NORCAL Group 2016 Annual Report

ANNUAL REPORT

OUR MISSION
To provide our policyholders the highest quality medical professional
liability insurance products and services at the lowest responsible cost,
while maintaining a financially sound company.
To anticipate and influence changing industry and policyholder trends
and respond to those trends in a manner which allows NORCAL Mutual to
maintain its financial stability for the benefit of the policyholders.
2016 ANNUAL REPORT | 3

A MESSAGE FROM THE
CHAIR & THE CEO
In 2016, NORCAL Mutual entered our 41st
year as a leader in medical professional
liability (MPL) insurance. As we celebrate
and reflect on those four decades, our
history becomes a powerful reminder that
our philosophy of being a policyholderowned
mutual company is at the heart of
our longevity, and serves as the foundation
of our Mission: to always serve the best
interest of our policyholder-owners.
JAAN SIDOROV, MD, MHSA, FACP
Chair
SCOTT DIENER
President & Chief Executive Officer
4 | 2016 ANNUAL REPORT

The healthcare industry’s dynamic changes
continued to influence our evolution — from
market fluctuations and demographic and regional
shifts, to tort reform, changes in the healthcare delivery
model, and many others. Amid these sweeping changes
and uncertainty, NORCAL’s deep experience, prudent
decision-making and financial stability have enabled us
to continue to navigate a complex environment with a
balance of strategic growth and operational improvement.
We began 2016 with the integration of Florida’s FD
Insurance, expanding our national footprint in the
Southeast and bringing a well-respected and financially
strong company into the NORCAL Group. We then closed
the year with a definitive agreement to acquire PPM
Services, which resulted in a partnership with Preferred
Physicians Medical (PPM), the only anesthesiology-specific
MPLI carrier in the nation, insuring anesthesia practices in
over 40 states with premiums approaching $40 million.
While we leveraged strategic opportunities for growth, we
also made significant progress on improving operations
to drive efficiencies and lower our operating costs. Our
financial results reflect solid achievement in an extended
soft market, with premiums remaining steady and posting
surplus at the highest level in our history at $705 million.
Additionally, the designation of an A.M. Best “A” (Excellent)
rating for the 33rd consecutive year is something we are
very proud of.
The roll out of NORCAL Mutual’s Health Care Professional
(HCP) policy continued into 19 new states, bringing an
enhanced uniform policy to the vast majority of our
markets. We also created a dedicated Custom Accounts
team, focused on complex and multi-state practices, to
address the level of flexibility needed by more and more of
our policyholders. As the needs of medical practices and
challenges of the MPL market become even more complex
in 2017 and beyond, NORCAL will continue to look for
new ways to provide innovative offerings at the lowest
responsible cost, always keeping our focus squarely on
you, our policyholders.
The numbers throughout this annual report tell an
important part of our story; our history and longevity
tell another. Together, our financial strength and stability
enable us to remain what we’ve always been — 100%
committed to you.
Thank you very much for your business and for your
confidence in our company. We look forward to serving
you for many years to come.
2016 ANNUAL REPORT | 5

NORCAL’S 2016
NATIONAL FOOTPRINT
WA
CA
OR
NV
ID
UT
MT
WY
CO
ND
SD
NE
KS
MN
IA
MO
WI
IL
IN
MI
KY
OH
WV
NY
PA
MD
VA
ME
VT
NH
MA
CT
RI
NJ
DE
DC
AZ
NM
OK
AR
TN
SC
NC
MS
AL
GA
TX
LA
AK
FL
HI
48 Admitted States + District of Columbia
NORCAL Group includes NORCAL Mutual Insurance Company, Medicus Insurance Company, FD Insurance Company and NORCAL
Specialty Insurance Company.
6 | 2016 ANNUAL REPORT

A YEAR IN REVIEW
BEYOND THE NUMBERS
The strength of the NORCAL Group of companies goes beyond the financial
numbers we provide in the annual report. It builds from the 30,000 physician
insureds across 35 states who entrust their practices to NORCAL Mutual,
Medicus, FD Insurance and NORCAL Specialty. We also draw strength from
our network of agents who represent the NORCAL Group in local markets,
the defense counsel who support and defend you through the stresses of
litigation, and the diverse board of directors you have elected to help guide
the company.
In 2016, NORCAL continued its multi-year strategic plan
to bring all NORCAL Group policyholders under a single
banner, including policyholders from FD Insurance
who joined the NORCAL Group at the beginning of the
year. As part of this work, the NORCAL Mutual Health
Care Professional policy was introduced into 19 additional
states. The company now operates four regional offices
throughout the country to better serve you across every
time zone.
We’ll continue to strategically grow without losing the
personal service and support you’ve come to expect; and
continue to evolve and transform to keep pace with a
changing industry without losing sight of our rich history.
Our numbers may change, but our focus will remain
squarely on you.
2016 ANNUAL REPORT | 7

