Municipality OPEB Funding Solution

1. Municipality OPEB Funding Solution FIT OPEB Plan Financed Insurance Trust - OPEB Plan May, 2011

2. INTRODUCTIONThe purpose of this material is to introduce the Financed Insurance Trust OPEB plan, or FIT OPEB plan – a customizable solution developed specifically to provide governments and other public entities with a low-cost, highly-efficient option for the management and funding of their unfunded Other Post-Employment Benefits (OPEB) costs. These unfunded costs now call for critical attention since the implementation of new accounting rules from the Governmental Accounting Standards Board (GASB 43 & 45) just a few years ago.Since introduction of the GASB 45 accounting changes, studies reveal that there are over $1.5 TRILLION of unfunded OPEB liabilities existing among state and municipal governments. Many municipalities find their own unfunded liabilities are well into the hundreds of millions or even billions of dollars. Most states are worse. …As cash-strapped governments scramble to find OPEB funding solutions, the typical options considered generally include issuing OPEB bonds, cutting benefits, cutting programs, cutting projects or raising taxes. A FIT OPEB plan takes a different approach: purchasing specifically designed life insurance on active employees using funds borrowed from the financial sector or bond issuance and secured by the insurance policies themselves. The insurance policy design provides an income stream to the government from two sources: (1) predictable annual policy insurance proceeds paid by the insurance carrier as a result of employee mortality, and (2) yearly withdrawals from policy cash value accumulations. As a result, a FIT OPEB plan can provide a cash stream to support each year’s pay-as-you-go OPEB cost, plus fund the OPEB liabilities in less time than a typical bond offering. And, accomplish this with:qLittle or no spending increasesqLittle or no taxes increases, andqLittle or no reductions in benefits.

3. What Has Changed Because of GASB 43 & 45? • With the advent of GASB 43 and 45, accounting rules and requirements have changed. • Accounting rules no longer permit pay-as-you-go accounting for OPEB. Public agencies must now recognize and report their OPEB costs and obligations as a current cost during the working years of employees (similar to pension) rather than after they retire. • Unfunded liabilities must now be calculated and accounted for on the books. • Notional costs are now calculated and accounted for on the books. • Each affected public agency now has to address how to best manage and fund this liability for the future. • Credit reporting agencies will be monitoring for effective funding and management of OPEB liabilities. Inadequate solutions may result in lowered credit ratings – thus, making debt financing more costly to obtain for funding projects. • Actuarial calculations indicate that the impact can be dramatic: • Accrued Liabilities – 15 to 40 times current annual costs • Accrual Expenses – 1 to 4 times annual costs

4. Implications of Typical OPEB Funding Options “Replacing one problem with another” Typical options considered as OPEB funding solutions create other problems and issues that may be as significant as the problem that was solved. For example…. • Raise Taxes: Tax increases are always politically unpopular. The public (many of whom have no current or inferior benefits) may not look favorably on a tax increase to provide continued benefits to governmental retirees. • Reallocate the Budget: With governmental tax revenues already stretched, what services can be further cut –police, fire, trash removal, road repairs, salaries, libraries, etc.? • Cut Benefits or increase employee sharing: Cutting these benefits or raising the sharing cost with employees is likely to reduce employee morale and may be problematic or prohibited under union contracts. Such benefits affected may include: • Medical • Dental • Vision • Hearing • Prescription drugs • Long-term care • Disability • Life Insurance

5. FIT OPEB plan “A new approach for municipalities expanded from proven strategies for corporations” Has Life Insurance on employees ever been used to fund OPEB?For years the corporate world has purchased life insurance on employees to successfully fund retirees’ health care and other post-employment benefits (OPEB). At the close of 2008, 60% of Fortune 1000 corporations held assets of over $500 Billion in Corporate Owned Life Insurance (COLI), while 880 of the largest Bank Holding Corporations had assets of nearly $126 Billion in Bank Owned Life Insurance (BOLI) – all for the primary purpose of funding OPEB obligations. Similarly, a FIT OPEB plan makes such ‘insurance’ OPEB funding solutions available to the public sector – further expanded by the option of funding the policies wholly, or in part, with money loaned from the financial sector or by issuing OPEB bonds. The FIT OPEB Plan consists of TWO KEY DRIVERS: 1) Life Insurance specifically designed to provide superior cash value accumulation potential while eliminating all downside risk from losses in the stock market.2) Financing Insurance Premiums via a lending platform with superior lending terms specific for financing insurance.

