new face forward

2013 ANNUAL REPORT

NEW FACE FORWARD

OMS National Insurance Company, Risk Retention Group

3 The Year At A Glance

4 Letter from the Chair of OMSNIC

6 OMSGuard.™ Insurance Protection, Evolved.

8 The OMSNIC Interview: Eric Stich, DDS and Andrew Pearson, DDS

10 The OMSCap™ Plan

11 OMSNIC Corporate Information

12 Fortress Insurance Company

13 Financial Performance

14 Consolidated Financial Statements

AS ORAL AND MAXILLOFACIAL SURGEONS, WE SEE HOW CHANGING A FACE CAN SHAPE A FUTURE. OMSNIC HAS KEPT OUR PRACTICES SAFE FOR OVER 25 YEARS WITH OMS OWNERSHIP AND CONTROL. THIS YEAR WE PUT IN MOTION TRANSFORMATIONAL CHANGES TO POSITION OMSNIC FOR THE FUTURE. IT’S TIME FOR A NEW FACE FORWARD.

2 0 1 3 O M S N I C A N N U A L R E P O R T

CONTENTS

PA G E

2Cover photo: Andrew G. Pearson, DDS

T H E Y E A R AT A G L A N C E

2013 BUSINESS AND FINANCIAL HIGHLIGHTSWhile celebrating 25 years of operations in 2013, we did not rest on our laurels. It

was a very productive year. As we head into 2014, we are proud to introduce a new

OMSNIC Chair, an updated OMSNIC logo and revised names for our policy coverage,

risk management program and stock plan. OMSNIC carefully balances financing

on new initiatives with responsible stewardship of your investment and premium

dollars, so all of our planned enhancements will not happen overnight. Think of this

as the beginning of our next 25 years. We are energized as we move forward to

meet the evolving needs of our Specialty.

• James Q. Swift, DDS elected OMSNIC Chair for 2014.

• Updated logo conveys OMSNIC’s strength and commitment to innovation.

• OMSGuard.™ The Policy. The Claims Defense. The Risk Management Program.

• The OMSCap™ Plan. Your Stock Plan gets a revised name.

“A”(Excellent)

A.M. Best Rating for 12 consecutive years

s15.6%ConsolidatedNet Income

s12.1%Consolidated Shareholders’ Equity

83.5%AAOMS members insured by OMSNICas of March 2014

s10.3%Preferred Stock Price Per Share

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Dear Colleagues,We are pleased to present OMSNIC’s favorable results of operations for 2013, as well as news of exciting plans that will be implemented as we move forward in 2014 to serve the Specialty with unparalleled commitment.

It has been another successful year for the Company and for you as shareholders.

Our consolidated net income was $18.2 million, while the number of surgeons

insured with OMSNIC increased to 4,905. According to membership numbers

provided by the AAOMS, that is 83.5% of practicing oral and maxillofacial

surgeons. The price per share of OMSNIC’s preferred stock, owned by every one

of OMSNIC’s insured surgeons, rose 10.3% to $1,459.85 per share.

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Our 25th Anniversary YearOMSNIC proudly reached a milestone in 2013 with 25 years of operation. In a speech before the AAOMS House of Delegates in October, Dr. Lew Estabrooks praised the courage and spirit of innovation demonstrated by the House in 1987 when it approved the concept and formation of OMSNIC. It is a testament to their foresight that OMSNIC continues to thrive as the only OMS-owned professional liability insurance company.

New Face ForwardOur theme this year, New Face Forward, encompasses OMSNIC’s bold initiatives and celebrates the unique surgical specialty of oral and maxillofacial surgery. We hope you enjoy reading our conversation (see page 8) with Dr. Eric Stich and Dr. Andrew Pearson, two talented OMS in Minneapolis, Minnesota. Their practice is pictured throughout this year’s Annual Report, and Dr. Stich is featured on the cover. OMS skill and artistry in creating new faces – and futures – remain an inspiration to all of us at OMSNIC as we continually seek out new ways to protect and strengthen the OMS community.

