REPORT ON EXAMINATION AS TO THE CONDITION OF

MAPFRE INSURANCE COMPANY

FLORHAM PARK, NEW JERSEY 07932

AS AT DECEMBER 31, 2013

N.A.I.C. GROUP CODE 0411

N.A.I.C. COMPANY CODE 23876

Filed

June 26, 2015

Commissioner Department of Banking &

Insurance

TABLE OF CONTENTS

Page

Salutation …………………………………………………………………………………… 1 Scope of Examination………………………………………………………………………. 2 Compliance with Prior Examination Report Recommendations……………………….. 3 History and Kind of Business……………………………………………………………… 4 Statutory Deposit…………………………………………………………………………… 6 Territory and Plan of Operation………………………………………………………….. 6 Corporate Records…………………………………………………………………………. 7 Management and Control…………………………………………………………………. 7 Regulation of Insurance Holding Company Systems…………………………………… 9 Inter-Company Agreements……………………………………………………………… 10 Policy on Conflict of Interest……………………………………………………………... 11 Employee Welfare and Pension Plans…………………………………………………… 11 Fidelity Bond and Other Insurance Coverages…………………………………………. 11 Accounts and Records…………………………………………………………………….. 12 Continuity of Operations………………………………………………………………….. 13 Growth of Company…..…………………………………………………………………… 14 Financial Statements and Other Exhibits: ………………………………………………. 15 Exhibit A – Balance Sheet at December 31, 2013……………………………………….. 16 Exhibit B – Summary of Operations for the Five-Year Period Ending December 31, 2013..…………………………………………………

17

Exhibit C – Capital and Surplus Account for the Five-Year Period Ending December 31, 2013…………………………………………………..

18

Notes to the Financial Statements………………………………………………………… 19 Summary of Examination Recommendations….………………………………………... 21 Conclusion………………………………………………………………………………….. 22 Certification………………………………………………………………………………… 23

CHRIS CHRISTIE Governor

KIM GUADAGNO Lt. Governor

State of New Jersey

DEPARTMENT OF BANKING AND INSURANCE OFFICE OF SOLVENCY REGULATION

PO BOX 325 TRENTON, NJ 08625-0325

TEL (609) 292-5350 FAX (609) 292-6765

KENNETH E. KOBYLOWSKI Commissioner

June 5, 2015

Honorable Kenneth E. Kobylowski Commissioner of Banking and Insurance State of New Jersey Trenton, New Jersey 08625 Commissioner: In accordance with the authority vested in you by the Revised Statutes of New Jersey, an examination has been made of the assets and liabilities, method of conducting business and other affairs of the:

MAPFRE Insurance Company FLORHAM PARK, NEW JERSEY

N.A.I.C. GROUP CODE 0411 N.A.I.C. COMPANY CODE 23876

a domestic insurer duly authorized to transact the business of insurance in the State of New Jersey. Hereinafter, the MAPFRE Insurance Company will be referred to in this report as the "Company" or “MIC”.

1

SCOPE OF EXAMINATION The New Jersey Department of Banking and Insurance, hereinafter referred to as “NJDOBI”, has performed a full scope risk-focused examination of MAPFRE Insurance Company. This risk-focused examination was called by the Commissioner of Banking and Insurance of the State of New Jersey pursuant to the authority granted by Section 17:23-22 of the New Jersey Revised Statutes. The examination was made as at December 31, 2013, and addressed the five-year period from December 31, 2008, the date of the last examination. During this five-year period under examination, the Company’s assets increased from $38,358,410 to $52,455,312. Liabilities increased from $8,617,032 to $33,685,091 and its surplus to policyholders decreased from $29,741,379 to $18,770,221. NJDOBI conducted our examination in accordance with the 2013 edition of the National Association of Insurance Commissioners (“NAIC”) Financial Condition Examiners Handbook (the “NAIC Handbook”). The NAIC Handbook requires that NJDOBI plan and perform the examination to evaluate the financial condition and identify prospective risks of the Company. In order to meet these objectives, NJDOBI obtained information regarding the Company’s corporate governance environment, identified and assessed inherent risks to which it is exposed and evaluated its system of internal controls and procedures used to mitigate those risks identified. The examination also included assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management’s compliance with Statutory Accounting Principles and annual statement instructions when applicable to domestic state regulations. According to the NAIC Handbook, “One of the increased benefits of the enhanced risk focused approach is to include … consideration of other than financial risks that could impact the insurer’s future solvency. By utilizing the enhanced approach, the examiner reviewed the “financial” and “enterprise” risks that existed at the examination “as of” date and will be positioned to assess “financial” and “enterprise” risks that extend or commence during the time the examination was conducted and “prospective” risks which are anticipated to arise or extend past the point of examination completion. Using this approach, examiners will be better positioned to make recommendations for appropriate future supervisory plans (i.e., earlier statutory exams, limited-scope exams, key areas for financial analysts to monitor, etc.) for each insurer.” All accounts and activities of the Company were considered in accordance with the risk focused examination process. The examination report only addresses regulatory information revealed by the examination process in accordance with the NAIC Handbook. All other financial matters were reviewed and determined not to be material for discussion in this report.

