others in the construction industry as well as other selective commercial surety bonds. In 2012, the group launched an excess and surplus lines division. New products are developed annually to complement those that are more mature and to take advantage of emerging exposures and developing or changing market niches.

A select group of approximately 320 “preferred agents” and a broader network of approximately 14,000 independent producers complement the group’s approximately 105 marketing professionals located in 47 regional and field offices across 13 regions covering the United States. The group’s distribution model integrates proactive risk selection into the underwriting process via direct contact with the business prospect and/or policyholder.

TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Period Ending ———DPW——— Reinsurance —Prem Assumed— Reinsurance —Prem Ceded— ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) 2009 1,951,370 8.7 60,490 3.0 227,794 -8.6 2010 2,078,222 6.5 38,895 -35.7 246,223 8.1 2011 2,124,704 2.2 39,578 1.8 231,472 -6.0 2012 2,337,154 10.0 50,820 28.4 263,197 13.7 2013 2,547,303 9.0 107,337 111.2 303,170 15.2 5-Yr CAGR … 7.3 … 12.8 … 4.0 Period Ending ————NPW———— ————NPE———— ($000) (% Chg) ($000) (% Chg) 2009 1,784,066 11.2 1,705,653 13.7 2010 1,870,895 4.9 1,827,422 7.1 2011 1,932,811 3.3 1,913,321 4.7 2012 2,124,777 9.9 2,017,797 5.5 2013 2,351,470 10.7 2,264,493 12.2 5-Yr CAGR … 7.9 … 8.6

Territory: The company is licensed in the District of Columbia and all states. 2013 BY-LINE BUSINESS ($000)

Reinsurance Reinsurance ———DPW——— —Prem Assumed— —Prem Ceded—

Product Line ($000) (%) ($000) (%) ($000) (%)

Com’l MultiPeril 1,385,085 54.4 27,728 25.8 133,095 43.9 Comm’l Auto Liab 351,110 13.8 6,130 5.7 25,407 8.4

Oth Liab CM 304,435 12.0 5,395 5.0 30,103 9.9

Oth Liab Occur 266,517 10.5 35,006 32.6 41,480 13.7

Auto Physical 123,352 4.8 1,203 1.1 8,350 2.8 All Other 116,804 4.6 31,875 29.7 64,735 21.4 Total 2,547,303 100.0 107,337 100.0 303,170 100.0 Business ———NPW——— Retention Product Line ($000) (%) (%) Com’l MultiPeril 1,279,717 54.4 92.4

Comm’l Auto Liab 331,833 14.1 93.2

Oth Liab CM 279,728 11.9 91.9

Oth Liab Occur 260,043 11.1 91.6

Auto Physical 116,205 4.9 93.5 All Other 83,944 3.6 67.6 Total 2,351,470 100.0 92.1 BY-LINE RESERVES ($000) Product Line 2013 2012 2011 2010 2009 Com’l MultiPeril 1,601,134 1,480,433 1,336,629 1,157,788 980,607 Comm’l Auto Liab 448,846 403,733 358,993 304,769 247,632 Oth Liab CM 439,443 430,408 403,366 349,151 294,975 Oth Liab Occur 360,810 297,357 240,207 180,612 148,800

Auto Physical 6,527 9,670 6,577 6,065 4,616

All Other 39,043 31,571 26,389 17,827 22,804

Total 2,895,803 2,653,173 2,372,161 2,016,213 1,699,435

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GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000)

2013 2012 2011 2010 2009 New York 350,505 316,426 277,157 259,934 238,477 California 322,347 312,111 293,054 283,638 261,361 Florida 161,428 142,197 120,467 109,987 100,548 Texas 157,394 144,134 140,654 136,882 130,539 Pennsylvania 148,062 139,100 126,956 118,753 105,835 New Jersey 110,768 96,329 92,190 93,234 92,212 Massachusetts 109,631 97,428 89,484 86,303 83,327 Illinois 72,476 69,373 61,925 62,103 58,166 Colorado 61,597 56,812 51,442 50,409 46,019 Missouri 61,045 55,938 51,111 49,153 45,899 All Other 992,051 907,305 820,263 827,828 788,986 Total 2,547,303 2,337,154 2,124,704 2,078,222 1,951,370 RISK MANAGEMENT

