2015 Member Informational Meeting March 9 th, 2015 Tim East, SISF Chair Daniel Sovocool, Nixon Peabody Grant Heinitz, SISF Credit Risk Manager Jill Dulich, SISF Claims and Operations Manager 1

Mission Statement: "To provide continuity of workers' compensation benefits to injured workers of insolvent, private self-insured companies at the lowest overall long-term cost, equitably distributed to the self-insurance community." 2

Purpose: Ensure the timely payment of workers compensation claims to injured workers in the event of default by a member Founded: Organization: Authority: July 6, 1984 by the State of California 501(c)(6) non-profit CA Labor Code Sections Governance: Board of Trustees 7 elected by member companies 1 ex-officio from CA Department of Industrial Relations (“DIR”) Membership: All non-public entity CA employers self-insured for WC 545 self-insured entities $8.9 billion exposure 3

Board of Trustees 4 Tim East, Chairperson, The Walt Disney Company Theresa Muir, Southern California Edison (retired) Janice Murphy, Kaiser Permanente William Zachry, Safeway Steve Tolan, Nordstrom Anil Suri, Pacific Gas & Electric Toni Allen, Monterey Mushroom Jon Wroten, Chief, Self Insurance Plans (OSIP), DIR [ex officio]

Board of Trustees Tim East, C hairperson Jill Dulich, CFO William Zachry Theresa Muir Janice Murphy Sean McNally Mark Johnson, Ex Officio, DIR Executive Committee Tim East, Chair Jill Dulich Theresa Muir Finance Committee Jill Dulich, Chair Tim East Audit Committee Janice Murphy, Chair Theresa Muir * Yvonne Webb Credit Committee Janice Murphy, Chair Theresa Muir Jill Dulich Executive Assistant Pam Wright Security Fund Organization Chart Claims Committee William Zachry, Chair Sean McNally RFP/RFQ Committee Jill Dulich, Chair William Zachry Executive Director Jeff Pettegrew Controller/Treasurer Brian Roland Senior Accountant Ming Kan * Non Board member Board of Trustees Tim East, The Walt Disney Co., Chairperson William Zachry, Safeway Theresa Muir, So Cal Edison (retired) Janice Murphy, Kaiser Permanente Steve Tolan, Nordstrom Anil Suri, Pacific Gas & Electric Toni Allen, Monterey Mushroom Jon Wroten, Director Delegate, DIR/OSIP Executive Committee Tim East, Chair Theresa Muir Finance Committee William Zachry, Chair Tim East Audit Committee Janice Murphy, Chair Theresa Muir Credit Committee Theresa Muir, Chair Janice Murphy Anil Suri Claims Committee Steve Tolan, Chair Toni Allen, Monterey Mushroom Francisco Cano, So Cal Edison ¹ Joel Sherman, Grimmway Farms ¹ Board and Committees 5 ¹ Advisory only

Fund Staff 6 Adriana MertinakGrant HeinitzJill Dulich Controller Credit Risk Manager Claims and Operations Manager Meaka Liu Becky Lysaght Bookkeeper Executive Assistant

CA Self-Insurance Overview 7 Public and Private Entities 9,849 Payroll $177 billion Employees 4 million (1 in 4 in state) Private Sector only Entities 545 (including 26 SIG’s) Payroll $79.5 billion Employees 2.1 million (1 in 8 in state) Source: 2013 annual reports submitted to OSIP

Default History 8 Defaults have been lumpy and generally in line with economic cycles Data as of 12/31/14 SISF Payments are from date of Default to 12/31/14 (net of recoveries)

Default History (cont’d) 9 Defaults tend to occur in clumps following economic slowdowns Data as of 2/28/15