6. Driver One – Life Insurance on Employees– a FIT OPEB plan provides cash flow from insurance policies – FIT OPEB plans use life insurance specifically designed for the potential of producing high cash value growth without the risk of market loss. Interest credited to the policies are based on formulas tied to particular equity indexes, such as the S&P 500. While crediting strategies are designed to reflect increases in the index, policy design guarantees that cash values cannot decline because of declines in the index from one crediting point to the next. The CASH FLOW from the policies may be derived from: 1. Proceeds from employee terminations (i.e. cash values received . from the policies for employees that terminate employment) 2. Policy Proceeds from employee mortality 3. Cash Values that grow in the policies that may be used to provide . assets to fund OPEB costs and liabilities

7. Driver Two – Financing the Insurance Premiums Financing – Based on innovative lending platforms that produce superior financing terms for funding policies: • a) with low-interest financing rates and • b) flexibility to accelerate or delay principal payments . in accordance with cash flow needs. Characteristics of a FIT OPEB plan: • Bond or Bank financing availability. • Collateral, beyond the policies themselves, is generally not significant and may not need to be posted depending on the credit rating for the municipality is A or better. • Arbitrage between the life insurance cash value interest rate and the financing interest rate generally only needs to average approximately 2.5% for most plans in order to avoid out-of-pocket expenditures. (Back-testing historical data back to 1980 from over 4000 rolling time periods, each lasting 20-years, reveals an average arbitrage exceeding 4%.) • Plans are modeled to accommodate typical historical recessionary patterns over time. • Insurance policies are expected to be fully funded with no further premiums required after the initial 8 - 10 years in the plan. The debt is expected to be retired in about 15 - 25 years, depending on cash flow needs, policy cash value performance and financing rates charged. • that the lowest interest rate credited to life insurance cash values was 8.3% (the average rate for all 20-year rolling periods is nearly 11%).*

8. A FIT OPEB Plan Perspective (Trust) 1. Financing provides funds for Municipality. Interest may accrue or be paid yearly. Municipality 2. Municipality uses funds to pay the premiums for life insurance on employees. 4. After a number of years the debt is retired with cash values pulled from the insurance policies.* (Trust Assets) 3. Cash value accumulates in the policies Employee Life Insurance Cash Values 3a. Policy proceeds from mortality and early terminations provide annual revenue to the trust to help pay current . and future . OPEB costs. Income Stream Income Stream 5. Policy cash values continue to accumulate. A portion of the cash values can be withdrawn each year to provide cash flow to the trust in addition to the yearly cash stream received from insurance proceeds due to employee mortality and terminations. Other Post Employment Benefits *The timing for retiring the financing with lender(s) will vary depending on the rate of cash value accumulation which will be affected by financing rates on the loan, crediting rates within the policy and the amount of cash value pulled from the policies each year.

9. FIT OPEB Plan SolutionHypothetical example for 1000 municipal employees insured… Premium and/or Interest Cost to City: $0 (premium is funded by lender and interest is capitalized in the loan)Loan Retirement: Loan is later retired from policy cash values. The cash values represented below are net of loan principal and interest paid.- - - Net Cash Flows to City (Millions) - - - Annual Cash Flow from Cumulative End of Yr. Cash Value & Mortality* Cash Flow*Year 1… $ 8 $ 8 Year 5… 13 55 Year 10… 17 137 Year 15… 19 204 Year 20… 22 298 Year 25… 36 450 Year 30… 56 680 Projections after 15 years show $204 Million in cumulative cash flow…and $680 Million by year 30. *NOTE: This example is based upon certain assumptions regarding plan design, cash flow schedules, interest rates and policy performance, which are not disclosed here. As such, actual results will likely differ from this example. In this example a portion of the death proceeds are used to pay down the loan each year and are not included in the income from mortality illustrated above.

