03f Security First Overview And Business Plan

SECURITY FIRST INSURANCE HOLDINGS, LLC SECURITY FIRST INSURANCE COMPANY SECURITY FIRST INSURANCE AGENCY, LLC Ormond Beach, Florida

Company Overview and Business Plan February 2005

SECURITY FIRST INSURANCE HOLDINGS, LLC Members:

15.0%

Charles D. Bleiwise

Vice President, Rider Insurance Agency

15.005%

Harry R. Bleiwise

Chairman, Rider Insurance Company

15.0%

Susan D. Bleiwise-Greenfield

Treasurer, Rider Insurance Company

45.005%

W. Lockwood (Locke) Burt

President and controlling shareholder of Ormond Re Group, Inc. an underwriting manager/consultant

9.99%

Ritchie Capital Management

Manager of a hedge fund

Product:

Homeowners (single family and condominium) and dwelling fire

Target Market:

Standard and preferred homeowners business on homes valued up to $300,000 of Coverage A

Marketing:

April 2005 takeout of 15,000 to 20,000 existing policies from Citizens Property Insurance Company plus voluntary production from existing agency plant. The company will also solicit assumptions of business from insurance carriers desiring to reduce exposure as a result of recent hurricane activity. Agent’s commissions are expected to average 10.0% on takeout policies and up to 12.5% on new open market business. The company expects to begin writing new business on May 1, 2005

Underwriting:

Exterior inspection of all risks. Rates will be 95% to 99% of new Citizen’s rates.

Staff:

Existing personnel of Ormond Re Group, MacNeill Group, and Insurance Servicing & Adjusting Company (ISAC)

Location:

Current offices in Ormond Beach and Ft. Lauderdale, Florida

Structure:

Security First Insurance Holdings (LLC) with two wholly owned subsidiaries: Security First Insurance Company (a Florida domiciled stock insurance company) and Security First Insurance Agency, LLC. (a managing general agency)

Capitalization: $6,500,000

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Reinsurance:

25% quota share and catastrophe excess of loss to 100 Year event (50% FHCF and 50% private market) over $1,000,000 retention

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SECURITY FIRST INSURANCE HOLDINGS, LLC

ORGANIZATIONAL STRUCTURE

Security First Insurance Holdings, LLC is a Florida limited liability company and will have two wholly owned subsidiaries:



Security First Insurance Company, a Florida domiciled company



Security First Insurance Agency, LLC, a Managing General Agency

Security First Insurance Holdings, LLC is owned by the investors who will hold all of the voting rights subject to an Operating Agreement to be entered into among the Members. All of the Members’ interests shall be fully paid and non-assessable. Security First Insurance Company shall enter a Managing General Agency and Claims Administration Agreement with Security First Insurance Agency, LLC. Security First Insurance Agency, LLC shall in turn enter into agreements with Ormond Insurance and Reinsurance Management Services, Inc. (“Ormond Re”), MacNeill Group, Inc. (“MacNeill”), and Insurance Servicing & Adjusting Company (“ISAC”).

Members of Holding Company 15.0%

Charles D. Bleiwise

Vice President, Rider Insurance Agency

15.005%

Harry R. Bleiwise

Chairman, Rider Insurance Company

15.0%

Susan D. Bleiwise-Greenfield

Treasurer, Rider Insurance Company

45.005%

W. Lockwood (Locke) Burt

President and controlling shareholder of Ormond Re Group, Inc. an underwriting manager/consultant

9.99%

Ritchie Capital Management

Manager of a hedge fund

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SECURITY FIRST INSURANCE AGENCY, LLC

Under the proposed structure all of the insurance policies written by Security First will go through a Managing General Agency, Security First Insurance Agency LLC (“Agency”). The Agency will be contractually responsible for production and underwriting of new business, appointing and servicing local agents, issuing policies and endorsements, handling customer inquiries regarding their policies or insurance claims, and adjusting and paying all claims.

Subcontractors of the MGA are:

Underwriting and Claims Supervision Ormond Insurance and Reinsurance and Accounting oversight Management Services, Inc. Policy Administration Claims Administration

MacNeill Group, Inc. Insurance Service and Adjusting Co.