Continuing innovation is an OMSNIC core value that drives our strategic planning and the development of new products and member services. In 2014 you will see the rollout of OMSNIC’s updated image to reinforce our position as the preeminent provider of OMS insurance protection and defense. We have a

modernized logo (which debuts in this publication) that reflects our industry strength. We have coined an exclusive name – OMSGuard™ – to describe the valuable OMSNIC products and services you receive as a member policyholder. OMSGuard has three components: your powerful OMSGuard Policy, the peerless OMSGuard Defense, and the comprehensive OMSGuard Risk Management Program. Finally, we have also created a descriptive name for the OMSNIC stock plan, the OMSCap™ Plan. The OMSCap Plan takes its name from the OMS capital contributions that fund the Plan. Our seasoned OMS members can attest to its worth as a valuable retirement asset.

These proprietary names will make it easier to describe and discuss the important benefits each OMS receives as a member-owner of OMSNIC. Please read more about OMSGuard on pages 6 and 7. You will find information about the OMSCap Plan on page 10, along with details of the year’s impressive stock performance. Your ownership of OMSNIC stock through the OMSCap Plan also supports the Specialty and gives you a voice in your future. That’s a meaningful investment.

OMSGuard™ Your OMSGuard Professional Liability Policy was enhanced in 2013. The Data Defense coverage, often referred to as “cyber liability” insurance, was broadened and the limits were increased. This feature of your OMSGuard policy continues to grow in

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value as more OMS experience data issues in their practices which require the expertise and protection that the Data Defense coverage provides.

OMSGuard Claims Defense was improved this year by the addition of new online resources for coping with the stress of litigation, which complement the support you receive from OMSNIC. A lawsuit is an ordeal for any OMS, and the support of your colleagues and expert defense team is crucial to both your well-being and your effective participation in the defense process. Only OMSNIC offers claims defense managed by OMS for OMS, and direct access to an OMS member of the claims committee to discuss your claim. That caring and commitment accounts for our record of excellence defending OMS for over 25 years.

Finally, the OMSGuard Risk Management Program continues to expand its mix of practical and timely education programs and resources for OMS practices. This year saw the development of relevant new risk management courses for the e-Learning Center and a new online Risk Assessment tool that allows practices to improve procedures.

Many of the improvements we made in 2013 are the result of input and ideas from our current policyholders, other experienced OMS, surgeons serving on OMSNIC’s various committees and formal feedback groups like OMSNIC’s Advisory Board, Faculty Council and Resident Consultants. These ongoing contributions help us to serve you better, so please keep them coming. We want to hear from you.

The New Face of ChairIt is a great honor to take on the position of Chair of the Board of OMSNIC and face our exciting future together with valued colleagues. As you may know, I assumed the responsibility of Chair of the Board effective January 1, 2014.

A sincere thank you is owed Dr. Lew Estabrooks for his excellent leadership and stewardship as Chair for the past fifteen years, a period marked by substantial growth in the Company’s offerings and financial strength. We are fortunate that Lew has agreed to stay on the Board for a transition period. His experience and institutional knowledge are invaluable assets to OMSNIC.

I would also like to thank Ms. Debra Udey for her contributions to the OMSGuard Risk Management Program. After twelve productive years, Deb retired in April 2014. Many of you have attended risk management seminars with Deb as a speaker, and you might have even called her directly with risk management questions. No doubt you and your staff have benefited from her insightful articles in The Monitor, where she served as Editor. We wish Deb well in her retirement.

In closing, I would like to thank all of you for allowing OMSNIC to provide your professional liability insurance. We remain dedicated to our mission to defend the specialty of oral and maxillofacial surgery and the OMS that participate in our professional liability programs. Through innovation sparked by your input, we will strive to serve you and your practice with a commitment to excellence.

Sincerely,

James Q. Swift, DDSChair of the Board

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Coverage for a LifetimeTo cover the arc of your OMS career, the OMSGuard Professional Liability Policy provides flexibility to fit unique practice situations while providing comprehensive coverage for OMS:

• For the new to practice OMS, pricing is reduced for the first four years of practice.

• For the seasoned OMS, an appropriate range of policy limit and practice options are available.

• For the seasoned OMS who may practice or teach part-time, practice hour options exist with pricing to reflect a reduced practice.

