STRENGTH & SYNERGY · 187 agency deals in first six months of 2015 ›21.4% increase over 2014 ›Highest number of deals in the past decade 27 of the top 100 brokers country-wide

STRENGTH & SYNERGY

AGENDA

The Year in Review Accident Fund

Industry Claims

Strategies

2015

Business

Development Regional and

State Performance

Agency Awards

Mike Britt T h e Ye a r i n R e v i e w

Written Premium Growth Increase in Submissions PIF Growth

AY Combined Ratio CY Combined Ratio

11% 12%

89% 85%

21%

FINANCIAL HIGHLIGHTS

DWP: $189M

Employees: 402

Core state: 1

Licensed state: 1

Brand: 1

Transformed from

a state agency

and “processor”

of business to a

customer-centric

company

DWP: $168M

Employees: 384

Core states: 3

Licensed states: 6

Brand: 1

Expanded

Outside of

Michigan

DWP: $512M

Employees: 581

Core states: 10

Licensed states: 44

Brands: 2

Purchased

United Heartland (2005)

DWP: $743M

Employees: 1038

Core states: 19

Licensed states: 49

Brands: 4

Purchased

CompWest (2008)

DWP: $1.2B

Employees: 1129

Core states: 24

Licensed states: 51

Brands: 4

Established

Third Coast

Underwriters

(2010)

DWP: $1.7B-$1.9B

Employees: TBD

Core states: 27 to 35

Licensed states: 51

Brands: 6 to 8

Diversified into

non-risk bearing

revenue and non-

comp products

1995 2000 2005 2010 2015 2020

OUR EVOLUTION

RMS

Fronting

Lloyd’s

Rebranding holding co. from Accident Fund Holdings, Inc. to AF Group

Why rebrand?

› Grown to $1 billion organization – sets us up for further growth at a national and

global level

› Supports future expansion into other lines of insurance, products and services

No impact to daily business operations

› Accident Fund will continue to operate as is

› Will protect and invest in our core workers’ comp business

AF GROUP BRANDING

INDUSTRY DYNAMICS ARE CHANGING

Rapid increase in agency acquisition

Private equity firms driving purchase

dynamics

Prolonged industry profitability

Market share leader upheaval

New WC market challenges

Emergence of “on-demand” economy

and the millennials

187 agency deals in first six months of 2015

› 21.4% increase over 2014

› Highest number of deals in the past decade

27 of the top 100 brokers country-wide sold (last 3 yrs)

› $7.5B in revenue

21% of the deals involved wholesalers

MGAs and PAs are hot commodities

Excess and surplus business being chased

ACQUISITION OVERLOAD

Source: Marsh Berry

Private equity firms, banks and publicly traded

agencies are borrowing cash at near zero interest

rates

Amass a stable of agencies (gain scale) on an asset

purchase basis

Take advantage of tax amortization and positive cash

flow to generate substantial returns on invested equity

in years 1-5

WHAT’S DRIVING THE PURCHASING DEMAND?

Source: Marsh Berry

INDUSTRY PROFITABILITY

Three straight years of underwriting profit

(2013-2015) with projected 2016 profitability

Record high surplus

› $672B

› .73 to 1 premium to surplus ratio

Historically low CAT losses since 2011

Stable premium growth of 5% since 2011

Source: Insurance Information Institute

115.8

107.5

100.1 98.4

100.8

92.6

95.7

101.0

99.3 100.8

106.3

102.4

96.7 97.2 96.0

90

95

100

105

110

115

120

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15:Q1

P/C INSURANCE INDUSTRY COMBINED RATIO


INTEREST RATE FORECASTS: 2015 – 2021

0.1%

0.7%

2.0%

2.8% 3.1% 3.1% 3.1%

2.2%

2.7%

3.4%

3.8% 4.0% 4.0% 4.0%

0%

1%

2%

3%

4%

5%

15F 16F 17F 18F 19F 20F 21F 15F 16F 17F 18F 19F 20F 21F

A full normalization of interest rates is unlikely until the 2020s, more than a decade after the onset of the financial crisis.