2

COMPLIANCE WITH PRIOR EXAMINATION REPORT RECOMMENDATIONS

Intercompany Agreements 2008 Examination Recommendation It was noted that there is no new tax allocation agreement even though there was a reorganization and changes during the examination period. MAPFRE Holdings, Inc. sold the Company to MAPFRE USA on July 16, 2007. It is recommended that the consolidated income tax agreement should be updated to reflect the new owner of the Company. Company Response The Company did not respond to the examination report recommendation. 2013 Examination Finding The Company complied with this recommendation.

Accounts and Records 2008 Examination Recommendation Per a review of the Company's IT system by Thomas Walker of the New Jersey Department of Banking and Insurance the disaster recovery plan appears to be adequate. However, although the Company appears to have adequate plans, they have not been tested. It is recommended that the Company adopt a regular testing schedule and document these regular tests. Company Response The Company did not respond to the examination report recommendation. 2013 Examination Finding The Company complied with this recommendation.

Taxes, Licenses and Fees 2008 Examination Recommendation It was noted that the Company did not accrue for statutory examination fees at December 31, 2008. It is recommended that in the future the Company should make a reasonable provision for future statutory examinations. Company Response The Company did not respond to the examination report recommendation. 2013 Examination Finding The Company complied with this recommendation.

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Payable to Parent, Subsidiaries and Affiliates

2008 Examination Recommendation It was noted during the examination that these expenses are related mostly to salary reimbursements for two employees and other office expenses at the Arizona office. There is no agreement in writing relating to these reimbursements to MAPFRE USA of Florida. It is recommended that the Company draw up an agreement to detail the stipulations of these reimbursements. Company Response The Company did not respond to the examination report recommendation. 2013 Examination Finding The Company complied with this recommendation.

HISTORY AND KIND OF BUSINESS The Company was incorporated under the laws of the State of California on February 21, 1985 as The New Zealand Reinsurance Company of America to serve as the corporate vehicle for the domestication of the United States Branch of The New Zealand Insurance Company Ltd. and commenced operations on March 6, 1986. On April 18, 1991, Chatham Holdings Inc., a Delaware general business corporation, purchased all of the issued and outstanding capital stock of the Company. The Company's name was changed on May 15, 1991 to English & American Insurance Corporation and on June 25, 1993 to Chatham Reinsurance Corporation. On June 7, 2000 the Company was sold to MAPFRE Re, Compania de Reaseguros, S.A. (“MAPFRE Re” or “Parent”) a subsidiary of MAPFRE Group, the leading insurance entity in Spain. Following the transaction the company was renamed to MAPFRE Reinsurance Corporation and was capitalized with an additional $80 million from the Parent to increase capital to $100 million. By written consent of the sole shareholder on November 21, 2001 and by resolution of the Board of Directors November 21, 2001, the Corporation was authorized to re-domesticate (for the purpose of administrative and operational efficiency) from the State of California to the State of New Jersey. A transfer of $700,000 was authorized on November 21, 2001 to be made from the paid in and contributed surplus account to the common capital stock account. The transfer was made to meet State of New Jersey minimum capital requirements of $4.2 million per N.J.S.A. 17:17-6. In December 2003, the Company filed an application with the Office of Superintendent of Financial Institutions (OSFI) to open a Canadian Branch. On November 15, 2004 the Company’s application was approved and a license limited to the business of reinsurance was granted by the OSFI. The Company received capital contributions from its Parent of $15,000,000 on February 24, 2003 and $20,000,000 on April 27, 2004. In September 2006, the Company received permission from the New Jersey Department of Banking and Insurance to make an extraordinary distribution of capital of $111,965,715.