The Enterprise Risk Management (ERM) structure in place is extensive and well integrated with key risks identified and the specific committees or teams assigned to monitor and address each key risk including establishment and maintenance of key controls as respects to each risk category. The ERM structure is headed up by the executive management team with a specific ERM Committee overseeing both Corporate Governance and Departmental Functions, and reporting directly to the executive management team. The ERM Committee consists of the CEO, CFO, CIO, Chief Actuarial Officer and the director of internal audit. A separate Audit Committee reviews the activities/output of the ERM Committee. Every key risk has a risk-based “dashboard” that is available to management at all times. This dashboard details each key risk; denotes the perils or circumstances that could lead to the risk arising; quantifies the risk; and shows work in progress as far as addressing the risk.

OPERATING PERFORMANCE

Operating Results: Excellent underwriting results and considerable investment income have produced consistently strong earnings over the past five years, generating pre-tax returns on revenue and surplus that consistently outpace those of the commercial casualty composite. An increasing earned premium base, driven by the expansion of the group’s marketing efforts on chosen niche classes of business and the introduction of new products, has led to annual underwriting income generation. Steady underwriting and operating cash flows have facilitated growth in the invested asset base, providing the impetus for greater net investment income generation. In 2011, income production was dampened by higher than normal catastrophe losses. Results have improved since that time primarily as a result of the annual reduction in catastrophe losses. A.M. Best expects the group to continue judiciously employing a strategy emphasizing growth in targeted niche areas. New product implementation and an organized, committed approach to prospecting should enable the group to further capitalize on its leadership position in the specialty commercial lines marketplace.

PROFITABILITY ANALYSIS ($000)

———————————Company——————————— Pre-tax After-tax

Period Operating Operating Net Total

Ending Income Income Income Return

2009 369,228 244,426 243,726 283,297 2010 339,840 239,036 250,362 252,810 2011 178,311 134,366 154,959 154,912 2012 314,636 221,592 229,630 229,868 2013 401,939 291,752 293,493 292,771 5-Yr Total 1,603,953 1,131,171 1,172,170 1,213,658 ————Company———— ——Industry Composite—— Period Pre-tax Return Operating Pre-tax Return Operating

Ending ROR on PHS Ratio ROR on PHS Ratio

2009 21.6 19.9 77.0 15.4 11.4 84.7 2010 18.6 14.6 80.7 11.2 9.5 88.1 2011 9.3 8.4 90.4 6.7 5.6 93.0 2012 15.6 11.8 82.9 7.6 7.8 91.5 2013 17.7 14.0 81.1 15.0 12.5 84.5 5-Yr Avg 16.5 13.5 82.5 11.2 9.3 88.3

Underwriting Results: The group has posted excellent underwriting results over the past five years, with a loss ratio over that time that is far superior to that of the composite. However, in 2011 the group posted its highest loss ratio in over a decade as a result of a significant increase in catastrophe losses, and to a lesser extent smaller reserve releases than in previous years. Despite the impact of Superstorm Sandy, underwriting results in 2012 were greatly improved with the help of higher prior accident year reserve releases and lower catastrophe activity overall. Profitability returned to pre-2011 levels in 2013 primarily due to lower than normal catastrophe losses. Strictly defined niches, product innovation and individual account underwriting are the operational hallmarks that have led to the historically favorable results. The group’s consistent underwriting performance has been achieved despite some adverse loss reserve development on prior accident years, most recently on accident years 2010 and 2011. The group’s expense ratio remains on par with the composite, which also helps lead to a five-year combined ratio that is more than 10 percentage points less than the composite average. A.M. Best believes the strong underwriting fundamentals will continue to provide opportunities to generate underwriting profits in the future.