Yield (%) 3-Month Treasury 10-Year Treasury


WORKERS’ COMP WP GROWTH: AF CORE STATES


35.1%

27.1%

14.6%

11.7% 9.4%

7.5% 7.1% 6.7% 4.2% 3.8%

2.7% 1.7% 0.1% 0.1%

-1.3% -2.9%

-6.0% -9.1% -9.2%

-11.7% -12.2%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

IA SD KS NE MI MS IN MN US TX WI IL GA VA MD DC NC MO TN AR SC

Pe

rce

nt C

ha

ng

e (

%)

US UNEMPLOYMENT RATE FORECAST 4

.5%

4.5

%4

.6%

4.8

%4

.9% 5.4

% 6.1

%6

.9%

8.1

%9

.3%

9.6

% 10

.0%

9.7

%9

.6%

9.6

%9

.6%

8.9

%9

.1%

9.1

%8

.7%

8.3

%8

.2%

8.0

%7

.8%

7.7

%7

.6%

7.3

%7

.0%

6.6

%6

.2%

6.1

%5

.7%

5.6

%5

.4%

5.3

%5

.1%

5.0

%4

.9%

4.8

%4

.8%

4%

5%

6%

7%

8%

9%

10%

11%

07

:Q1

07

:Q2

07

:Q3

07

:Q4

08

:Q1

08

:Q2

08

:Q3

08

:Q4

09

:Q1

09

:Q2

09

:Q3

09

:Q4

10

:Q1

10

:Q2

10

:Q3

10

:Q4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12

:Q1

12

:Q2

12

:Q3

12

:Q4

13

:Q1

13

:Q2

13

:Q3

13

:Q4

14

:Q1

14

:Q2

14

:Q3

14

:Q4

15

:Q1

15

:Q2

15

:Q3

15

:Q4

16

:Q1

16

:Q2

16

:Q3

16

:Q4

Unemployment forecasts have been revised modestly

downwards. Optimistic scenarios put the unemployment as low as

5.0% by Q4 of 2015.


UNEMPLOYMENT RATES: AF CORE STATES


7.0%

6.6% 6.6%

6.1% 5.9% 5.8% 5.8% 5.7% 5.7%

5.5% 5.3% 5.2%

4.9% 4.9% 4.6% 4.5%

4.2% 3.9% 3.8% 3.7%

2.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

DC MS SC GA IL MO NC AR TN MI US MD IN VA WI KS TX MN SD IA NE

Un

em

plo

ym

en

t R

ate

(%

)

WHAT’S GOING ON WITH LABOR?

Technology fundamentally changing how

resources are allocated

Technology allows labor to match skills

with jobs

Witnessing the demise of the traditional

“good job”

Witnessing the creation of an “on-demand”

workforce

ON-DEMAND PROVIDERS

PROVIDER AGE OF THE ON-DEMAND ECONOMY

18 to 24

14%

25 to 34

24%

35 to 44

24%

45 to 54

14%

55 to 64

8%

65+

16%

About 7% of U.S.


PROVIDER INCOME OF THE ON-DEMAND ECONOMY

Less than $25,000

19%

$25,000 -$49,999

24%

$50,000 -$74,999

16%

$75,000 -$99,999

16%

$100,000 -$149,999

11%

$150,000 -$199,999

3%

$200,000+11%

Being a provider of


DARK CLOUDS ON THE INDUSTRY HORIZON

Legal challenges to on-demand businesses

› Employee vs. independent contractor

› Liability

Continued historically low investment returns

Pending opt-out legislation in some states

› TX, OK today, lobbying in TN, AL, FL, GA, NC, SC

Challenges to exclusive remedy

› “Grand bargain” being questioned by trial lawyers

ProPublica/NPR attack series

› “The Demolition of WC” – March 2015

2016 PLANS

Stay in tune with softening

market challenges

Hang onto renewals and go

after new business

Continue to create synergy

with each of you

Lisa Riddle C l a i m s

CLAIMS UPDATE

2015 Initiatives

& Results Evidence-Based

Medicine

Provider Panels

Fraud

2016 Initiatives

2015

EVIDENCE-BASED MEDICINE

30 states have adopted EBM guidelines into

their work comp rules (others considering)

What is EBM?

› EBM establishes standard of care and defines

necessary and appropriate treatment

What impact is EBM having on work comp?

