STATE OF CONNECTICUT INSURANCE DEPARTMENT

ORDER ADOPTING REPORT OF EXAMINATION

I, Anne Melissa Dowling, Deputy Insurance Commissioner of the State of

Connecticut, having fully considered and reviewed the Examination Report (the

"Report") of National Liability & Fire Insurance Company. (the "Company") as of

December 31, 2012, do hereby adopt the findings and recommendations contained therein based on the following findings and conclusions,

TO WIT:

1. I, Anne Melissa Dowling, Deputy Insurance Commissioner of the State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions of Title 38a of the Connecticut General Statutes ("CGS").

2. The Company is a domestic insurer authorized to transact the business of insurance in the State of Connecticut.

3. On April 17, 2014, the verified Report of the Company was filed with the Connecticut Insurance Department (the "Department").

4. In accordance with CGS §38a-14(e) (3), the Company was afforded a period of thirty (30) days within which to submit to the Connecticut Insurance Department a written submission or rebuttal with respect to any matters contained in the Report.

5. On May 23, 2014, the Company notified the Department of certain responses and comments relating to matters contained in the Report.

6. Following a review of the Report, it was deemed necessary and appropriate to modify the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A.

www.ct.gov/cid P.O. Box 816 • Hartford, CT06l42-0816 An Equal Opportunity Employer NOW, THEREFORE, it is ordered as follows:

1. That the Report of the Company hereby is adopted as filed with the Department.

2. That the Company shall comply with all of the recommendations set forth in the Report, and that the failure of the Company to so comply shall result in sanctions or administrative action as provided by Title 38a of the CGS.

Dated at Hartford, Connecticut this 28th day ofMay 2014

Anne Melissa Dowling Deputy Insurance Commissioner STATE OF CONNECTICUT INSURANCE DEPARTMENT

IT IS HEREBY CERTIFIED THAT THE ANNEXED

EXAMINATION REPORT

OF

NATIONAL LIABILITY & FIRE INSURANCE COMPANY

AS OF

DECEMBER 31,2012

IS A WHOLE TRUE AND CORRECT COPY OF THE ORIGINAL DOCUMENT ON FILE WITH THE CONNECTICUT INSURANCE DEPARTMENT.

IN WITNESS WHEREOF, I hereunto, set my hand and affix the official seal of the Insurance Commissioner of the State of Connecticut This 28th day of May, 2014.

www.ct.gov/cid P.O. Box 816 • Hartford, CT 06142-0816 An Equal Opportunity Employer STATE OF CONNECTICUT INSURANCE DEPARTMENT

CERTIFIED COPY

I, ANNE MELISSA DOWLING, DEPUTY INSURANCE COMMISSIONER OF THE STATE OF CONNECTICUT, HAVE COMPARED THE ANNEXED COpy WITH THE ORIGINAL RECORD ON FILE WITH THE DEPARTMENT OF INSURANCE AND DO HEREBY CERTIFY THAT IT IS A WHOLE, TRUE AND CORRECT COpy OF THE ORIGINAL RECORD.

WITNESS MY HAND AND SEAL OF THE INSURANCE COMMISSIONER OF THE STATE OF CONNECTICUT

THIS 28TH DAY OF MAY, 2014

Anne Melissa Dowling Deputy Insurance Commissioner

www.ct.gov/cid P.O. Box 816 • Hartford, CT 06142-0816 An Equal Opportunity Employer Exhibit A

EXAMINATION REPORT

OF

NATIONAL LIABILITY & FIRE INSURANCE COMPANY

AS OF

DECEMBER 31, 2012

BY THE

CONNECTICUT INSURANCE DEPARTMENT TABLE OF CONTENTS

Salutation

Scope ofExamination

History 2

Organizational Chart 3

Management and Control 4

Insurance Coverages 6

Territory and Plan of Operation 6

Reinsurance 7

Information Technology Controls 9

Related Party Transactions 9

Accounts and Records 10

Financial Statements 10 Assets 10 Liabilities, Surplus and Other Funds 11 Statement of Income 12

Losses and Loss Adjustment Expenses (LAE) 13

Policyholders Surplus 13

Subsequent Events 14

Conclusion 14

Signature 15 April 17,2014

The Honorable Thomas B. Leonardi Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6th Floor Hartford, Connecticut 06103

