CA Self-Insurers’ Security Fund Alternative Security Program Overview November 15, 2011

1 December 6, 2015 Disclosure Securities or investments are offered through MMC Securities Corp. (“MMCSC”), a registered broker-dealer, and member of FINRA/SIPC. Main office: 1166 avenue of the Americas, New York, NY Phone: MMCSC, Oliver Wyman, and Marsh Inc. are affiliated entities that are owned and operated by Marsh & McLennan Companies, Inc. MMCSC or any of its affiliates may have an independent business relationship with any of the companies described herein. Trademarks and service marks are the property of their respective owners. This material has been prepared for informational purposes only. It is not an offer to buy or sell any security or commodity or other financial instrument or to participate in any trading strategy. The implementation of or investment in the Alternative Security Program (“ASP”) involves a high degree of risk and should be considered only by institutional investors who can bear the economic risks of replacing collateral with a portfolio based approach utilizing synthetic collateralized debt obligations and credit default swaps (“credit derivatives”). Certain inherent risks of credit derivatives include, but are not limited to the following: counterparty default risk; correlation may exist between reference entities and counterparties not assumed in risk models; reference entities may exhibit greater correlation than assumed in risk models; estimated recovery rates may greatly differ from actual recovery rates; reference entities may default on their worker’s compensation payments without triggering an ISDA default; and depending on future market conditions, credit protection may not be available at renewal of the ASP or may only be available at excessive cost. ASP sponsors/Investors should not rely on rating agency ratings and should conduct their own analysis or due diligence – identical ratings for different financial products do not guarantee identical risk characteristics since default rates may vastly differ. Certain of the information contained herein concerning credit ratings and default rates is based upon or derived from information provided by third- parties and other industry sources as indicated herein. Results from simulations are for illustrative purposes only and certain assumptions have been made regarding simulations because some models are proprietary to their respective owners and cannot be replicated. No representation or warranty, express or implied, is made by MMCSC as to the accuracy or completeness of the information set forth herein, and nothing contained in this presentation is, or shall be relied upon as, a promise or representation, whether as to the past or the future. MMCSC has not independently verified any such information and assumes no responsibility for its accuracy or completeness. In addition, this presentation includes certain estimates and assumptions made by MMCSC which may or may not prove accurate. Certain assumptions have been made for modeling purposes only to simplify the presentation and/or calculation and are for illustrative purpose only; this does not reflect the performance of any specific scenario. Simulated performance is hypothetical and may not take into account material economic and market factors. Accordingly, there can be no assurance that estimated returns will be realized or that actual returns or performance results will not materially differ from those estimated herein. Therefore, recipients should not place undue reliance on these results. Past performance is not indicative of future results, which may vary. No person has been authorized to make any representation or give any information with respect to the ASP, other than the information contained herein. Prospective institutional investors should not rely on any information other than that contained in this presentation or any supplement to this presentation. Neither MMCSC nor any of its registered representatives, is making any representation regarding the legality of an investment herein by institutional investors. Prospective institutional investors are not to construe the contents of this presentation as legal, tax or business advice. Each institutional investor should consult with its own advisors as to legal, tax, business, financial, and related aspects of investing in the ASP. Vishal Rana is a Registered Representative of MMCSC.

2 December 6, 2015 Jeff Pettegrew, Executive Director

3 December 6, 2015 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." Source: California Self-Insurers Security Fund, Purpose:Ensure the timely payment of workers compensation (“WC”) 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 6 elected by member companies 1 ex-officio from CA Department of Industrial Relations (“DIR”) Membership:All CA employers self-insured for WC 587 self insured entities $6.7 billion exposure

4 December 6, Serves as delegate of Christine Baker, Director of Industrial Relations Source: California Self-Insurers Security Fund,

5 December 6, 2015 Vishal Rana, Senior Vice President

6 December 6, 2015 Structure Self-Insured Employer Security Fund Injured workers Regulator Bank / Surety WC Obligation Fees/Premium Security Assessment

7 December 6, 2015 Structure Self-Insured Employer Security Fund Injured workers Regulator WC Obligation Additional Assessment Security Assessment Bank / Surety Fees/Premium Security

