2. Making your large deductible workers’ compensation program significantly better

3. High Deductible Retained Layer Statutory Workers’ Comp Business Excess Insurance $250,001 $250,000 $0 $1,000,000 $999,999

5. 3 Disadvantages 1.No tax deduction for retained risk 2.LoC with after-tax dollars 3.Volatility

7. Risk Management Tax Savings Cash Flow

8. 93% 91% 93% 83% 92% $3M - $7M Over 10 years

9. AEX Captive Unrelated Risk Direct Premiums

10. Captive Operating Company AEX Captive Invest Assets Captive Owner Dividends Liquidation Risk Pay losses StocksBondsOther

11. A valid captive requires “Risk Distribution” Risk distribution is a spreading of risk that allows the insurer to reduce the possibility that a single costly claim will exceed the amount available to the insurer for the payment of such a claim.

12. Multiple Subsidiaries Unrelated Risk Sub Business Captive Unrelated risk

13. High Deductible Retained Layer Business Excess Insurance $250,001 $250,000 $0 $1,000,000 $999,999 AEX Pooling $100,001 $100,000 Statutory Workers’ Comp

14. AEX (Trust Account) Total Premium = $18 $9 $6 Premium $3 x $18 = $18 $6 x $18 = $18 $9 x $18 = $18 Quota Share % X Premium Quota Shared Premium Unrelated Premium $1.00 $1.50 $1.00 $2.00 $3.00 $1.50 $3.00 $4.50 $9 $6 $3 $0.50 Captive

15. AEX

16. Captive Virtual Pool

17. Criteria 1.Minimum $400,000 Loss Pick 2.Cash Flow

18. Frequency layer = predictable 125% cap Retrospective adjustment Protections

19. Expected: $1mLosses in PoolAEX

20. 2012 2013 2014 2015 2016 Settlement Policy year

21.   Claims Administrator AEXCaptive

22. Solutions 1.Tax deduction for retained risk 2.LoC with pre-tax dollars 3.Reduced Volatility

23. Expected: $1mLosses in PoolAEX

24. Captive LOC Collateral Funded with after tax dollars Funded with pre-tax dollars

25. AEX Captive Unrelated Risk Direct Premiums Prior year’s retained risk (any line) Load charge for captive Other types of insurance (GL, auto, E&S) Excess work comp layer (e.g., 150 x/s 100)

26. Safe HarborIndustry

28. Already take tax deduction Need a captive Don’t disrupt existing high deductible program AEX is an “overlay” Share risks with others? Sharing is in frequency layer Black Swan event? Excludes risks >125% expected loss pick IRS approval? IRS has approved similar arrangements Objections? Answers

29. Cost AEX Service Cost 0 -$2M: 6% of AEX premiums $2M-$4M: 3% Above $4M: 1% Minimum annual service fee of $30,000 Captive Management

30. Participation Criteria Large Deductible or SIR Program Minimum $400,000 Loss Pick in AEX Layer Cash Flow

31. Submission Criteria 5 Years Loss/Exposure Data

32. Next Step Karl Huish Zeb Holt karl_huish@artexrisk.comzeb_holt@artexrisk.com (480) 553-6227(630) 285-3796

33. Section 831(b) Captive Solution $1.2M annual premium Taxed only on investment income (C corp rates) Shareholders Captive Business Basic Captive Diagram Insurance Premiums Insurance Coverage

34. Insured Risk Workers Comp ● Property ● Auto ● General Liability Uninsured Risk Deductibles Exclusions Operating Risks A/R Concentration Construction Defect Credit Default Disability Administrative Actions D & O / E & O Legal Defense Reimburse Mold and Pollution Product Warranty Hidden Risks

35. 1. Insurance Risk 2. Operate as an insurance company 3. Risk shifting and risk distribution Tax Law and Captives

36. Ownership Options Captive Shareholders Family Key Employees Estate Plan Trust Parent Company