4

5

Effective May 23, 2007 the name of the Company was changed to MAPFRE Insurance Company through and Amendment to the Certificate of Incorporation dated May 10, 2007 and filed with the New Jersey Department of Banking and Insurance on May 23, 2007. In addition, the Company received permission to make a second extraordinary distribution of capital of $22,100,000. In July 2007, the Company was sold by MAPFRE Holdings Inc. (“MHC”) to MAPFRE USA, an affiliated Florida holding company. On July 1 of 2009, MAPFRE Insurance Company was transferred to Commerce Insurance Company. The ultimate parent remained MAPFRE U.S.A. In 2012 MAPFRE Insurance Company entered into the Fifth Amended Reinsurance Agreement. The agreement was effective as of January 1, 2012. This was an inter-company reinsurance pooling agreement in which the companies share underwriting profit and losses in proportion to the pool participation percentages. The pooling agreement permits all companies to rely on the capacity of the entire pool rather than on their own capital and surplus. The pool participation percentages reflect the ratio of each subsidiary's policyholders' surplus to the aggregate policyholders' surplus. The percentages follow:

The lead company The Commerce Insurance Company 71.2% Affiliate Company American Commerce Insurance Company 9.1% Affiliate Company Citation Insurance Company 7.4% Affiliate Company Commerce West Insurance Company 4.6% Affiliate Company MAPFRE Insurance Company of New York 3.9% Affiliate Company MAPFRE Insurance Company of Florida 2.1% Affiliate Company MAPFRE Insurance Company 1.7%

In 2013 MAPFRE Insurance Company transferred $1,038,138 to gross paid in and contributed surplus through a stock dividend.

Dividends in the amount of $3,172,325 were paid to stockholders in 2010 Dividends in the amount of $2,646,090 were paid to stockholders in 2011 Dividends in the amount of $2,330,953 were paid to stockholders in 2012 Dividends in the amount of $2,024,363 were paid to stockholders in 2013.

The Company's Certificate of Authority authorizes the Company to write the types of insurance specified in paragraphs “a”, "b", “e”, “f”, “g”, “i”, “j”, “k”, “l”, “m”, “n”, and "o" of N.J.S.A. 17:17-1 and health insurance as defined in N.J.S.A. 17B:17-4. The main administrative office of the Company is located at 211 Main Street, Webster MA 01570. The registered agent upon whom process may be served is Daniel Patrick Olohan.

STATUTORY DEPOSIT As of December 31, 2013, the Company maintained three securities on deposit with the State of New Jersey, in trust for the benefit and security of all of the policyholders of MAPFRE Insurance Company.

State

Securities

Market Value

New Jersey U.S. TREASURY NOTE, 2.125 %, due DECEMBER

31, 2015

$620,700.00

New Jersey U.S. TREASURY NOTE, 1.750%, due JULY 31, 2015 $1,968,075.12 New Jersey

TD BANK DEPOSIT SWEEP INCOME HOLDING

$6,386.96

TERRITORY AND PLAN OF OPERATION The Company is a New Jersey domestic property and casualty insurance company. The ultimate Parent, Fundacion MAPFRE, is a worldwide insurance holding company, which through its insurance subsidiaries writes a broad range of life and property and casualty insurance products. On November 15, 2004, the Company was granted a license limited to the business of reinsurance by the Office of Superintendent of Financial Institutions (“OSFI”). In addition on December 14, 2004, the Company was granted a license by the Province of Ontario. On May 23, 2007, the Company was granted an Amended Certificate of Authority to write direct business in the State of New Jersey. The company is currently licensed to write business in 33 states and the District of Columbia and is authorized to write reinsurance in the remaining states. At year end 2013 the Company primarily wrote in California and Arizona. The Company had the following direct written premiums for the examination period:

Year

Direct Written Premium

2009

$337,338

2010 $2,794,245 2011 $6,363,257 2012 $9,631,142 2013 $25,347,591

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Direct written premiums in 2013 were in the following lines of business:

Private Passenger Auto Liability $13,272,316 Private Passenger Auto Physical Damage 9,561,278 Homeowners Multiple Peril 2,394,674 Fire 70,214 Other Liability - Occurrence 37,161 Inland Marine 11,948