› Little to no research has been done to determine

impact

PARTNERING WITH JOHNS HOPKINS 3.0

The study:

Reviewed non-CAT indemnity claims

spanning 5 years of our own company data

Assessed adherence to ODG guidelines

Compared those providers with greater

than 50% adherence with the less than

50% adherence

PARTNERING WITH JOHNS HOPKINS 3.0

The results:

Physicians who utilize EBM guidelines

more than 50% of the time showed the

following results:

› 13% reduction in duration

› 38% reduction in medical incurred

A method to measure if physicians are

adhering to EBM

AF COMPADVISOR APP

AF COMPADVISOR APP

INCREASE IMPACT ON FRAUD

Impacts industry at rate of $20 billion a year

Causation investigators

› Continue to expand staff

› Increased referrals by 105% over 2014

› Loss avoidance of $3.4M (240% increase)

Social media detection

› Added desk investigator to increase searches

› New tools continue to search over time

› 1,026 referrals in 2015 (11% increase)

SELF-INCRIMINATION AT ITS BEST (OR WORST)

SELF-INCRIMINATION AT ITS BEST (OR WORST)

Started Working at Busted.com

Improved tools in the field › Special vehicles for surveillance

› New technology

BCBSM provider fraud analytics

› Lead the nation in pursuit of

provider fraud

› Crosscheck providers with those

in workers’ compensation arena

INCREASE IMPACT ON FRAUD

2015 FRAUD INITIATIVE RESULTS

Referred 2,381 claims for investigation

› 10% increase over 2014

Increased overall savings by 132% for a

total of $4.4M

Prosecuted four individuals for insurance

fraud

Return to work

› Utilization of nonprofits

› 71% who participated either returned to work, reached MMI or settled

Resolution of older claims

› Settlement days –21 conferences in seven states

Resolved 151 of 237 claims negotiated

› Resolved 43% of 2013 and older claims

Reduce claim rep caseload

› Reduced caseloads by 22% over the last three years

› Current indemnity caseload average 121

2015 STRATEGIES

THE RESULTS

15.4%

better than

industry

2016 FOCUS

Pharmacy costs

Impact of opioids

Expand causation investigators

into more states

Expand settlement conferences

Telemedicine role in work comp

AL GILECZEK

B u s i n e s s D e v e l o p m e n t

BUSINESS DEVELOPMENT UPDATE

2015 Strategy

& Results

AFXpress Expansion

2015

Focal Point 2.0

Profit Sharing

2016 Strategy

2015 STRATEGIES & RESULTS

Goal Actual

New business $120M $129M

Increase in

submissions

10% 21%

Increase PIF 4% 48,025, up 12%

Premium retention 82% 85%

Focal Point $10M $25M

COMBINED RATIO BY STATE

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

$100,000,000

60%

70%

80%

90%

100%

110%

120%

NE MI IN KS MN SC NC VA MD TX TN GA IL IA MO MS WI AR

2015 Written Premium 2015 Combined Ratio Long-Term Target Combined Ratio

COMBINED RATIO BY INDUSTRY

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

60%

70%

80%

90%

100%

Auto Service Transportation Healthcare Other Construction Service Retail and Wholesale

Manufacturing Schools Hospitality


COMBINED RATIO BY PREMIUM RANGE

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

60%

65%

70%

75%

80%

85%

90%

95%

100%

<$10k $10k-$25k $25k-$100k $100k-$200k >$200k


POLICIES IN FORCE Policies in Force: 48,025 (up 12%)

Industry:

› Construction – up 17%

› Hospitality – up 14%

› Retail & Wholesale – up 14%

› Health Care – up 12%

State:

› KS, MD, MI, MS, NC, SC, TX

NEW BUSINESS BY INDUSTRY — $129M, +29%

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

2014 2015

NEW BUSINESS PREMIUM BY SIZE

<$10K 22%

$10K-25K 24% $25K-100K

39%

$100K-200K 9%

$200k+ 6%

GROW AFXPRESS

Expanded into MN, TX, AR and MS

Written premium: $3.9M, up 205%

Average policy size: $4,200

(a third the size of our typical policy)

FOCAL POINT

$25M new business (25% increase)

20% of all new business written for 2015

New marketing flyer on back table

Look at your top 10 accounts – are they

with the right carrier?

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

IL MS IA TX GA MO NE TN WI KS SC IN MN NC MI

FOCAL POINT NEW BUSINESS

PROFIT SHARING

$21.5M

Up 64% from 2014’s $13.1M

412 agents received check

› Up 18.3%

2016 STRATEGY

WP target – $676M

NB target – $137M

Submissions – increase 10%+

Focal Point

Build for future

Agility through analytics

MODERN DAY PHILOSOPHER: MIKE TYSON

“EVERYBODY HAS A STRATEGY…

UNTIL THEY GET PUNCHED IN THE FACE”

