1. Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Operating Your Captive as a Profit Center RIF007 April 29, 2014 1:45–2:45 p.m.

2. Page 2 Recording of this session via any media type is strictly prohibited. President, 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 mediation SCOTT ARNOLD, MS, ARM, SPHR CATHI TRIPPE, ARM, CIC, PHR

3. Page 3 Recording of this session via any media type is strictly prohibited. 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 captive’s bottom line WHAT TO EXPECT FROM THIS SESSION

4. Page 4 Recording of this session via any media type is strictly prohibited. MONEYBALL

5. Page 5 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.

6. Page 6 Recording of this session via any media type is strictly prohibited. Pure captive domiciled in Colorado Headquarters in Colorado Springs Started in 1994 Over $15 million in assets 19 shareholders 5 employees WESTMERICA INSURANCE COMPANY

7. Page 7 Recording of this session via any media type is strictly prohibited. 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 10–15% below market Continue to bring new products and services to our dealerships Provide non-cumulative 30% of equity return to our shareholders WESTMERICA MISSION

8. Page 8 Recording of this session via any media type is strictly prohibited. Cost savings Direct access to markets Greater control — claims management, unbundled service providers, buy insurance when it’s cheap Improved long-term stability — reinsurer traditionally less volatile TRADITIONAL BENEFITS OF A CAPTIVE

9. Page 9 Recording of this session via any media type is strictly prohibited. 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

10. Page 10 Recording of this session via any media type is strictly prohibited. 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 Captive OUR STORY

11. Page 11 Recording of this session via any media type is strictly prohibited.

12. Page 12 Recording of this session via any media type is strictly prohibited. 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 Captive OUR STORY

13. Page 13 Recording of this session via any media type is strictly prohibited. Fear of the unknown — appetite for risk; aversion to taking on risk Accountability Expenses and time away from core business Raising capital CHALLENGES ALONG THE WAY

14. Page 14 Recording of this session via any media type is strictly prohibited. 1994 — 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”

15. Page 15 Recording of this session via any media type is strictly prohibited. 2013 — 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”

16. Page 16 Recording of this session via any media type is strictly prohibited. Workers’ Compensation Auto physical damage — comp and collision General liability/property EPLI, fiduciary, crime, pollution Surety bonds CURRENT PRODUCTS

17. Page 17 Recording of this session via any media type is strictly prohibited. 2013 Surety Bonds CURRENT PRODUCTS Bond Type Cost per Bond Bonds SoldTotals Salesperson ($15,000 coverage) $65420$27,300 Dealership ($50,000 coverage) $38511$4,235 Totals431$31,535

18. Page 18 Recording of this session via any media type is strictly prohibited. Workers’ Compensation Auto physical damage — comp and collision General liability/property EPLI, fiduciary, crime, pollution Surety bonds Financial products — Secure Products CURRENT PRODUCTS

19. Page 19 Recording of this session via any media type is strictly prohibited. 2013 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 Payment CURRENT PRODUCTS

20. Page 20 Recording of this session via any media type is strictly prohibited. Risk management Disaster recovery My Maintenance Plus administration Independent insurance agency CURRENT SERVICES

21. Page 21 Recording of this session via any media type is strictly prohibited.

22. Page 22 Recording of this session via any media type is strictly prohibited.  Obtain financial involvement by key personnel — raise initial capital  Implement Risk Manager Bonus Pay Plan FOUNDATION FOR SUCCESS

23. Page 23 Recording of this session via any media type is strictly prohibited. 0 – 20% 21% – 30% 31% – 40% 41% – 50% 51% – 60% = $1,500 = $1,300 = $1,100 = $900 = $700 Workers’ Compensation Severity (based on rolling 3-month average) Premium Incurred Loss Ratio $270,750 $95,750 35% RISK MANAGER BONUS PAY PLAN

24. Page 24 Recording of this session via any media type is strictly prohibited. = $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% – Up Workers’ Compensation Frequency # Claims per month Total # employees Claims as percentage of population 6 900 0.6% RISK MANAGER BONUS PAY PLAN

25. Page 25 Recording of this session via any media type is strictly prohibited. = $1,400 = $1,200 = $1,000 = $800 Loss Ratios 0 – 15 16 – 25 26 – 35 36 – 45 Employment Practice & General Liability Severity (based on rolling 3-month average) Premium Incurred Loss Ratio $302,000 $75,200 25% RISK MANAGER BONUS PAY PLAN

26. Page 26 Recording of this session via any media type is strictly prohibited.  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 revenue FOUNDATION FOR SUCCESS

27. Page 27 Recording of this session via any media type is strictly prohibited.  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 “P”s — People, Passion, Process, Product, Profit FOUNDATION FOR SUCCESS

28. Page 28 Recording of this session via any media type is strictly prohibited. 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 strategy CHANGE YOUR GAME

29. Page 29 Recording of this session via any media type is strictly prohibited. Questions, Final Comments and Contact Information

30. Page 30 Recording of this session via any media type is strictly prohibited. KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC. Please complete the session survey on the RIMS14 mobile application.