If you currently have a professional liability policy with OMSNIC, you do not need to take any action. Your policy will have a new name and offer the same benefits as before. And since OMSNIC is a nationwide company, where you choose to practice is never a problem. While premiums may vary from state to state, your OMSGuard policy can move with you.

Added Value with OMSGuardA valuable feature of OMSGuard is the extra insurance coverage OMSNIC provides to each OMSGuard policyholder at no extra charge:

• Data Defense (cyber liability) coverage. This protection has been recently expanded to address new risks in this evolving area.

• Defense coverage for department of professional regulation reviews, employee practices liability, Medicaid/Medicare fraud and abuse charges, or wrongful acts.

• Personal umbrella policy. This personal asset protection is underwritten by Chubb, the nation’s premier provider of insurance protection for high net worth individuals and families.

Through an arrangement with Hanover Insurance, OMSNIC also provides our members access to high quality business insurance coverage with exclusive benefits. We continue to look for new ways to add value to OMSGuard, as well as convenient access to additional insurance or practice products we deem worthy of our members.

Strong, Specialized OMS Claims DefenseStatistics indicate that each year nearly one in ten oral and maxillofacial surgeons is sued. So it is very likely that every OMS will have to defend a claim at least once over the course of a career. OMSGuard-protected OMS get powerful, specialized defense in the event of a claim, as well as the reassurance of knowing that their claim will be reviewed by

OMSGuard.™ Insurance Protection, Evolved.

OMSGuard is the new name for the comprehensive claims protection and

strong defense that OMSNIC designs exclusively for oral and maxillofacial

surgeons. It is the standard of excellence in nationwide OMS professional

liability insurance. OMSGuard has three components: the OMSGuard

Professional Liability Policy, OMSGuard Claims Defense, and the OMSGuard

Risk Management Program. OMSGuard is overseen by practicing oral and

maxillofacial surgeons who fill key roles at OMSNIC as directors and advisors.

We know what works best to protect OMS because we are OMS too.

7Andrew G. Pearson, DDS

practicing oral and maxillofacial surgeons. The OMSNIC Claims Committee is comprised entirely of OMS who understand complex treatment decisions, in contrast to other insurance companies where business people make claims decisions.

OMSGuard defense attorneys are the front line of OMSGuard Claims Defense. They receive specialized clinical training in OMS claims that makes them uniquely effective as powerful advocates. Developing a winning defense strategy is a complex process that involves understanding clinical issues, bringing in the best expert OMS witnesses, and deep local experience with juries.

We don’t entrust your practice to just any lawyer. OMSGuard Claims Defense provides the strongest possible defense throughout the claim resolution process.

OMSGuard Risk Management ProgramThe OMSGuard Risk Management program is unmatched for OMS. Designed by OMS from OMSNIC’s exclusive database of over 11,000 closed OMS claims, the program remains relevant to contemporary issues OMS practices face.

Courses are taught by OMS or legal and insurance experts well versed in oral and maxillofacial procedures. OMSNIC members may attend a live regional seminar where attendees actively participate in case discussions or take on-line courses through the Company’s e-Learning Center at the OMS’ convenience.

The OMSGuard Risk Management Program includes a wealth of resources such as Informed Consent forms for OMS procedures and Emergency Training modules for OMS and their staff. In 2013, the Risk Assessment was introduced. The Risk Assessment guides a practice through a self-assessment of its procedures and generates a customized report for the practice’s evaluation.

The OMSGuard Risk Management Program continues to provide members with essential tools to maintain a high level of patient safety and reduce professional liability losses.

97.9%Claims Satisfaction Rating

by Policyholders with Claims(Results of 2013 survey)

OMSGuard Claims Defense Record

100%FavorableJudgments at Trial in 2013

OMS perspectives on training, practice management, technology, and the future.

This March we visited Minnesota to meet Dr. Eric Stich and Dr. Andrew Pearson, board certified OMS at Oral & Maxillofacial Surgical Consultants. With four offices and eight surgeons, the Minneapolis metro area practice covers a lot of ground geographically and medically. Both doctors completed residency at the University of Minnesota, Stich in 1995 and Pearson in 2010.

