NORTH CAROLINA CAPTIVE INSURANCE COMPANY

PROGRAM – REGULATORY APPROACH REGARDING

CAPTIVE INSURANCE COMPANY INVESTMENTS

Captive Insurance Company Regulatory Team • Wayne Goodwin N.C. Insurance Commissioner • Raymond Martinez Senior Deputy Commissioner • Ben Popkin Legislative Counsel • Debra Walker Deputy Commissioner • Rick Kohan Associate Actuary • Ke Xu Chief Financial Examiner • Kevin Brodie Senior Captive Insurance Specialist • Hasije Harris Senior Regulatory Specialist • Rick Kilpatrick Senior Regulatory Specialist • Leane Rafalko Senior Captive Insurance Specialist • Ben Blackmon Senior Captive Financial Analyst • Michael Arcangel Captive Financial Analyst • Kathy Hart Administrative Assistant – Captive

Insurance Companies Division

2

3

NCDOI Regulatory Approach • The North Carolina Captive Insurance Act (“Act”) is structured

to provide the Commissioner with appropriate discretion to regulate each captive insurance company based upon the insurer’s risk profile. The NCDOI does not take a one size fits all approach to regulation.

• The NCDOI will go out of its way to understand the needs of the captive insurance industry and to serve the industry appropriately.

• The NCDOI will make every reasonable effort to work with the captive insurance industry so long as there is adherence to the legal requirements.

• The NCDOI will exercise discretion in the favor of the captive insurance industry wherever reasonably possible.

4

Captive Insurance Company Investments – Regulatory Approach • NCGS 58-10-440(b) states “No pure captive insurance company,

industrial insured captive insurance company, protected cell captive insurance company, special purpose captive insurance company, or special purpose financial captive insurance company shall be subject to any restrictions on allowable investments, provided that the Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such company.”

• Captive insurance companies submit an investment policy in their license application package.

• The Department reviews that investment policy to determine if the policy is prudent based on the risk profile of the captive insurance company.

• The captive insurance company obtains Department approval for any material or significant deviation from the Department-approved investment policy.

5

Captive Insurance Company Investments – Regulatory Approach (Cont.) • Risk Retention Groups (“RRGs”) and Association Captive

Insurance Companies (“Association Captives”) are subject to investment requirements that are similar to the requirements of traditional insurance companies.

• Those requirements include qualitative and quantitative investment limitations. RRGs are also subject to Risk Based Capital (“RBC”) requirements, which is a complex calculation to determine the minimum level of capital appropriate for a particular insurance company. The calculation accounts for a number of the insurer’s risk factors, including investment risk.

• Minimum capital and surplus for all captive insurance companies must be unencumbered and maintained in cash, securities approved by the Commissioner, a clean irrevocable letter of credit, or other form approved by the Commissioner.

6

Loans and Dividends • NCGS 58-10-440(c) states “No captive insurance company or

protected cell shall make a loan to or an investment in its parent company, an affiliated company, a controlled unaffiliated business, or a participant without prior written approval of the Commissioner, and any such loan or investment shall be evidenced by documentation approved by the Commissioner. Loans of minimum capital and surplus funds required by NCGS 58-10-370 are prohibited.”

• Loan requests are reviewed by the Department to determine if adequate funding remains available in the captive insurance company subsequent to the loan.

• The Department reviews documents including, but not limited to, financial statements of the captive insurance company, the promissory note or loan agreement, and financial statements of the borrower to understand the financial condition of the captive insurance company, the impact of the loan to the insurance company, the terms of the transaction, and the borrower’s ability to repay the loan.

7

Loans and Dividends (Cont.) • NCGS 58-10-375 states “No captive insurance company shall

pay a dividend or other distribution from capital or surplus without the prior approval of the Commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by or determined in accordance with formulas approved by the Commissioner. A captive insurance company may otherwise make such distributions as are in conformity with its purposes and approved by the Commissioner.”

8

Loans and Dividends (Cont.) • As stated previously in the discussion regarding loans,

dividends are reviewed by the Department to make certain that adequate funding remains in the captive insurance company subsequent to the dividend payment in order for the captive insurance company to meet its future obligations.

• The Department considers the captive insurance company’s current financial statements, the impact of the dividend on the financial condition of the insurer including the quality of the insurer’s remaining assets, and the insurer’s future operational plans to determine if the dividend should be approved.

• Loans and dividends are generally issued or paid after the first few years of operation when surplus has grown, assuming favorable loss experience has occurred; however, each loan or dividend request will be considered by the Department on a case by case basis.