Default History (cont’d) 10 A summary of recent defaults is as follows

Estates and Workers’ Compensation Claims 11 EstatesTotal (1968 to date) 80 Active (1984 to present) 46 ClaimsOpen 2,022 Claim Liability (net) Paid ( ) $ 321,438,000 Open Case Reserves (EFL) $98,580,000 IBNR + ULAE (actuarial estimate as of 12/31/14) $76,298,000 $496,316,000 OSIP Deposits turned over to Fund $246,980,000 SISF total net assets (as of 1/31/15) $228,730,000 Projected annual costs - claims $48,495,000 - claims admin $6,904,000 - Total $55,399,000

New policies - SI admission 12 New criteria to be applied to cos. requesting admission into self-insurance Minimum [3] years of audited financial statements Minimum credit rating of B3 / B- consecutively for [3] years (formal or implied) Company official certifying safety program is compliant ­OSIP to conduct internal verification of safety program (through Cal OSHA /OSHA) ­e.g. number of violations / citations – willful, unresolved, pending, etc.

New policies - SI admission (cont’d) 13 3 years of audited financials Verified and reconciled financials Ability to conduct credit rating analysis of cos. prior to admission into self- insurance ­covers several key metrics and is a strong indication of solvency ­Identifies historical credit risk / trends Minimum credit rating of B3 / B- (consecutively for 3 years) Minimum credit rating level is consistent with existing policies Cos. entering self-insurance will have a stable and verified track record Potentially eliminates cos. that may ”flip-flop” in the future between ASP eligibility (e.g. movements between B3 / Caa1) Safety program compliance Cos. will be self-certifying OSIP to verify compliance The new policy simplifies regulations (e.g. eliminates 3-year wait period, etc.) and brings consistency across all policies and procedures. Reasons behind the new criteria

Immediate participation: Minimum - level 10 (Baa3 / BBB-) Subject to credit committee approval: Level 11 (Ba1 / BB+) to level 14 (B1 / B+) Not admitted on a midyear basis: Level 15 (B2 / B) and level 16 (B3 / B-) 14 Exceptions will be based on Board discretion (e.g. applicants with large exposures, other risks, etc. New policies – ASP participation The purpose of the delegated authority policy is to support OSIP in its streamlined application process and to approve eligible new self-insurers for immediate (mid-cycle) ASP participation

ASP – Overview 15 Source: SISF Monthly Financials 12/31/14 unaudited Successful implementation of 2014/15 Alternative Security Program – 2 nd year post SB863 – ASP and Composite Deposit relatively unchanged (2.1%) and (0.8%) – New policy development and implementation – Expanded risk monitoring / management Financial strength of Fund at highest level since inception – net $229 mill – gross $485 mill Overall portfolio credit rating stable – Baa2 Assessment rates down 10% across all rating levels vs. 2013/14

ASP – 2014/15 vs. 2003/04 16 * Per SISF Monthly Financial 1/31/15 unaudited Source: ASP security deposit and idealized assessment as of 5/15/14 lockdown

ASP – Industry Distribution 17 Industry exposure is relatively unchanged across all groups Source: Moody’s Analytics Industry Groups, SEC, Company financial statements 2014/ /14

ASP – Assessment Components 18 The total assessment comprises of two elements ELP (Excess Liability Protection) fee - covers expenses and admin costs DLF (Default Loss Fund) fee - builds capital and pays current claims General administrative ELP Risk transfer Line of Credit Placement DLF Capital Claims

ASP – Assessment Rates 19 Considering the capital of the Fund and a benign credit market, assessment rates were adjusted down 10% across all levels

ASP – Assessment vs. Surety Rates 20 A comparison between current surety rates and 2014/15 ASP assessment rates is found below ¹ Assessment rates approved as of 6/17/2014 ² Marsh & McLennan – general indication of available terms as of 1/6/2015

ASP – Financial Strength (Investments) 21 Both gross and net assets continue to grow ¹ SISF Monthly Financials 1/31/15 unaudited Source: Audited SISF Financial Statements Jun

ASP – Financial Strength 22 Gross assets generate investment income to help offset claims ¹ SISF Monthly Financials 1/31/15 unaudited ² Per Claims & Admin YTD 1/31/15 - full year projected Source: Audited SISF Financial Statements Jun

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