OMSNIC: What led you to oral and maxillofacial surgery? Any dentists or OMS in the family?Dr. Stich: No, but growing up we had a family friend who was a dentist and we’d go sailing with him. I was impressed with what a nice guy he was, and a good sailor. In dental school, oral surgery classes made me aware of the specialty.Dr. Pearson: I’m from a family of pilots and electricians, no dentists. I had a job as a caddie in high school and met Dr. Haas [OMS at this practice] when I carried his bag for a loop. He spiked my interest to get into dental school and then into oral surgery. When I finished, they had a position available here.

OMSNIC: How did you feel about the training pathway between dentistry and oral surgery?Dr. Pearson: The training was fantastic but difficult, no question about that. For me it was always a big jump from each level to the next: college to dental school, dental school to oral surgery residency. Long hours, and you’re held to a very high standard. It was 100% worth it, I’d do it again.

OMSNIC: How has your path into oral surgery influenced your current practice?Dr. Stich: I practiced general dentistry for two years after graduating from dental school, then I went back for oral surgery. Having been on the other side as a general dentist helps me with communication when coordinating treatments like dental implants.

OMSNIC: What do you think about the transition from residency to practice?Dr. Pearson: I think the model we have in our group allowed it to be very successful. I felt well-trained and ready, but you’re still not used to seeing the daily patient load. They eased me into that to get my bearings and understand what takes longer depending on the patient, their medical history and social factors.

OMSNIC: How do you like working in a large group practice and moving between offices?Dr. Stich: I really like being in a group practice where we all give our opinions. If I’m uncomfortable with something and not sure of the right thing to do, I cantake advantage of all the years of experience here, from

the older doctors to the younger ones. Typically we’ll put out a chart and write “Opinions Please.” If you end up with 8 out of 8 doctors siding with your approach, you can be confident and you can tell the patient “Here we’ve got 100+ years of oral surgery experience and everyone feels it’s the best approach.” It’s like getting not only a 2nd opinion, but an 8th opinion.Dr. Pearson: I like moving between our offices and seeing all our employees every week. I work in all four of our locations, a different one per day. I enjoy the patients and you also meet a lot of referring doctors so you get to know the wider community.

OMSNIC: Do you spend a lot of time on practice management and the business side of things?Dr. Pearson: Yes, but outside of patient hours. We have a fairly large business office staff, so we depend on them for the day to day. Month to month issues we discuss as a group at monthly evening meetings. We have a semi-annual retreat where we meet to discuss major issues. Last year we discussed our EMR transition and ICD-10. In some ways the business part is more of a challenge than the actual surgery part. There are so many dynamics, everything from employees to management to costs of rebuilding offices. Having eight people collectively assisting really helps, we have sub-committees on certain tasks. It’s a team approach.

OMSNIC: What new technologies or techniques do you find most exciting?Dr. Stich: Guided cases, the ability to have a patient digitized and a 3-D model made of their face. It really helps with planning surgeries and educating patients. With medical modeling we can see in three dimensions where different parts of the jaws are going to be moving, movements that you couldn’t see so clearly before. You can anticipate where interferences are going to be, which helps you go into surgery feeling more prepared. Doing extra homework beforehand can shorten the time you’re in the operating room.

8continued next page

A conversation with Eric F. Stich, DDS and Andrew G. Pearson, DDSThe OMSNIC Interview

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Dr. Pearson: There are a lot of emerging technologies that are important to understand and use, like SLAs, CT-guided implant surgery, using navigation in surgery. We need to keep up but also remember that many things have been done successfully for years without relying on new technologies. There’s no substitute for the proper training and education and understanding how to implement them.

OMSNIC: What is your opinion of the safety of anesthesia in a practice setting?Dr. Stich: I think it continues to be one of the highlights of what an oral surgeon can offer. It’s extremely safe and cost effective. We can provide an anesthetic experience for healthy patients in our office at a fraction of the cost that hospitals charge.