8 December 6, 2015 Structure Self-Insured Employer Security Fund Injured workers Regulator WC Obligation Security Assessment (fees/premium)

9 December 6, 2015 Structure Self-Insured Employer Security Fund Injured workers Regulator WC Obligation Security Assessment (fees/premium) Security

10 December 6, 2015 Participation Requirements Source: California Code of Regulations, Title 8, Subchapter 2, Article 3 - §15220 Full net worth net income (5 year average) credit rating ≥ $5,000,000 ≥ $500,000 ≥ B3/B- Partial as for Full, but either downgraded for “cause,” OR revoked Excluded new self insured – 3 year wait defaulted failure to post (60+ days) revoked (minimum or no claims) at the Board’s request e.g. one ineligible rating

11 December 6, 2015 Participation Summary Although the number of ASP participants decreased slightly (exclusions & defaults) deposits increased by 2.5% … Sources: Office of Self Insurance Plans, CA Self Insurers’ Security Fund 6/28/11 1. Employers revoked prior to 2003, and $220,000 of each Excluded and Partial deposit posted individually 2011/122010/11Δ Assessed$ (mill)# #$% ASP (composite deposit)5, , % Excluded (24)-3.9% 6, , % Not Assessed (14) Total Security6, , %

12 December 6, 2015 Industry Distribution Source: Moody’s Analytics Industry Groups, Office of Self Insurance Plans, Factiva, Company financial statements The portfolio remains reasonably diverse with major concentrations consistent with 2010/11… 2010/11

13 December 6, 2015 Rating Distribution Source: Office of Self Insurance Plans, Bloomberg, Moody’s, S&P, Moody’s KMV CreditEdge & RiskCalc at 7/20/11 The overall portfolio credit rating was essentially unchanged with a generally improving portfolio… Baa3 WARF

14 December 6, 2015 Assessment Rates Rates were unchanged from last year and remain significantly below ASP inception in 2003… IndexRating 1 11/12 & 10/ Aaa Aa Aa Aa A A A Baa Baa Baa Ba Ba Ba B B B % -57% -33% -38% -40% 1. Moody’s equivalent 2. CA Self Insurers’ Security Fund Past performance does not guarantee future results

15 December 6, 2015 Assessment Components The total assessment comprises two elements, the first covers expenses (Excess Liability Protection fee - “ELP”) and the second provides funding (“default Loss Fund fee – “DLF”) to build capital and pay current claims … Risk transfer General administrative Placement Line of Credit Claims Capital DLF ELP

16 December 6, 2015 Total Assessment The 2011/12 total assessment was held constant despite higher hedging costs… $ millions 2003/042004/052005/062006/072007/082008/092009/102010/112011/12 Aggregate fees ASP Size4,6755,2015,8935,5165,3185,5965,5455,8705,974 % % % % % % % % % % % % % % % % % % % % % % ELP Pre-existing default shortfall - PEDSF DLF Past performance does not guarantee future results. Source: CA SISF

17 December 6, 2015 Financial Strength The Fund’s strong financial position has enabled it to absorb the adverse impact of recent defaults (remains under review) … 1. Per OW Capital Study 3/15/11 - Baseline capital target, Protracted recession low inflation Source: Audited Self-Insurers’ Security Fund Financial Statements ( 2011 unaudited) Past performance does not guarantee future results. 312 Net Capital Target 1

18 December 6, 2015 Jill Dulich, Claims Committee - Chair

19 December 6, 2015 Default History Defaults tend to occur in clumps following economic slowdowns… Source: California Self-Insurers Security Fund,

20 December 6, 2015 Recent defaults (slide added after presentation) A summary of recent defaults is as follows… Date of DefaultEmployer 11/25/08Mervyn's LLC 03/30/09Fairchild Holding Corp. 04/03/09Circuit City Stores, Inc. 08/03/09Fleetwood Enterprises Inc. 07/21/10Triple A Machine Shop 11/18/10Contractor's Access Program SIG 04/19/11Mainstay Business Solutions 05/17/11Interlake Material Handling 05/23/11Mid Valley Plastering 08/08/11T & R Painting and Drywall

21 December 6, 2015 Financial Strength The ASP is operating as intended and annual claims payments remain manageable… Source: California Self-Insurers Security Fund,

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