a.m. best mock rating session june 6, 2011 4:00 pm – 5:00 pm gardenia room

A.M. BestMock Rating SessionJune 6, 2011 4:00 pm – 5:00 pm Gardenia Room

A.M. Best – Mock Rating Session

Speakers:

John Andre, Group Vice President, A.M. Best Company

Steven Chirico, Assistant Vice President, A.M. Best Company

Fred Eslami, Senior Financial Analyst, A.M. Best Company

Janet Hernandez, Senior Financial Analyst, A.M Best Company

Moderator:

Greg Tyers, Vice President, Marsh IAS Management Services (Bermuda) Ltd.

Ratings Division Process - Internal

Initial analytical discussion takes place

Data submission

Analytical team meets with management and prepares the recommendation

Analytical team presents to a Peer Review Committee (PRC)

PRC votes to determine rating assignment

Depending on circumstances, additional rating committees may be utilized

Ratings Division Process – External

Final rating determination is communicated to company

If management disagrees, company has three days to appeal

President’s Letter, rating report, and press release draft sent to company for approval

Rating is published in A.M. Best products and in the public domain (Business Wire)

Key Components

Balance Sheet Strength

Parent Company / Sponsor Financial Analysis

Operating Performance

Enterprise Risk Management

Business Profile

Management

QUANTITATIVE ANALYSIS REPORT (QAR)Overview & Profitability Analysis

%Year Change2006 10.02007 18.12008 70.02009 12.82010 8.95yr CAGR 22.15yr Chg 171.2

Year200620072008200920105yr Avg:CompanyIndustry10yr Avg:CompanyIndustry 28.1

33.6

36.2

32.935.3

14.2(25.5)

7.241.3

91,679

Expense28.1 93.5

6.24.8

5.45.0

4.34.79.25.86.2

InvYield

9.71.9

QAR OVERVIEW Summary Page

%Change

14.915.9

8.5 7.7 75.1 103.6 89.060.0 33.4 99.0 82.4

5.2 4.9 10.0 8.6 7.7 9.95.5 5.5 16.4 17.0 17.1 11.8 12.2 12.3

83.414.6 10.8 10.7 69.4 28.6 98.313.9 13.9 56.7 99.5 77.5

4.5 4.4 16.1 12.0 11.86.5 6.5 22.0 22.9 22.9 13.3

9.3 10.2 10.5 55.1 106.1 78.313.4 54.3 35.6 101.2 77.1

6.7 6.8 21.4 23.3 24.1

102.7 70.06.4 7.1 22.3 24.9 27.7 10.8 12.0

18.816.9 17.7 17.2

17.9 15.7 54.655.9

62,36716.1

93.5 79.65.1 4.9 19.8 20.8 20.2

(3.2)

111.2

11.6 83,692 84,21038,541 (1.9) 8,215 (4.0) 8,950 (6.5) 197,401

73,287 74,67824.639,273 10.3 8,555 (23.4) 9,568 (10.0) 203,893

126,805 18.6 58,805 43,91711,161 63.2 10,633 47.8 182,636 44.0

6,840 21.7 7,192 25.335,607 5.9

61.2 106,930 14.4 50,717 37,186

NII

38,591 9.8 5,623 78.7 5,742

Return on Revenue (p.1)Return on Invested Assets (p.1)

33,623 (12.9)

63.8NI/PHSPOI/PHSTotal RORNI/NPE

16.2

Loss &LAETotal ROE

83.0Operating(A/PHDS)

Combined

16.7

8.6 7.6 30.8

Year-EndSurplus

Total U/WUnderwriting & Operating Ratios (p.2)Return on Equity (p.1)

%Change

Loss & LAEReserves

%Change

AdmittedAssets

Net Income/(Loss)

Net PremiumsWritten Change

% Pretax OperIncome/Loss Change

%

4.7 15.5

PROFITABILITY ANALYSIS (%)

ROIA POI/NPE(w/ RCG)15.9 16.4 15.84.5

FINANCIAL INDICATORS ($000)

29.3 25.7

QUANTITATIVE ANALYSIS REPORT (QAR)Loss & ALAE Reserve Development Analysis

Accident

Year

2000

2001

2002

2003

2004

2006

2007

2008

2009

2010

Accident Year Development

XXX 0.0 19,11719,117 19,117 XXX XXX

9,245

18,373 18,355 XXX (18) (18) (0.1) 15,466

17,968 13,272 (1,166) (3,530) (4,696) (26.1)

4,855

18,341 13,781 (2,796) (1,764) (4,560) (24.9) 6,326

17,314 12,178 (4,195) (941) (5,136) (29.7)

(202) (1.3) 2,175

13,525

16,017 15,815 9 (211)

8,827 (4,633)