Other Advisors to the Companies include: ACTUARY

John H. Soutar, ACAS, MAAA

AUDITOR

To Be Determined

INVESTMENT ADVISORS

Morgan Stanley Sage Advisory Services, Ltd.

REINSURANCE BROKERS

Guy Carpenter & Company, Inc John B. Collins Associates, Inc.

REGULATORY COUNSEL

Colodny, Fass, Talenfeld, Karlinsky & Abate PA

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SECURITY FIRST INSURANCE COMPANY

Security First Insurance Company will be a Florida domiciled property and liability insurance company organized to sell homeowners insurance policies only in the State of Florida. At this time, the Company does not have plans for obtaining licenses in other Southeastern states.

COMPANY PHILOSOPHY

The philosophy of the management team, which will be implemented at Security First, is to achieve above average returns by: 

carefully selecting its target policyholder



minimize exposure to highly wind prone areas of the state



manage attritional loss ratio by avoiding counties with high levels of historical sinkhole activity, poor legal environment, and historically high attritional loss ratios



tightening of coverages compared to those currently provided by Citizens



charging adequate premiums based on realistic property valuations



adequate catastrophe protection through the, structuring of a sound reinsurance program



maintaining a low cost operating structure.

Security First’s management team has the experience and the ability to carefully select its risks. As a personal investment, the shareholder’s main objective is to achieve an underwriting profit rather than top line growth. MacNeill has a fulltime actuary on staff and a sufficient overview of the market to structure an insurance program that is actuarially sound and acceptable to the Office of Insurance Regulation Management’s thirty years of experience in the reinsurance market will contribute to structuring a sound and competitively priced reinsurance program. This is particularly important in Florida where reinsurance costs can consume 25% to 30% of a company’s gross premium volume. And finally, Security First’s business plan is unique because virtually 100% of the company’s expenses are variable. All of the staff and equipment is in place and the firm will operate from the existing offices of MacNeill and Ormond Re. This guarantees the lowest possible operating cost.

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PRICING

Security First’s pricing policy is to charge adequate risk and expense premiums to achieve its profit objectives. The basis for all premiums is the rate filing with the Florida Office of Insurance Regulation. Initially, all premiums will be based on the premiums charged by Citizens Property. By law, the rates charged by Citizens in any section of the state cannot be lower than the highest rate charged for a similar risk by any one of the top twenty writers in that area. Security First anticipates rate approval at levels 95% to 99% of Citizen’s new rates. Security First anticipates charging 95% of Citizen’s rates in the twenty-three counties running along the northeast coast of Florida north of Martin County and across the Panhandle to Tallahassee. Those twenty-three counties are: Baker, Bradford, Brevard, Clay, Columbia, Duval, Flagler, Gadsden, Gilchrist, Hamilton, Indian River, Jefferson, Leon, Madison, Nassau, Okeechobee, Osceola, Putman, St. Johns, St. Lucie, Suwannee, Union, and Volusia. Policies in Florida’s remaining forty-four counties will be offered at 99% of Citizens new rates. As part of its pricing structure Security First will offer insureds the opportunity to purchase coverage for off premises theft (not covered by the Citizens policy) and additional limits for liability coverage.

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RISK SELECTION

The attainment of underwriting profit is achieved through the maintenance of low expense ratios and underwriting of applicants meeting the company's strict underwriting criteria. CLUE reports will be ordered on some new business to assess prior loss activity. SFIC guidelines allow for one prior loss that is not an act of God (i.e. risks with two or more losses, excluding acts of God, are not acceptable risks and will not be written). Proof of prior coverage will be required. Financial screening will also be randomly utilized. All new business, including 100% of the Citizens takeout portfolio, will be subject to physical inspections. The $25.00 per policy cost of this external inspection will be absorbed by the insurance agency. Only applicants meeting the company's risk selection standards are accepted into the insurance portfolio.

