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Limited Liability ________________________________________________________________________________________________________ Definitions Steps For Starting A Limited Liability Plan Limited Liability Procedures Bank Account Reconciliation Spreadsheet Explanation Sample: Bank Account Reconciliation Spreadsheet Sample: Statement of Experience Sample: Reserve Analysis 01/01/2006 Visit our Website at http://mutualofomaha.com 1 Definitions This is a list of terms common to your Limited Liability Plan. In all instances, please refer to our Benefits Document for terms specific to your Plan. Annual Liability Limit Sum of all Monthly Liability Limits for each Policy Year. Company Mutual of Omaha, United of Omaha or Exclusive Healthcare, Inc. Deposit Account Account set up for Employer at Employer’s Bank to which Monthly Liability Limit Deposits are made. If a segregated account is not used for Monthly Liability Limit Deposits, the Deposit Account is the account designated, by the Employer at the Employer’s Bank, for periodic transfer to the Plan Benefit Account, up to the Liability Limit. Employer Policyholder. Employer’s Bank Bank selected by Employer and approved by the Company from which Liability Limit Deposits will be transferred. First National Bank of Omaha First National Bank of Omaha, Nebraska, where the Plan Benefit Account is maintained. Plan Benefit Account First National Bank of Omaha account on which Plan benefit payment drafts are issued by the Company. Self-Funded Monthly Liability Limit Determined each month by multiplying the number of covered employee in each class by the rates specified in the Liability Limit Agreement plus any portions of any previous month’s Monthly Liability Limit that have not been transferred to the Plan Benefit Account since the most recent renewal of the policy (policies) (excludes transfers made in current year for prior year adjustments). Surplus Balance of Self-funded Liability Limit that has not been transferred to the Plan Benefit Account or released to the Employer. Transfer Amount Any periodic transfer of Employer’s funds (up to the Liability Limit) from the Deposit Account to the Plan Benefit Account. 01/01/2006 Visit our Website at http://mutualofomaha.com 2 Steps for Starting a Limited Liability Plan You (Policyholder): • Establish a bank account to cover self-funded claims. • Authorize ACH fund transfers to the Plan Benefit Account. • Make self-funded liability limit funds available for transfer to the Plan Benefit Account. • Pay monthly premiums to cover retention expenses, pooling charges and premium taxes. • If you hold reserves, you should establish and maintain a terminal reserve account. We (Company): • Set up a Plan Benefit Account in your name at First National Bank of Omaha. • Monitor your monthly self-funded liability limit. • We request ACH fund transfer as claim drafts are issued. • Deposit funds in your Plan Benefit Account for claims exceeding your self-funded liability limit. • Provide monthly account reconciliation reports. • Provide an annual Statement of Experience and renewal report, plus your self-funded accounting reports. 