The long-held philosophy of Philadelphia Insurance Companies is for the group to generate an underwriting profit on each line of business written. Individual account underwriting techniques have been established and strong risk management acumen helps bring about the consistency in underwriting results. Another factor influencing the favorable results in recent years is the group’s focused and disciplined market expansion. Additionally, the group’s marketing strategy has successfully utilized product differentiation and the maintenance of close customer contact with agents and insureds to cultivate long-term relationships. UNDERWRITING EXPERIENCE Period Ending Net Undrw Income ($000)

—Loss Ratios— —Expense Ratios— Ind Pure

Loss LAE Loss &LAE Comm.Net OtherExp. TotalExp. Div.Pol. Comb.Ratio Comb.Ratio 2009 231,787 46.1 10.1 56.2 15.6 13.3 28.9 … 85.1 99.9 2010 177,864 49.5 10.5 60.0 16.0 13.6 29.6 … 89.6 104.3 2011 4,282 58.2 12.0 70.3 15.6 13.6 29.2 … 99.5 107.7 2012 126,993 52.3 10.5 62.8 16.3 13.1 29.4 … 92.1 105.6 2013 206,794 49.4 11.5 61.0 15.9 12.9 28.8 0.0 89.8 98.8 5-Yr Total/Avg 747,720 51.2 11.0 62.2 15.9 13.3 29.2 … 91.3 103.2

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BY-LINE LOSS RATIO

Product Line 2013 2012 2011 2010 2009 5-Yr Avg

Com’l MultiPeril 46.4 52.2 63.5 53.0 40.9 51.2

Comm’l Auto Liab 59.3 55.8 55.5 52.1 79.7 60.0

Oth Liab CM 51.7 56.7 57.1 49.7 40.2 51.4

Oth Liab Occur 49.7 37.2 39.1 27.6 39.0 39.2

Auto Physical 49.9 61.3 52.0 49.9 44.0 51.6

All Other 46.7 56.2 65.2 38.9 38.4 48.7

Total 49.4 52.3 58.2 49.5 46.1 51.2

DIRECT LOSS RATIO BY STATE

2013 2012 2011 2010 2009 5-Yr Avg New York 64.2 79.9 59.7 49.1 47.1 61.1 California 47.7 49.5 64.3 46.6 40.4 49.9 Florida 47.7 58.2 41.9 39.2 33.9 45.1 Texas 52.3 46.0 55.4 37.2 47.3 47.8 Pennsylvania 67.1 47.6 51.6 45.1 47.5 52.5 New Jersey 49.0 76.2 59.2 43.2 45.9 54.7 Massachusetts 49.5 27.7 58.9 36.0 46.1 43.7 Illinois 59.5 63.7 54.2 32.9 66.1 55.5 Colorado 30.9 62.4 55.8 39.4 64.3 49.8 Missouri 42.4 84.8 55.8 57.3 53.8 58.7 All Other 40.4 42.5 57.8 56.6 43.8 48.0 Total 48.5 52.8 57.5 48.9 45.2 50.6

Investment Results: Net investment income has grown annually over the past five years, as the group’s increasing invested asset base has been strongly influenced by the growth in written premium. Generation of substantial operating cash flow has specifically led to the increased investment income. The increased concentration of invested assets in a portfolio emphasizing tax-exempt state and municipal bonds has resulted in a pre-tax investment yield below the composite average.

INVESTMENT GAINS ($000)

——————————Company——————————

Net Realized Unrealized

Inv Capital Capital

Year Income Gains Gains

2009 137,441 -699 39,570 2010 161,769 11,326 2,448 2011 173,918 20,593 -47 2012 187,593 8,039 238 2013 195,120 1,740 -722 5-Yr Total 855,841 40,999 41,488

———————Company——————— Industry Composite Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield

Year (%) (%) (%) (%) (%) (%) 2009 14.9 4.0 4.0 5.2 -9.4 4.4 2010 17.7 4.0 4.3 4.4 3.7 4.5 2011 7.5 3.9 4.4 4.4 -5.0 4.2 2012 7.9 3.8 4.0 4.0 -0.1 4.1 2013 4.0 3.6 3.6 3.6 6.6 4.3 5-Yr Avg 9.7 3.8 4.0 4.2 -1.1 4.3

BALANCE SHEET STRENGTH

Capitalization: The group maintains strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Growth in surplus has largely kept pace with the increase in premium and loss reserves in recent years, resulting in fairly consistent net underwriting leverage measures that approximate the composite. Annual generation of retained earnings has been the driver of the group’s considerable surplus appreciation over the last decade. Recent growth in surplus has been constrained by shareholder

dividends in four of the last five years as well as increased catastrophe losses. Annual dividends since 2010 totaling $458 million, including an extraordinary dividend of $158 million in June 2013, have been paid. Both underwriting and investment activities have contributed materially to the group’s organic earnings production.

