Barry J. Koestler II, CFA Chief Ratings Officer, Demotech, Inc. October 27, 2011

2

 Based on review of company financials, reinsurance program and other readily available information  Predominantly quantitative in nature  Created for companies to overcome barriers ◦ Access to markets ◦ Acceptance of policies ◦ Credibility with insureds, agents, reinsurers, etc.  Not regulating companies or setting company policies or practices

 Independent verification of financial stability  Access to agents  Access to markets and ancillary products  Acceptability of policies  Marketing to insureds, agents, reinsurers, etc.

 From the 2011 A.M. Best Key Rating Guide ◦ BCAR compares an insurer’s adjusted surplus relative to the required capital necessary to support its operating and investment risks. ◦ Companies deemed to have “adequate” balance sheet strength normally generate a BCAR score of over 100% and will usually carry a Secure Best’s Credit Rating. ◦ The level of capital required to support a given rating level varies by company, depending on its operating performance and business profile.  Analysis of BCAR scores from year-end 2010.

AM Best Ratings and BCAR Scores AM Best RatingFSC Number of Companies Average BCAR weighted by SurplusHighLowAverage A++XV XIV XIII XI IX VIII A+XV XIV XIII XII XI X IX VIII VII VI Data from 2011 AM Best Key Rating Guide

AM Best Ratings and BCAR Scores AM Best RatingFSC Number of Companies Average BCAR weighted by SurplusHighLowAverage AXV XIV XIII XII XI X IX VIII VII VI V IV III B++XIII XI IX VIII VII VI V IV III II Data from 2011 AM Best Key Rating Guide

 Similar BCARs appear in many different rating categories, implying that since factors other than financial results may greatly affect a company’s rating, there is a need to establish and carefully manage a company’s rating agency/AM Best relationship.  Smaller companies seem to receive lower AM Best ratings despite relatively higher BCAR results, so these companies may need to actively manage their rating agency relationship like larger companies.  A wide range of ratings containing all but identical BCAR scores means that even good financial results do not always speak for themselves. There is a need for explanation and context to present financial results and manage a rating agency relationship.

 David L. Kaufman, Executive Vice President, COO & Director The Motorists Insurance Group  James J. Kennedy, President, CEO & Director The Ohio Mutual Insurance Group  David E. Tschantz, VP - Claims, Corporate Counsel & Director Wayne Insurance Group 9