391

(65)

13,069 8,052 (4,856) (161)

111 (1,230) (16.5) 258

10,480 7,019 (3,478) 17 (3,461) (33.0)

To Unpaid at

Reserves Reserves Through 2009 In 2010 Through 2010 Original (%) Year-End 2010

Original Developed

7,456 6,226 (1,341)

LOSS & ALAE RESERVE DEVELOPMENT (BY ACCIDENT YEAR) ($000)

(5,017) (38.4) 472

(4,698) (34.7) 932

QUANTITATIVE ANALYSIS REPORT (QAR)Investment, Liquidity, Underwriting & Loss Reserve Analysis

Year20062007200820092010

Industry

Year20062007200820092010

Industry

(13.6)(8.0)

110.9

Dev/PHS(26.9)

136.8

CurrentLiquidity

126.7123.9155.1

125.1217.7

0.8 2.2 2.9 0.9 3.8

0.0

81.8 147.5 192.0

68.0 162.3 0.0 (19.0)112.2102.8 (0.1)

(11.0)0.4 1.2 1.6 0.5 2.1 60.5

(18.3)170.4

0.5 1.4 1.9 0.8 (11.4)

94.7(22.8)

2.7 59.5 99.4

(1.2)2.8 54.4 98.1 202.1

133.9

(CY-AY)

98.9

UNDERWRITING LEVERAGE AND LOSS RESERVE ANALYSIS (%)

0.5 1.4 1.9 0.9

Loss Reserve Ratios (p.12-13)

(19.0)

26.9 29.3 21.4 109.9

0.8 1.9 2.6 1.1 3.7 62.4

8.7

4.0 5.1 22.5 113.9 61.5 51.124.5 99.0 113.5

152.8142.6

69.3 2.0 5.5 11.1 12.1

26.9 105.6 169.873.8 1.9 7.5 12.1 4.6 3.9 5.1

11.4 13.8 162.866.8 1.8 13.1 12.7 5.5 3.8 4.278.0 4.5 15.8 0.0 1.8

Underwriting Leverage Ratios (p.9)

Investment Portfolio (% of Invested Assets) (p.8) Inv Leverage (% of PHS) (p.5) Liquidity & Cash Flow Ratios (p.6)

0.0 112.5 146.7

Non-Affil Affiliated Quick

Res/NPE Dev/Orig AY Comb84.6140.1 (20.5) 8.8

NPW Net Liab Net Ceded Gross Bus Ret Res/PHS72.8 136.4

All CommonLiquidityInvInv LvgStocks

0.0 116.5 128.9 141.3136.5Other

Oper CashFlow (%)

U/W Cash

4.9 0.0Inv

Affiliated

1.0 13.3 13.4Bonds

L-T Cash &S-T Inv Flow (%)

1.9 2.9 1.0

88.9 5.2

TotalStocks

INVESTMENT AND LIQUIDITY ANALYSIS (%)

1.0 4.0

QUANTITATIVE ANALYSIS REPORT (QAR)Detailed Profitability Analysis

Year

2006

2007

2008

2009

2010

5 Year

Year

2006

2007

2008

2009

2010

5 Year

Income

0

1,093

SOURCES OF EARNINGS AND SURPLUS GROWTH ($000)

1,694 140 3,788 5,623 147

1,044

(236) 6,956 (658) 432

0 3,3805,941

(Expense) Income Income/(Loss)

(761) 55 11,866 11,161

5,742

Other Net PretaxNet

2,541 (499) 4,798 6,840 359

Underwriting Income/ Investment Operating Capital Net

Realized

7,192

Gain/(Loss)

(689) 10,633

Income/(Loss)

10,688 8,215 743 8,950

(750) 35 9,269 8,555

42,085

914 9,568

(2,382) (91)

343 (360) 40,410 40,393 1,473

Change in Year-End

Unrealized Other

37,186(3,605)

Capital Total Surplus Contributed Stockholder

30,761 74,678

Dividends Surplus Surplus

199

Gain/(Loss) Return Gain/(Loss) Capital

(1,936) 0

6,730

9,532

43,917

(1,313) 9,319 1,177 20,265 0

84,210

327 9,278 (105) (1,704) 0 7,469 91,679

10,661 807

0 57,87371 42,155 (2,384) 18,102

QUANTITATIVE ANALYSIS REPORT (QAR)Cash Flow Composition & Ratio Analysis

Year

2006

2007

2008

2009

2010

Year Operating

2006 141.3

2007 162.8

2008 169.8

2009 142.6

2010 51.1

Industry

(14,422) (3,453) (856) (18,731)23,053 9,960 23,184 4,332

12,456

37,919 5,548 19,734 567 12,070 5,035 (523)