Going forward, A.M. Best expects the group to pursue additional top-line growth resulting from expanded marketing efforts, the continued maturation of recently introduced products, along with the addition of new products. Other opportunities may be created by market dislocation where the group can utilize its ample and diverse distribution force to pursue these new business opportunities. A.M. Best expects the group’s capitalization to remain strong and comfortably supportive of the ratings.

CAPITAL GENERATION ANALYSIS ($000) ————————Source of Surplus Growth————————

Pre-tax Realized Unrealized

Operating Capital Income Capital

Year Income Gains Taxes Gains

2009 369,228 -699 124,802 39,570 2010 339,840 11,326 100,804 2,448 2011 178,311 20,593 43,945 -47 2012 314,636 8,039 93,044 238 2013 401,939 1,740 110,187 -722 5-Yr Total 1,603,953 40,999 472,782 41,488

—————Source of Surplus Growth—————

Net Change % Chg

Contrib. Other in in

Year Capital Changes PHS PHS

2009 95,000 63,796 442,093 36.7 2010 -100,000 6,358 159,168 9.7 2011 -100,000 5,791 60,703 3.4 2012 -100,000 20,305 150,174 8.0 2013 -158,000 4,764 139,535 6.9 5-Yr Total -363,000 101,015 951,673 12.3 QUALITY OF SURPLUS ($000)

Surplus Other Contributed Unassigned

Year Notes Debt Capital Surplus

2009 … … 421,974 1,225,159

2010 … … 427,102 1,379,200

2011 … … 432,531 1,434,474

2012 … … 390,570 1,626,608

2013 … … 390,570 1,766,143

Year-End Conditional Adjusted

Year PHS Reserves PHS 2009 1,647,134 703 1,647,836 2010 1,806,302 505 1,806,807 2011 1,867,005 2,773 1,869,778 2012 2,017,179 1,398 2,018,577 2013 2,156,714 1,323 2,158,036 LEVERAGE ANALYSIS Period Ending

—————Company———— ————Industry Composite———— NPW to PHS Res. to PHS Net Lev. Gross Lev. NPW to PHS Res. to PHS Net Lev. Gross Lev. 2009 1.1 1.0 2.8 3.1 0.7 1.5 2.9 3.7 2010 1.0 1.1 2.8 3.0 0.7 1.4 2.8 3.6 2011 1.0 1.3 3.0 3.1 0.8 1.5 3.0 3.8 2012 1.1 1.3 3.0 3.2 0.8 1.4 2.9 3.8 2013 1.1 1.3 3.1 3.3 0.8 1.4 3.0 3.8 Current BCAR: 260.5

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CEDED REINSURANCE ANALYSIS ($000)

Period Ending

——————Company—————— ——Industry Composite—— Ceded Reins. Total Bus. Ret. (%) Reins. Recov. to PHS (%) Ceded Reins. to PHS (%) Bus. Ret. (%) Reins. Recov. to PHS (%) Ceded Reins. to PHS (%) 2009 375,635 91.1 14.7 22.8 82.7 60.0 83.5 2010 368,085 89.9 12.2 20.4 82.2 56.1 78.4 2011 339,069 90.6 11.2 18.2 82.2 57.8 82.5 2012 397,860 90.7 12.2 19.7 82.3 57.3 82.2 2013 361,976 92.1 8.5 16.8 82.6 54.9 81.0 2013 REINSURANCE RECOVERABLES ($000) Paid & Unpaid

Losses IBNR PremiumsUnearned Recov*Other

Total Reins Recov US Affiliates... 91,416 76,241 61,294 … 228,951 Foreign Affiliates... 6,786 7,483 5,471 271 20,011 US Insurers ... 48,780 50,558 35,426 -23 134,741 Pools/Associations... 966 3,151 19,904 … 24,021 Other Non-US... 1,186 281 2,328 … 3,795 Total (ex US Affils) ... 57,718 61,473 63,129 248 182,568 Grand Total... 149,134 137,714 124,423 248 411,519

* Includes Commissions less Funds Withheld

Loss Reserves: The group has experienced favorable loss reserve development in each of the last ten calendar years, which has enhanced reported results. Over this period, accident year reserve development has been mixed as adverse development has been recorded in four of the last six accident years. Most of the adverse development was experienced in the 2010 accident year, primarily attributable to worse than expected case incurred development mainly for the commercial multi-peril line of business, and to a lesser degree, the general liability occurrence line. The 2013 increase in estimated unpaid loss and loss adjustment expenses for the 2011 accident year was primarily attributable to higher than expected case incurred development mainly for the commercial multi-peril coverage, the commercial automobile liability coverage and the other liability occurrence line. The level of overall loss reserves has increased in recent years due to the continued growth in premium.

LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Calendar Year Orig. Loss Reserves Developed Reserves Thru ’13 Develop. to Orig. (%) Develop. to PHS (%) Develop. to NPE (%) Unpaid Reserves @12/13 Unpaid Res. to Develop. (%) 2008 1,347,354 1,155,113 -14.3 -16.0 77.0 147,375 12.8 2009 1,612,810 1,410,555 -12.5 -12.3 82.7 290,369 20.6 2010 1,925,771 1,815,220 -5.7 -6.1 99.3 565,762 31.2 2011 2,249,541 2,180,125 -3.1 -3.7 113.9 1,039,650 47.7 2012 2,518,067 2,496,463 -0.9 -1.1 123.7 1,731,959 69.4 2013 2,743,679 2,743,679 … … 121.2 2,743,679 100.0 LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Reserves Developed Reserves Thru ’13 Develop. to Orig. (%) Unpaid Reserves @12/13 Acc. Yr Loss Ratio Acc. Yr Comb. Ratio 2008 566,044 499,003 -11.8 62,121 51.5 84.3 2009 672,635 633,919 -5.8 142,994 56.0 84.9 2010 777,001 834,018 7.3 275,393 65.6 95.1 2011 903,721 910,755 0.8 473,888 71.9 101.1 2012 948,632 949,467 0.1 692,309 65.9 95.3 2013 1,011,720 1,011,720 … 1,011,720 62.5 91.3

ASBESTOS & ENVIRONMENTAL (A&E) RESERVE ANALYSIS

Year

———————Company——————— —Industry Composite— Net A&E Reserve ($000) Reserve Reten-tion (%) Net IBNR Mix (%) Survival Ratio (3yr) Comb. Ratio Impact (1 yr) Comb. Ratio Impact (3 yr) Survival Ratio (3 yr) Comb. Ratio Impact (1 yr) Comb. Ratio Impact (3 yr) 2009 88 80.3 100.0 … 0.0 … … 0.6 … 2010 … … … 0.7 … 2011 … … … 0.0 9.1 0.5 0.6 2012 … … … 9.1 0.5 0.6 2013 … … … 9.4 0.6 0.5

Liquidity: Solid current and overall liquidity has been maintained at levels that exceed the industry composite averages. The group’s liquidity reflects increased premium collections and considerable operating cash flow generated annually. The membership of the group’s two operating companies with the Federal Home Loan Bank of Pittsburgh (FHLB) provides an additional source of liquidity. The companies are able to utilize established borrowing capacity, based on their FHLB-eligible level of collateral. As of December 31, 2013, the unused borrowing capacity was $613.2 million, which provides an immediately available line of credit. As of the same date, there were no borrowings outstanding with the FHLB.

LIQUIDITY ANALYSIS

Period Ending

—————Company————— ————Industry Composite———— Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Gross Agents Bal. to PHS (%) Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Gross Agents Bal. to PHS (%) 2009 18.5 135.6 157.4 6.8 21.0 111.0 146.4 9.0 2010 15.1 136.0 156.5 4.5 21.1 111.4 146.8 8.9 2011 12.5 134.2 152.0 3.5 19.9 109.3 145.1 10.1 2012 12.1 132.2 150.1 2.6 21.9 108.4 145.4 10.8 2013 6.9 131.1 149.4 4.8 22.0 109.5 144.9 10.8

CASH FLOW ANALYSIS ($000)

—————————Company————————— Industry Composite Underw Oper Net Underw Oper Underw Oper

Cash Cash Cash Cash Cash Cash Cash

Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) 2009 561,793 621,231 6,204 147.8 149.1 99.0 110.2 2010 525,363 566,356 17,215 139.4 138.5 96.4 108.5 2011 393,117 573,854 -28,372 125.6 136.9 96.6 107.8 2012 521,510 602,470 99,621 133.1 135.2 99.5 113.0 2013 465,365 601,733 -79,552 126.0 131.9 106.1 117.5 5-Yr Total 2,467,148 2,965,644 15,115 … … … …

