November, 2003

1. Captives – Alternative or Obstacle Captive Primer Presented by John Yonkunas November, 2003

2. Captive Unfunded Self Insurance Deductible Plan Retro Plan Guaranteed Cost Risk Financing Continuum

3. Captive Defined A closely held insurance company controlled by its owners… ... offering insurance products or reinsurance support to its owners as the principal beneficiaries... ...and the owners-policyholders actively participate in decisions influencing underwriting, operations and investments.

4. Source: Captive Insurance Company Reports and Best’s Captive Directory Historical Growth of Captives Worldwide

5. WESTERN HEMISPHERE DOMICILES EASTERN HEMISPHERE DOMICILES • Bermuda 1,426 • Cayman 642 • BVI 269 • Barbados 207 • Turks & Caicos 74 • Bahamas 25 • U.S. • Vermont 454 • Hawaii 102 • Colorado 20 • Georgia 16 • Illinois 14 • South Carolina 12 • Tennessee 10 • Arizona 10 • New York 9 • Other U.S. • states/domiciles 140 • Other 205 • Total 3,635 Guernsey 408 Luxembourg 280 Ireland 209 Isle of Man 173 Singapore 51 Switzerland 41 All other 40 Total 1,202 Source: Best’s Captive Directory 4,837 Captives Worldwide (Year-End 2002 Figures)

6. Domicile Cayman Islands Bermuda Vermont Guernsey British Virgin Islands South Carolina Barbados Ireland Hawaii Others Total 2002 Captive Formations 97 79 70 49 45 20 19 18 16 49 462 2002 New Captive Formations by Domicile Source: Best’s Captive Directory

7. Type of Captive Pure Captive Connected Business 3rd Party Business Association Captive Multi-Owner Captive Risk Retention Groups Rent-a-Captives (incl. Agency, Sponsored, and PCC) Number of Captives 2003 vs. 2003 1366 1087 214 188 218 180 206 201 78 63 96 73 294 241 Number of Captives by Type Source: Best’s Captive Directory

8. Types of Captives • Pure Single Parent • Related Business Single Parent • Unrelated Business Single Parent • Captive of Insurer • Association Captive • Multi-Owner Captive • Healthcare Captive • Life Insurer Single Parent • Rent-a-Captive • Risk Retention Group • Self Insurance Groups • Reciprocals • Agency Captive • Special Purpose Vehicles • Protected Cell Captive • Producer Owned Rented Captive

9. Categories of Captives • Ownership & Control • Single Parent • Group/Risk Retention Group • Rent-A-Captive/Protected Cell Captive • Transaction – Offshore & Onshore • Direct • Fronted • Structure • Stock/Mutual • Reciprocal

10. Ownership & Control Categories 10

11. Single Parent • Insures the risk of the parent and sister companies • Includes predictable exposures & working layer • Offers unusual or uninsurable coverages • Punitive Damage • Terrorism • Business Risks • Assets Controlled by Treasury • Loan-Backs • Commercial Paper • Highly Leveraged

12. Group • Insures the risk of the members/policyholders • Includes predictable exposures for casualty coverages at low retentions • Does not typically offer unusual or uninsurable coverages • Assets Managed by Investment Manager • Moderately Leveraged • Higher Regulatory Scrutiny • Risk Retention Group – Federally authorized licensed carrier

13. Rent-a-Captive • Reinsures the risk of members - Fronted • Includes predictable exposures • No unusual or uninsurable coverages • Assets Controlled by Sponsor/Owner • Ownership/Governance Limited • No Direct Capital – Indirect Capital for “gap” exposure • Protected Cell Captive – legal segregation of assets and liabilities

14. Rent-a-Captive Insurance and Reinsurance Transactions INSURED Insurance Premiums INSURANCE AGREEMENTS Insurance Policy & Claim Payments Preferred Dividends AGENT SHAREHOLDER AGREEMENTS Insurance Premiums Primary Layer Reinsurance Premiums Fronting Company Rent-a-Captive Primary Claim Recovery REINSURANCE AGREEMENTS

15. Transaction Categories 15

16. … direct insurance Premiums Corporation Captive Coverage … reinsurance Premiums Fronting Fee Insurance Company Captive Corporation Reinsurance Coverage Captives are Established to EitherInsure or Reinsure Risk

17. Carrier Captive Owner/ Policyholder Insurance Reinsurance Excess Excess Excess Agreement Agreement Deductible/SIR Indemnification DED/SIR DED/SIR Agreement Captives as part of an integrated and complex risk financing program 17

18. Structure Categories 18

19. Structure Category • Stock/Mutual • Stockholders/Members • Board of Directors • Officers • Taxable at Captive level • Reciprocal • Subscribers • Subscriber Advisory Committee • Attorney-in-Fact • Subscriber Savings Accounts - Assigned Surplus • Taxable at Captive and Subscriber levels

20. Captive Trends 20

21. Trend 1: Continued Strong Interest in Captives • New captive formations • Expansion of existing captives • Effects of hard market • Fronting insurance capacity diminishing and fees increasing • Higher reinsurance rates

22. Trend 2: Unrelated Business • Captives are increasingly insuring risks unrelated to the owners for: • Risk diversification • Tax deductibility • Profit potential • Examples • Suppliers or independent contractor P/C risks • Customers (warranty, credit life) • Employee benefits

23. Trend 3: Employee Benefits • Opportunity areas • U.S.: disability, life, deferred compensation, SERPs, retiree medical • Non-U.S.: reinsurance of multinational pooling, internationally mobile employees • Columbia Energy’s DOL ruling and ADM’s recent application for an exemption