POLICY FORMS

Security First will offer HO-3, HO-6, HO-8, and DP-3 forms. The HO-3 policy is the form used to insure most Florida homes. The form covers the dwelling on an all risk basis subject to the exclusions and limitations in the policy. Personal property is covered on a named peril basis. Replacement cost coverage is available for the dwelling and personal property. The policy is currently subject to a standard hurricane deductible of $1,000 or 2% of the insured value (whichever is greater) per season. The policy also contains other limitations on coverage for extra living expense, theft of personal property, and mold. In contrast, the HO-8 policy is a named peril policy covering specific causes of loss (fire or lightning, windstorm or hail, explosion, theft, riot or civil commotion, aircraft, vehicles, vandalism, volcanic eruption) and damage caused by sinkholes. The HO-8 policy typically covers the actual cash value of the property lost or damaged. Both the HO-3 and the HO-8 provide coverage for medical payments and liability claims. The DP-1 is a dwelling fire policy. It is a named peril policy that is similar to the HO-8. Unlike the HO-8, the dwelling fire policy does not provide coverage for liability or medical claims of third parties but those coverages and coverage for contents can be added for an additional premium. Security First does not plan to offer coverage to mobile home owners, modular homeowners, or renters.

EXPENSES

Security First will have a highly variable expense base. All policyholder service and administration will be done by MacNeill Group for a percentage of the written premium. The claims will be settled by an independent claims adjusting company, Insurance Service and Adjusting Company (“ISAC”) for a percentage of earned premium. Accounting, marketing, underwriting supervision, and claims supervision will be performed by employees of Ormond Re for a fee based on written premium. The fixed operating costs of the insurance company will be limited to the professional fees charged by independent accountants, investment managers, attorneys, and actuaries. The expenses of the holding

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company will consist of the wages, benefits and expenses of the management staff, audit and legal fees, and the cost of corporate insurance coverage.

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BUSINESS DEVELOPMENT

Security First’s management views the business development process as two fundamentally distinct tasks. The first is completing the take out of and establishing control over the business assumed from Citizens. This includes establishing the systems with the service providers. The second pertains to the acquisition and management of new business following the plan set forth in the preceding pages. The assumptions in the financial projections are based on the orderly execution of these two concurrent tasks.

DISTRIBUTION

Security First’s initial portfolio of policies from Citizens will be assumed in an unearned premium portfolio transfer from Citizens. The assumed policies will be serviced by the existing agents or by an agent nominated by the Company. New business will be distributed through small to medium sized independent insurance agents and brokers, including agents for Direct Writing companies. Security First will service these producers and policyholders through MacNeill and its home office staff. Agents receive commissions that range between 5% and 15% for producing and servicing homeowners insurance in Florida. The agent’s commission paid by Citizens averages 6.9%. For purposes of its financial projections, Security First has assumed a statewide average local agents commission of 10.78%.

PRODUCING NEW BUSINESS

During the takeout process, agency relationships for the purpose of writing new business will be established. The conservative assumptions for new business in the financial projections are based upon an orderly execution of this development process and were made prior to the recent hurricane activity. In addition to the routine production of insurance business, Security First will consider the assumption of portfolios of policies from other insurers who may be forced to reduce their policy count as a result of losses to their surplus from the recent hurricane activity. Each such opportunity will be considered separately and may include policies that are not in the classes discussed above. All opportunities will only be considered if the risk characteristics are consistent with the initial underwriting plan set forth above.

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MARKETING AND SALES

Ormond’s responsibilities include producer appointment and licensing, developing sources of business, management of producer compensation programs and establishing and monitoring producer attainment of premium, profit and book of business profile objectives. The marketing program will incorporate agents with whom Ormond Re and MacNeill currently have relationships and will also include agents that Security First appoints to a full contract during the Citizens takeout process. Commissions will be at 10% on the takeout business and up to 12.5% for the voluntary business.

CLAIMS

Security First’s claims will be administered by an outside service provider, Insurance Servicing and Adjusting Co. (“ISAC”) based in Fort Lauderdale. The Company has been providing independent loss adjustment services in Florida since 1956. This outside adjustment firm will be supervised by Security First’s Vice President of Claims, Tony DiPardo.

SYSTEMS AND TECHNOLOGY

Security First will invest $200,000 to purchase a state of the art insurance processing system. The system is currently used by MacNeill, its insurance company clients, its 7,000 agents, and its insureds to handle over $200,000,000 in homeowners premium annually.

