Amendment Number 1 to Investment Agreement

Capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Agreement.

Schedule A is hereby amended to read in its entirety as attached hereto.

Unless specifically modified in this Amendment, all other terms and conditions contained in the Agreement shall remain in full force and effect.

 

By:

 

 

 

 

By:

 

Invest on a long-term basis in accordance with applicable insurance regulatory guidelines.

Ensure preservation of invested capital for policyholder protection, always providing sufficient liquidity for the payment of claims and other policy obligations.

All investments are to be made using the long-term value investing approach by investing in the securities of companies and other entities at prices below their underlying long-term values to protect capital from loss and earn income over time and provide operating income as needed.

With regard to equity securities, the investment manager will attempt to identify financially sound companies and other entities with good potential profitability which are selling at large discounts to their intrinsic value. Appropriate measures of low prices may consist of some or all of the following characteristics: low price earnings ratios, high dividend yields, significant discounts to book value and free cash flow. Downside protection is obtained by seeking a margin of safety in terms of a sound financial position and a low price in relation to intrinsic value. Appropriate measures of financial integrity which are regularly monitored, include debt/equity ratios, financial leverage, asset turnover, profit margin, return on equity, and interest coverage.

As a result of this long-term value investing approach, it is anticipated that purchases will be made when economic and issue-specific conditions are less than ideal and sentiment is uncertain or negative. Conversely, it is expected that gains will be realized when issue-specific factors are positive and sentiment is buoyant. The investment time horizon is one business cycle (approximately 3-5 years).

With respect to fixed income securities, the long-term value investing approach is similar. The investment manager will attempt to purchase attractively priced bonds offering yields better than treasury bonds with maturities of 30 years or less that are of sound quality, i.e. whose obligations are expected to be fully met as they come due. Rating services are not regarded as an unimpeachable source for assessing credit quality any more than a broker’s recommendation on a stock is necessarily correct. With any form of investment research and evaluation, there is no substitute for the reasoned judgment of the investment committee and the investment manager.

An adequate cash flow shall be maintained to ensure that claims and operating expenses are paid on a timely basis. An operating cash position is to be maintained at appropriate levels and will be managed by the insurance company in accordance with an approved list of liquid investments, as determined from time to time by the investment committee. These securities will be managed by the insurance company as part of the treasury function and are primarily restricted to treasury and agency securities of the U.S. government.

All applicable insurance regulations will be complied with.

The portfolio is to be invested in a wide range of securities of different issuers operating in different industries and jurisdictions in order to diversify risk.

Prudent investment standards are considered in the overall context of an investment portfolio and how a prudent person would invest another person’s money without undue risk of loss or impairment and with a reasonable expectation of fair return.

The board of directors of the insurance company shall appoint an investment committee of the investment manager as the investment committee of the insurance company. The investment committee shall meet at least once each quarter to review the investments and loans of the insurance company.

A detailed review of portfolio liquidity is undertaken on a periodic basis. This liquidity analysis determines how much of each portfolio is in cash or can be converted into cash in a given time period. The insurance company determines its near term liquidity requirements and the liquidity of the portfolio will be modified from time to time to match such near term requirement.

The asset allocation will be determined by the investment manager and will include short-term investments that will generate appropriate cash flows and long-term investments such as stocks and bonds, both domestic and foreign, that generate investment gains. The asset allocation will be monitored from time to time in order to comply with regulatory guidelines and meet insurance policy liabilities.

The investment manager shall use its discretion to hedge any foreign currency investments and exposures. The investment manager may use a variety of methods to reduce such exposures, including forward foreign exchange contracts, currency options and natural hedging with foreign pay liabilities of the insurance company. Un-hedged foreign investments will be limited to 15% of admitted assets at cost, subject to adjustment to conform with applicable insurance regulatory requirements. Un-hedged exposure above this amount must be approved by the investment committee.

Interest rate risk will be minimized primarily through investment in a variety of term to maturity fixed income securities with maturities less than thirty years. Maximum fixed income portfolio duration is limited to the equivalent of a twenty year term to maturity treasury security.