11,403 18,728 8,7164 3,616 124

CASH FLOW COMPOSITION ($000)

Collected Payments Expenses Paid Dividends Cash Flow Income (Including Tax) Cash Flow

Benefits & Loss Commissions

38,851

128.9

155.5

LIQUIDITY AND CASH FLOW RATIOS ANALYSIS (%)

116.5 136.5 153.7

15,376 5,095 (82) 20,389

Liquidity Cash Flow

44,496 7,629 20,696 795

Overall U/WQuick Current

112.5 136.8 146.7

105.6 126.7

99.0

113.9 155.1 187.0 61.5

169.5 152.8

123.9 170.4 113.5

21.4 110.9

17,0965,431

145.5

45,608 10,223 24,452 5,503 11,600 65

16,582

OperatingUnderwritingPremiums Related and Policyholder Investment Other

BEST’S CAPITAL ADEQUACY RATIO (BCAR)Base BCAR – 12/31/2010

Industry Composite: Page: 1 of 8

Medium Commercial Cas Date: 05/24/2011

Report Type: 2010 Base BCAR

Notes:

2010 2009 <- Required Capital / Adjusted Surplus ->

Required % of % of 2010 2009 Industry Company

Capital Gross Gross Company Company Composite To Ind.

NET REQUIRED CAPITAL (NRC): Amount Capital Capital (%) (%) (%) Norm

Asset Risk:

(B1) Fixed Income Securities Risk (Page 2) 318 0.7 0.0 0.3 0.0 1.7 0.2

(B2) Equity Securities Risk (Page 2) 6,142 14.4 0.0 6.1 0.0 4.0 1.5

Investment Risk 6,461 15.2 0.0 6.4 0.0 5.7 1.1

(B3) Interest Rate Risk (Page 3) 633 1.5 0.0 0.6 0.0 1.3 0.5

Subtotal 7,093 16.7 0.0 7.0 0.0 7.0 1.0

(B4) Credit Risk (Page 4) 3,835 9.0 0.0 3.8 0.0 4.7 0.8

Total Asset Risk 10,928 25.7 0.0 10.8 0.0 11.7 0.9

Underwriting Risk:

(B5) Loss and LAE Reserves Risk (Page 5) 19,383 45.6 0.0 19.2 0.0 35.7 0.5

(B6) Net Premiums Written Risk (Page 6) 12,071 28.4 0.0 11.9 0.0 23.4 0.5

Total Underwriting Risk 31,454 73.9 0.0 31.1 0.0 59.1 0.5

(B7) Business Risk (Page 7) 155 0.4 0.0 0.2 0.0 0.0 3.8

Gross Required Capital (GRC) 42,537 100.0 0.0 42.1 0.0 70.9 0.6

Less: Covariance Adjustment 17,058 40.1 0.0 16.9 0.0 25.9 0.7

Net Required Capital (NRC) 25,480 59.9 0.0 25.2 0.0 45.1 55.9

Baseline % To Adjusted 2010 % To Industry

ADJUSTED POLICYHOLDERS SURPLUS (APHS): Amounts Rpt'd PHS Adjustment Adjustment Amount Pro F.PHS Rpt'd PHS

Reported Surplus 91,679 100.0 0 0 91,679 100.0 100.0

Capital Contribution 0 0.0 0 0 0 0.0 0.0

Pro Forma Reported PHS 91,679 100.0 0 0 91,679 100.0 100.0

Miscellaneous Adjustment 0 0.0 0 0 0 0.0 0.0

UPR Equity (Net of Tax) 2,085 2.3 0 0 2,085 2.3 4.3

Loss Reserve Equity (Net of Tax) 6,236 6.8 0 0 6,236 6.8 4.4

Fixed Income Equity (Net of Tax) 2,726 3.0 0 0 2,726 3.0 2.9

Sub-total 102,725 112.0 0 0 102,725 112.0 111.6

Surplus Notes 0 0.0 0 0 0 0.0 0.0

Off-Balance Sheet Losses 0 0.0 0 0 0 0.0 0.0


Protected Cell Surplus 0 0.0 0 0 0 0.0 0.0

Potential Losses(Including Cats) 1,608 1.8 0 0 1,608 1.8 1.8

Adjusted Surplus(APHS) 101,117 110.3 0 0 101,117 110.3 109.8

Effective Tax Rate 0.1

Company Industry Company To

BEST'S CAPITAL ADEQUACY RATIO (BCAR): (%) Composite(%) Ind Norm

2010 NRC/APHS % (Above) 25.2 45.1 55.9

2010 BCAR % (APHS/NRC) 396.8 222.0 178.8

2009 BCAR % (APHS/NRC) 0.0 0.0 0.0

Fairmont Ins Co (AMB# 79662)

