State Insurance Regulation: General

The business of insurance is regulated by the states in accordance with the federal McCarran Ferguson Act. As a general rule, any insurance company doing business in a particular state is required to be licensed or otherwise authorized in that jurisdiction, and to pay a premium tax on any insurance transaction in that jurisdiction. As a Vermont captive insurance company, it would be difficult for the Sponsored Captive to achieve licensure or other authorized status in any state other than Vermont. As a result, the Sponsored Captive reinsures the Primary Insurer(s) issuing policies to the Company’s Members. The regulatory risks associated with doing business in the various states will therefore fall to the Primary Insurer(s), rather than directly to the Sponsored Captive.

State Insurance Regulation: Vermont

The Sponsored Captive is subject to regulation under the insurance laws of the State of Vermont. The Sponsored Captive is organized as a sponsored captive insurance company under the Vermont Insurance Code and, as such, is exempt from certain organizational and ongoing requirements applicable to other insurance companies. The Vermont Insurance Code imposes certain obligations on the Sponsored Captive, including the obligation to file annual reports of financial condition, to obtain an annual audit, and to obtain the approval of the Vermont Insurance Commissioner for any material change in the Sponsored Captive’s Business Plan, including, but not limited to, addition of new segregated cells, payment of dividends, returns of capital, and transfers of ownership of members interest. The Company is subject to the insurance laws and regulations of the State of Vermont applicable to incorporated protected cells of sponsored captive insurance companies.

TAXATION OF MEMBERS

Nothing herein is to be construed as tax advice.  Prospective Members are encouraged to consult their own tax advisors as to the tax consequences arising from their contribution of surplus to the Company and participation in the Reinsurance Program.

TAXATION OF THE COMPANY

The Company is subject to federal income tax as a mutual benefit company. The Sponsored Captive may pay federal income tax. The Sponsored Captive will pay Vermont Premium tax on all premiums written/assumed on behalf of the Company at rates determined by the Vermont Department of Taxes. Any premium taxes paid by the Primary Insurer(s) to any other state is in addition to taxes paid to the State of Vermont, and is the responsibility of each Member. Vermont does not impose an income or franchise tax on captive insurance companies.

FURTHER INFORMATION

This Information Circular, with Exhibits, is intended to give prospective Members an overview of the Company and its operations. If you desire further information, documents referenced above but not attached, or if you have questions regarding any of these materials, please contact Todd Welch, Charter Partners USA, Inc., 545 Browns Drive, Williams Township, Pennsylvania 18042, (610) 438-3535 x106, or by email, support@charterpartners.com.