OMSNIC: Tell us about your work as a member of the Cleft Lip and Palate team at Children’s Hospital. Dr. Stich: When I got to this group in ’95 I wanted to help the practice diversify. Cleft was an opportunity, and an area I enjoyed from residency. I operate on children regularly and watch them grow and develop. You get to know the families. Other parts of our practice are one time treatments, a very different relationship. I like the variety. This morning I saw a patient who‘s 95 and this afternoon I’ll be seeing young kids in clinic at Children’s Hospital.

OMSNIC: On your practice website, you ask patients to leave feedback on Angie’s List. How do you feel about the idea of patients “grading” surgeons?Dr. Pearson: Social media is a challenging aspect of what’s happening now. People would rather look at our website than call our office for directions or advice. When a referring doc sends a patient over, the first thing the patient does is look you up online. I encourage people to review me, it’s an important part of the process. If their experience was good then you deserve a good review, if it was mediocre then you

deserve a mediocre review. My goal as a surgeon is to make the experience good and if it’s not good then I want to know. Reviews do need to be modeled carefully. I don’t participate in Facebook but there are legitimate sites that offer feedback. Choosing Angie’s List was a group decision.

OMSNIC: Over the next few years, how do you see the practice evolving?Dr. Stich: We’re always meeting and reformulating our plans as a group, we constantly course correct. How Obamacare is going to affect us, I don’t think anybody really knows yet. I’m more focused on the immediate things like electronic medical records, mandatory October 1. We’ve made some big decisions about what systems to buy. It’s ongoing.

OMSNIC: With big hospitals buying medical practices lately, what do you think about the future of oral surgery as an independent business model? Dr. Pearson: It’s an important business model for us. I don’t want to be under the control of some corporation or managed care facility. Being an owner is an important part for me. I want to be able to influence how we run the business and see patients. I certainly don’t want to do it alone, that’s why group partnership is desirable.

OMSNIC: What do you perceive as OMSNIC’s strengths? Have we helped your practice?Dr. Stich: It feels like OMSNIC is an advocate for the oral surgeon. If I have a question, I can pick up the phone and I don’t get an endless menu, I get my guy that I’ve known for 20 years, Walter Carroll in the Chicago office. Walter is the claims representative assigned to my area and he’s a wealth of information. There’ll be a year where I don’t talk to him and then I’ll call him twice in a year. It’s been very reassuring. You’ve also got the website support for the practice. I or my staff can download consent forms and stay abreast of current standards. The risk management classes are a good review about record keeping and communication with referring dentists, and you get a reduction in your premium. It feels like a real stable company, having seen the stock grow through the years.

OMSNIC: In your free time, how do you decompress?Dr. Pearson: Mostly golf in the summer and downhill skiing in the winter. My dad is a Delta pilot and instructor and he’s taught me how to fly to the point of soloing. I have yet to do my official checkride, that’s in the works.Dr. Stich: I run and bike to stay in shape, and I play guitar and mandolin in a country rock band. My wife is the lead singer, her name is Mae. That’s why we’re called The Maeflies.

These interviews have been edited and condensed.

The OMSCap™ Plan The OMSNIC Stock Plan has a new name.

OMSNIC’s Preferred Stock price has risen in 21 of the 22 years since it was first issued.

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OMSCap is the OMS-only investment plan comprised of OMSNIC Common and Preferred Stock, which is owned by each of the oral and maxillofacial surgeons we insure. As a risk retention group, OMSNIC is capitalized – and owned – by our OMS members. Over 83% of private practice OMS in the United States are OMSNIC owners.

The OMSCap Common Stock ownership gives oral and maxillofacial surgeons control over the terms, cost and quality of our professional liability insurance.

The OMSCap Preferred Stock purchase each OMS makes upon joining OMSNIC is a capital contribution that entitles you to your share of OMSNIC retained profits upon retirement. While past performance is no guarantee of future results, ownership in the OMSCap Plan continues to be very rewarding for our shareholders as well as a valuable retirement benefit. The OMSCap Preferred Stock value is set on April 1 of each year, with price per share determined by the prior year’s audited financial results.