Contact Information

Ray Martinez Debra Walker Senior Deputy Commissioner Deputy Commissioner Ray. Martinez@ncdoi.gov Debbie.Walker@ncdoi.gov 919-807-6142 919-807-6165

Kevin Brodie Leane Rafalko Rick Kilpatrick

Senior Captive Insurance Specialist Senior Captive Insurance Specialist Senior Regulatory Specialist Kevin.Brodie@ncdoi.gov Leane.Rafalko@ncdoi.gov Rick.Kilpatrick@ncdoi.gov 919-807-6152 919-807-6149 919-807-6154 Ben Blackmon Rick Kohan

Senior Captive Insurance Analysis Associate Actuary Ben.Blackmon@ncdoi.gov Richard.Kohan@ncdoi.gov 919-807-6145 919-807-6645 Kathy Hart

Administrative Assistant – Captive Insurance Kathy.Hart@ncdoi.gov 919-807-6180

9

July 2016 Oppenheimer Asset Management Research Market Strategy Radar Screen: Monthly Chart Book An In-Depth Look at Markets and the Economy

John Stoltzfus, Chief Market Strategist | 212.667.8139 | john.stoltzfus@opco.com Jim Johnson, Senior Associate | 212.667.7717 | jim.johnson@opco.com

For analyst certification and important disclosures, see the Disclosure Appendix

11

Top 40 Nations by GDP

Source: World Bank, OAM Research. Data are on purchasing power parity basis as calculated by the World Bank for 2014.

$0$2$4$6$8

$10$12$14$16$18

Unite

d St

ates

China

Japa

nGe

rman

yUn

ited

Kingd

omFr

ance

Braz

ilIta

lyInd

iaRu

ssian

Fede

ratio

nCa

nada

Austr

alia

Korea

, Rep

.Sp

ainMe

xico

Indon

esia

Nethe

rland

sTu

rkey

Saud

i Arab

iaSw

itzer

land

Swed

enNi

geria

Polan

dAr

gent

inaBe

lgium

Vene

zuela

, RB

Norw

ayAu

stria

Iran,

Islam

ic Re

p.Un

ited

Arab

Em

irate

sCo

lombia

Thail

and

South

Afric

aDe

nmar

kMa

laysia

Sing

apor

eIsr

ael

Hong

Kon

g SAR

, Chin

aEg

ypt, A

rab R

ep.

Philip

pines

Trill

ions

of U

.S.

Dolla

rs

Relative size counts when it comes to economic resiliency in challenging environments. The US is still the largest economy in the world at over $17.4 trillion in GDP. While China is the second-largest economy ranked as an individual country (at $10.4 trillion), the Eurozone countries in aggregate rank second at around $13.4 trillion. We think it’s important for investors to consider the relative size of a country’s economy before extrapolating positively or negatively on day-to-day news items.

12

US Bond Index Price and Total Returns

Returns in fixed income over the last 12 months through the end of June were mostly driven by movements in price rather than from coupon income as:

• yields remained low and moved even lower,

• economic growth stateside remained modest,

• Disinflation rather than inflation remained the issue,

• and bond yields moved at times, in different directions among the categories reflecting demand for some and aversion to other types of risk exposure.

Source: Barclays, Bloomberg LP, Oppenheimer Asset Management Research. Note: Return calculations exclude applicable costs including interest and commissions.

0.4%

1.6%2.0%

1.3%0.9%

1.8%2.2%

1.6%

5.5%

2.2%2.7% 2.6%

1.6%

6.0%

7.9%7.7%

-3%

0%

3%

6%

9%

US Corporate HighYield

US Aggregate US 7-10 Year Maturity Municipal Bond Index

June Price Return June Total Return

Last 3 Months Total Return Last 12 Months Total Return

13

10-Year Treasury Yield: A Four-Decade Trek

Inflation in the US peaked in the early 1980s in large part as a result of monetary policy that countered escalating inflation stateside under the leadership of then Federal Reserve Chairman Paul Volcker. In the decades that followed leading up to 2007, Federal Reserve vigilance helped keep inflation in check, aided by structural changes in the global economy driven by secular trends tied to: • Technology; • Globalization and urbanization of the emerging

markets; • Intermodal transportation, container ships, cargo

jets; • Development of sophisticated logistics systems; • Globalization of the workforce (outsourcing/

reshoring); • Lower barriers to entry for competitors in a myriad

of businesses; • Foreign central bank vigilance to counter inflation

and deflation.

As inflation fell, interest rates fell. As the global economy grew in a low interest rate environment, global markets grew along with global demand for yield product from both institutions and private investors.

• Our expectations are for the aforementioned trends that have kept inflation low for decades to remain in place when the process of interest rate normalization proceeds.