Dear Commissioner:

In compliance with your instructions and pursuant to the requirements of Section 38a-14 of the Connecticut General Statutes (CGS), the undersigned has made an examination of the conditions and affairs of

NATIONAL LIABILITY & FIRE INSURANCE COMPANY (hereinafter referred to as the Company or NL&F), a corporation with capital stock, incorporated under the laws of the State of Connecticut and having its statutory horne office located at 100 First Stamford Place, Stamford, Connecticut and its main administrative office located at 3024 Harney Street, Omaha, Nebraska. The report on such examination is submitted herewith.

SCOPE OF EXAMINAnON

The previous examination of the Company was conducted by the Financial Regulation Division of the Connecticut Insurance Department (Department) as of December 31, 2009. The current examination, which covers the period from January 1, 2010 to December 31,2012, was conducted at the statutory horne office of the Company.

The examination of the Company was part of the Berkshire Hathaway Group's (Group), National Indemnity Company (NICO) and Homestate Company (BHHC) coordinated examination that included nineteen regulated entities domiciled in eight states. The Nebraska Department of Insurance (Nebraska), as the lead state of the Group, assumed the responsibility of the coordinating state for the 2012 financial examination cycle. Implementing the coordinated exam facilitated communication among states and led to a more efficient use of resources while reducing duplication of work.

As part of the examination planning procedures, the Department reviewed the following materials submitted by the Company from 2010 through 2012:

• Board of Director (Board) and other committee minutes (through the latest 2013 minutes); NATIONAL LIABILITY & FIRE INSURANCE COMPANY

• Audit reports completed by the CPA firm retained by the Company; • Management Discussion and Analysis; • Statement of Actuarial Opinion; • Internal Audit Reports; • Documentation supporting the Sarbanes Oxley Act testing; and • Annual Statements filed with the Department.

A review of the 2009 through 2012 independent audit reports and a comprehensive analysis of the Company's financial statements and other filings submitted to the Financial Analysis Unit of the Department indicated no material concerns with respect to financial condition or regulatory compliance issues.

Workpapers prepared by the Company's independent public accountants, Deloitte & Touche LLP (D&T), in connection with its annual statutory audit were reviewed and relied upon to the extent deemed appropriate.

The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the National Association of Insurance Commissioners (NAIC) Financial Condition Examiners Handbook (Handbook). The Handbook requires that we plan and perform the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining information about the Company, including corporate governance, identifying inherent risks within the Company, and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management compliance with the NAIC Accounting Practices & Procedures Manual (Manual) and Annual Statement Instructions.

Comments in this report are generally limited to exceptions noted or to items considered to be of a material nature.

Failure of items in this report to add to totals or for totals to agree with captioned amounts is due to rounding.

HISTORY

The Company was incorporated on April 23, 1957, under the Illinois Insurance Code and commenced business December 9, 1958, as the Home and Automobile Insurance Company. In 1971, the Company was acquired by NICO, a subsidiary of Berkshire Hathaway Inc. (BHI). In 1980, BHI purchased all of the Company stock from NICO and the Company became a wholly-owned subsidiary of BHI. In 1987, the Company changed its name to NL&F. The Company redomesticated from Illinois to Connecticut on December 6, 1995.

2 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

BHI acquired General Reinsurance Corporation (General Re) on December 21, 1998. The acquisition of General Re led to a reorganization of the original BHI insurance companies. A new holding company, OBH Inc., was created. As a result of this transaction, aBH Inc., a Delaware corporation, became the parent company of NL&F and OBH Inc. became a wholly-owned subsidiary of BHI.

On January 28, 2010, OBH Inc. converted its form to a Delaware limited liability company and changed its name to OBH LLC. BHI, the sole shareholder of OBH Inc., became the sole member of OBH LLC. The Company's direct parent company as of December 31,2011, OBH LLC, merged on January 1,2012, into BHI with BHI being the surviving corporation. BHI, a Delaware corporation, directly owns all shares of the Company as of January 1,2012.

