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Synergy and Value Investing

Synergy and Value Investing. The Spencer Capital Story. Presented By: Tina Youngblood, Vice Chair, Spencer Capital Holdings CEO, Spencer Re. Entrepreneurial Insurance Symposium September 1-2, 2015 Dallas. Birth of Spencer Capital. A Pursuit of three passions.

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Synergy and Value Investing

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  1. Synergy and Value Investing The Spencer Capital Story Presented By: Tina Youngblood, Vice Chair, Spencer Capital Holdings CEO, Spencer Re Entrepreneurial Insurance Symposium September 1-2, 2015 Dallas

  2. Birth of Spencer Capital A Pursuit of three passions • Founder, Dr. Ken Shubin Stein’s three passions as a child – investing, medicine and … insurance (particularly Berkshire Hathaway) • Left practicing medicine to invest full time and get involved with public health – co-founded Crutches 4 Kids • Started Spencer Capital Management and continues to serve as portfolio manager for the value-oriented firm – 15 year track record • Part of the value-oriented investing philosophy involves having a permanent capital vehicle • Launched holdings company as a permanent capital vehicle and the platform for investing in financial services companies

  3. Investment Philosophy Scientific, Process-Oriented, Value-Based Approach • Applies scientific method in evaluating investments – works to avoid cognitive biases • Follows Buffett style of business building – long-term compounding instrument that invests in businesses not stocks/securities • Look for excellent businesses run by talented people with integrity • To quote Warren Buffet, “In looking for people to hire, you look for three qualities – integrity, intelligence and energy. And if you don’t have the first, the other two will kill you.” • “Buy and hold” strategy – serve as an alternative to private equity – our ideal holding period is … forever

  4. Spencer Capital’s Growth Story TimelineSince 2000

  5. Spencer Re Overview tax efficient Reinsurance solutions • Licensed as the first Class III international insurer in Puerto Rico in 2006, Spencer Re primarily offers reinsurance solutions to auto dealers for Vehicle Service Contracts (VSCs) sold to car buyers that provide coverage for certain auto repairs • Enables dealers through preferred shareholdings to realize underwriting profits and investment income on the contracts • Switzerland tax residency provides certain other benefits to clients and shareholders • Future growth and diversification into other reinsurance lines of business is being considered

  6. USA Risk Group Overview largest independent Captive manager, fourth largest overall • Founded in 1981 and headquartered in Barre, VT, USARG has a management team that is comprised of insurance industry veterans who are responsible for writing and developing captive insurance policies • Primarily a provider of onshore and offshore captive management services that include formation, licensing and ongoing management to over 300 clients in 20 domiciles • Core business is captive management of single parent captives, agency captives, group captives, risk retention groups, and special purpose captives • Provides placement services for alternative risk and specialty risk programs, early assessments of captive feasibility, program development including assisting with carrier and reinsurer selection and structuring of the entity

  7. Southwest Dealers Services (SWDS) Overview a leading provider of Finance & Insurance (F&I) products • An independent provider of F&I products and services to automobile dealers primarily across the Southwestern and Midwestern portions of the United States • Has grown significantly over the last several years by meeting the needs of dealers via new products and services, as well as expanding into new territories • Currently has a strong dealer network, with over 500 dealerships across the country • Growth expected through targeted acquisitions and organic growth

  8. Strategic Synergies Why we chose these businesses • Cross sell opportunities between each of the subsidiaries • SWDS is a current client of Spencer Re and a natural fit to work together • USARG client base offers diversification opportunities for Spencer Re and captive options to SWDS clients • Asset management opportunities with each subsidiary • Spencer Capital Management offers attractive investment strategy for clients in each subsidiary • High customer retention and veteran management teams • USARG and SWDS enjoy > 90% long-term customer retention • Management teams with over 20 years’ experience in the industry

  9. Culture Matters

  10. The Spencer Way… Respect, autonomy, accountability and teamwork • Autonomy and a sense of permanence • Accountability with a long-term horizon (rather than short-term) • Do the right thing and do it the right way • Transparency and open and honest communication • Pull versus push support from the parent • Many mergers and acquisitions fail because of cultural fit rather than economic reasons

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