Source: Federal Reserve Board, Oppenheimer Asset Management and Bloomberg. Data are month-end; yield is constant maturities basis through 6/30/2016.

0%

2%

4%

6%

8%

10%

12%

14%

16%

14

S&P 500 GICS Sectors Total Returns Quilt

Source: Standard and Poor’s, Bloomberg, Oppenheimer Asset Management Research. GICS stands for Global Industry Classification System, which divides stocks into ten sectors. These results cannot and should not be viewed as an indicator of future performance.

We’ve assembled a total returns ranking for the ten S&P GICS sectors. This quilt illustrates the historical diversity of returns within the broad categories of the large-cap US stocks. In the ten-year period from 2006 to 2015, Consumer Staples and Consumer Discretionary stocks were top performers, followed closely by Health Care sector stocks. Investors with specific views on the sectors can achieve exposure to them via ETFs as well as with individual stocks within the sectors.

10-Years January-2006-'15 June

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Annualized 2016

Telecom36.0%

Energy34.9%

Cons Staples-15.2%

InfoTech61.3%

Cons Discret27.4%

Utils19.4%

Fincls28.5%

Cons Discret42.8%

Utils28.4%

Cons Discret10.1%

Cons Staples10.9%

Telecom24.8%

Energy24.0%

Mater'ls22.2%

Health-22.6%

Mater'ls47.9%

Indust26.4%

Cons Staples13.7%

Cons Discret23.8%

Health41.1%

Health25.1%

Health6.9%

Cons Discret10.8%

Utils23.4%

Utils20.5%

Utils19.1%

Utils-28.5%

Cons Discret40.7%

Mater'ls21.8%

Health12.6%

Telecom17.9%

Indust40.2%

InfoTech19.9%

Cons Staples6.5%

Health10.6%

Energy16.1%

Fincls18.9%

InfoTech16.3%

Telecom-30.0%

Indust20.2%

Energy20.0%

Telecom6.1%

Health17.7%

Fincls35.3%

Cons Staples15.7%

InfoTech5.9%

InfoTech9.3%

Cons Staples10.4%

Cons Discret18.5%

Cons Staples14.0%

Cons Discret-33.2%

Health19.3%

Telecom17.9%

Cons Discret6.1%

Indust15.2%

InfoTech28.1%

Fincls15.0%

Telecom3.3%

Telecom7.3%

Mater'ls7.4%

Mater'ls18.0%

Indust12.0%

Energy-34.5%

Fincls16.6%

Cons Staples13.8%

Energy4.7%

InfoTech14.8%

Cons Staples25.9%

Indust9.7%

Fincls-1.6%

Utils7.2%

Indust6.4%

Cons Staples14.2%

Telecom11.9%

Indust-39.4%

Cons Staples14.4%

Fincls12.0%

InfoTech2.4%

Mater'ls14.8%

Mater'ls25.2%

Cons Discret9.6%

Indust-2.5%

Indust7.2%

Cons Discret0.7%

Indust13.1%

Health7.1%

InfoTech-42.9%

Energy13.5%

InfoTech10.1%

Indust-0.6%

Cons Staples10.7%

Energy24.8%

Mater'ls6.9%

Utils-4.9%

Mater'ls6.2%

Health0.4%

InfoTech8.4%

Cons Discret-13.1%

Mater'ls-45.0%

Utils11.3%

Utils5.2%

Mater'ls-9.6%

Energy4.5%

Utils13.1%

Telecom3.0%

Mater'ls-8.3%

Energy4.1%

InfoTech-0.3%

Health7.4%

Fincls-18.3%

Fincls-54.3%

Telecom8.2%

Health2.8%

Fincls-16.9%

Utils1.3%

Telecom11.3%

Energy-7.6%

Energy-20.7%

Fincls-0.5%

Fincls-3.1%

15

S&P 500 Trailing P/E Valuation

Source: Oppenheimer Asset Management Research and Bloomberg. Trailing P/E’s are calculated as current price over last 12 months adjusted earnings, as measured by Bloomberg. The lower chart utilizes month-end data from 12/31/1964 to 6/30/2016.

Trailing price/earnings ratios can serve as a useful indicator of when the broad market may be under- or overvalued. We note that as selling pressure takes the P/E ratio near or just above 16.5x the prior 12 month’s earnings, this has served as a rallying point five times over the past 27 months (see top chart).

As of July 11th as we went to press, the 12-month trailing P/E multiple of the S&P 500 stood at 19.79x, up from a 2016 low of 16.54x on February 11th of this year (see top figure).

