Small Captive Insurance for the

Agribusiness Community. Helping Grow and Protect Your Legacy

Disclosure

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department regulations, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used for the purpose of (i) avoiding penalties that may be imposed or recommending to another party any transaction or matter addressed herein.

The examples contained herein are hypothetical and do not reflect specific strategies developed for actual clients. They are for illustrative purposes only.

Company Overviews

• HUB International: – Continually looking for ways to benefit the farm and

agribusiness industry

– Largest private insurance company in North America.

– Service professionals with expertise catered to both large and small operations including D&O….etc

– Access to Regional and National carriers that fully understand seed risk including Nationwide, Berkley, Ace, Westfield, QBE.

– Crop and Supplemental Crop

• Timberview Captive: – Started in October 2011 with Illinois Grain Farmers

– Focus is Small-to-Midsize Agriculture Businesses that are privately held

Today’s Agenda

1. Insurance Insights

2. What is a Captive

3. Why Create a Captive

4. Questions and Answer

Insurance Insights

How an Insurance Carrier Makes Money

• Out of every $1 you pay as premium, roughly $0.70 goes to cover the expected losses, $0.30 for commissions & administrative expenses.

• The insurer holds that $1 and invests it, earning investment income.

• Insurers set up a reserve for future losses as a liability on their books, thereby deferring the recognition of income (and therefore income tax).

• With a captive, you can flip the situation so these advantages become yours.

Insurance Insights

Insurable Risks • Property Buildings & Seed Stock

• Auto

• General Liability Claims

• Worker’s Compensation

Uninsurable Risks (Self Insuring) • R&D Pilot Programs

• Winter Production in Foreign Countries

• Pollution

• GMO vs. Conventional Seed Issues

• Extra Expense for Failure to Deliver

• Seed Treatment

• Deductibles and Excess Limits

What is a Captive?

• A captive Insurance Company is a wholly owned subsidiary insurance company that exists to serve the needs of its owners.

• It is classified as an Alternative Risk Transfer Financing Mechanism entity versus a Traditional Risk Transfer entity.

• To an extent it performs the same functions as a Regional or National insurance company. It Issues polices, collects premiums, and pays claims on insured risk.

• In some cases, third party insurance is placed into a captive to serve the needs of customers (i.e. warranties, custom coverages)

• It is formed to finance-underwrite the risk of its owners or related entities, which gives those owners maximum control of their at risk dollars.

• A Captive traditionally supplements pre-existing risk management and financing procedures by insuring self insured risk.

• This is NOT a Group Captive which many are familiar with.

One of Warren Buffet’s top 3 business strategies-

OWN AN INSURANCE COMPANY

What is a Captive - History

• The history of Captives can be traced back hundreds of years to ship owners where they would share, exchange, and transfer risk.

• Up to the 1950’s 100 Captives had been formed. Large companies began to see the value of profiting from and managing their own risk. Such as Fortune 500s, like ADM, CAT, and John Deere.

• 1970’s and 1980’s saw significant growth in the captive industry due to captive laws passed in Colorado, Tennessee, and Vermont, and federal legislation making it easier to operate similar interest captives (group captives).

• Tax Reform Act of 1986 congress passed IRC 831 (b) election for captive insurance. Act was passed to help the small farmer deal with weather related risk before the federal crop program was mature.

• In 2008 there were close to 6,000 Captives in existence worldwide, and more than 40% of all major U.S. corporations operating at least one Captive.

• 2010 the small captive gains greater acceptance an begins to be used as an operational tool by business owners for generational wealth transfer mechanism.

What is a Captive - Marketplace

Why Form a Captive?

• Improved Risk Management

• Enhance Core Business Value and

Competitiveness

• Enhance Shareholder/Stakeholder Value

• Creation of an Appreciating Investable Asset

• Asset Protection

• Greater Control of at Risk Dollars

• Premium Stability & Deductibility

• Favorable Regulations & Tax Treatment

• Ability to Establish Reserves and Profit

• Succession Planning and Wealth Transfer

12 © 2014 Timberview Captive, LLC. All Rights Reserved

Case Study: Why I Do a Captive

• Cover business risks that are not available or well covered by insurance industry via self-insurance (including deductibles, payment in excess of coverage limits by commercial providers, and payment of claims for types of loss that are not covered (“exclusions”) … and receive the economically tax-efficient benefits.

• Tax Deductible Premium for Business Operations

• Retain Profits at end of year by placing into an Appreciating Asset entity

• Minimize Future Uncertainty

No Coverage or Exclusions on Coverages (Bad things can happen) – Example Scenario 1) $25,000 Pollution Liability Policy Limit 2) PED

Legislative Uncertainty (Section 179, Farm Bill)

Protecting assets - asset protection vehicle

Case Study: Steve Vogel (and Cousins Curt Vogel and Dan Vogel) Third Generation Illinois Grain Farmers

13 © 2014 Timberview Captive, LLC. All Rights Reserved

Case Study: Why I do a Captive

Assumptions:

No Captive Captive No Captive Captive

Income Taxes

Gross Income Available 1,035,000 1,000,000 4,035,000 4,000,000

Investment Income 118,469 164,627 1,654,204 2,473,259

Expenses - (150,000) - (600,000)

Total Income 1,153,469 1,014,627 5,689,204 5,873,259

Income Tax (478,215) (30,456) (2,156,470) (457,552)

Capital in Insurance Company 50,000 50,000

Post Tax 675,254 1,034,171 3,532,734 5,465,707

Potential Return 358,918 1,932,973

Estate Taxes

Potential Estate Taxes (303,864) - (1,589,730) -

To Heirs 371,390 837,337 1,943,004 4,382,566

Additional Benefit to Heirs 465,947 2,439,562

20 Year Analysis5 Year Analysis

Annual Premium 200,000

Required Capital & Surplus (25%) 50,000

Assumed Investment Return 5%

Fed Inc Tax Rate 39.6%

LTCG Rate 20%

State IL

Fed Estate Tax Rate 45%

14 © 2014 Timberview Captive, LLC. All Rights Reserved

Vogel Holdings (purchases land and equipment)

Vogel Holdings leases equipment back to

Triple V Farms or acquires farm land

and leases back to business operations

The Vogel’s

Triple V Farms – Business Operation

Triple V National (Vogel Captive Insurance Co.)

Tax deductible premium of

$100k to $1.2 MM Annually

- Premium Tax Exempt (via

831b election)

Insurance Policies - Administrative Actions

- Pollution Liability

- Business Continuity

- Product & Liability

Recall

100%

Insurance

Company

owned

100% by

Trusts

Trusts

Vogel Trusts owns Vogel

Holdings

Case Study: Why I Do a Captive

15 © 2014 Timberview Captive, LLC. All Rights Reserved

Case Study: Why I do a Captive

“Help preserve the land that our grandfathers and fathers put together for us…and build upon the estate for our children and grandchildren” – Steve Vogel Third Generation Illinois Grain Farmer

16 © 2014 Timberview Captive, LLC. All Rights Reserved

Questions and Answers

Questions and Answers

Thank you

Contact Information: Rob Wold, HUB International

o. 630-468-5623

c. 773-617-0583

Kevin Allgood, HUB International

o. 630-468-5609

c. 312-208-1542

Lou Schendl, Timberview Captives

o. 888-349-5019

C..309-264-6933