Investments: Invested assets represent over 87% of total admitted assets. Non-invested assets are primarily comprised of uncollected agent’s premium balances generated by the increase in premiums. During 2009, the group liquidated its common stock portfolio with the only equities remaining being those that are in concert with its FHLB investment. With the liquidation of the equity portfolio, long-term fixed income holdings comprise more than 98% of invested assets, underscoring the traditionally conservative investment strategy of the group.

INVESTMENT LEVERAGE ANALYSIS (% OF PHS)

Period Ending —————————Company————————— Industry —Composite— Class 3-6 Bonds Real Estate/ Mtg. Other Invested Assets Common Stocks Non-Affil. Inv. Lev. Affil. Inv. Class 3-6 Bonds Common Stocks 2009 0.0 … … 0.7 0.7 … 5.9 8.6 2010 0.0 … … 0.6 0.6 … 7.0 9.3 2011 0.6 … … 0.5 1.0 … 7.0 9.8 2012 … … … 0.3 0.3 … 6.9 10.5 2013 0.2 … 1.2 0.2 1.6 … 7.5 13.2 INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity

————————Years———————— Yrs-Avg

0-1 1-5 5-10 10-20 20+ Maturity

Government 0.9 1.3 0.7 0.2 0.0 4

Gov’t Agencies & Muni 3.3 22.1 33.6 9.5 7.6 9

Industrial & Misc 1.3 9.4 9.8 0.1 0.1 5

Total 5.5 32.9 44.1 9.7 7.7 8

(12)

2013 2012 2011 2010 2009 Bonds (000) 5,603,006 5,148,801 4,750,407 4,256,061 3,825,807

US Government 1.5 3.0 3.7 7.8 9.1

Foreign Government 0.9 1.0 1.1 1.2 1.4

Foreign - All Other 2.3 2.7 2.0 2.5 1.2

State/Special Revenue - US 76.6 78.4 80.7 76.6 78.6 Industrial & Misc - US 18.6 14.9 12.5 11.9 9.7

Private Issues 6.4 3.0 2.1 1.6 1.4 Public Issues 93.6 97.0 97.9 98.4 98.6 Bond Quality (%) 2013 2012 2011 2010 2009 Class 1 96.2 96.6 97.1 97.0 98.7 Class 2 3.7 3.4 2.6 3.0 1.3 Class 3 0.1 … … … … Class 5 … … 0.2 … … Class 6 … … … 0.0 0.0 INVESTMENTS - EQUITIES 2013 2012 2011 2010 2009 Stocks (000) 3,594 6,229 8,782 10,782 11,372 Unaffiliated Common 100.0 100.0 100.0 100.0 100.0

INVESTMENTS - OTHER INVESTED ASSETS

2013 2012 2011 2010 2009

Other Inv Assets (000) 29,119 82,120 -17,257 11,079 -5,795

Cash -99.9 18.3 481.3 -99.9 858.9

Short-Term 141.7 81.6 -99.9 258.1 -99.9

Schedule BA Assets 91.6 … … … …

All Other … 0.2 -2.2 3.0 -11.7

HISTORY

The company was incorporated under the laws of the Commonwealth of Pennsylvania as the Philadelphia Mutual Insurance Company on February 4, 1927 and began business on March 1 of the same year. The name, Philadelphia Insurance Company, went into effect after the company converted from a mutual company to a stock company on December 3, 1987. The present title was adopted on June 20, 1990, concurrent with the merger of a former companion carrier, The Preserver Assurance Company.

Common capital stock of $3,599,950 consists of 359,995 shares of common stock at a par value of $10 per share. A total of 1,000,000 shares are authorized.