At 19.79x, the market’s trailing 12-month P/E multiple on July 11th, 2016 stood at around a 19.6% premium to the market’s long-term average trailing 12-month multiple of 16.54x, and the market (as illustrated by the performance of the S&P 500) has in the recent past shown resistance to pushing through a level of 19x since February of 2014 (again see top figure at left).

That said, the average yield on the 10-year Treasury note since the end of 1965 through June 30th stands at 6.54% versus a current yield (as of July 11th, 2016) on the 10-year of around 1.43%

While economic, revenue and earnings growth are principal factors that move stocks higher, the relative value of asset classes and their respective prospects for better returns can serve as near-term factors determining which asset classes are favored by investors.

Long-Term Trailing P/E’s:

0x

5x

10x

15x

20x

25x

30x

35x

1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Trailing P/E

16.0x

16.5x

17.0x

17.5x

18.0x

18.5x

19.0x

19.5x

20.0x

16

S&P 500 GICS Cyclical Sectors P/E Quilt

Source: Oppenheimer Asset Management Research and Bloomberg. Forward P/E’s are calculated as current price over next 12 months estimated earnings, as measured by Bloomberg from bottom-up analyst surveys.

Forward P/E’s:

Source: Oppenheimer Asset Management Research and Bloomberg. Trailing P/E’s are calculated as current price over last 12 months adjusted earnings, as measured by Bloomberg.

Trailing P/E’s:

The sell-off over the first five weeks of 2016 took valuations below 5- and 10-year averages for several cyclical sectors, including Consumer Discretionary, Materials and Industrials on both a forward- and trailing basis. The rally since February 11, 2016 has taken many of these valuations back to near their 5- and 10-year averages. In our view, selective value remains on a stock-specific basis.

S&P 500 Cons. Discret. Energy Fin'ls Industrials Info Tech Materials

7/11/2016 18.2x 18.5x 95.3x 14.4x 17.2x 17.1x 18.3x30-Day Avg 17.8x 17.9x 94.9x 14.1x 16.6x 16.9x 18.1x90-Day Avg 17.5x 18.1x 87.1x 13.9x 16.4x 16.8x 18.0x

1-Year Avg 17.1x 19.0x 50.7x 13.9x 16.0x 16.5x 17.0x3-Year Avg 16.0x 18.5x 24.5x 13.6x 15.9x 15.2x 16.8x5-Year Avg 15.3x 17.8x 21.7x 13.1x 15.3x 14.6x 15.9x

10-Year Avg 15.0x 18.4x 17.1x 15.2x 15.3x 15.8x 16.6x20-Year Avg 16.8x 19.7x 17.5x 14.4x 16.9x 19.9x 17.7x

S&P 500 Cons. Discret. Energy Fin'ls Industrials Info Tech Materials

7/11/2016 19.8x 20.2x 44.1x 15.0x 17.8x 19.7x 18.5x30-Day Avg 19.3x 19.6x 43.5x 14.9x 17.4x 19.3x 18.3x90-Day Avg 19.1x 20.0x 38.8x 14.7x 17.4x 19.1x 18.0x

1-Year Avg 18.5x 20.7x 27.1x 14.5x 17.3x 18.7x 17.0x3-Year Avg 17.2x 19.7x 17.3x 14.0x 17.2x 17.5x 17.8x5-Year Avg 16.6x 18.8x 16.1x 13.9x 16.7x 16.9x 17.0x

10-Year Avg 16.7x 23.0x 14.3x 21.4x 16.4x 18.2x 17.4x20-Year Avg 19.4x 22.5x 17.4x 18.2x 19.3x 28.5x 20.2x

17

S&P 500 GICS Defensive Sectors P/E Quilt

Source: Oppenheimer Asset Management Research and Bloomberg. Forward P/E’s are calculated as current price over next 12 months estimated earnings, as measured by Bloomberg from bottom-up analyst surveys.

Forward P/E’s:

Source: Oppenheimer Asset Management Research and Bloomberg. Trailing P/E’s are calculated as current price over last 12 months adjusted earnings, as measured by Bloomberg.

Trailing P/E’s:

Utilities and Consumer Staples appear fully valued in comparison to their average multiples on a 3-year, 5-year, and out to 20-year averages. An increase in M&A activity in Consumer Staples and Health Care over the last few years has contributed to multiple expansion among defensives as well as investors’ attraction to yields available in Utilities and Telecoms. Earlier concerns related to economic growth and market uncertainty garnered investor attention to the sector as well. Current multiple levels relative to historical periods shown indicate to us a need for earnings growth to keep rising to justify higher sector and index prices. We see this view as highly illustrative of the purpose for our call for alpha strategies (security-specific selection) versus beta strategies (indexing) at this juncture.