Preferred Stock Price Per Share As of April 1 each year

Consolidated Shareholders’ Equity Dollars in Millions

Corporate InformationOMS National Insurance Company, Risk Retention Group

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Board of Directors

James Q. Swift, DDS*Chair

Jeffrey S. Topf, DDS*Treasurer

Jerry L. Jones, DDS MD*Secretary

Lewis N. Estabrooks, DMD, MS*

Michael J. Stronczek, DDS, MS*

Robert F. Guyette, MD, DMD

Anthony M. Spina, DDS, MD

William C. Passolt, CPAPresident and Chief Executive Officer

Patricia A. PigoniSenior Vice President and Chief Operating Officer

Katherine A. Ehmann, CPAVice President, Finance

*Executive Committee Members

Front Row:

Robert F. Guyette

William C. Passolt

James Q. Swift

Back Row:

Michael J. Stronczek

Jeffrey S. Topf

Katherine A. Ehmann

Lewis N. Estabrooks

Patricia A. Pigoni

Jerry L. Jones

Anthony M. Spina

Corporate Officers

William C. Passolt, CPAPresident and Chief Executive Officer

Patricia A. PigoniSenior Vice President and Chief Operating Officer

Frode BrudvikVice President, Underwriting

Katherine A. Ehmann, CPAVice President, Finance

Judd A. JohnsonVice President, Marketing

Peggy A. KleinVice President, Information Technology

Aike P. ZavalaVice President, Human Resources

Jeffri A. BethAssistant Vice President, Claims

Francisco F. DiazlunaAssistant Vice President, Information Technology

Gwendolyn J. Jaeger, RNAssistant Vice President, Special Projects

Fortress Insurance Company

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Board of DirectorsLewis N. Estabrooks, DMD, MS, ChairEdward J. Karlin, JDDennis W. OlsenWilliam C. Passolt, CPAPatricia A. PigoniMichael R. Ragan, DMD, JD, LLMJames Q. Swift, DDSJeffrey S. Topf, DDS

From Left:

Michael R. Ragan

Jeffrey S. Topf

James Q. Swift

William C. Passolt

Patricia A. Pigoni

Lewis N. Estabrooks

Dennis W. Olsen

Edward J. Karlin

Dedicated to DentistryFortress is OMSNIC’s wholly-owned subsidiary dedicated to serving the professional liability needs of general dentists and dental specialists other than OMS. With more than 14,000 policyholders, Fortress is licensed in all 50 states and the District of Columbia.

Fortress has built a strong relationship with organized dentistry. As a 2013 sponsor of the ADA’s New Dentist Conference, we took the opportunity to reinforce the benefits of Fortress insurance to dentists who have recently entered practice.

Numerous state and local dental associations and societies continue to endorse the Fortress professional liability product to their members. These relationships are long-term, reflecting the high level of service satisfaction that dentists have with Fortress.

Fortress is a corporate member of the American Dental Education Association. Through the ADEA, Fortress stays close to the changes in dental education and makes key contacts to present the Fortress Risk Management Program to dental students and dental school faculty.

Fortress Direct Written Premiums Dollars in Millions

Financial Performance

Financial Highlights

Consolidated net income increased 15.6% to the second highest level in the Company’s history.

As of December 31 2013 2012

Investments at fair value $ 364,651,349 $ 370,527,536

Total assets 459,322,339 442,609,417

Reserve for losses* 175,778,401 186,306,633

Unearned premiums 50,207,649 48,741,982

Shareholders’ equity 202,026,254 180,220,170

For the years ended December 31 2013 2012

Net premiums earned $ 85,001,085 $ 79,165,456

Investment income 10,484,664 10,734,646

Net income 18,223,297 15,769,946

*includes loss adjustment expenses

Consolidated direct premiums written continued to reflect steady growth in 2013.

