THE INSURANCE BUSINESS TRANSFER a proven business model that can be used to form a Long Term Care Runoff Facility Regulator Presentation November 2017 Proprietary and Confidential Information

Long Term Care Legacy Liabilities An industry in crisis? The insurance industry is faced with major challenges associated with long term care (LTC) legacy liabilities. There is a crisis of confidence in the LTC industry among all constituents, including policyholders, regulators, investors, companies and reinsurers. There is increasing concern about the reserve position of the LTC industry. There have been transactions (proposed and executed) where companies are working to find ways to wall off their LTC liabilities under various structures including sale to firms with minimal financial support. The Penn Treaty liquidation has had a major impact on the industry. Policyholders are losing benefits and there continue to be significant rate increases. FIO is convening meetings on the “LTC crisis” NAIC president Ted Nickel referenced the “LTC crisis” in recent talks. The increasing demand for premium rate increases from a senior population that is confronted with major uncertainties about its coverage and premium charges, as well as the limitations of fixed incomes, exacerbates the situation. Proprietary and Confidential Information

Collective action is needed The industry should work with regulators Without collective action to address the problems of LTC legacy liabilities, everyone’s costs and risks increase that raise issues of solvency and liquidity. Experience has shown from the Penn Treaty liquidation that nothing is more expensive than the cost of waiting to address the complex issues associated with LTC runoff. Currently, the industry lacks effective restructuring tools to manage LTC legacy liabilities and available options may not adequately protect policyholders. LTC companies must be able to restructure their business to protect policyholders and manage through difficult financial situations. Industry and regulators should work together to craft restructuring options for companies with LTC runoff. Proprietary and Confidential Information

Proprietary and Confidential Information Searching for alternatives to liquidation Ongoing discussions with regulators LTC insolvencies are problematic for regulators and the industry that will have a significant impact on the entire industry as demonstrated by the Penn Treaty liquidation. Policyholders benefits were limited by the liquidation process. Regulators are looking for alternatives to the costly liquidation process. We have had numerous meetings with key regulators to discuss potential solutions for impaired LTC portfolios. The key issue is funding the run-off deficiency as well as existing laws and practices that hinder effective responses. Initial objective is to assemble a select group of companies and regulators to focus on the funding issue. Funding suggestions include: tax incentives, bond issuance, premium tax credits, relief from RBC requirements, support from guaranty funds. Proprietary and Confidential Information

Proprietary and Confidential Information Activity Update On July 19th, 2017 we made a presentation to the NAIC LTC Task Force to explain the IBT and how it can be used as the foundation for a LTC runoff facility. Regulators have asked us to form a small working group of the larger companies involved in LTC to work directly with regulators. We have met with key states, one of which is interested in passing legislation for IBTs and we have prepared a draft of IBT legislation. We are working closely with an investment house that is interested in the LTC runoff facility concept. We have had regular meetings with the regulators and industry to discuss how the IBT can be used in connection with impaired LTC portfolios. Proprietary and Confidential Information

Proprietary and Confidential Information New restructuring legislation is needed The Insurance Business Transfer We have been working with the NAIC, LTC companies and other regulators to introduce restructuring legislation, called the “insurance business transfer” (IBT). The IBT involves the substitution of one counter party for another within the same contract. Rhode Island (RI) is the first jurisdiction in the U.S. to pass legislation providing for IBTs for commercial P&C run-off liabilities. The IBT approval process is a carefully monitored, transparent review that requires regulatory and judicial approval for the transfer of some or all of a company’s liabilities to another company, including attaching reinsurance. The transfer results in a court-sanctioned novation of the transferred policies. The RI IBT is modeled on the UK Part VII Transfer. The Part VII transfer is a successful restructuring business model that has been used worldwide for many years. There have been hundreds of Part VII Transfers accomplished to date, none of which have encountered subsequent financial difficulties. Proprietary and Confidential Information

The IBT is an effective restructuring tool The IBT is an effective restructuring tool that can be applied to all lines of business to help companies increase capital efficiency and address problem lines of business, such as long term care. There are limited effective exit solutions available in the market for run-off portfolios. Existing options are limited in their scope and effect and may not adequately protect policyholders. Both the insurance industry and regulators understand that there is inadequate capital available in the market to fund the run-off associated with LTC liabilities. Regulators and industry executives recognize the importance and value of the IBT as a restructuring tool and there are ongoing discussions with key states to discuss drafting/passing IBT legislation that applies to all lines of business, including LTC. Proprietary and Confidential Information