Bert Foote

R e g i o n a l a n d

S t a t e P e r f o r m a n c e

46% more Indiana agencies qualified for profit-sharing

Average payout was up 17% over 2014

REWARDING INDIANA AGENTS

Written premium: $28.4M +7%

Premium retention: 83%

Policy count retention: 85%

Combined ratio: 81.3%

New business: $5.4M + 36%

INDIANA RESULTS

COMBINED RATIO BY INDUSTRY

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

40%

50%

60%

70%

80%

90%

100%


COMBINED RATIO BY PREMIUM RANGE

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

40%

50%

60%

70%

80%

90%

100%

<$10K $10K-$25K $25K-$100K $100K-$200K >$200K


INDIANA NEW BUSINESS $5,400,000

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

Transportation Auto Service Schools Hospitality Health Care Retail and Wholesale

Construction Service Manufacturing

2014 2015

Top Class Codes

› Home Healthcare (8835)

› Banks (8855)

› Machine Shop (3632)

› Rubber Good MFG (4410)

› Schools (8868)

NEW BUSINESS RESULTS

Program 2013 2014 2015 2016

Hospitality 5% 10% 13% n/a

Professional 1% 0% 5% 6%

Golf 8% 5% 2% n/a

• Dividend % paid in above year

• 5% upfront credit

• No association or membership required

• Access to safety materials via our LP Toolbox

NATIONAL GROUP PROGRAMS

Program 2013 2014 2015 2016

ABC 0% 0% 0% 5%

BCA 0% 0% 0% n/a

Chambers 4% 0% 0% n/a

5% upfront credit

Current Chambers: Elkhart; Lafayette; Shelby County; One Zone;

Greenwood; Bloomington; Plainfield; New Castle

Henry; and Muncie-Delaware.

New Chamber Coming Soon: Avon

INDIANA GROUP PROGRAMS

3 for 3 (New Business under $25,000) /

2 for 2 (New Business over $25,000)

Focal Point

Real time Upload via Ag. Management System / Appulate

Group Programs – National and State

On-Demand Marketing Fliers

Loss Control

Patrick Samuels, CSP and Sade Jefferson

TOOLS TO HELP YOU SELL

2016 STRATEGIES New business goal -- $8,500,000

Increased submissions; Focal Point; Real Time

Upload

Expand Agency Footprint

Continued focus on Health Care

Continued focus on the < $25,000 segment

›

2016 STRATEGIES – CON’TD

Grow Healthcare, Service; Retail / Wholesale

Large account capacity $200,000+ Within terms of engagement with UH and 3CU

Dedicated experts – Charley Staab

Risk Management Services (RMS) loss sensitive

AGENCY RECOGNITION

MOST PROFITABLE

$

12% Growth

$237K New Business

25% Loss Ratio

91% Retention

Schultheis Insurance Agency

MOST GROWTH

36% Growth

$400K New Business

36.4% Loss Ratio

86% Retention

USI Insurance Services – Muncie

HIGHEST RETENTION

99% Retention

$310K New Business

19% Loss Ratio

Insurance Management

MOST NEW BUSINESS

10% Growth

$278K New Business

38% Loss Ratio

87.7% Retention

MBAH Insurance

AGENCY OF THE TERRITORY

31% Growth

$700K New Business

25% Loss Ratio

89% Retention

Stewart Brimner Peters

PRESIDENT’S CLUB $1.5M WRITTEN PREMIUM, 82% PREMIUM RETENTION,

50% OR LESS CUMULATIVE LOSS RATIO

Stewart Brimner Peters

MBAH Insurance

Insurance Management

Brent Skelton – MBAH Insurance

Brett Cain – Regions Insurance, Inc.

Andrea Fehrenbacher – Schultheis Insurance Agency, Inc.

John Parmley – HBG-Wiggins Insurance & Bonds

Mary Ann Schmid – Gregory & Appel Insurance Agency

Vickie Wolcott – M.J. Schuetz Insurance Services, Inc.

Curt Stephenson – USI Insurance Services, LLC

AGENCY ADVISORY COUNCIL MEMBERS

Matt Bryan – Henriott Group, Inc.

McKenzie May-Goodrich – Shine Insurance Agency LLC

Bruce Lawson – Schultheis Insurance Agency, Inc.

RETIRING COUNCIL MEMBERS

Yes

No

I don’t remember

WERE YOU AN AF AGENT IN 2008?

Mike Britt I n S u m m a r y …

Documents

STRENGTH & SYNERGY · 187 agency deals in first six months of 2015 ›21.4% increase over 2014 ›Highest number of deals in the past decade 27 of the top 100 brokers country-wide