UNDERWRITING
WE TREAT YOU LIKE OWNERS — BECAUSE YOU ARE.
This is just one reason why our insureds choose to stay with NORCAL. NORCAL’s national
underwriting team is dedicated to staying ahead of trends affecting the healthcare industry and
the practice of medicine to craft the best coverage terms at the lowest responsible cost for each
of our policyholders. Our experienced team understands the complexities of different practices,
specialties and locales, and diligently works to deliver innovative coverage options to protect our
insureds and their practices from emerging risks — like cyber liabilities and data breaches. Our
specialized Custom Accounts team also works with complex and multi-state accounts offering
flexible coverage options when needed.
References to being ‘owners’ of the Company apply only to NORCAL Mutual Insurance Company policyholders.
8 | 2016 ANNUAL REPORT

%
WITH
OF INSUREDS RENEW
NORCAL EACH YEAR *
*Average over five-year period 2012-2016 for all NORCAL Group companies.

A MESSAGE FROM THE CFO
GROWTH & STABILITY IN
A CHANGING MARKET
The NORCAL Group of companies closed a solid financial year with a healthy balance sheet
reflecting the steady efforts to maintain expenses to balance the effects of the continuing
soft market. In 2016 NORCAL completed the acquisition of FD Insurance Company
and ended the year entering into a definitive agreement to purchase PPM Services.
Consolidations throughout the market, from medical practices to agencies to carriers,
continually changed the landscape of healthcare.
NORCAL Mutual, along with its subsidiaries Medicus Insurance Company, FD Insurance
Company and NORCAL Specialty Insurance Company, were once again affirmed an A.M.
Best “A” (Excellent) rating for the 33rd consecutive year for its stability and financial
strength. NORCAL’s diligence in identifying and committing to operational efficiencies
and sound underwriting and claims practices resulted in the highest policyholders’
surplus of $705 million in the company’s 41-year history.
NORCAL remains in a strong position to uphold its mission to
provide quality MPLI to its policyholders for years to come.
MARK D. JOHNSON
Senior Vice President & Chief Financial Officer
10 | 2016 ANNUAL REPORT

STATISTICS FROM 2014-2016
BY THE NUMBERS
TOTAL ADMITTED ASSETS
remained stable at $1.5 billion over the
past three years.
2016 $1,577M
2015 $1,560M
2014 $1,565M
DIRECT WRITTEN PREMIUM
remained steady as soft market
conditions continued into 2016.
2016
$293M
2015
$290M
2014
$293M
$705M 30,256
$670M 27,736
$642M 27,390
POLICYHOLDERS’ SURPLUS
continued to grow to $705 million due to sound
business practices and solid investment returns.
2016
2015
2014
POLICYHOLDER COUNT
has exceeded 30,000 with the expansion
into new markets and new products offerings.
2016 ANNUAL REPORT | 11

NORCAL GROUP CONSOLIDATED
FINANCIAL RESULTS
NORCAL Group financial results remained stable through 2016, navigating the fluctuations in the market. Reflected in the
2016 financial statement are the results of the acquisition of FD Insurance Company. Together NORCAL Group closed the
year with $290.3 million of direct written premium. We remain well-capitalized with $1.57 billion in total admitted assets
and $705 million in policyholders’ surplus.
STATUTORY-BASIS INCOME STATEMENTS 2016 2015
INCOME Net premiums earned 290,096 304,224
Net investment income 33,935 39,495
Net realized gains on investments 4,957 18,317
Other income 3,881 4,440
Total Income $332,869 $366,476
EXPENSES Losses & loss adjustment expenses incurred 223,157 240,105
Other underwriting expenses 39,310 43,825
Acquisition costs, net 31,312 32,230
Total Expenses $293,779 $316,160
Income before dividends & federal income taxes 39,090 50,316
Dividends declared to policyholders, net (76) 35
Income before federal income taxes 39,166 50,281
Federal income tax expense 4,314 9,512
Net Income $34,852 $40,769
Dollars in thousands, as of December 31
12 | 2016 ANNUAL REPORT