S&P 500 Cons. Staples

Health Care Telecom Utilities

7/11/2016 18.2x 22.2x 16.4x 14.9x 19.0x30-Day Avg 17.8x 21.7x 16.0x 14.3x 18.4x90-Day Avg 17.5x 21.6x 15.7x 13.9x 17.7x

1-Year Avg 17.1x 20.7x 16.4x 13.0x 16.6x3-Year Avg 16.0x 18.7x 16.3x 15.5x 16.1x5-Year Avg 15.3x 18.0x 15.4x 15.8x 15.7x

10-Year Avg 15.0x 17.0x 14.5x 15.0x 14.8x20-Year Avg 16.8x 16.6x 19.3x 18.3x 14.2x

S&P 500 Cons. Staples

Health Care Telecom Utilities

7/11/2016 19.8x 23.4x 21.4x 16.4x 19.7x30-Day Avg 19.4x 22.7x 20.8x 15.8x 19.0x90-Day Avg 19.0x 22.3x 20.5x 15.3x 18.4x

1-Year Avg 18.5x 21.1x 21.3x 14.2x 17.0x3-Year Avg 17.2x 19.2x 19.9x 16.5x 16.4x5-Year Avg 16.6x 18.6x 18.4x 16.5x 15.7x

10-Year Avg 16.7x 17.6x 16.4x 16.1x 15.0x20-Year Avg 19.4x 20.0x 21.5x 19.3x 14.9x

18

US and International Index Returns YTD

Source: Oppenheimer Asset Management Research and Bloomberg LP. Price returns are shown from 12/31/2015 through 7/11/2015. Return calculations exclude applicable costs.. These results cannot and should not be viewed as an indicator of future performance.

In the year to date through July 11, 2016, mid-cap stocks and small cap stocks had outperformed the large caps. The S&P 400 mid-cap index was up 9.3% YTD, handily beating the S&P 500.

Developed markets outside of North America, as represented by the EAFE index (which excludes the US and Canada), were down 5.7% in the same period in US dollar terms.

The MSCI Emerging Markets Index moved 6.6% higher in the same period while the MSCI Frontier Markets index had fallen 3.2% on the year.

Concerns about China’s growth prospects; Brexit risk, uncertainty about how the Fed’s rate hike cycle will unfold as well as its potential negative impact on foreign economies, the dollar’s relationship to other currencies and market valuations—all weighed on performance in the period.

4.6%

9.3%

4.8%

-0.4%

-1.9%

-5.7%

6.6%

-3.2%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

S&P 500 S&P 400Midcap

Russell 2000 NASDAQComposite

Index

MSCI AllCountry

Except US

MSCI EAFEDeveloped

Markets

MSCIEmergingMarkets

MSCIFrontierMarkets

THE INVESTMENT MANAGEMENT DECISION PROCESS

Table of Contents

1

• The Investment Management Decision Process – Investment Policy – Asset Allocation – Portfolio Implementation – Ongoing Review

• The Oppenheimer Asset Management Approach to Building Your Portfolio

• Summary

Investing in securities is speculative and entails substantial risk. There can be no assurance that an investor’s investment objectives will be achieved or that an investment strategy will be successful.

The Investment Management Decision Process

The Investment Management Decision Process

A. Investment

Policy

3

D. Ongoing Review

B. Asset

Allocation

C. Portfolio

Implementation

Investment Policy

4

“A business plan for your investments.”

• Gather appropriate information • – Review and analyze

current investment activities/performance

• Determine objectives and constraints

– Return: Need for income vs. growth

– Time horizon – Risk tolerance – Tax and legal issues – Liquidity requirements – Other unique circumstances

Draft an Investment Policy Statement

– Clearly define investment objectives

– Establish investment guidelines – Outline criteria for

screening managers – Establish monitoring and reporting

procedures

“ We believe that tactical market timing is counterproductive, particularly after taxes.”

• Our Approach: – We believe asset allocation is critical in establishing a sound investment

policy. – Through proper diversification, we attempt to enhance return without

necessarily increasing risk. – We employ strategic asset allocation in a “needs-based” methodology.

Your situation and the expected long-term performance of each asset class drives portfolio composition.

5

Asset Allocation

Asset Allocation

• Academic studies have shown in the past that, for long-term investors, nearly 92% of a portfolio’s return is explained by strategic asset allocation.

Security Selection / Other 6.7%

Market Timing 1.8%

Source: Financial Analysts Journal, May/June 1991, “Determinants of Portfolio Performance II: An Update,” by Gary Brinson, Brian Singer and Gilbert Beebower. Past performance is no guarantee of future results.