Proprietary and Confidential Information Policyholder Protections of the IBT Consistent with the strong policyholder protection that currently exists in U.S. law, the IBT approval process contains provisions that address policyholder concerns Extensive notice requirements Extensive financial disclosure Independent expert report that evaluates the impact on affected policyholders. Review by regulator in transferring company’s domicile state. Independent evaluation and approval by the regulator in the assuming company’s state of domicile. Judicial review and approval of the IBT Plan – policyholders must not be adversely affected. Opportunity to be heard - any party who feels adversely affected by the transfer can make a representation to the court for consideration. Proprietary and Confidential Information

The IBT as the foundation for a LTC Runoff Facility The IBT can be the foundation for the creation of a LTC Runoff Facility to better manage the runoff of LTC legacy liabilities and to attract capital from investors/capital markets/reinsurers to fund the runoff. Key goals of a LTC Runoff Facility include centralized runoff management to achieve economies of scale, best claim practices, managed care claimant practices, improved operational and financial tracking and reporting with increased transparency in reserving practices. The LTC Runoff Facility will allow for increased transparency associated with LTC reserves by using one standard valuation approach with application of consistent assumptions that can stabilize the market. Once a LTC Runoff Facility is in place, it can provide a platform that can be used for the runoff of impaired LTC portfolios. The Impaired LTC Run-off Facility can 1) allow regulators to consolidate runoff operations with increased transparency; and 2) work with the industry to structure the funding of LTC legacy liabilities. Proprietary and Confidential Information

LTC Run-off Facility Creation of Facility Restructuring legislation providing for insurance business transfers (IBT) can provide the LTC industry with a restructuring capability enabling it to form a LTC runoff facility. Uniform, consistent and efficient administration of LTC legacy liabilities benefits companies and policyholders. Policyholder must not be adversely impacted by transfer. Solvent LTC company can remain contingently liable for negotiated period of time after transfer. Facility will obtain reinsurance and other alternative risk instruments to provide additional protection. Proprietary and Confidential

LTC Run-off Facility Operation In order to participate in the Solvent LTC Facility, a company first must comply with a standardized reserve valuation (e.g. PTY standard valuation method developed by PwC). An annual premium rate increase (more modest than current requests by companies) will be actuarially determined and pre-approved by regulators. Policyholders will be informed about the prospective premium costs and alternative policy adjustments. The rate increase will be applied annually until there is determined to be no deficiency in reserves. In the event the LTC portfolio has a profit, any such profit will be shared by the company and policyholders. Design and provide options to policyholders based on the needs of the policyholders that can include benefit adjustments, non-forfeiture provision based on life principles, etc. TPA administers business in uniform, consistent manner to achieve economies of scale resulting in savings and benefits to carriers and policyholders. Proprietary and Confidential

LTC Run-off Facility Benefits Increased financial and operational transparency through the entire run-off process Regulators and industry work together to address the problems of LTC run-off Timely identification of impaired portfolios to address deficiency High quality investment management Attract capital from investors/capital markets/reinsurers to fund run-off TPA will administer the run-off to ensure consistent, uniform administration of claims and prudent reserving practices All policyholders receive same efficient level of service Standardized reserve valuation will bring stability to market through consistency in reserve reporting Pre-approved reasonable annual rate increases bring stability and consistency to process Increased options for policyholders – adjust coverage or non-forfeiture based on life principles Economies of scale result in savings and benefits to companies and policyholders Proprietary and Confidential

Proprietary and Confidential Information Biography Rick Newton Rick Newton has extensive experience in run-off and is recognized as one of the leaders in the run-off Industry. Since 1982, Mr. Newton has been involved in the direct management of run-off portfolios and since 1987 has become involved in the insurance ownership of several successful run-off insurance companies. In 1995, Mr. Newton formed International Solutions, LLC, a TPA / consultancy company focused on run-off and serves as its CEO. He has worked in the domestic and international insurance industry primarily providing advisory and management services to troubled run-off and turn around insurance situations. His experience includes the development of corporate strategies and the execution of operational plans while leading many successful run-off projects. Rick has been involved in a wide range of transactional situations involving M&A, governmental privatizations, de-mutualizations, as well as raising capital for the development of carefully planned reinsurance programs in support of restructured run- off companies in life, health and P&C insurance. Proprietary and Confidential Information

Presentation Prepared by Richard Newton To find out more, please visit www.intlsol.net or contact me at: Richard Newton International Solutions, LLC (484) 844-1256 rn8652@intl-sol.com rn8652@aol.com Proprietary and Confidential Information