INVESTMENT POLICY

Security First’s investment policy will be established by a committee of the Board of Directors. The objective of this policy is to maximize current yields while preserving capital and maintain adequate liquidity to meet insurance obligations and current operating expenses. Security First will manage the investment portfolio for a total return including current income and capital appreciation and gains. It will allocate the portfolio primarily to investments in United States Treasury and high-grade corporate bonds. All investments will follow the State of Florida insurance laws and regulations, NAIC classifications, and risk based capital requirements. The investment portfolio will be managed by Morgan Stanley. There will also be a separate arrangement with Sage Advisory Investments for fixed income investments. Security First has no investment personnel on staff. The investment advisor's performance will be monitored continuously to assure that Security First’s investment objectives are achieved.

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MANAGEMENT TEAM RESUMES

CHAIRMAN OF THE BOARD

Harry R. Bleiwise

Began his insurance career in 1971 with Rider Insurance Agency, which he owns. Started Rider Insurance Company in 1977. Currently serves as Chairman of Rider Insurance Company.

PRESIDENT AND DIRECTOR

W. Lockwood (Locke) Burt

Began his insurance career in 1974. Since 1980 has served as President of Ormond Re Group. A licensed insurance and reinsurance broker, he served on the Board of the Florida Association of Domestic Insurance Co’s and as President of the Independent Reinsurance Underwriters and Brokers Association. A licensed attorney and former member of the Florida Senate.

TREASURER AND DIRECTOR

Donald G. Brocksmith A CPA who began his career in 1969 with KPMG Peat Marwick. Entered the insurance business in 1974 and held accounting or audit management positions with several firms including Great American, RLI, General Ins. Co., and Harbor Insurance Group. Joined Ormond Re in 1998.

VICE PRESIDENT- Roseann Bradley UNDERWRITING AND DIRECTOR

Began her insurance career in Orlando in 1972 as a personal lines rating supervisor for Unigard Mutual. Served in underwriting positions with Shelby Mutual and CNA until she became an insurance agent in 1985. Joined Ormond Re in 1998 after 10 years with the Reidman Agency in Jacksonville.

VICE PRESIDENT - A.L. (Tony) DiPardo CLAIMS AND DIRECTOR

An attorney who began his insurance career with Maryland Casualty in 1953. Joined Ormond Re in 1980. Past President of the Excess and 13

DIRECTOR

Charles D. Bleiwise

DIRECTOR

Susan D. Bleiwise-Greenfield

Surplus Lines Claims Association of the United States. Began his insurance career with Rider Insurance Agency in 1980 Where he currently serves as a Vice-President. Holds a property and casualty insurance agent’s license in New Jersey. Life/Health/Property Casualty license number IP 8205090 Began her insurance career in 1979 at Rider Insurance. Currently serves as Treasurer of Rider Insurance Company, a position she has held since 1994.

MANAGEMENT RESPONSIBILTIES

Underwriting and Pricing under the management of the Vice President - Underwriting Roseann Bradley’s responsibilities include establishing underwriting policy and risk selection criteria, developing policy forms, assuring risk premium rate adequacy, identifying target customer groups and geographic market areas, compiling underwriting documentation for policy and rate filings, developing premium system specifications, and assuring the accuracy of application information. In addition, the underwriting department will also work with John Soutar, the company’s actuary, in determining premium rates and preparing rate filings. Claims under the management of the Vice President - Claims Tony DiPardo’s responsibilities include establishing claim-handling procedures, developing claim system specifications, review of all insurance contract wordings, and monitor external claims environment. In addition, the claims department will also supervise the claims settlement service provided by ISAC to ensure that individual claims are settled within prescribed policy provisions. Finance under the management of the Treasurer Don Brocksmith’s responsibilities include maintaining the accounting records and the system of internal controls, establishing and maintaining regulatory and management information reporting, developing and maintaining banking and investor relationships, assuring the timely collection of cash and maintaining planning systems. In addition, the finance department will also supervise the outside investment manager and ensure compliance with the guidelines established by the investment committee of the Board of Directors.