Asset Allocation 91.5%

6

Asset Allocation

• A potential benefit of diversification is that it may allow an investor to reduce the portfolio’s overall volatility without necessarily reducing its expected return.

“ Investments with low correlation may reduce risk for the overall portfolio even though they are highly volatile on their own.”

100% US Equity Large Cap

Risk

Ret

urn

100% International Equity

65% US Equity Large Cap / 35% International Equity

Source: Ibbotson Associates, for illustrative purposes only. Past performance is no guarantee of future results. Please refer to the attached glossary of index terms and endnote pages for full disclosure.

7

“ Asset allocation is as much an art as it is a science.” • Oppenheimer Asset Management’s “needs-based” approach seeks

to develop a portfolio based on your individual objectives and constraints.

– While we use modern portfolio theory as a tool in our process, we do not believe in a “black box” approach.

– Any mathematical model used for asset allocation is only as good as the market forecasts that are input.

– Most importantly, we take into consideration non-quantitative client factors.

8

Asset Allocation

Asset Allocation

• Historical performance shows that stocks have provided superior returns, but are most appropriate for investors with long-term horizons.

For the period January 1970 through December 2015 Source: Ibbotson Associates & Pertrac Financial Solutions. Representative indices include: From January 2008 to December 2015, US Equity Small Cap is Russell 2000 Index; US Fixed-Income is Barclays Intermediate Term Government Index; US Treasury Bills is Citi 1-Month Treasury Bill Index. US Equity Large Cap: S&P 500 Index; International Equity: MSCI EAFE Index; US Fixed Income: US Intermediate Term Government Bond Index; US Treasury Bills: US 30 Day T-Bill Index. The information and statistical data contained herein have been obtained from sources which we believe to be reliable but in no way are warranted by us as to accuracy. Past performance is no guarantee of future results. Please refer to the attached glossary of index terms and footnotes pages for full disclosure.

9

Asset Allocation

• The impact of inflation demonstrates that over long periods of time, stocks have generated substantial “real” wealth.

For the period January 1970 through December 2015. Source: Ibbotson Associates & Pertrac Financial Solutions. Representative indices include: From January 2008 to December 2015, US Equity Small Cap is Russell 2000 Index; US Fixed-Income is Barclays Intermediate Term Government Index; US Treasury Bills is Citi 1-Month Treasury Bill Index. US Equity Large Cap: S&P 500 Index; International Equity: MSCI EAFE Index; US Fixed Income: US Intermediate Term Government Bond Index; US Treasury Bills: US 30 Day T-Bill Index. The information and statistical data contained herein have been obtained from sources which we believe to be reliable but in no way are warranted by us as to accuracy. Past performance is no guarantee of future results. Please refer to the attached glossary of index terms and footnotes pages for full disclosure.

10

Asset Allocation

“ Correlation may perhaps be the most important quantitative factor in determining asset allocation.”

Historical Return and Risk

Historical Correlation (1970 – 2015)

For the period January 1970 through December 2015 Source: Ibbotson Assocaites, Pertrac Financial Solution. Representative indices include: US Equity Large Cap: S&P 500 TR; US Equity Small Cap: US Small Stk (January 1970 - December 2005), and Russell 2000 (January 2006 – December 2015); International Equity: MSCI EAFE; US Fixed Income: U.S. Int Gov't (January 1970 – December 2005), and Barcalys Int Gov't (January 2006 – December 2015); Cash Equivalents: US 30 Day T-Bill (January 1970 – December 2005), and Citi 1-Month T-Bill (January 2006 – December 2015). Past performance is no guarantee of future results. Please refer to the attached glossary of index terms and footnotes pages for full disclosure.

11

1970-2015 2004-2015 Return Risk* Return Risk*

US T Bill 4.93% 0.96% 1.26% 0.51% US Int Gov Bond 7.28% 5.27% 3.36% 3.01% S&P 500 10.27% 15.31% 7.28% 14.07% MSCI EAFE 9.45% 17.03% 5.60% 17.34% US Small Stk 12.32% 21.32% 7.18% 19.05%

US T Bill US Int Gov

Bond

S&P 500 MSCI EAFE

US Small Stk

US T Bill 1.00 0.19 -0.01 -0.01 -0.02 US Int Gov Bond 1.00 0.12 0.05 0.02 S&P 500 1.00 0.63 0.77 MSCI EAFE 1.00 0.52 US Small Stk 1.00

US Fixed Income

Cash Equivalents

Standard Deviation (Risk)

Ret

urn

US Equity Small and Mid Cap

International Equity US Equity Large Cap

Asset Allocation

• The Efficient Frontier, based on a Nobel Prize winning theory, shows the range of portfolios with lowest volatility for a given level of return.