01/01/2006 Visit our Website at http://mutualofomaha.com 3 Limited Liability Procedures This section explains the monthly processing of your Limited Liability program. The initial installation steps are as follows: • Establish a Deposit Account at your bank or designate an account for ACH (Automatic Clearing House) transfers to the Plan Benefit Account. The Company will establish a Plan Benefit Account in your name at First National Bank of Omaha. • Authorize your bank to honor periodic ACH transfers to the Plan Benefit Account. We will initiate the first transfer when the first claim draft is issued. Amounts of transfers will vary, depending issued claim volume. The Company's only requirement is that adequate funds, up to the Self-funded Liability Limit, are in the Plan Benefit Account to cover issued drafts. The Company will fund claims in excess of the Self-funded Liability Limit and medical pooled claims. • If the Company does not receive timely notice of the deposit amount, the Company will use the previous month's deposit in estimating the Liability Limit for transfer of funds from the Deposit Account. Any required adjustments will be made the following month. • We will initiate periodic ACH transfers from your Deposit Account up to the Self-funded Liability Limit. The transfer amount will be determined by the issued claim volume. You and your bank may also monitor your Self-funded Liability Limit, which is the cumulative monthly deposits less amounts already transferred to the Plan Benefit Account for the current policy year. The flowchart on the following page shows the processing steps for billing and the flow of funds. Month-end Reporting The Company will forward a Bank Account Reconciliation Spreadsheet to the Employer by approximately the 15th business day of the following month. This shows overall cash surplus or deficit and available funds in the Deposit Account and the First National Bank of Omaha Plan Benefit Account. A sample of the Bank Account Reconciliation Spreadsheet is included in this section. Direct Bank Account Reconciliation questions to Group Financial Claim Data Management (402) 351-6194. Policy Year-end Sixty to ninety days before the policy anniversary date, the Employer will receive change requirements or adjustments for Premium, Liability Limit and/or Terminal Reserve. Within 120 days after the policy anniversary date, the Employer will receive: • • • a Statement of Experience, a Release of Surplus Funds Letter (if applicable), a Self-funded Accounting, and At the end of the policy year we may initiate an ACH transfer of surplus funds from the Deposit Account under the following situations: • • Cancellation (all surplus funds) or Prior year's deficits funded by the Company (surplus to cover all deficits). 01/01/2006 Visit our Website at http://mutualofomaha.com 4 Policy Year end Reporting (cont’d) In all other situations, transactions (releases or recoveries) will occur within 120 days after the policy anniversary date when the Statement of Experience and the Release of Surplus Funds Letter are sent to the Employer. Note: At policy year-end, surplus funds must remain available for ACH transfer by Us until the statement of experience is complete and the Company releases the funds. Sample Flow of Funds Chart Flow Of Funds Monthly Premium Employer Company Drafts Issued Monthly Deposit Company Account Used If Claims Exceed Liability Limit Claimant Drafts Cleared Employer’s Bank Deposit Account 01/01/2006 ACH Transfer to Account up to Policy Year Self-funded Liability Limit Visit our Website at http://mutualofomaha.com First National Bank of Omaha Benefit Account 5 Bank Account Reconciliation Spread Sheet Explanation Limited Liability Bank Account Reconciliation Column Title Column Explanations Policyholder Transfer Account Deposits (Liability Limit) Policyholder’s monthly liability limit. (Rate X exposures) The monthly liability limit is accumulative for the policy year Transfer out Monthly fund transfers from Policyholder’s bank account to our First National Bank of Omaha account (refer to “Transfer In From Bank Account” column). Amount will not exceed current month’s liability limit plus any surplus amounts from