GEM A Progress Report

September 27, 2013

A Brief History

Governmental Entities Mutual, Inc. (GEM) is a captive domiciled in Washington, DC

Incorporated 12/24/2002 and licensed to write liability, workers compensation and property insurance and reinsurance

GEM launched its liability reinsurance program on 1/1/2003, property and workers’ compensation programs followed in 2005

Converted to a Protected Cell Corporation as of 1/1/2010

GEM completed its tenth year of operations on 12/31/2012

17 member pools and 10 Member Board comprised of Designated Member Representatives from our member pools.

Financial StabilityGEM is a regulated captive insurance company

GEM is required to maintain adequate Risk-Based Capital (RBC) ratios

GEM is member-owned and governedMembers have access to GEM’s financial information on a monthly basisAnnually GEM has an independent audit and actuarial loss reserve opinion

Members make a long-term capital commitment to GEM

Management provides an annual risk profile report to the Board of Directors

All profits inure to the benefit of the Members

GEM Financial PerformanceGAAP Basis(000 omitted)

8/31/2013 12/31/2012 Difference1

(unaudited)

Total Assets $85,555 $88,967 ($3,412)

Members' Equity $28,086 $28,457 ($371)

Investable Assets $69,241 $70,139 ($898)

Loss & LAE Reserves $52,438 $52,669 ($231)

Net Earned Premiums $5,316 $8,169 ($195)

Net Income $2,054 $2,486 $595

Loss Ratio 65.5% 81.9% -16.4%

Expense Ratio 21.0% 21.9% -0.9%

Combined Ratio 86.5% 103.8% -17.4%

1 Annualized for NEP and Net Income

Members’ Equity

Return on Members’ Equity

The GEM/WSTIP Relationship

All Founding and Premier members are required to contribute a minimum of $500,000 or 70% of gross written premium as surplus to GEM. WSTIP has contributed capital of $750,000.

2013 Liability Reinsurance– WSTIP Retention: $ 1,000,000 per occurrence – Limit Retained by GEM: 83% Q.S. $3,000,000 x $1,000,000– GEM Net Written Premium: $ 862,000

2012 Member Accounting– Member Surplus Accounts $ 1,182,501– Member Policy Accounts $ 240,904

Expected Outcomes ofWSTIP’s Investment

Maintenance of an economically sound company while providing long term cost-effective reinsurance and service

Member control of the Company through member elected Board

Follow form coverage eliminating differences in conditions, retention of claims handing authority at the pool level

High quality claims, underwriting and pool support services provided by staff and service providers with extensive pool & public entity experience

Stabilization or reduction of the overall cost of reinsurance in GEM’s retained layer through the law of large numbers and risk distribution

Building mutual strength of pools to retain higher limits before accessing the commercial reinsurance market

GEM Value Added ServicesClaims Audits

Underwriting Reviews

HR Sentry & John Salisbury Grants through NAGEP

Building Mutual Strength Among PoolsGovernance – Summer 2007Finance – Fall 2007Member Services – Summer 2008Coverage Documents – Summer 2009Economic Outlook and Fixed Income Markets – Winter 2010,2011 & 2012Risk Management – Summer 2011Risk Management –Summer 2013

Future Directions for GEM

Increase capacity to assume risk - $38-40 million member equity goal by 2020, net of unrealized capital gains. Net retention increases to $5 million

Actively market GEM to attract new members including looking at expanding outside of the US

Develop a generative Board process

Actively seek ability to collaborate with NCL Mutual and CRL

Integrate technology into how GEM delivers services to the membership

Remember our roots

In Conclusion

GEM – A Member Driven Reinsurer

Building Mutual Strength