For illustrative purposes only. Please refer to the attached glossary of index terms and footnotes pages for full disclosure.

12

“ In addition to diversifying across broad asset classes, a portfolio should be managed by a team of advisers with complementary styles.”

• Once investment policy and asset allocation have been established, strategies are identified to implement the portfolio mix. – Portfolio manager(s) must consistently employ a disciplined

investment process. – Managers are evaluated on the basis of both qualitative and

quantitative issues.

13

Portfolio Implementation

Portfolio Implementation

14

• A rigorous screening process is conducted by senior investment professionals focusing on a number of factors including:

– Organization and ownership – Portfolio management tenure – Investment process and implementation – Investment research – Long and short-term performance – Risk taken in portfolios

Portfolio Implementation

• Evaluating Manager Strategy: The level of risk in a manager’s investment strategy can be determined by the characteristics of their portfolios.

• No market timing • No sector concentration • Numerous positions

15

• Active market timing • Significant sector concentration • Concentrated positions

Low risk portfolio High risk portfolio

Portfolio Implementation

16

“ Active managers should have positive alpha.” • Managers should be evaluated to determine if their track record is

consistent with their style and level of aggressiveness. – Beta: A measure of the manager’s volatility relative to the market.

High beta is indicative of an aggressive manager. – Alpha: The value added by the manager.

Portfolio Implementation

• When building a portfolio of complementary managers, each manager has a specific objective and style that, when combined, results in an overall portfolio that is tailored to your investment needs.

International

Equity

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US Equity Small and Mid

Cap US Fixed Income

US Equity Large Cap

The above portfolio is presented for illustrative purposes only and does not represent an actual client portfolio.

Actively Managed Frontier US Equity Small and Mid Cap

International Equity US Equity Large Cap

Benchmark Frontier

US Fixed Income Cash Equivalents

Standard Deviation (Risk)

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Ret

urn

Portfolio Implementation

• The goal of active portfolio managers is to increase return and decrease volatility.

For illustrative purposes only. Past performance is no guarantee of future results.

Ongoing Review

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“ Business-like reporting.”

• A review process that includes: – Adjustment for changes in your situation – Objective analysis

• Is portfolio meeting your goals? – Review of Investment Policy Statement – Quarterly performance measurement – Consolidated reporting

Summary

Summary

21

• Oppenheimer Asset Management, a leader in the financial industry, is dedicated to creating wealth for the sophisticated investor.

• The Investment Management Decision Process is the foundation for providing a sound business plan for your investments.

• Needs based asset allocation is the critical step in the process. • Combining various complementary management styles/disciplines can

create an enhanced frontier of opportunity. • The Oppenheimer Asset Management approach combines the services

of a single manager approach with the flexibility of a consultative approach.

Glossary of Index Terms

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INDEX COMPARISONS Indexes are unmanaged, hypothetical portfolios of securities that are often used as a benchmark in evaluating the relative performance of a particular investment manager’s mandate. An index should only be compared with a mandate that has a similar investment objective. Standard Deviation: A gauge of risk that measures the spread of the difference of returns from their average. The more a portfolio’s returns vary from its average, the higher the standard deviation. S&P 500 Index: A broad based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a capitalization-weighted, unmanaged index that is calculated on a total return basis with dividends reinvested. The S&P 500 represents about 75% of the NYSE market capitalizations. Treasury Bill (T-bills): A debt obligation issued by the U.S. Treasury with a maturity of one year or less. Because of their short maturities and government guarantee of principal and interest payments, T-bills are safe, highly liquid investments. Consumer Price Index: A measurement of the average change in prices over time of a fixed basket of consumer items: food, clothes, shelter, transportation and entertainment. The index is calculated monthly by the government to give insight on inflationary or deflationary trends. Morgan Stanley Capital International, Europe, Australasia, Far East Index (MSCI EAFE): An unmanaged index in U.S. dollars based on the share price of approximately 1,600 companies listed on stock exchanges in 20 developed countries outside North America. This index is created by aggregating the 20 different country indexes, all of which are created separately. It is considered to be generally representative of overseas stock markets. US Small Stock Index: The equities of smaller companies from 1926-1980 are composed of stocks making up the fifth quintile (i.e. the ninth and tenth deciles) of the NYSE. For 1982-present, the Small Company Stock return series is the total return achieved by the Dimensional Fund Advisors (DFA) Small Company 9/10 (for ninth and tenth deciles) Fund. The fund is a market-value weighted index of the ninth and tenth deciles of the NYSE, plus stocks listed on the AMEX and OTC with the same or less capitalization as the upper bound of the NYSE ninth decile. US Int. Government Index (US Int. Gov’t): The total returns from 1987-present are constructed with data from The Wall Street Journal. The data from 1934-1986 are obtained from the Government Bond File at the Center for Research in Security Prices (CRSP) at the University of Chicago Graduate School of Business. To the greatest extent possible, a one bond portfolio with a term of approximately 5 years and a reasonably current coupon-whose returns did not reflect potential tax benefits, impaired negotiability, or special redemption or call privileges-was used each year. The bond was "held" for the calendar year and returns were computed.

