Attachment_2_-_PWS_Exhibit_2_-_PSR_Agreement.pdf

Attachment 2 - EXHIBIT 2 of the PWS

PSR AGREEMENT

Fully-Insured Participating Funding Arrangement Under a Fully-Insured Participating Funding Arrangement, the Office of the Comptroller of the Currency (OCC) will pay 100% of the premium due directly to the Contractor. The Contractor is then responsible for paying all covered claims and expenses incurred while the policy is in effect. Once the required premium is paid in full, OCC has met its financial obligation.

The Contractor will provide a renewal based on the group’s claims experience at least 60 days prior to the end of the policy year. The new renewal rates will take effect at the beginning of the next policy year.

Annual Settlement

A Participating Arrangement means that the Contractor will complete an annual year-end settlement, approximately 90 days from the end of the policy year, to determine if the account ended in a margin or deficit position. If paid claims, reserves for incurred but unpaid claims, and expenses come in lower than projected, the account will end in a policy-year margin. If they are higher than projected, the account will end in a policy-year deficit. OCC “participates” in the risk, in that they have the opportunity to receive back excess funds (i.e. margins) at the end of the year, but also must carry forward deficits.

The Contractor will provide claims experience reporting, usually on a monthly basis, throughout the policy year to track the plan’s paid loss ratio (the percentage of premium used to pay claims).

Regular monitoring of how the claims experience is running will help to greatly reduce any surprises at annual settlement and serve as a tool for managing the plan’s overall performance.

Margins

Margins result when paid premium exceeds the total cost of paid claims, reserves for incurred but unpaid claims and expenses. For example, say in the first policy year the following occurs:

Paid Premium $1,000,000 Paid Claims - 660,000 Reserves - 190,000 Expenses - 100,000 Margin $ 50,000

The resulting margin of $50,000 is deposited into a Premium Stabilization Reserve (PSR) held by the Contractor. The Contractor will pay the OCC interest on the funds held in the PSR to offset expenses. Furthermore, PSR monies can be used in subsequent years to take premium holidays, offset any deficits that may materialize and to reduce renewal rate increases.

Deficits

Deficits occur when paid premiums are less than the total cost of paid claims, reserves for incurred but unpaid claims and expenses. The Contractor will carry the deficit forward and reserve the right to recoup those monies from margins that may materialize in future policy years. It is important to note that deficits can only be recouped through subsequent policy year margins.