ORGANIZATIONAL CHART

The following is a partial organizational chart as of December 31,2012:

Berkshire Hathaway Inc. (DE)

National Liability & Fire Insurance Company (CT)

Warren E. Buffett owned 34.787% of the voting interest in BHI at December 31,2012.

3 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

MANAGEMENT AND CONTROL

The bylaws state that a meeting of the stockholders of the Company shall be held each year at the principal office of the Company in Connecticut, or at such other place as determined by the Board and stated in the notice to shareholders, during the first five months of the calendar year. The purpose of such meeting is the election of the Board members and the transaction of such other business as may properly come before the meeting.

Special meetings of the shareholders may be called by the president, the Board or the holders of not less than ten percent of all the outstanding shares of the Company. In place of holding a meeting, the shareholders may, by their unanimous written consent, dispose of any matter or transact any business.

A majority of the outstanding shares of the Company shall constitute a quorum.

The Board, as of December 31, 2012, was elected by the sole shareholder, BHI, at a meeting held on May 10,2012.

According to the bylaws, the affairs of the Company shall be managed by the Board. The number of directors shall be not less than seven nor more than eleven, as may be fixed by the shareholders at each annual meeting.

The annual meeting of the Board shall be held immediately after and at the same place as the annual meeting ofshareholders.

In addition to the annual meeting of the Board, the Board shall, by resolution, schedule not less than three regular meetings each year. The Board may hold meetings, both regular and special, within or without the State ofConnecticut. Special meetings ofthe Board may be called by or at the request of the president or any three directors, but any special meeting called by three directors shall be held at the principal office of the corporation in Connecticut.

A majority ofthe Board, but not fewer than five directors, shall constitute a quorum.

The Board may appoint an executive committee to consist of not less than three members of the Board. The executive committee shall have and may exercise all powers and authority of the Board in the management of the Company as permitted by Section 33-753 of the CGS. During the period under examination, the Company had an executive committee composed of three directors. Additionally, the Board may designate from among the directors an investment committee and one or more other committees.

4 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

Members of the Board serving the Company at December 31, 2012, were as follows.

Director Title and Principal Business Affiliation J. Michael Gottschalk Vice President - NICO Marc D. Hamburg Chief Financial Officer - BHI Ajit Jain Executive Vice President - NL&F Forrest N. Krutter Senior Vice President - NL&F Brian G. Snover Senior Vice President - NL&F Philip M. Wolf Senior Vice President - NICO Donald F. Wurster President - NICO

According to the bylaws, the officers of the Company shall be a president, one or more vice presidents, one or more assistant vice presidents, a secretary, one or more assistant secretaries, a treasurer and one or more assistant treasurers, none ofwhom shall be required to be shareholders or directors and each of whom shall be elected annually by the Board at each annual meeting to serve a term of office of one year or until a successor has been elected and qualified. The president and the secretary shall be different individuals.

Officers serving the Company at December 31, 2012, were as follows:

Name Title Donald F. Wurster President Ajit Jain Executive Vice President Scott R. Doerr Senior Vice President Sunil C. Khanna Senior Vice President Forrest N. Krutter Secretary, Senior Vice President Philip M. Wolf Senior Vice President Dale D. Geistkemper Treasurer and Controller John D. Arendt Vice President Leslie 1. Baller Vice President Joseph G. Casaccio Vice President J. Michael Gottschalk Vice President Tracy L. Gulden Vice President Michael J. Lawler Vice President Joseph R. Luizzi Vice President Kara L. Raiguel Vice President Ty J. Reil Vice President Karen L. Rainwater Vice President Thomas M. Ryan Vice President

5 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

Name Title Brian G. Snover Vice President Robert S. Stirling Vice President Walter C. Strain Vice President Thomas L. Young Vice President David E. Govrin Vice President

INSURANCE COVERAGES

The Company is covered for losses resulting from forgery or alteration and extortion by a financial institution bond (fidelity bond) issued by Fidelity and Deposit Company of Maryland. The limit of liability on the financial institution bond is $5 million, which exceeds the suggested minimum limits of insurance pursuant to the Handbook.