Consolidated Net Income Dollars in Millions

Consolidated Direct Premiums Written Dollars in Millions

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Independent Auditor’s Report

To the Board of Directors and Shareholders of OMS National Insurance Company, Risk Retention Group

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of OMS National Insurance Company, Risk Retention Group and subsidiary (the “Company”) which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for the years then ended and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Raleigh, North Carolina April 11, 2014

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OMS National Insurance Company, Risk Retention Group Consolidated Financial Statements Consolidated Balance Sheets as of December 31,

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

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2013 2012

AssetsInvestment in available-for-sale securities, at fair value: Debt securities $268,214,574 $303,727,955 Equity securities 95,787,066 65,978,133 Other invested assets 649,709 821,448

Total investments 364,651,349 370,527,536

Cash and cash equivalents 27,791,259 8,034,447 Accrued investment income 3,214,404 3,247,575 Premiums receivable, net 28,829,327 29,194,696 Deferred policy acquisition costs 5,284,114 5,050,075 Reinsurance recoverable 22,583,902 24,071,565 Property and equipment, net 494,520 592,351 Other assets 6,473,464 1,891,172

Total assets $459,322,339 $442,609,417

LiabilitiesReserve for losses and loss adjustment expenses $175,778,401 $186,306,633Unearned premiums 50,207,649 48,741,982 Reinsurance premium payable 8,243,584 9,461,228 Deferred tax liability 5,418,328 2,212,825 Accrued expenses and other liabilities 12,563,086 11,313,807 Income taxes payable 5,085,037 4,352,772

Total liabilities 257,296,085 262,389,247

Contingencies (Note 14)

Shareholders' EquityPreferred stock ($1.00 par value, authorized 1,000,000 shares, issued 997,901 shares) 997,901 997,901 Common stock ($1.00 par value, authorized 10,000 shares, issued 7,580 shares) 7,580 7,580Additional paid-in capital 39,291,929 37,456,346 Retained earnings 156,923,839 138,700,542 Accumulated other comprehensive income, net of taxes of $13,849,231 in 2013 and $11,312,214 in 2012 25,610,355 21,008,399 Treasury stock, at cost (603 and 728 shares common stock; 859,574 and 858,888 shares preferred stock in 2013 and 2012, respectively) (20,805,350) (17,950,598)

Total shareholders' equity 202,026,254 180,220,170

Total liabilities and shareholders' equity $459,322,339 $442,609,417

OMS National Insurance Company, Risk Retention Group Consolidated Financial Statements Consolidated Income Statements for years ended December 31,


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2013 2012Revenues Premiums earned $88,955,332 $87,092,533

Premiums ceded (3,954,247) (7,927,077)

Net premiums earned 85,001,085 79,165,456

Investment income 10,484,664 10,734,646

Net realized gains on securities 93,024 295,046

Other income 663,691 596,358

Total revenues 96,242,464 90,791,506

Expenses Losses and loss adjustment expenses, net 47,246,027 44,369,530

Amortized policy acquisition expenses 9,456,165 10,471,727

Other underwriting expenses 13,443,983 13,471,021

Other expenses 389,386 364,911

Total expenses 70,535,561 68,677,189

Income before income taxes 25,706,903 22,114,317

Income tax expense 7,483,606 6,344,371

Net income 18,223,297 15,769,946

Other comprehensive income, net of taxesUnrealized gains on securities:

Unrealized holding gains arising during the period, net of taxes 4,662,422 3,619,504

Less: reclassification adjustment for losses (gains) included in net income, net of taxes (60,466) (191,780)

Other comprehensive income, net of taxes 4,601,956 3,427,724

Comprehensive income $22,825,253 $19,197,670

OMS National Insurance Company, Risk Retention Group Consolidated Financial Statements Consolidated Statements of Changes in Shareholders’ Equity for years ended December 31, 2013 and 2012


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Accumulated OtherComprehensive

Preferred Common Additional Retained Income, Treasury StockStock Stock Paid in Capital Earnings Net of Taxes Common Preferred Total

Balance, December 31, 2011 $997,901 $7,580 $35,808,571 $122,930,596 $17,580,675 ($788) ($13,404,154) $163,920,381

Net income - - - 15,769,946 - - - 15,769,946

Change in unrealized gains/losses, net of tax - - - - 3,427,724 - - 3,427,724

Purchase of treasury stock - - - - - (145) (4,547,426) (4,547,571)

Sale of treasury stock - - 1,647,775 - - 205 1,710 1,649,690


Net income - - - 18,223,297 - - - 18,223,297

Change in unrealized gains/losses, net of tax - - - - 4,601,956 - - 4,601,956

Purchase of treasury stock - - - - - (119) (2,856,544) (2,856,663)

