SERIES LLC CAPTIVES Jeffrey K. Simpson Gordon Fournaris & Mammarella, P.A Lovering Avenue Wilmington, DE Tel: (302) Fax: (302)

WHAT ARE SERIES LLC CAPTIVES? Check the “Series Captive” Law  Surprise, There Isn’t One!  No Express Provision Marriage of LLC Act and Captive Statute  LLC Act must allow for Series  Captive Statute must allow for LLCs  Special Purpose Category really helps! 2

WHAT IS A SERIES? Cell with Superpowers !  Separate Owners  Statutory Separation of Assets and Liabilities  Ability to contract in its own name  Ability to have its own governance Now for an abstract legal distinction:  Cells come from Insurance Law (Regulatory)  Series come from Entity Law (Corporate) 3

EVOLUTION  First Approved in 2010  Get Around your own law  Dozens of Series LLCs and Hundreds of SBUs 4

Series LLC WHY SO POPULAR?  Capital Access, Preservation and Growth  Flexibility  Customizability  Regulatory intellectual capital and support 5

SERIES A SERIES C OWNER B OWNER A OWNER D OWNER C SPONSOR 1 SPONSOR 2 XYZ LLC SPONSOR 2 SERIES D SERIES C SERIES B 6

SERIES C MORE$ $250,000 SERIES B LESS$ SERIES D LESS$ SERIES C LESS$ $250,000 CORE CAPITAL EXPOSEDCORE CAPITAL PROTECTED SERIES A MORE$ SERIES B MORE$ SERIES D MORE$ SERIES A LESS$ THEORETICALLY, BUT NOT PRACTICALLY! 7

RISK IN THE CORE NO RISK IN THE CORE SERIES A GENERAL ACCOUNT $250,000 SERIES B SERIES C SERIES D SERIES A SERIES B SERIES C SERIES D POLICY HOLDERS REINSURANCE INSURANCE GENERAL ACCOUNT $250,000 INSURANCE REINSURANCE ANOTHER WAY TO PROTECT CORE CAPITAL 8

PREMIUM TAX SERIES A CORE SERIES B SERIES C SERIES D POLICY HOLDERS REINSURANCE POLICY HOLDER Subject To Premium Tax Not Subject To Premium Tax NO MINIMUM TAX ON SBUs 9

USES OF SERIES LLC CAPTIVE  Sponsored Enterprise Risk (831(b)) Vehicle - Captive Managers - Financial Advisors - Wealth Planners  Multiple Owner Enterprises  Multiple Classes of Insured 10

SUCCESSES - GENERAL  Lower Initial Capital  Reduced Operating Costs  Customized Design  Ease of Entry 11

CHALLENGES - GENERAL  Evolving Regulatory Landscape Regulators and Participants Necessarily learning as they go Regulators and Participants Necessarily learning as they go  Types of Risk First Party vs. Third Party First Party vs. Third Party Concern about authority to supervise single series Concern about authority to supervise single series  Cost of Regulation Tax and Fee Structure not Sustainable Tax and Fee Structure not Sustainable  Reporting Annual Report = Consolidated with Schedules Annual Report = Consolidated with Schedules Annual Audit = Consolidated with Schedules Annual Audit = Consolidated with Schedules Actuarial Opinion = Migration Toward Individual Opinion Actuarial Opinion = Migration Toward Individual Opinion  Opening Accounts 12

Montana Specific Highlights Low Minimum Core Capital Low Minimum Core Capital  Flexibility for Special Purpose Captives  Attractive to Sponsors Pool as Front is OK Pool as Front is OK  Reduces number of transactions Currently, No SBU Application Fee or Minimum Premium Tax Currently, No SBU Application Fee or Minimum Premium Tax Investments in Special Purpose Captive are same as Pure Investments in Special Purpose Captive are same as Pure 13

Montana Specific Challenges Public filing of name and series agreement for every series  May Facilitate account opening  Likely to chill sponsors and participants seeking confidentiality Initial series capital at ratio of 4 to 1  May be too high an initial number SBU Application Fee or Minimum Premium Tax  May have to Implement Pre-Approval of Secretary of State Filings  Adds time and Frictional cost 14