In addition to fidelity bond coverage, the Company and its affiliates maintain insurance coverages with various insurers including the following lines:

Company (in primary or lead role) Coverage Great Northem Insurance Company Property, General Liability and Auto Liability Pacific Indemnity Company Workers' CompensationfEmployers' Liability Federal Insurance Company UmbrellalExcess Liability

TERRITORY AND PLAN OF OPERATION

The Company is licensed to transact property and casualty lines of business in all fifty states and the District of Columbia. Major lines of business written include commercial auto liability, private passenger auto liability, physical damage, aircraft, and workers' compensation. The Company distributes the majority of its property and liability products through 113 general agents in 153 offices. The general agents utilize the services of independent agents.

In December 2007, the Company began using an affiliate, GEICO Insurance Agency (GEICO), a retail agent, as an additional distribution channel. If a customer requests a commercial auto coverage not offered by GEICO, it will be forwarded to NL&F.

The Company also has agreements with managing general agents (MGA) and third party administrators for underwriting and servicing certain lines of business. All of the Company's private passenger auto liability business and a majority of the Company's auto physical damage business is written through Assigned Risk Solutions Ltd. (ARS) which represented 32% of the Company's 2012 direct written premiums. The Company wrote 6% of its 2012 direct premiums through Associated Insurance Administrators (AlA). This business represents workers' compensation concentrated primarily in Alabama and several other southeastern states.

6 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

Foreign business accounted for 6% of total 2012 direct premiums written due to the Company's participation in the Global Aerospace Underwriting Managers Limited Pool (GAUM Pool) in Canada and various other aircraft and commercial multi peril policies written.

The Company's Canadian Branch (Branch) was licensed on January 1, 2004, to transact aircraft and general liability insurance in Canada. The Branch is also licensed to write direct property and to reinsure accident and sickness, automobile, boiler and machinery, credit, fidelity, hail, legal expense, property, and surety in various provinces and territories. The majority of Canadian business in 2012 was nonproportional assumed property and nonproportional assumed liability related to a quota share agreement with Swiss Reinsurance Company Ltd., Canada Branch (Swiss Re Canada) and Westport Insurance Corporation, Canada Branch (Westport). The contract with Swiss Re Canada and Westport expired on December 31, 2012, and is currently in run-off.

REINSURANCE

The Company reinsures on both a facultative and a treaty basis. The facultative reinsurance is purchased on an individual risk basis depending on need. The reinsurance treaties pertain to all property and casualty business segments and consist of working layers and catastrophe layers.

Reinsurance Assumed From Non-Affiliates

The Company assumes aircraft business on a facultative basis with varying per occurrence limits. The net retention on anyone policy is $5 million due to a quota share agreement with NICO.

During the first quarter of 2009, the Branch became an alternate retrocessionaire under a reinsurance agreement that its affiliate, NICO, entered into with Swiss Reinsurance Company Ltd. (Swiss Re). Effective January 1, 2008, NICO assumes 20% of all Swiss Re's property and casualty risks incepting over five years from the effective date of the agreement. Under this assumption, the Branch assumes a 20% quota share of all Swiss Re property-casualty risks incepting over the five years commencing January 1, 2008, from Swiss Re's Canadian entities. To implement this assumption, the Branch retroactively assumed the outstanding reserves and unearned premium (offset by associated underwriting expenses) as of March 31,2009, under the NICO reinsurance agreement from the Swiss Re Canadian entities. In addition, on April 1,2009, the Branch began providing prospective reinsurance to the Swiss Re Canadian entities in lieu of NICO until the expiration ofthe NICO reinsurance agreement on December 31,2012.

Simultaneous with this assumption, the Company entered into an agreement with its affiliate, Wesco-Financial Insurance Company (Wes-FIC) retroceding a 10% quota share of the outstanding reserves and unearned premium and a continuing 10% quota share of the prospective business as referenced in the Reinsurance Ceded to Affiliates section of this summary. The Company commuted the agreement with Wes-FIC on January 1,2012.

The Company assumes quota share and excess property risks from foreign as well as domestic insurance companies. These assumptions are negotiated through the Company's Reinsurance

7 NATIONAL LIABILITY & FIRE INSURANCE CaMPANY

Division. The Company's maximum liability for each contract is limited to $5 million per occurrence due to a quota share agreement with its affiliate, National Fire & Marine Insurance Company (NF&M), referenced in the Reinsurance Ceded To Affiliates section of this summary.