CORPORATE RECORDS The minutes from the Board of Directors and the Shareholders were reviewed from 2009 through 2013 subsequent events. The Board of Directors approves the investment transactions, elects officers and generally is proactive in the Company. The examination team could not confirm that each member of the Board of Directors had signed an affidavit that they had received and reviewed a copy of the December 31, 2008 financial condition examination report. It is recommended that each member of the Board of Directors sign an affidavit stating that they have received and reviewed a copy of the 2013 risk focused examination report. MANAGEMENT AND CONTROL The business and affairs of the Company are managed by the President and his delegated officers under the guidance of the Board of Directors. Directors The Company’s by-laws specify that the Board will not have less than seven (3) nor more than the maximum number of directors allowed by law. The elected directors shall hold office for one year and until their successors have been duly elected and qualified. The President of the Company, subject to the direction of the Board, shall be the chief executive officer of the Company, shall have general charge and supervision of the responsibility for the business and affairs of the Company, shall have the direction of all other officers and employees and may assign such duties to the other officers of the Company as he deems appropriate. He shall have the general powers and duties of management usually vested in the office of the president of a company. The following were the Directors of the Company as of December 31, 2013: Director Occupation Domingo Suganyes Bickel

Third Vice Chair of MAPFRE SA

Jaime Tamayo President –Commerce Insurance Company

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8

Director Occupation Daniel P Olohan

Senior Vice President –General Council and Assistant Secretary

The Company is required to comply with the provisions of N.J.S.A. 17:27A-4d(3) which states that, “not less than one-third of the directors of a domestic insurer shall be persons who are not officers or employees of that insurer or of any entity controlling, controlled by, or under common control with that insurer and who are not beneficial owners of a controlling interest in the voting securities of that insurer or any such entity”. However, in accordance with N.J.S.A. 17:27A-4d(5), the provisions of paragraph (3) shall not apply to a domestic insurer if the person controlling the insurer is an entity having a board of directors that substantially meet the requirements of this paragraph. The Company is in compliance with N.J.S.A. 17:27A-4d(5), as the ultimate controlling entity, The Commerce Insurance Company, maintains a Board of Directors of which four of the eight members are considered outside directors. Committees The Company did not have any committees in place as of December 31, 2013. However, the Company’s parent, Commerce Insurance Company, has several committees in place which include an audit committee, executive and compensation committee, and an Investment Strategy committee. Their audit committee is comprised solely of members who are outside directors and who are not affiliated with the Company or any controlling entity thereof. The Company is required to comply with the provisions of N.J.S.A. 17:27A-4d(4) which states that, “the board of directors of a domestic insurer shall establish one or more committees comprised solely of directors who are not officers or employees of the insurer or of any entity controlling, controlled by, or under common control with, the insurer and who are not beneficial owners of a controlling interest in the voting securities of the insurer or any such entity”. However, in accordance with N.J.S.A. 17:27A-4d(5), the provisions of paragraph (4) shall not apply to a domestic insurer if the person controlling the insurer is an entity having one or more committees that substantially meet the requirements of this paragraph. The Company is in compliance with N.J.S.A. 17:27A-4d(5), as the ultimate controlling entity, MAPFRE USA maintains an Audit Committee which performs the designated responsibilities. This committee is made up of all outside directors. Officers The principal officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Secretary, and a Treasurer. The President and the Secretary shall not be the same person. The Corporation may also have, at the discretion of the Board, one or more Assistant Secretaries, one or more Assistant Treasurers or chief financial officers, and any other officers who may be appointed.

The following officers were elected and serving as at December 31, 2013:

Jaime Tamayo

President and CEO

Robert Edward McKenna

Treasurer, CAO & SVP

Michael Steven Sher Secretary, Deputy General Counsel and Vice President

Randall Vaughn Becker Executive Vice President and CFO

REGULATION OF INSURANCE HOLDING COMPANY SYSTEMS MAPFRE Insurance Company is a member of an insurance holding company system as defined in N.J.S.A. 17:27A-1 and is subject to the registration requirements of N.J.S.A. 17:27A-3. The Company is a wholly owned subsidiary of The Commerce Insurance Company who is wholly owned by MAPFRE USA Corp., an affiliated Massachusetts holding company. A review indicated that the Company did file the holding company registration statement for the period under examination in compliance with the requirements and standards under N.J.S.A. 17:27A-3. Below is the Company’s organizational chart as of December 31, 2013.