previous months’ within the current policy year. Prior year Transfers Out Fund transfers resulting from prior year annual accounting statements (Statement of Experience). Prior Year Releases Release of prior year’s unused deposit liability resulting from annual accounting statements (statement of Experience). Balance Beginning Funds carried forward from prior year – plus deposits – less fund transfers, prior year transfers and prior year releases. First National Bank of Omaha Plan Benefit Account Transfer In From Bank Account Monthly fund transfers from Policyholder’s bank account to our First National Bank of Omaha account (refer to “Transfer Out” column). Total Cashed Claims Total monthly claims cashed through First National Bank of Omaha account. Companies Funded or (Recovered) Deposits funded by United for cashed claims that are in excess of the Policyholder’s accumulative liability limit amount; or (withdrawals) made by us from the Policyholder’s bank account to recover claims funded by us during prior months of the current policy year. Recoveries are only made on Policyholder’s surplus funds. Pooled Claims Deposits funded by us for issued claims exceeding the pooling limit for an individual. Deposits for pooled claims reflected in the first month of a policy year are actually for pooled claims issued during the last month of the prior policy year. Other Deposits or (Withdrawals) Transactions resulting from prior year annual accounting statements (refer to “Prior Year Transfers Out” column). Also may include adjustments for bank and coding errors within tolerance. End Balance per Book Beginning bank balance carried forward from prior year – plus fund transfers in – less cashed claims—plus deposits made by us for Company funded claims and Pooled claims—plus/minus other transactions for prior year annual accounting and bank and coding errors within tolerance. Issued Claims Total monthly issued claims Outstanding Claims Prior year’s outstanding claims carried forward, plus current month’s issued claims, less current month’s cashed claims. Current Year Surplus or (Deficit) Current policy year’s Deposits (liability limit), less total issued claims, plus pooled claims. 01/01/2006 Visit our Website at http://mutualofomaha.com 6 Bank Account Reconciliation Spreadsheet Sample MUTUAL OF OMAHA LIMITED LIABILITY SPREADSHEET November 9, 2004 Please direct inquiries to: (###)###-#### Policyholder Name: ABC Corporation Group ID: FF0ABC1 Bank Account: ########## Policyholder Transfer Account (1) Deposits (Liability Limit) Transfer Out Prior Year Transfers Out Plan Benefit Account Prior Year Releases Prior Year Carry Forward Balance Balance Transfer In From PH Account Total Cashed Claims Company Funded Claims 56,624.58 (2) Pooled Claims Other Deposits or Withdrawals Prior Year Carry Forward Balance Ending Bank Balance (3) Issued Outstanding Claims Claims 539.90 (1)+(2)-(3) Current Year Surplus /Deficit 19,128.33 05/04 48.574.74 45,000.00 0.00 0.00 60,199.32 45,000.00 54,879.42 (2,229.42) 11,569.42 0.00 .48 57,272.95 18.521.86 5,871.21 06/04 48.327.31 52,000.00 0.00 0.00 56,526.63 52.000.00 67.135.58 12,573.00 0.00 0.00 (2562.10) 73,586.76 24,973.04 (19,388.24) 07/04 80.637.42 48,000.00 0.00 0.00 89.164.05 48,000.00 59.183.99 10,922.52 2,824.48 0.00 0.91 47,109.52 12,898.57 16,964.14 08/04 71.752.73 92,000.00 0.00 0.00 68,916.78 92,000.00 68.605.26 (257.67) 257.67 0.00 23,395.65 64,505.47 8,798.78 24,469.07 09/04 69.807.52 77,000.00 57.165.00 (0.52) 4,559.82 134,165.00 71,490.51 (21,008.43) 21,105.10 0.00 86,166.81 76,691.85 14,000.12 38,689.84 10/04 70,093.93 12,000.00 0.00 0.00 62.653.75 12,000.00 78.222.55 20,119.00 17,102.02 (57,165.00) 0.28 77,729.78 