Reinsurance Assumed From Affiliates

Effective January 1, 2008, NICO entered into a reinsurance agreement with the Branch under which the Branch reinsured certain Canadian aviation exposures ofNICO. This contract was not renewed for the 2009 year and continues in run-off.

Reinsurance Ceded To Non-Affiliates

The Company has a 75% quota share reinsurance agreement on its Starr Marine ocean marine business with various reinsurers.

Reinsurance Ceded To Affiliates

The Company maintains commercial auto liability reinsurance with Columbia Insurance Company (CIC). The retention on this excess ofloss agreement is $1 million with a limit of $4 million, each occurrence.

NICO provides reinsurance on a 100% quota share basis in excess of $5 million loss per occurrence on Company liabilities excluding workers' compensation, pool participation, traditional reinsurance contracts written through Berkshire's Reinsurance Division (Reinsurance Division), or aviation risks that the Company may assume from NICO under terms of separate agreements.

The Company has a reinsurance agreement with NICO, whereby NlCO provides reinsurance for 100% of the ultimate net retained losses sustained by the Company, up to $20 million in excess of $5 million per occurrence, arising from the Company's issuance of workers' compensation policies through AlA and its affiliate, American All Risk Insurance Services, Inc. (AARIS). AARIS ceased writing new business for the Company as ofDecember 31,2006.

NICO provides, on a 50% quota share basis, reinsurance for all losses with respect to policies issued by the Company through AARlS.

The Company entered into a reinsurance agreement with its affiliates, NICO, CIC, and General Re. Pursuant to the agreement, the Company can be designated as an Associate Member of the United States Aircraft Insurance Group (USAIG) Pool by either or by both CIC and General Re. The Company cedes the portion of the pool designated by General Re directly to General Re. NICO reinsures the Company with respect to the business that is ultimately assumed by CIe. In tum, premium assumed by NICO is retroceded to CIe.

The Branch cedes, on a quota share basis, 15% of the GAUM Pool, of which it is a direct participating member, to NICO on a 100% quota share basis. The agreement is continuous and is applicable during the periods that the Branch has a 23.39% participation in the GAUM Pool.

8 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

NF&M provides reinsurance on a 100% quota share basis in excess of $5 million loss per occurrence on the Company's liabilities which arise from contracts assumed in the Reinsurance Division.

California Insurance Company provides retrospective reinsurance on workers' compensation policies issued in the State of Connecticut on a 100% quota share basis, whereby the Company is operating in a fronting capacity on behalf ofCalifornia Insurance Company.

The Company cedes 100% ofthe Brazil aviation risks to NICO, assumed from its participation in the GAUM Pool agreement.

Voluntary Pools & Associations

As part of the GAUM Pool agreement, the Company was nominated to write the aviation risks in Brazil by its affiliate, NICO. The Company's participation is effective December 1, 2009, and 100% ceded to NICO, pursuant to an intercompany reinsurance agreement referenced in the Reinsurance Ceded to Affiliates section above.

INFORMATION TECHNOLOGY (IT) CONTROLS The Department relied on the IT review performed by Nebraska for the coordinated examination. Nebraska conducted an assessment of the IT environment, governance and general control activities in accordance with standards established by the Handbook's Exhibit C - Evaluation of Control in Information Technology. Additionally, IT work performed by Ernst and Young, the Company's internal auditors, and D&T was reviewed and utilized where deemed relevant.

Although control deficiencies were noted, no material findings were identified that would likely have a significant impact on the amounts reported in the Company's 2012 Annual Statement.

RELATED PARTY TRANSACTIONS

NL&F had the following intercompany agreements in place as of December 31, 2012:

Management agreements, service contracts and cost-sharing agreements

Effective February 14, 2011, the Company and NICO entered into an Investment Services Agreement. Pursuant to the agreement, NICO provides investment management services to the Company for a fee as specified in the agreement.

Effective February 14, 2011, the Company and NICO entered into an Intercompany Services Agreement. Pursuant to the agreement, NICO provides certain administrative and special services and makes available certain property, equipment and facilities to the Company for a fee as specified in the agreement.

