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Operating Your Captiveas a Profit CenterRISK TO RICHESRIF007April 29, 20141:452:45 p.m. Page # Page #Recording of this session via any media type is strictly prohibited.1President, Westmerica Insurance Company Over 27 years at Phil Long Dealerships CAO Manages insurance operations, risk management, and human resources Masters in Education; Associate in Risk Management

Director/Risk Management, Westmerica Insurance Company Over 17 years at Phil Long Dealerships Risk Mgmt Experience in auto liability, employment practice liability, and mediationSCOTT ARNOLD, MS, ARM, SPHRCATHI TRIPPE, ARM, CIC, PHR Page #Recording of this session via any media type is strictly prohibited.2 Review traditional benefits of captive insurance Learn innovative ways to structure a captive Identify tools to improve the performance of a captive Define methods to turn a captive into a profit center and tactics to enhance a captives bottom line

WHAT TO EXPECT FROM THIS SESSION Page #Recording of this session via any media type is strictly prohibited.3

MONEYBALL Page #Recording of this session via any media type is strictly prohibited. Automotive dealership group based in Colorado Ranked in top 100 Mega Dealers in the U.S. Been in business since 1945 Privately owned Over $620 million in annual sales 13 locations/25 buildings 900 employees

PHIL LONG DEALERSHIPS INC. Page #Recording of this session via any media type is strictly prohibited.5 Pure captive domiciled in Colorado Headquarters in Colorado Springs Started in 1994 Over $15 million in assets 19 shareholders 5 employees

WESTMERICA INSURANCE COMPANY Page #Recording of this session via any media type is strictly prohibited.6 Reduce losses through effective loss prevention and claims management Increase profits to our dealerships through lowered insurance premiums and return of premiums to stores with good risk practices goal to be 1015% below market Continue to bring new products and services to our dealerships Provide non-cumulative 30% of equity return to our shareholdersWESTMERICA MISSION Page #Recording of this session via any media type is strictly prohibited.7 Cost savings Direct access to markets Greater control claims management, unbundled service providers, buy insurance when its cheap Improved long-term stability reinsurer traditionally less volatileTRADITIONAL BENEFITS OF A CAPTIVE Page #Recording of this session via any media type is strictly prohibited.8 Power of investment income effect Ability to build insurance rates Improved overall business savvy Cash flow business needs Provide investment opportunities for key personnel golden handcuffs

UNEXPECTED BENEFITS OF A CAPTIVE Page #Recording of this session via any media type is strictly prohibited.9 Problems finding coverage for auto physical damage Concerns with sky-rocketing Workers Compensation premiums Weary of insurance market controlling our profits Poor attitude towards risk management

Our Motivation for Going CaptiveOUR STORY Page #Recording of this session via any media type is strictly prohibited.10

Page #Recording of this session via any media type is strictly prohibited.11 Established a foundation of Risk Management practices Obtained management support for overall best practices Shifted paradigms use of company vehicles Instituted best practices for Workers Compensation

Laying the Foundation of the CaptiveOUR STORY Page #Recording of this session via any media type is strictly prohibited.12 Fear of the unknown appetite for risk; aversion to taking on risk Accountability Expenses and time away from core business Raising capitalCHALLENGES ALONG THE WAY Page #Recording of this session via any media type is strictly prohibited.131994 Risk Phase $500,000 capital 11 shareholders CEO Corporate Attorney COO General Managers CFO Risk Manager Coverage: Workers Compensation, auto physical damage, general liability Consultants/Captive Administrator

WESTMERICA THE BEGINNING Page #Recording of this session via any media type is strictly prohibited.142013 Riches Phase Assets: $15 million Liabilities: $3 million Dividends Paid: $4.3 million 2013 After-Tax Income: over $1 million 2014 After-Tax Income: trending over $2 million

WESTMERICA THE RESULT Page #Recording of this session via any media type is strictly prohibited.15 Workers Compensation Auto physical damage comp and collision General liability/property EPLI, fiduciary, crime, pollution Surety bondsCURRENT PRODUCTS Page #Recording of this session via any media type is strictly prohibited.162013 Surety BondsCURRENT PRODUCTSBond TypeCost per BondBondsSoldTotalsSalesperson ($15,000 coverage)$65420$27,300Dealership ($50,000 coverage)$38511$4,235 Totals431$31,535 Page #Recording of this session via any media type is strictly prohibited.17 Workers Compensation Auto physical damage comp and collision General liability/property EPLI, fiduciary, crime, pollution Surety bonds Financial products Secure ProductsCURRENT PRODUCTS Page #Recording of this session via any media type is strictly prohibited.182013 Secure Products Secure products sold 13,415 units Secure product income $752,898 Secure Finish Secure Mark Plus (with Secure ID) Secure Road Secure Roadside Plus (with ADR) Secure Windshield Plus Smart PaymentCURRENT PRODUCTS Page #Recording of this session via any media type is strictly prohibited.19 Risk management Disaster recovery My Maintenance Plus administration Independent insurance agencyCURRENT SERVICES Page #Recording of this session via any media type is strictly prohibited.20

Page #Recording of this session via any media type is strictly prohibited.21 Obtain financial involvement by key personnel raise initial capital Implement Risk Manager Bonus Pay PlanFOUNDATION FOR SUCCESS Page #Recording of this session via any media type is strictly prohibited.22 0 20%21% 30%31% 40%41% 50%51% 60%= $1,500= $1,300= $1,100= $900= $700Workers Compensation Severity(based on rolling 3-month average)PremiumIncurredLoss Ratio$270,750 $95,750 35%RISK MANAGER BONUS PAY PLAN Page #Recording of this session via any media type is strictly prohibited.23= $1,200= $1,000= $800= $600= $400= 0 0% 0.50%0.51% 0.60%0.61% 0.70%0.71% 0.80%0.81% 1.00%1.10% UpWorkers Compensation Frequency# Claims per monthTotal # employeesClaims as percentageof population 6 9000.6%RISK MANAGER BONUS PAY PLAN Page #Recording of this session via any media type is strictly prohibited.24= $1,400= $1,200= $1,000= $800 Loss Ratios 0 1516 2526 3536 45Employment Practice & General Liability Severity(based on rolling 3-month average)PremiumIncurredLoss Ratio$302,000 $75,200 25%RISK MANAGER BONUS PAY PLAN Page #Recording of this session via any media type is strictly prohibited.25 Obtain financial involvement by key personnel raise initial capital Implement Risk Manager Bonus Pay Plan Unbundle services for better control Insure what you can control; transfer the rest (i.e., wind and hail claims) Continually identify sources of new revenueFOUNDATION FOR SUCCESS Page #Recording of this session via any media type is strictly prohibited.26 Include risk management expenses in rates Pay for results cost containment, dividend Produce monthly financial profit and loss statement like a profit center Meet quarterly with Board of Directors and annually with shareholders Follow the 5 Ps People, Passion, Process, Product, ProfitFOUNDATION FOR SUCCESS Page #Recording of this session via any media type is strictly prohibited.27 Pull claims history identify where it makes sense to take risk Challenge the status quo shake it up Create a game plan for success Review current investment strategies Develop a profit center . . . not just a risk financing strategyCHANGE YOUR GAME Page #Recording of this session via any media type is strictly prohibited.28Questions, Final Comments and Contact Information Page #Recording of this session via any media type is strictly prohibited.29KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC.Please complete the session survey on the RIMS14 mobile application. Page #Recording of this session via any media type is strictly prohibited.30