STATUTORY-BASIS BALANCE SHEETS 2016 2015
ADMITTED ASSETS Debt securities 1,105,157 1,107,711
Equity securities 250,001 230,521
Cash, cash equivalents & short-term investments 39,814 68,329
Other invested assets 23,333 46,165
Total Cash & Investments $1,418,305 $1,452,726
Investment income receivable 11,599 11,826
Premiums receivable 62,711 63,759
Reinsurance recoverables 9,132 2,427
Deferred tax assets 29,538 33,782
Other admitted assets 46,167 52,981
Total Admitted Assets $1,577,452 $1,617,501
LIABILITIES Losses & loss adjustment expenses 639,785 668,110
Unearned premiums 136,725 144,247
Premiums collected for future renewals 26,082 27,412
Dividends payable to policyholders - 1,241
Reinsurance premiums payable 2,552 2,842
Federal income tax payable 1,174 1,291
Funds held under reinsurance treaties 2,492 9,905
Notes payable - 37,017
Other liabilities 63,537 55,288
Total Liabilities $872,347 $947,353
POLICYHOLDERS’
SURPLUS Unassigned surplus 705,105 670,148
Total Policyholders’ Surplus $705,105 $670,148
Total Liabilities & Policyholders’ Surplus $1,577,452 $1,617,501
Dollars in thousands, as of December 31
2016 ANNUAL REPORT | 13

% WITHOUT
OF FORMAL CLAIMS CLOSED
INDEMNITY PAYMENT *
*2016 number for all NORCAL Group companies.

CLAIMS
PROTECTING YOUR REPUTATION IS WHAT WE STAKE
OURS ON.
NORCAL insures some of the top physicians and medical practices in the country, but even the best
physicians may find themselves named in a lawsuit. Our team of claims specialists understand the
high levels of stress that being sued can cause. Guiding our policyholders through the claims process
from the moment a claim is filed, our team counsels and supports you through every stage. NORCAL
works with the industry’s leading defense counsel with a very favorable case win rate. We take the
stress out of the process so you can focus on your practice, your patients and your life.
2016 ANNUAL REPORT | 15

RISK MANAGEMENT
PREVENTING A CLAIM BEFORE IT HAPPENS
IS ONE WAY WE BETTER PROTECT YOU.
We believe well-prepared health care professionals are better equipped to recognize and address
risks before they become issues. NORCAL’s risk management experts stay at the forefront of current
and emerging trends to create a variety of robust educational programs to help protect the practice
of good medicine. This year through the MyNORCAL mobile app, CME webinars, live presentations
and the award-winning monthly Claims Rx publication, our team awarded 31,099 CME certificates,
leading the way among peer medical liability carriers. NORCAL’s program has earned the highest
level of accreditation — Accreditation with Commendation — from the Accreditation Council for
Continuing Medical Education for the past three consecutive reaccreditation processes.
16 | 2016 ANNUAL REPORT

MORE THAN
thousand
CME CERTIFICATES AWARDED

NORCAL MUTUAL’S 2016
BOARD OF DIRECTORS
JAAN E. SIDOROV,
MD, MHSA, FACP
Chair — Internal Medicine
SANDRA L. BERETTA, MD
Vice Chair —
Obstetrics & Gynecology
REBECCA J. PATCHIN, MD
Secretary of the Board —
Anesthesiology
ALICE H. GANNON,
FCAS, MAAA, CPCU
Actuary
FABIOLA COBARRUBIAS,
MD, MBA
Hospitalist
ROGER M. HAYASHI, MD
Vascular Surgery
18 | 2016 ANNUAL REPORT

SPECIALTIES REPRESENTED
ACROSS THE INDUSTRY
M. DIANE KOKEN, JD
Legal Consultant
PATRICIA A. DAILEY, MD
Anesthesiology
STEVEN PACKER, MD
President & CEO,
Community Hospital Foundation
SCOTT C. SYPHAX
President & CEO,
Nehemiah Corporation of America
SCOTT DIENER
President & CEO, NORCAL Mutual
2016 ANNUAL REPORT | 19

NORCAL’S 2016
SENIOR MANAGEMENT TEAM
SCOTT DIENER
President & Chief Executive Officer
JULIE L. BURNS
Senior Vice President & Chief Human Resources Officer
MARK D. JOHNSON
Senior Vice President & Chief Financial Officer
KARA M. RICCI
Senior Vice President, Chief Legal Officer, Corporate Secretary & Chief Compliance Officer
RONALD C. RUMIN
Senior Vice President & Chief Business Development Officer
TIM C. SMITH
Senior Vice President & Chief Claims Officer
ANDRE J. STEWART
Senior Vice President & Chief Underwriting Officer
20 | 2016 ANNUAL REPORT

OUR VISION
We will be a top-tier national medical professional liability company by
being a dynamic organization whose commitment to innovative products
and services keeps us an integral part of healthcare delivery.
2016 ANNUAL REPORT | 21

COMMITTED TO YOU

560 Davis Street, Suite 200 | San Francisco, CA 94111-1974 | 844.4NORCAL | norcal-group.com
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©2017 NORCAL Mutual Insurance Company. All rights reserved. ng0764