9 NATIONAL LIABILITY & FIRE INSlJRANCE COMPANY

Tax Allocation Agreement

The Company joined with a group of approximately 750 affiliated companies in the filing of a consolidated federal income tax return by BHI.

ACCOUNTS AND RECORDS

The Company maintains its general ledger (GIL) using the V4 system on a cash basis. The December 31, 2012, GIL account balances were reconciled and traced to the amounts reported in the annual statement, without exception. For the primary segment, the premium and claim system utilized are NICO Rate 8 and Claims Information System (CIS), respectively. The program business is processed on various third-party administrator systems and reported to the Company on a monthly or at least a quarterly basis.

FINANCIAL STATEMENTS

The following statements reflect the assets, liabilities, surplus and other funds, and statement of income as of December 31, 2012, as reported by the Company and as determined by the examination. Assets

Ledger Assets Nonadmitted Net Admitted Assets Assets Bonds $480,095,088 $47,751,259 $432,343,829 Preferred stocks 160,000,000 59,450,750 100,549,250 Common stocks 421,002,523 11,860,425 409,142,098 Cash, cash equivalents and short-term investments 362,913,334 362,913,334 Other invested assets 108,545 108,545 0 Receivables for securities 3,308,534 3,308,534 Investment income due and accrued 8,025,774 8,025,774 Uncollected premiums and agents' balances in the course of collection 69,749,604 2,297,386 67,452,218 Deferred premium agents' balances and installments booked but deferred and not yet due 11,539,450 11,539,450 Amounts recoverable from reinsurers 13,955,763 13,955,763 Funds held or deposited with reinsured 299,407 299,407 companies Guaranty funds receivable or on deposit 3,692,583 3,692,583 Receivable from parent, subsidiaries and affiliates 5,755,825 5,755,825 Aggregate write-ins for other than invested assets 8,828,864 8,798,306 30,558 Totals $1.549,275.294 $130,266.671 $1,419,008,623

10 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

LIABILITIES, SURPLUS, AND OTHER FUNDS

Losses $389,875,878 Reinsurance payable on paid losses and loss adjustment expenses 630,484 Loss adjustment expenses 94,995,095 Commissions payable, contingent commissions and other similar charges 3,626,582 Other expenses 5,174,924 Taxes, licenses and fees 3,036,523 Current federal and foreign income taxes 6,278,419 Net deferred tax liability 27,109,481 Unearned premiums 144,921,973 Ceded reinsurance premiums payable, net ceding commissions 5,741,871 Amounts withheld or retained by company for account ofothers 12,546,316 Provision for reinsurance 2,940,000 Net adjustments in assets and liabilities due to foreign exchange rates 96,345 Drafts outstanding 2,035,109 Payable to parent, subsidiaries and affiliates 3,336,507 Aggregate write-ins for liabilities 2,195,225 Total liabilities 704,540,732

Aggregate write-ins for special surplus funds 42,392 Common capital stock 5,000,000 Gross paid in and contributed surplus 95,822,263 Unassigned funds (surplus) 613,603,236 Surplus as regards policyholders 714,467,891

$1.419,008,623

11 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

STATEMENT OF INCOME

UNDERWRITING INCOME Premiums earned $305,820,067 DEDUCTIONS Losses incurred 182,020,720 Loss adjustment expenses incurred 55,034,287 Other underwriting expenses incurred 104,453,949 Total undetWriting deductions 341,508,956

Net underwriting gain (loss) (35,688,889) INVESTMENT INCOME Net investment income earned 38,637,086 Net realized capital gains (losses) (1,100,135) Net investment gains 37,536,951 OTHER INCOME Net gain (loss) from agents' or premium balances charged off (836,650) Finance and service charges not included in premiums 149,771 Aggregate write-ins for miscellaneous income 37,743,157 Total other income 37,056,278

Net income before dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes 38,904,340 Dividends to policyholders ° Net income, after dividends to policyholders, after capital gains tax and before all other federal and foreign income taxes 38,904,340 Federal and foreign income taxes 20,802,986 Net income 18,101,354 CAPIT AL AND SURPLUS ACCOUNT Surplus as regards policyholders, December 31 prior year 557,134,101