9

INTER-COMPANY AGREEMENTS Inter-company Pooling Agreement The Company and its insurance affiliates have an inter-company reinsurance pooling agreement in which the companies share underwriting profit and losses in proportion to the pool participation percentages. The pooling agreement permits all companies to rely on the capacity of the entire pool rather than on their own capital and surplus. The pool participation percentages reflect the ratio of each subsidiary's policyholders' surplus to the aggregate policyholders' surplus. The percentages follow:

• The Lead Company The Commerce Insurance Company 71.2% • Affiliate Company American Commerce Insurance Company 9.1% • Affiliate Company Citation Insurance Company 7.4% • Affiliate Company Commerce West Insurance Company 4.6% • Affiliate Company MAPFRE Insurance Company of New York 3.9% • Affiliate Company MAPFRE Insurance Company of Florida 2.1% • Affiliate Company MAPFRE Insurance Company 1.7%

Commerce Insurance Company, as the lead company, assumes the direct business of its affiliates. All external reinsurance, in the form of catastrophe, quota share, facultative and excess of loss contracts, is ceded to the external reinsurers by Commerce Insurance Company under the terms of the reinsurance contracts. Commerce Insurance Company then cedes the net business after external reinsurance back to its affiliates at the stated pooled participation percentages. Management Cost Allocation Agreement The Fourth Amended and Restated Management Cost Allocation Agreement provides that the Company is charged or reimbursed for services rendered by the Company or its insurance affiliates and entails 1) investment related and 2) non-investment related services. Costs pertaining to investment related services are actual costs borne by the Company which, per agreement were determined to be the total rate of 15 basis points per annum times the investment balance at each regular calendar quarter. The non-investment related charges are costs borne by the Company and or its affiliates for functions supporting the affiliated companies. Loss adjustment expenses will be apportioned through studies in accordance with SSAP No. 70 which such studies shall be conducted no less than annually. Expenses other than investment related expenses and loss adjustment expenses will be apportioned to each company based on its direct written premium relative to that of the other companies. Tax Sharing Agreement MAPFRE Insurance Company entered into a tax sharing agreement on November 4, 2009, where it was agreed the companies would file a consolidated return and allocate the tax among them.

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The agreement was entered into with the following companies:

• MAPFRE Insurance Company • The Commerce Insurance Group Inc. • Commerce Insurance Company. • Commerce West Insurance Company • American Commerce Insurance Company • ACIC Holding Company • Citation Insurance Company • BFC Holding Company • State Wide Insurance Holding Company • MAPFRE Insurance Company of Florida • MAPFRE Intermediaries Inc.

Each affiliate is jointly and severally liable for federal income taxes of the Affiliated Group, and has entered into a written tax sharing agreement. Under this agreement allocation is made primarily on a separate return basis, with written payment for losses and other tax items utilized in the consolidated return. POLICY ON CONFLICT OF INTEREST The Companies' policy statement regarding conflicts of interest requires all directors, officers and employees to avoid situations in which their personal interests conflict with the interests of the Companies. Prior to engaging in any conduct or activity that may result in a conflict of interest, the facts and circumstances of the proposed conduct or activity must be disclosed to the supervisor or manager and to the Chair of the Corporate Compliance Committee in accordance with the Conflict of Interest Policy. The Company does not require its officers and directors to complete executed Conflict of Interest statements. EMPLOYEE WELFARE AND PENSION PLANS MAPFRE Insurance Company has no employee welfare and pension plans in place during the period under examination, as the Company has no employees. FIDELITY BOND AND OTHER INSURANCE COVERAGES At December 31, 2013 MAPFRE USA Corporation and its Subsidiaries has obtained Financial Institution Bond coverage underwritten by St. Paul Fire and Marine Insurance Company for all of its entities including MAPFRE Insurance Company. The fidelity bond provides MAPFRE USA Corporation and Subsidiaries with fidelity coverage up to a liability limit of $10,000,000 on an aggregate loss basis. The amount of fidelity coverage carried on this policy meets the suggested minimum amount of fidelity coverage as measured on a group basis using the NAIC formula and exposure index.

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Additionally MAPFRE USA Corporation has the following insurance coverages:

• Blanket Commercial Coverages for Numerous Buildings • Commercial General Liability • Earthquake and flood Insurance • Directors and Officers Liability • Employment related practices Liability • Workers Compensation • Commercial Automobile Liability • Commercial Umbrella

