Charter Partners facilitates the Reinsurance Program by acting as the sponsor of Cooperative Partnership Insurance Company (the “Sponsored Captive”), a sponsored captive insurance company organized under the laws of the State of Vermont. To become a participant in the Sponsored Captive, the Company has entered into a Participant Contract, a copy of which is attached hereto as Exhibit B.  The Sponsored Captive has established a segregated or “protected” cell account for the Company from which the Sponsored Captive funds its liabilities assumed on behalf of the Company as set forth in the Participant Contract.  The cell account reflects the Company’s financial condition and the operating results of its participation in the Reinsurance Program. The cell is segregated on the Sponsored Captive’s books from assets held in other protected cell accounts established by the Sponsored Captive and is not chargeable with liabilities of the Sponsored Captive arising out of other insurance business conducted by the Sponsored Captive with respect to other protected cells. 

On the Company’s behalf, the Sponsored Captive reinsures various insurance coverages provided to the Company’s Members by the Primary Insurers. These arrangements are governed by Reinsurance Agreements between the Sponsored Captive and the Primary Insurer(s) issuing coverage to the Members. The Reinsurance Agreements require the Sponsored Captive to provide collateral for its obligations. The Sponsored Captive in turn requires the Company to provide this collateral. Each Member of the Company is required to make a surplus contribution to the Company. The surplus contribution may be, in whole or in part, used to fund collateral requirements arising from the Reinsurance Program. This collateral could be drawn upon in the event of adverse loss development and may not be released until all reinsurance liabilities for each particular policy year are discharged after a significant period of years. The Sponsored Captive’s original Business Plan is attached hereto asExhibit C.