10. FIT OPEB Plan Summary A FIT OPEB plan should be compared to other measures and alternatives available for funding. In concert with other measures, a customizable and flexible FIT OPEB program may provide significant benefits including, but not limited to… 1) Satisfies public by avoiding tax increases for OPEB funding. • 2) Satisfies and improves morale among Unions and Employees by minimizing cost sharing or cuts in benefits. Plus, it gives added assurance that funds will be available during retirement years. • Reduces pressure to increase spending in order to fund obligations. • Reduces need for cuts in other programs or projects. • 5) Efficiently funds the OPEB plan, which… a) increases the discount rate for the Present Value calculation …………of the actuarial accrued liabilities (AAL) – thus, reducing the …………liability on the balance sheet, b) reduces the annual required contribution (ARC) by the ………...amount of policy cash value in excess of the loan balance, • c) preserves bond rating as it satisfies credit rating agencies.

11. FIT OPEB Plan Summary – One Final Note There has never been a better time to implement a FIT OPEB plan. Here’s the facts: Current interest rates provide for the opportunity to lock-in financing rates as low as 4-5% guaranteed for 15 years or longer. Back-testing data back to 1980 from over 4000 rolling time periods, each lasting 20-years, reveals that the lowest interest rate credited to life insurance cash values was 8.3% (the average rate for all 20-year rolling periods is nearly 11%).* Governmental agencies are scrambling to find solutions for their unfunded OPEB liabilities that often are in the hundreds of millions to billions of dollars. Only now are they beginning to look at solutions that the corporate world has used successfully for years – specific high-cash value life insurance. However, being strapped for cash all but eliminates their ability to find the cash to properly fund such policies. A FIT OPEB plan is the solution even in historical worse case scenarios. HISTORICAL WORSE-CASE SCENARIO: Assume a FIT OPEB plan was implemented today and life insurance premiums were financed at 5%, locked-in and guaranteed. Further assume that the same historical worse-case scenariodating back to 1980 repeats itself and the insurance is credited at the minimum historical average of 8.3%. This would be a 3.3% positive arbitrage rate for the FIT OPEB plan – still exceeding the 2.5% minimum rate generally needed before any out-of-pocket expense would even start to be needed. BOTTOM LINE: …with the ability to lock-in low-interest financing rates, a FIT OPEB plan would succeed with no out-of-pocket funding even if the historical worse case insurance scenario repeats itself.* *based on life insurance policy loads, expenses and crediting strategies currently indicated for policies that are modeled for FIT OPEB plans

12. INSCOR, INC 8861 West Sahara Ave, Ste 260 Las Vegas, NV 89117 800-949-6901 www.ins-cor.com Stock ticker symbol: IOGA This presentation was created by INSCOR, Inc. Nothing contained herein is, or should be construed as investment, legal, tax, or accounting advice, nor was it intended nor can it be used for the purpose of avoiding penalties under the Internal Revenue Code or applicable state or local tax provisions. Advice should be sought from independent legal and tax counsel prior to entering into any transaction. This communication was written to support the promotion or marketing of the matters or transactions addressed herein, and clients should always consult with their independent professional advisors to seek advice on the applicability of this information to their particular circumstances.* Loans and withdrawals from life insurance policies will reduce available cash value and reduce the death benefits payable. The insurance death benefits and cash values indicated in this material are projections only. Actual values and results may be higher or lower depending on a number of variables including future interest rates, future indexing results, future crediting rates, age and ratings of those insured. Projections for retiring loans in a FIT strategy are affected by mortality, interest rates, policy cash value growth, premiums paid and funds borrowed. This material does not represent that an offer is made to obtain insurance from any insurance company, nor is any offer made from any financial institution to lend funds. Sources for information used within the context of this material include information from: Credit Suisse, report written March 22, 2007, titled “You Dropped a Bomb on Me, GASB; a report from the Center on Budget and Policy Priorities, March 11, 2008, titled “ Accounting for the Cost of Retiree Health and Other Benefits (GASB45); information provided by governments, insurance companies and lending institutions. This presentation is meant for general informational purposes only. Refer to proposals, documents and forms supplied by lenders and insurance companies for more information and details.