ACCOUNTS AND RECORDS The Company uses the SAP software package for its general ledger and Booke’s The Complete Package to prepare its Annual Statement. The general ledger system has been tested various auditors and is reconciled to the Annual Statement. Financial information in conjunction with the verification of assets and the determination of liabilities was made available in detail and summary form. The Company’s accounting books and records are maintained at its main administrative office located at 211 Main Street, Webster MA. The Company maintains two systems for reporting its business – Tronador and Tronweb. Tronador is the older version of system administered by the Company’s ultimate parent in Spain and Tronweb is the newer version. The Company is migrating its business to the newer version and all new business is written on Tronweb. The Company’s investment portfolio is accounted for on SunGuard’s iWorks platform and is in safekeeping at the Bank of New York. Claim payment authorization is performed either by Claim Representatives within their individual authority or by their Supervisor if the amount exceeds their authority. Likewise, if this exceeds the supervisor's authority, it would be handled by the Claim Manager. This process continues to follow the chain of command if authority limits are exceeded. Data Control completes a series of month end jobs where payment orders are created and commissions are assigned to agents. Direct Deposit (ACH) payments are processed and released. Agency Compensation balances the ACH and check registers to the agent statements and commission expense reports. Once balanced and approved by the Compensation manager, commission checks are printed and mailed to the agents. The Investment Accounting Department records all interest payments with the Sungard iWorks Investment Management Software. Interest payment transactions are uploaded daily from Bank of New York. They are then matched and posted to the accrued interest payments within iWorks. Once posting has been completed, a reconciliation is preformed between iWorks and the Bank of New York to ensure accuracy and completeness.

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For MAPFRE Insurance Company, premiums are collected via four methods: Checks The insured mails their premium payment check and payment stub to the company and it is received by the remittance processing area in either Gilbert, AZ or Webster, MA. The check is electronically scanned and submitted to Bank of America via Image Cash Letter for deposit. A remittance file is generated from the scanning process which is used to post the payments received to the MAPFRE Insurance Company processing system. Daily reports are provided to the Treasury Department to reconcile payments posted in the system to the deposit posted by the bank. Electronic Funds Transfer (EFT/ACH) The insured completes and submits the EFT authorization form to MAPFRE Insurance Company providing approval to pay future premium installment payments via electronic bank transfer from their designated bank account. This information is entered into the insurance processing system and is used to generate an ACH file which is submitted to Bank of America as premiums become due on the policy. The payments are posted to the policies and daily reports are provided to the Treasury Department to reconcile funds deposited at the bank to funds posted in the insurance processing system for this payment type. Credit/Debit Cards and E-Checks The Company utilizes Deutsche Bank's Convenience Pay product. The customer accesses the payment link from the MAPFRE website in order to submit their premium payment as payments are due on their policy. At the close of business (based on a batch close cut off time specified with Deutsche Bank) a remittance file is generated by the bank and provided to MAPFRE Insurance Company so payments received can be applied to the policies in the insurance processing system. Daily reports are provided to the Treasury Department to reconcile funds deposited at the bank to funds posted in the insurance processing system for this payment type. Agent Sweep Agents are able to submit payments received from insureds in the agent's office to MAPFRE through the use of the MAPFRE Agent Front End (AFE). The agent deposits these payments into the agency's bank account. Daily, an ACH file is generated and sent to Bank of America in order for MAPFRE to collect the premium payments from the agents via a direct debit to the agency's bank account. Daily reports are provided to the Treasury Department to reconcile funds deposited at the bank to funds posted in the insurance processing system via the AFE process. Dividends are authorized by vote of the Board of Directors and paid via wire transfer. CONTINUITY OF OPERATIONS A business continuity plan is necessary to help ensure the Company can adequately recover from a system failure or business interruption in a timely fashion and without the loss of significant data. Management should assess how the Company’s reputation and financial status would be impacted in the event of a major processing disruption and, based on this assessment, develop an appropriate continuity plan that would help to ensure the Company can adequately recover from a system failure or business disruption in a timely fashion.

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The Company’s comprehensive Business Continuity Plan, which includes a Disaster Recovery Plan, was reviewed by Price Waterhouse as part of the Massachusetts Department of Insurance Examination. There were no exceptions noted or recommendations made. The Company has made provisions for the succession of officers in its By-laws. GROWTH OF COMPANY The direct premiums written to surplus as regards policyholders ratio for the period under examination are found below:

Year Ending

Direct Premiums Written

Surplus as Regards Policyholders

Ratio

2009 337,338 31,723,252 0.011 2010 2,794,245 26,460,897 0.106 2011 6,363,257 23,309,531 0.273 2012 9,631,142 20,243,627 0.476 2013 25,347,591 18,770,221 1.350

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FINANCIAL STATEMENTS AND OTHER EXHIBITS Exhibit A Balance Sheet as at December 31, 2013 Exhibit B Summary of Operations for the Five-Year Period Ending December 31, 2013

Exhibit C Capital and Surplus Account for the Five-Year Period Ending December 31, 2013

15

16

MAPFRE INSURANCE COMPANY

BALANCE SHIEl AT DECEMBER 31,2013

Current

Examination

Balance per

Company

at 12/31/2013 at 12/31/2013

Bonds

Cash

lnrestment Income Due and Accrued

Agents' Balances or Uncollected Premiums:

Uncollected Premiums and Agents' Balances in the Course of Collection

Reinsurance

Amounts Recorerable from Reinsurers

Net Deferred Tax Asset

Aggregate Write-Ins for Other Than lnrested Assets

Total Admitted Assets

Losses and Loss Adjustment Expenses

Reinsurance Payable on Paid Losses and Loss Adjustment Expenses

Commissions Payable, Contingent Commissions and Other Similar Charges

Other Expenses (excluding taxe.s, licenses, and fees)

Taxes, Licenses and Fees

Federal and Foreign Incomes Taxes

Unearned Premiums

Adrance Premium

Ceded Reinsurance Premiums Payable

Payable to Parent, Subsidiaries and Affiliates

Aggregate write-ins for Liabilities

Total Liabilities

Surolus and Other Funds

Common Capital Stock

Gross Paid In and Contributed Surplus

Unassigned Funds (Surplus)

Surplus as Regards Policyholders

Total Liabilities, Surplus and Other Funds

$33,724,005 S33,724,005

3,666,756 3,666,756

364,168 364,168

10,831,580 10,831,580

1,381,738 1,381,738

2,184,344 2,184,344

302,721 302,721

S52,455,312 S52,455,312

S13,974,922 $12,975,922

1,763,326 1,763,326

395,938 395,938

90,082 90,082

383,920 383,920

72,836 72,836

15,618,089 15,618,089

858 858

1,921,070 1,921,070

367,865 367,865

95,185 95,185

$34,684,091 $33,685,091

S5,100,000 S5,100,000

1,150,000 1,150,000

11,521,221 1Z,520,221

S17,771,221 S18,770,221

$52,455,312 S52,455,312

Examination Note

Chan&e Number

so 2

so

S999,000 3

S999,000

so 0

(999,000)

(S999,000)

so

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EXHIBIT B

MAPFRE INSURANCE COMPANY SUM~L<\RY OF OPERATIONS FOR THI

ffi'E-YE.<\R PERIOD ENDING DECU.IBER 31,2013

Current Examination

UNDERWRITING INCOME at 12/31/2013 2012 2011 2010 2009

Premiums Iamed $30,708,702 $30,533,741 $5,289,003 $2,118,727 $268,448

Deductions: Losses and Loss Adjustment Expenses Incurred $23,570,251 • $22,904,794 $6,250,311 $4,530,083 ($940,760) Other Undenvriting Expenses Incurred 8,837,016 8,343,522 2,360,941 1,158,213 775,093 Aggregate Write-ins for Underwriting Deductions (9,282) (20,485) 28,000 0 0

I otal Underwriting Deductions S32,397,985 S31,227,831 S8,639,252 $5,688,296 ($165,667)

Net Undenvriting Gain or (Loss) ($1,689,283) ($694,090) ($3,350,249) ($3,569,569) $434,115

INVESTMENT INCOME

Net Investment Income Earned S1,360,605 S1,189,773 S1,121,433 S1,455,451 S1,538,594 Net Realized Capital Gains or (Losses) (92,609) 169,666 68,330 221,557 55,879

Net Investment Gain or (Loss) $1,267,996 $1,359,439 $1,189,763 $1,677,008 $1,594,473

OTHIR INCOME

Finance and Service Charges not Included in Premium $124,968 S4,040 S67,876 so so

Aggregate Write-Ins for Miscellaneous Income 0 (81) 0 10 0

Total Other Income $124,968 $3,959 $67,876 $10 so

Net Income Before Dividends to Policyholders and before Federal & Foreign Income Taxes ($296,319) $669,309 ($2,092,610) ($1,892,551) $2,028,588

Dividends to Policyholders 0 0 0 0 0

Net Income Before F ederallncome Taxes ($296,319) S669,309 (S2,092,610) (S1,892,551) S2,028,588 Federal and Foreign Income Tues Incurred (11,744) (102,334) (1,317,517) 256,181 94,866

Net Income ($284,575) $771,643 ($775,093) ($2,148,732) $1,933,722

* 2·013 Examination Adjustment totaling $999,000

18

NET INCOME

MAPFRE INSURANCE COMPANY

SUMMARY OF OPERATIONS FOR THI

FIVI-YEAR PERIOD ENDING DECE~ffiER 31,2013

Current

Examination

at 12/31/2013 2012 2011

($284,575) $771,643 ($775,093)