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ADMINISTRATION AND LEGAL UNDER THE MANAGEMENT OF THE CHIEF OPERATING OFFICER

Locke Burt’s responsibilities include business development and strategy, review of the company’s reinsurance program, dealing with state regulators, and providing overall supervision of the activities of the company’s service providers, MacNeill and ISAC. Responsibilities for the legal department include maintenance of corporate records, timely approval of form, rate and licensing filings and requests, review of insurance contract forms and all contract documents used by the company, and corporate litigation.

CITIZENS TAKE-OUT POLICIES AND OTHER HOMEOWNERS INSURANCE

Security First will request the authority to tag 25,000 to 30,000 policies in an effort to execute a ‘takeout’ of a minimum of 15,000 to 20,000 policies from Citizens Property Insurance Corporation (“Citizens”). The targeted homeowners and condominium owners policies provide coverage for homes valued under $300,000 in all fire protection classes, older homes (built prior to 1970) and homes in areas of the state other than the counties surrounding Miami and Tampa. As of December 31, 2004, there were approximately 21,000 polices meeting SFIC’s risk selection criteria in Citizens, covering single-family homes that had no hurricane losses. This 21,000 policy ‘universe’ excludes risks from the nine counties that SFIC has identified as having a higher than average exposure to wind, sinkholes and a less favorable legal environment. These nine counties excluded from the risk selection process are: Miami-Dade, Broward, Palm Beach, Hillsborough, Pinellas, Pasco, Hernando, Citrus and Marion. The selection criteria also excluded business produced by agents of AAA. Under the business plan, SFIC’s initial infusion of business will come from Citizens, which is serviced by Independent Agents as well as agents for Direct Writers such as Allstate, State Farm and Nationwide. The takeout portfolio will be supplemented by "open market" business, which will also be produced by Independent Agents and agents representing Direct Writers. SFIC’s open market production from these agents could result in a significant amount of premium volume because most of the major carriers in the State are NOT currently writing new business. As further evidence of this trend, recent statistics show that approximately 800 new polices are being written into Citizens every day. Finally, additional business could come from portfolio assumptions from companies forced to reduce premium volume as a result of recent hurricane losses. In each of these instances, Security First will target and write standard and preferred homeowners and condominium business with values up to a maximum Coverage A of $300,000. The policy selection process will be achieved through the detailed analysis of Catastrophe modeling output and Portfolio Management techniques in order to achieve optimum portfolio distribution and mitigate exposures to wind and sinkholes.

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ASSUMING CONTROL OVER THE TAKE-OUT BUSINESS

Security First expects to assume the policy portfolio from Citizens Property and Casualty as of April 15, 2005. Security First will assume risk as of that date. These policies are currently being serviced by MacNeill Group or staff of Citizens. Management expects that this process will go quite smoothly because MacNeill’s staff executed a takeout of 30,000 policies on June 30, 2004 with little difficulty.

REINSURANCE

Security First is a "gross" lines underwriter, meaning that its underwriting philosophies, policies and decisions are made based upon the assumption that all of the risk is being retained "net" by the company. Prudent risk and financial management, however, call for portions of the gross exposure to be shared with other reinsurance companies. Since Security First does not have sufficient capital to retain all of its aggregate exposure and the premium volume it writes, it will place quota share reinsurance to permit it to underwrite the planned volume of business with the capital it will have. Security First’s excess of loss catastrophe reinsurance program will be structured to protect the Company in the event of a one in one hundred year wind storm. The Company will rely heavily on the protection that will be provided by the Florida Hurricane Catastrophe Fund (FHCF). The FHCF will inure to the benefit of the both quota share and catastrophe reinsurers. Security First will be protected in the event of multiple hurricanes in one season through the purchase of a reinstatement premium protection reinsurance contract. At this time it is not anticipated that the recent hurricane activity will result in increased costs for catastrophe reinsurance protection. It is possible, however, that the Florida legislature will change the coverage available from the Florida Hurricane Catastrophe Fund to provide some protection from the financial loss caused by multiple hurricanes in a single hurricane season. Such a change could enhance the proposed reinsurance program.

SUMMARY

Security First has established an experienced management team and proven platform in the Florida Homeowners marketplace. We look forward to discussing SFIC’s plans with the Board and the staff of Citizens Property Insurance Company at their convenience. Locke Burt 386-677-4453 ext. 6001 [email protected]

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