Net income 18,101,354 Change in net unrealized capital gains (losses) less capital gains tax 77,800,965 Change in net unrealized foreign exchange capital gain (loss) (30,358) Change in net deferred income tax 1,580,885 Change in nonadmitted assets and related items 28,718,805 Change in provision for reinsurance 19,303,000 Aggregate write-ins for gains and losses in surplus 11,859,139

Change in surplus as regards policyholders for the year 157,333,790

Surplus as regards policyholders, December 31 current year $714.467.891

12 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

LOSSES AND LAB $484,870,973

The following items were included in the captioned account:

Losses $389,875,878 LAE 94,995,095 $184,870,973

The Department relied on the actuarial review performed by Nebraska for the coordinated examination. Nebraska considered a number of factors including size of reserves for each business segment, whether the business segment was ongoing or runoff business, as well as considering the individual companies surplus position as of December 31, 2012. The following NL&F segments were deemed significant and reviewed as part of the actuarial assessment:

• Primary Group (mostly commercial auto) • Swiss Re (quota share treaty) • ARS (limited assignment distribution auto written through a MGA) • AARIS (California workers' compensation written through a MGA) • AlA (workers' compensation written through a MGA)

No material issues were identified.

POLICYHOLDERS SURPLUS $714,467,891

The following is a reconciliation ofpolicyholders' surplus during the period under examination:

Surplus as regards policyholders, December 31, 2009 $546,744,463 Net Income/(Net Loss) 104,150,685 Change in net unrealized capital gain (loss) 119,000,392 Change in net unrealized foreign exchange capital gain (loss) 6,001,095 Change in net deferred income tax 49,613,511 Change in nonadmitted assets (31,870,394) Change in provision for reinsurance 26,969,000 Dividends to stockholders (118,000,000) Aggregate write-ins for gains and losses in surplus 11,859,139 Net change in capital and policyholder surplus for the examination period 167,723,428 Surplus as regards policyholders, December 31, 2012 $714.467..82l

The Company's policyholder surplus increased during the examination period largely due to profitable results of operations and the increase in unrealized capital gains. This was partially offset by dividends to stockholders in 2010 and 2011, for $55 million and $63 million, respectively.

13 NATIONAL LIABILITY & FIRE INSURANCE COMPANY

SLffiSEQUENTEVENTS

• On May 1, 2013, the Company entered into an Operating Agreement with an affiliate, Boat America Corporation (Boat), in order to write certain inland marine and ocean marine policies. Under the terms of the Operating Agreement, Boat provides underwriting and claims services for the business being written. The first policy was written in June 2013, and the net premiums written and earned in 2013 were $49,757, and $15,053, respectively.

• Effective May 31, 2013, the Company entered into assumption reinsurance agreements with affiliates, Finial Reinsurance Company and NRG Victory Reinsurance Limited, to assume their Canadian business (approximately $3 million).

CONCLUSION

The results of this examination disclosed that as of December 31, 2012, the Company had admitted assets of $1,419,008,623, liabilities of $704,540,732, and capital and surplus of $714,467,891. During the period under examination, admitted assets increased $260,136,146, liabilities increased $157,747,432, and capital and surplus increased $102,388,713.

It was determined that the Company's assets and liabilities were fairly stated in accordance with guidance outlined in the Manual. Assets were acceptable under Section 38a-102 of the CGS. The liabilities established were adequate to cover the Company's obligations to policyholders.

14 NATIONAL LIABILITY & FIRE INSURAJ~CE COMPANY

SIGNATURE

In addition to the undersigned, William Arfanis, CFE, and Jeffrey Prosperi, CFE, of the Department participated in this examination.

I, Michael H. Estabrook, do solemnly swear that the foregoing report of examination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as of December 31, 2012, to the best of my information, knowledge and belief.

Respectfully submitted,

Michael H. Estabrook, APE Examiner-in-Charge State of Connecticut Insurance Department

State of Connecticut ss

County ofHartford

Subscribed and sworn before me, PCl-\- r't «c, P Cl+= , C f ,Notary Public/Commissioner of the Superior Court, on this )L.lt-~ dayof Gfo) ,2014.

RC4kl' Ur, C~bA/~ Notary Public/Commissieaer oillie 8up~Fi-eI:-Court

My Commission Expires Se p.k: CV") ber: :::,c) J dO \:?

15