OTHIR SURPLUS GAINS OR 1-l LOSSES

Change in Net Deferred Income Tax ($239,447) ($195,665) ($585,268)

Change in Non Admitted Ass,ets 365,383 904,827 786,839

Change in Prorision for Reinsurance 0 290t,132 68,246

Paid in Surplus 1,138,138 0 0

Transferred to Capital (Stock Diridend) (1,138,138) 0 0

Diridends to Stockholders (2,024,363) (2,330t,953) (2,646,090)

Aggregate Write-in for Gains and Losses to Surplus (289,404) (2,504,888) 0

Total Other Surplus Gains or(-) Losses ($2,187,831) ($3,837,547) ($2,376,273)

Change in Surplus as Regards

Policyholders for the Year ($2,472,406) ($3,065,904) ($3,151,366)

Surplus as Regards Policyh01lders

December 31, Prerious Ye:ar $20,243,627 $23,309',531 $26,460,897

Surplus as Regards Policyh01lders

December 31, Current Year $17,771,221 $20,243,627 $23,309,531

EXHIBITC

2010 2009

($2,148,732) $1,933,722

$978,476 ($502,716)

(1,367,459) 359,498

447,685 64,088

0 0

0 0

(3,172,325) 0

0 127,281

($3,113,623) $48,151

($5,262,355) $1,981,873

$31,723,252 $29,741,379

$26,460,897 $31,723,252

NOTES TO THE FINANCIAL STATEMENTS NOTE 1: BONDS MAPFRE Insurance Company reported admitted assets for bonds of $33,724,005 at December 31, 2013. This amount will be accepted as stated by this examination. NOTE 2: CASH The Company reported an asset for cash of $3,666,756 at December 31, 2013 which was accepted for examination purposes. NOTE 3: LOSSES AND LOSS ADJUSTMENT EXPENSES The Company reported a net liability for losses and loss adjustment expenses of $12,975,922 at December 31, 2013 which was $999,000 less than the amount determined by this examination of $13,974,922. The actuarial review of the Loss and Loss Adjustment Expenses reserves for the Commerce Insurance Group was done by PwC, as part of a coordinated examination of the Commerce Insurance Group. The PwC Actuarial report was reviewed by the Property and Casualty Actuarial Division of the New Jersey Department of Banking and Insurance Office of Solvency Regulation. On the basis of this review, the Reserve for Loss and Loss Adjustment Expenses for the MAPFRE USA Group were deficient by $58,789,000 at December 31, 2013. Since MAPFRE Insurance Company is 1.7% of the 2013 pooling agreement, the deficiency for the Reserve of Losses and Loss Adjustment Expenses was $999,000. The examination recommends that the MAPFRE USA Group maintain gross and net loss and loss adjustment expense reserves at a level adequate to meet its ultimate loss and loss adjustment expense obligations.

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NOTE 4: SURPLUS AS REGARDS POLICYHOLDERS Unassigned Funds (Surplus) The Company reported surplus as regards to policyholders at December 31, 2013 of $18,770,221 which consisted of common capital stock of $5,100,000, gross paid in and contributed surplus of $1,150,000 and unassigned funds of $12,520,221. The examination reported surplus as regards to policyholders of $17,771,221 which was $999,000 less than the amount reported by the Company. This decrease is due to examination changes to certain liability accounts, which ultimately affected the unassigned funds (surplus) account as follows: Surplus as Regards Policyholders at December 31, 2013 (per Company) $18,770,221 Decrease in Surplus:

Losses and Loss Adjustment Expenses $999,000 Net Decrease in Unassigned Funds (Surplus)

$999,000

Surplus as Regards Policyholders at December 31, 2013 (per Examination)

$17,771,221

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SUMMARY OF EXAMINATION RECOMMENDATIONS Corporate Records (page 7) It is recommended that each member of the Board of Directors sign an affidavit stating that they have received and reviewed a copy of the 2013 risk focused examination report. Loss and Loss Adjustment Expenses (page 19) The examination recommends that the MAPFRE USA Group maintain gross and net loss and loss adjustment expense reserves at a level adequate to meet its ultimate loss and loss adjustment expense obligations.

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CONCLUSION

A regular statutory financial condition examination was conducted by the undersigned with the assistance of fellow examiners of the New Jersey Department of Banking and Insurance examination staff.

The examination and audit was conducted at the MAPFRE Insurance Company office inWebster, Massachusetts. The courteous assistance and cooperation of the Company's officers and employees is acknowledged.

Respectfully Submitted,

John S. Tyson, CFE Examiner-in-Charge

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/S/