MANAGEMENT

The company is wholly owned by Philadelphia Consolidated Holding Corp. (Philadelphia Consolidated), which is also the parent of Tokio Marine Specialty Insurance Company, Liberty American Insurance Company and Liberty American Select Insurance Company. The company maintains joint administrative offices with Tokio Marine Specialty Insurance Company. Effective December 1, 2008, Philadelphia Consolidated was acquired by Tokio Marine Holdings, Inc. (TMHD) through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF). TMNF was founded in 1879 and is the oldest and largest property and casualty insurer in Japan. On March 31, 2012, TMNF contributed 100% of the outstanding shares of Philadelphia Consolidated to Tokio Marine North America, Inc. (TMNA), an insurance holding company domiciled in the State of Delaware and a wholly owned direct subsidiary of TMNF.

Management of the company is under the direction of Robert D. O’Leary, Jr., President and Chief Executive Officer. He serves in a similar capacity with the affiliate, Tokio Marine Specialty Insurance Company.

The company has an agreement with Maguire Insurance Agency, Inc., which is also wholly owned by Philadelphia Consolidated, to provide underwriting, policy service, claims handling and sales support. The company also has an agreement with TMNA Services, LLC, which is wholly owned by TMNA, to provide accounting, actuarial, legal, facility maintenance, information technology, human capital, and internal audit services. The compensation structure is based on fees consistent with industry standards. Officers: Chairman of the Board, James J. Maguire, Jr.; President and Chief Executive Officer, Robert D. O’Leary; Executive Vice President, Treasurer and Chief Financial Officer, Karen A. Gilmer-Pauciello; Executive Vice President and Chief Underwriting Officer, John W. Glomb; Executive Vice President and Chief Claim Officer, William J. Benecke; Executive Vice President and Chief Marketing Officer, Brian J. O’Reilly.

Directors: Michael J. Cascio, Karen A. Gilmer-Pauciello, Hiroyuki Haruyama, James J. Maguire, Jr. (Chairman), Michael J. Morris, Robert D. O’Leary, Donald A. Pizer.

REGULATORY

An examination of the financial condition was made as of December 31, 2010, by the insurance department of Pennsylvania. The 2013 annual independent audit of the company was conducted by PricewaterhouseCoopers, LLP. The annual statement of actuarial opinion is provided by Mark R. Proska, FCAS, MAAA, EVP and Chief Actuarial Officer, TMNA Services, LLC.

REINSURANCE

Under its casualty treaty, the group retains the first $3.0 million primary layer of liability on each occurrence and maintains reinsurance coverage up to $21.0 million provided in two layers — $13.0 million in excess of $3.0 million and $5.0 million in excess of $16.0 million. This coverage is placed with a 30% co-participation being retained. Facultative reinsurance coverage (on an individual risk basis) is purchased for casualty risks in excess of $21.0 million. An excess clash casualty reinsurance agreement provides an additional $17.0 million of coverage in excess of a $3.0 million retention for protection from exposures such as extra-contractual obligations and judgments in excess of policy limits.

The group retains the first $5.0 million layer on its commercial property risks, in excess of a $5.0 million annual aggregate deductible, with its reinsurers bearing the remaining liability up to $100.0 million. The group has a 46.75% co-participation on the first excess layer of the per risk treaty subject to a $5.0 million annual aggregate deductible. Automatic facultative reinsurance coverage is provided on each commercial property risk with limits in excess of $100.0 million up to $150.0 million, except for risks located in Florida, Hawaii or Harris County, Texas, where coverage is provided for property losses in excess of $100.0 million up to $130.0 million. Facultative reinsurance coverage is purchased for property risks in excess of $150.0 million except for risks located in Florida, Hawaii or Harris County, Texas, where coverage is purchased for property losses in excess of $130.0 million. The property per risk excess of loss treaties also provide a $95.0 million aggregate policy limit for terrorism exposure in excess of a $5.0 million retention.

Catastrophe reinsurance is maintained in excess of a $100.0 million per occurrence retention up to $500.0 million. On the first excess layer of the catastrophe contract ($150.0 million in excess of $100.0 million applicable to losses occurring Nationwide), the group retains a 10% co-participation; this layer is shared with an affiliate, First Insurance Company of Hawaii, whose risk exposure is in Hawaii only. The second excess layer of the catastrophe contract ($200.0 million in excess of $250.0 million applicable to losses occurring in the Northeast & Hawaii only), is 100% placed; this layer is also shared with First Insurance Company of Hawaii. The top layer of the catastrophe program ($50.0 million aggregate excess of various retentions applicable to losses occurring in the Northeast only), which is also 100% placed, is not shared with any affiliates.