13,507.35 48,156.01 11/04 0.00 0.00 0.00 0.00 62.653.75 0.00 0.00 0.00 0.00 0.00 0.28 0.00 13,507.35 48,156.01 00/00 0.00 0.00 0.00 0.00 62.653.75 0.00 0.00 0.00 0.00 0.00 0.28 0.00 13,507.35 48,156.01 00/00 0.00 0.00 0.00 0.00 62.653.75 0.00 0.00 0.00 0.00 0.00 0.28 0.00 13,507.35 48,156.01 00/00 0.00 0.00 0.00 0.00 62.653.75 0.00 0.00 0.00 0.00 0.00 0.28 0.00 13,507.35 48,156.01 00/00 0.00 0.00 0.00 0.00 62.653.75 0.00 0.00 0.00 0.00 0.00 0.28 0.00 13,507.35 48,156.01 00/00 0.00 0.00 0.00 0.00 62.653.75 0.00 0.00 0.00 0.00 0.00 0.28 0.00 13,507.35 48,156.01 389.193.65 326,000.00 57,165.00 (0.52) 383.165.00 399,517.31 20,119.00 52,858.69 (57,165.00) TOTAL 01/01/2006 Visit our Website at http://mutualofomaha.com 393,896.33 7 Statement of Experience Statement Sample – The Company Holds Reserves STATEMENT OF EXPERIENCE POLICYHOLDER NAME LOCATION 01-01-06 TO 01-01-07 POLICY NUMBER MEDICAL 960,000 0 117,000 843,000 A. PREMIUM LESS POOLED AD&D LESS POOLED PREMIUM NET PREMIUM B. . CLAIMS PAID BY INSURANCE COMPANY LESS POOLED AD&D LESS POOLED CLAIMS NET PAID CLAIMS LESS BEGINNING OUTSTANDING ENDING OUTSTANDING LESS BEGINNING RESERVE ENDING RESERVE INCURRED CLAIMS C. CONVERSION CHARGES 0 D. . RETENTION INTEREST ADJUSTMENT NET RETENTION 344,000 (9,600) 334,400 E. BALANCE (A-B-C-D) PRIOR DEFICIT CONTRACT PREMIUM DUE STABILIZATION RESERVE TRANSFER NET BALANCE 0 0 0 0 0 F. TRANSFER DUE FROM SELF FUNDS 0 G. CUMULATIVE BALANCE 0 SELF-FUNDED ACCOUNTING: BEGINNING SELF FUNDED BALANCE SELF-FUNDED DEPOSIT SELF-FUNDED CLAIMS SELF-FUNDED BALANCE TRANSFER TO PREMIUM DEFICIT TRANSFER TO STABILIZATION RESERVE NET SELF FUNDED BALANCE 50,000 0 50,000 0 0 28,600 0 480,000 508,600 0 2,040,000 (1,800,000) 240,000 0 0 240,000 * BALANCE CARRIED FORWARD TO POLICY PERIOD 01-01-07 TO 01-01-08 TOTAL NET FUNDS GROUP OFFICE 01/01/2006 2,883,000 (GROUP OFFICE NAME) Visit our Website at http://mutualofomaha.com 8 Statement of Experience Statement Sample - The Employer Holds Reserves STATEMENT OF EXPERIENCE POLICYHOLDER NAME LOCATION 01-01-06 TO 01-01-07 POLICY NUMBER MEDICAL 480,000 0 107,400 372,600 A. PREMIUM LESS POOLED AD&D LESS POOLED PREMIUM NET PREMIUM B. . CLAIMS PAID BY INSURANCE COMPANY LESS POOLED AD&D LESS POOLED CLAIMS NET PAID CLAIMS LESS BEGINNING OUTSTANDING ENDING OUTSTANDING LESS BEGINNING RESERVE ENDING RESERVE INCURRED CLAIMS C. CONVERSION CHARGES 0 D. . RETENTION INTEREST ADJUSTMENT NET RETENTION 344,000 0 344,000 E. BALANCE (A-B-C-D) PRIOR DEFICIT CONTRACT PREMIUM DUE STABILIZATION RESERVE TRANSFER NET BALANCE 0 0 0 0 0 F. TRANSFER DUE FROM SELF FUNDS 0 G. CUMULATIVE BALANCE 0 SELF-FUNDED ACCOUNTING: BEGINNING SELF FUNDED BALANCE SELF-FUNDED DEPOSIT SELF-FUNDED CLAIMS SELF-FUNDED BALANCE TRANSFER TO PREMIUM DEFICIT TRANSFER TO STABILIZATION RESERVE NET SELF FUNDED BALANCE 50,000 0 50,000 0 0 28,600 0 0 28,600 0 2,040,000 (1,800,000) 240,000 0 0 240,000 * BALANCE CARRIED FORWARD TO POLICY PERIOD 01-01-07 TO 01-01-08 TOTAL NET FUNDS GROUP OFFICE 01/01/2006 2,412,600 (GROUP OFFICE NAME) Visit our Website at http://mutualofomaha.com 9 Reserve Analysis - Sample RESERVE ANALYSIS GROUP NAME: LOCATION: GROUP I.D.: POLICY PERIOD: ABC CORPORATION OMAHA, NEBRASKA G000ABC1 08-01-03 TO 08-01-04 Claims Incurred Prior to, Paid After 04-01-04: April , 2004 May June July 49,263 _________ $492,626 Estimated Remaining Runout Total Claims Incurred Prior to, Paid After 07-01-04: July, 2004 August $279,652 141,177 147,856 _________ $568,688 Estimated Remaining Runout $492,626 568,688 _________ $1,061,314 01/01/2006 $247,584 92,392 50,279 35,819 17,289 Divided by 2 = Reserve Adjustment Factor x Visit our Website at http://mutualofomaha.com 530,657 1,100 _________ $583,723 10