Joseph L. Petrelli, ACAS, MAAA, FCA President, Demotech, Inc.

Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers. Since 1985, Demotech has served the insurance industry by assigning accurate, reliable and proven Financial Stability Ratings ® (FSRs) for Property & Casualty insurers and Title underwriters. FSRs are a leading indicator of financial stability, providing an objective baseline of the future solvency of an insurer. Demotech's philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than solely on financial size. This philosophy was the catalyst for the Demotech Company Classification System to stratify and categorize insurers by broad operational categories. 2

Joseph L. Petrelli, President, ACAS, MAAA, FCA, MBA Sharon M. Romano Petrelli, Vice President, CPCU, AIAF, ARC, CCP Barry J. Koestler II, Chief Ratings Officer, CFA Robert M. Warren, Client Services Manager, CPA, CPCU 3

 In the mid-1990s, hurricanes devastated properties along the Florida coastline and simultaneously devastated Florida’s property insurance marketplace. As a result, a large number of the insurance carriers, including some rated by A. M. Best, were forced into liquidation in Florida or other states of domicile.  To enhance availability, the State of Florida developed the Florida Residential Property Casualty Joint Underwriting Association (JUA) to provide homeowners insurance and related property coverage. The JUA, which evolved into Citizens Property Insurance Corporation, became the leading writer of homeowners insurance in Florida. 4

 In 1996, the State of Florida, Florida Office of Insurance Regulation (OIR) and the JUA initiated an effort to depopulate the JUA. The depopulation effort included legislation to permit Florida to offer financial incentives to insurers that depopulated the JUA. The legislation included guidelines and procedures to ensure that the OIR could expedite processing the insurers that would be formed for the purpose of capitalizing on the financial incentives.  To level the playing field, we developed a procedure to review and rate newly formed insurers. Our process assisted Florida, insurance agents, insurance companies, consumers, reinsurers and the secondary mortgage marketplace. Since then, our process has been utilized to review and analysis start-up insurers domiciled or licensed in all jurisdictions. 5

 Demotech has contributed to the stabilization of the property insurance market in Florida since Our efforts have focused on the assignment of FSRs to financially stable insurers, including start- ups as well as established insurers.  Over the past several years, legislative and statutory changes, turmoil in the global financial markets, a decline in residential real estate values and other economic factors have resulted in an increased focus on the financial stability of Florida’s property insurers. 6

 Our standards have been consistently utilized as part of our overall evaluation and review process.  We apply objective evaluation criteria to each insurer writing property business in Florida. These criteria are not a safe harbor or bright-line indicator for acceptable financial performance.  2014 Update and Addendum regarding FSRs in Florida – largely unchanged from

 It is Demotech’s expectation that companies will procure first event limits EXCEEDING the 100 year event return period PML including loss amplification/demand surge and secondary uncertainty. ◦ This equates to the company providing cover in excess of the 100 year event return period reflected in Section II of Demotech’s Exhibit A. ◦ If a company’s vertical limit for the first event does not exceed the 100 year event return period based on the information provided in Section II of Exhibit A, the company is unlikely to be eligible for a Financial Stability Rating ® at the A level or above.  Demotech has always reviewed CAT programs under multiple event scenarios. 8

 Although Demotech has not previously provided publicly available guidance or requirements related to multiple catastrophe event scenarios, our annual reinsurance review has consistently reflected analysis of multiple catastrophe event scenarios. The only change for the 2014 reinsurance renewal is that we published the guidance that we had been providing to certain carriers.  For a company to remain eligible for a Financial Stability Rating ® at the A level or above, it must secure a second event cover in excess of the 50 year event determined by: ◦ A first event that exhausts the mandatory layer of the Florida Hurricane Catastrophe Fund and ◦ A 50 year event return period PML as reflected in Section II of Exhibit A.  If a company’s second event cover does not exceed a 50 year event return period based on the information provided in Section II of Exhibit A, the company is unlikely to be eligible for a Financial Stability Rating ® at the A level or above. 9

year event return (based on Section II of Exhibit A) First Event 50 year event return (based on Section II of Exhibit A) Second Event (with FHCF fully exhausted) $100.0 M $80.0 M $65.0 M $25.0 M $5.0 M $60.0 M $45.0 M $25.0 M $5.0 M

 Quality and liquidity of invested assets  Adequacy of loss and loss adjustment expense reserves  Quality of reinsurance  Quantity of reinsurance  Adequacy of rate levels  Underwriting results  Ability to serve niches – business model, not size 11

Excerpts from an independent study reviewing nine years of ratings issued by A.M. Best, Standard & Poor’s, Moody’s Investors Services, Fitch and Demotech, Inc. Demotech serves the need of another unique group of insurers, namely those that are geographically focused. Comparisons of Demotech ratings to other agencies show relative consistency in the factors that drive Demotech ratings compared to agencies such as A.M. Best, Moody’s, Standard and Poor’s, and Fitch. There is general consistency in the firms that each agency would categorize as financially secure. 12

 If you have questions, or would like to discuss your company’s situation, contact:  Barry Koestler, Chief Ratings Officer,  Bob Warren, Client Services Manager, (614)