Endnotes

• The cumulative returns of various asset classes since 1970 is depicted in the several graphs. The graphs display the growth of $1 invested in 1970 in each of the different asset classes, and what they would be worth today. While the US Equity Small and Mid Cap have outperformed other asset classes, there is also higher volatility generally associated with US Equity Small and Mid Cap, which is not depicted in the graphs.

• The information and statistical data contained herein have been obtained from sources

believed to be reliable. Past performance is no guarantee of future results. The performance contained herein is based upon the historical performance of various indices and those indices do not reflect the impact of fees and commissions. There is no guarantee your portfolio would perform in a similar manner to the referenced indices. Adopting a fee-based account may not be suitable for all investors; anticipated commission costs should be compared with anticipated annual fees.

© 2011 Oppenheimer Asset Management Inc. All rights reserved. This presentation is intended for informational purposes only. All information provided and opinions expressed are subject to change without notice. No part of this presentation may be reproduced in any manner without the written permission of Oppenheimer Asset Management. Oppenheimer Asset Management is the name under which Oppenheimer Asset Management Inc. (“OAM”) does business. Past performance does not guarantee future results. OAM is an indirect wholly owned subsidiary of Oppenheimer Holdings Inc., which also indirectly wholly owns Oppenheimer & Co. Inc. (Oppenheimer), a registered broker dealer and investment adviser. Securities are offered through Oppenheimer and will not be insured by the Federal Deposit Insurance Corporation or other similar deposit insures; will not be deposits or other obligations of Oppenheimer; will not be endorsed or guaranteed by Oppenheimer; and will be subject to investment risks, including the possible loss of principal invested. OAM060916CM1

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Captive Insurance Company Investments

CLAUDE R. PARENTEAU PRESIDENT PARENTEAU INSTITUTIONAL ADVISORS, INC.

5 Fundamental needs of a captive

X 1.) Solvency

X 2.) Liquidity

X 3.) Collateral

X 4.) Income

X 5.) Value

4 options for investment management

X Bank money market/savings/deposit account X Mutual funds/commingled funds X Investment manager(s) X Advisor/consultant

Bank money market/savings/deposit options

X Typically for new captives or those needing

absolute dollar-for-dollar liquidity and solvency, and where variability of principal is not acceptable.

X Typically for captives with no surplus.

X Typically for captives who dividend profits back to members.

Mutual funds and commingled funds

X Typically for captives with small surplus that wish to enhance overall total returns, but with drawbacks versus separate account management.

Investment Manager

X Typically for established captives and those with at least a little bit of surplus to weather variability of returns and principal values over a market cycle.

X Typically for captives seeking to enhance overall current returns and long-term value of the captive.

X Typically for captives wanting customization and specialized reporting and accounting services.

Investment Manager

X Second to bank money market/savings/deposit options, typically lower cost than mutual funds and commingled funds. Saving money enhances returns.

X Typically favored by collateral structures like Letters of Credit and/or 114 trusts over funds due to transparency. Typically preferred by fronting companies as well.

X Should be GIPS (Global Investment Performance Standards) verified/audited/compliant.

X Should be independent of any bank or custodian – checks and balances for risk management – i.e. Bernie Madoff

Investment Manager

X Should be able to offer 24 hour month end reporting, including Schedule D reporting, for free, as part of their management fee.

X Should be able to prove inclusion in one or more national independent databases for peer review.

Advisor/Consultant

X Typically for well established captives with diversified portfolios, where there is value added for the asset allocation and manager selection process.

X Typically for captives with sufficient surplus to weather variability in annualized returns over a market cycle.

X Should ideally be independent and unbiased.

Advisor/Consultant

X Truly independent Advisor/Consultant should be compensated solely and purely by the client, and be able to produce an annual statement that he/she did not earn any other compensation from the account from any manager, directly or indirectly.

X Truly independent Advisor/Consultant should not request that any trading be done through their own firm’s brokerage division.

X Truly independent Advisor/Consultant should not recommend that assets be custodied at their own firm.