BEST'S CAPITAL ADEQUACY RATIO

ACTUAL DATA AS OF DECEMBER 31, 2010

(000's)

0.0

0.0

Clean Production Run

2009 % To Pro

Forma PHS

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

BEST’S CAPITAL ADEQUACY RATIO (BCAR)Stressed (10% PHS Loss) BCAR – 12/31/2010



Report Type: ADJUST2

Notes:





Asset Risk:



Investment Risk 6,461 15.2 0.0 7.0 0.0 5.7 1.2


Subtotal 7,093 16.7 0.0 7.7 0.0 7.0 1.1


Total Asset Risk 10,928 25.7 0.0 11.9 0.0 11.7 1.0

Underwriting Risk:










Reported Surplus 91,679 100.0 0 0 91,679 111.1 100.0

Capital Contribution 0 0.0 -9,168 0 -9,168 -11.1 0.0

Pro Forma Reported PHS 91,679 100.0 -9,168 0 82,511 100.0 100.0



Loss Reserve Equity (Net of Tax) 6,236 6.8 0 0 6,236 7.6 4.4


Sub-total 102,725 112.0 -9,168 0 93,557 113.4 111.6

Surplus Notes 0 0.0 0 0 0 0.0 0.0





Adjusted Surplus(APHS) 101,117 110.3 -9,168 0 91,949 111.4 109.8




2010 NRC/APHS % (Above) 27.7 45.0 61.5

2010 BCAR % (APHS/NRC) 360.8 222.0 162.5

2009 BCAR % (APHS/NRC) 0.0 0.0 0.0



ACTUAL DATA AS OF DECEMBER 31, 2010

(000's)

0.0

0.0

2010 Stressed BCAR

2009 % To Pro

Forma PHS

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

BEST’S CAPITAL ADEQUACY RATIO (BCAR)Base Projected BCAR – 12/31/2011




Notes:





Asset Risk:



Investment Risk 6,503 15.1 0.0 6.3 0.0 5.7 1.1


Subtotal 7,136 16.6 0.0 6.9 0.0 7.0 1.0


Total Asset Risk 10,969 25.4 0.0 10.7 0.0 11.7 0.9

Underwriting Risk:










Reported Surplus 91,679 100.0 1,834 0 93,513 100.0 100.0

Capital Contribution 0 0.0 0 0 0 0.0 0.0

Pro Forma Reported PHS 91,679 100.0 1,834 0 93,513 100.0 100.0



Loss Reserve Equity (Net of Tax) 6,236 6.8 466 -608 6,094 6.5 4.4


Sub-total 102,725 112.0 2,300 -501 104,524 111.8 111.6

Surplus Notes 0 0.0 0 0 0 0.0 0.0





Adjusted Surplus(APHS) 101,117 110.3 2,300 -501 102,916 110.1 109.8




2011 NRC/APHS % (Above) 25.1 45.1 55.7

2011 BCAR % (APHS/NRC) 398.4 222.0 179.5

2009 BCAR % (APHS/NRC) 0.0 0.0 0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

2009 % To Pro

Forma PHS



PROJECTED DATA AS OF DECEMBER 31, 2011

(000's) 2011 Base BCAR

BEST’S CAPITAL ADEQUACY RATIO (BCAR)Stressed (10% PHS Loss) Projected BCAR – 12/31/2011




Notes:





Asset Risk:



Investment Risk 6,503 15.1 0.0 7.0 0.0 5.7 1.2


Subtotal 7,136 16.6 0.0 7.6 0.0 7.0 1.1


Total Asset Risk 10,969 25.4 0.0 11.7 0.0 11.7 1.0

Underwriting Risk:










Reported Surplus 91,679 100.0 1,834 0 93,513 111.1 100.0

Capital Contribution 0 0.0 -9,351 0 -9,351 -11.1 0.0

Pro Forma Reported PHS 91,679 100.0 -7,517 0 84,162 100.0 100.0



Loss Reserve Equity (Net of Tax) 6,859 7.5 466 -608 6,251 7.2 4.4


Sub-total 102,725 112.0 -7,051 -501 95,811 113.1 111.6

Surplus Notes 0 0.0 0 0 0 0.0 0.0





Adjusted Surplus(APHS) 101,117 110.3 -7,051 -501 94,203 111.2 109.8




2011 NRC/APHS % (Above) 27.6 45.0 61.3

2011 BCAR % (APHS/NRC) 362.2 222.0 163.1

2009 BCAR % (APHS/NRC) 0.0 0.0 0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0



PROJECTED DATA AS OF DECEMBER 31, 2011

(000's) 2011 Stressed BCAR

2009 % To Pro

Forma PHS

a.m. best mock rating session june 6, 2011 4:00 pm – 5:00 pm gardenia room

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