SB304 Montana State Fund Financial Presentation September 23, 2003

1. SB304 Montana State Fund Financial Presentation September 23, 2003

2. Definitions • GAAP – Generally Accepted Accounting Principles • GASB – Governmental Accounting Standards Board (Governmental GAAP) • SAP – Statutory Accounting Principles (an Other Comprehensive Basis of Accounting) • NAIC – National Association of Insurance Commissioners • RBC – Risk Based Capital

3. Accounting Differencesbetween GASB and NAIC-SAP Financial Statements

4. Accounting Differences Investments GASB: • All Bonds and Stocks carried at Fair Market Value. • Unrealized gain/loss on Investments is included in Investment Income (Net Income impact). • NAIC: • Bonds carried at Book Value. • Stocks carried at Fair Market Value. • Unrealized gain/loss on Stocks is a direct adjustment to Surplus (no Net Income impact).

5. Accounting Differences Non-Admitted Assets • GASB: • All assets carried on Balance Sheet at net realizable value. • NAIC: • Non-liquid assets are written off the Balance Sheet as a direct adjustment to Surplus. Examples of non-liquid assets are: Intangibles, majority of Fixed Assets, Notes Receivable, and A/R > 90 Days.

6. Accounting Differences Deferred Acquisition Costs (DAC) • GASB: • Matching of expenses with revenues by recognizing acquisition expense over the period premiums are earned. • NAIC: • Recognizing the acquisition expense as it is incurred.

7. Reconciliation of Audited GASB Surplus • to Audited Statutory Surplus at June 30, 2002 • Audited GASB Surplus $ 180,715 • Reconciling Items: • Unrealized Gain on Bonds 2,107 • Unrealized Loss on Equities (9,819) • Net Effect of Cumulative Change in • Non-Admitted Assets (5,047) • Net Income Difference between Methods (9,457) • Statutory Accounting Ending Surplus $ 158,499

8. Fiscal Year 2002 New Fund Audited NAIC Financial Results

9. FY 2002 New Fund Balance Sheet – NAIC NAIC (000’s) Total Invested Assets $559,101 Other Assets $15,823 Total Assets $574,924 Losses and Loss Adjustment Expense $346,400 Other Liabilities $70,025 Total Liabilities $416,425 Surplus $158,499

10. FY 2002 Income Statement Information FY 02 Income Statement Information New Fund NAIC (000’s)FY01FY02 Net Earned Premium $74,510 $92,972 Investment Inc/Realized Gains $33,643 $33,464 Loss & LAE $83,196 $99,583 Underwriting Expense $12,957 $15,024 Net Income before Dividends $11,582 $11,795 Dividends $4,995 $4,001 Net Income $6,587 $7,793 Surplus $150,880 $158,499

11. Financials As of 3rd Quarter FY 2003

12. Financials As of 3rd Quarter FY 2003

13. MSF by the Numbers

14. Fiscal Year 2002 Old Fund Audited GASB Financial Results

15. FY 2002 Old Fund Balance Sheet GASB (000’s) Total Invested Assets $114,756 Securities Lending Collateral $16,600 Other Assets $2,434 Total Assets $133,790 Losses and Loss Adjustment Expense $90,900 Securities Lending Liability $16,600 Other Liabilities $1,424 Total Liabilities $108,924 Net Assets $24,866

16. Old Fund FASB FY 2002 Old Fund Old Fund (000’s)FY01FY02 OFLT Revenue $113 $28 Investment / Other Income $13,047 $10,090 Paid Benefits and Expenses $2,173 $626 Net Income before Transfer to NF $10,987 $9,492 Net Assets before Transfer to NF $29,547 $32,274 less: Transfer to NF ($6,765)($7,408) Net Assets after Transfer to NF $22,782 $24,866

17. FY 2003 Old Fund Balance SheetAs of March 31, 2003 GASB (000’s) Total Invested Assets $102,993 Securities Lending Collateral $6,172 Other Assets $1,796 Total Assets $110,961 Losses and Loss Adjustment Expense $80,140 Securities Lending Liability $6,172 Other Liabilities $19,291 Total Liabilities $105,603 Net Assets $5,358

18. Old Fund FASB FY 2003 Old Fund Projected Operating Results Old Fund (000’s)FY 2003 Projected OFLT Revenue $- Investment / Other Income $6,130 Paid Benefits and Expenses ($4,447) Net Income before Transfer to NF $1,683 Net Assets before Transfer to NF $24,866 less: Transfer to NF ($22,268) Net Assets after Transfer to NF $4,281

19. FY 2003 Old Fund Transfers FY03 Old Fund Transfer