Sale of treasury stock - - 1,835,583 - - 244 1,667 1,837,494


OMS National Insurance Company, Risk Retention Group Consolidated Financial Statements Consolidated Statements of Cash Flows for years ended December 31,


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2013 2012Cash Flows from Operating ActivitiesNet income $18,223,297 $15,769,946

Adjustments to reconcile net income to net cash from operating activities

Net bond premium amortization 1,609,332 1,907,927

Depreciation and amortization 211,017 276,914

Amortization of deferred policy acquisition costs 9,456,165 10,471,727

Additions to deferred policy acquisition costs (9,690,204) (9,369,200)

Realized (gains) losses on sales and calls of investments (93,024) (295,046)

Deferred tax asset (liability) 668,486 (185,444)

Increase/(decrease) in:

Accrued investment income 33,171 (143,545)

Premiums receivable 365,369 (997,115)

Reinsurance recoverable 1,487,663 (3,656,250)

Other assets (4,582,292) (183,701)

Reserve for losses and loss adjustment expenses (10,528,232) 5,872,362

Unearned premiums 1,465,667 1,897,825

Reinsurance premium payable (1,217,644) 4,432,491

Accrued expenses and other liabilities 810,248 221,138

Income taxes payable 732,265 (861,962)

Total adjustments (9,272,013) 9,388,121

Net cash provided by operating activities 8,951,284 25,158,067

Cash Flows from Investing ActivitiesProceeds from sales and calls of investments 203,131,298 108,502,502

Proceeds from maturity of investments 27,434,759 26,886,142

Purchase of investments (219,067,205) (158,198,062)

Purchase of property and equipment (113,186) (235,856)

Net cash provided by (used in) investing activities 11,385,666 (23,045,274)

Cash Flows from Financing Activities

Purchase of treasury stock (2,417,632) (4,196,245)

Sale of treasury stock 1,837,494 1,649,690

Net cash used in financing activities (580,138) (2,546,555)

Increase (decrease) in cash and cash equivalents 19,756,812 (433,762)

Cash and cash equivalents at beginning of year 8,034,447 8,468,209

Cash and cash equivalents at end of year $27,791,259 $8,034,447

OMS National Insurance Company, Risk Retention Group Notes to Consolidated Financial Statements December 31, 2013 and 2012

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1. Significant Accounting Policies a.) Basis of Presentation The accompanying consolidated financial statements include OMS National Insurance Company, Risk Retention Group

(“OMSNIC”) and its wholly owned subsidiary, Fortress Insurance Company (“Fortress”). Collectively they are referred to as the Company in these financial statements.

OMSNIC is a stock insurance and holding company, organized under the laws of the State of Illinois. OMSNIC operates under the Federal Liability Risk Retention Act of 1986 and provides professional liability coverage on a national basis to members of the American Association of Oral and Maxillofacial Surgeons (“the Association”). Fortress is a stock insurance company organized under the laws of the State of Illinois. Fortress is licensed in 50 states and the District of Columbia and provides professional liability coverage to the general dental and dental specialty fields.

The Company primarily issues “claims-made” policies which insure against claims made during the policy period. A claim is considered to be made when it is first reported to the Company or when specific circumstances are reported to the Company which the insured believes may give rise to a claim in the future. Fortress also issues “occurrence” policies which insure against claims arising from a wrongful act that took place during the period in which the policy was in force. For “occurrence” policies, the date on which the claim is actually made against the insured or reported to Fortress is irrelevant from the standpoint of triggering coverage. Rather, the terms and conditions of the policy that were in effect at the time the action giving rise to the claim actually took place will apply. This is in contrast to “claims-made” coverage, where the terms and conditions of the policy in force at the time the claim is made apply.

These financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All material inter-company accounts and transactions have been eliminated in consolidation.

b.) Risks and Uncertainties Certain risks and uncertainties are inherent to the Company’s day-to-day operations and to the process of preparing its consolidated financial statements. The more significant of those risks and uncertainties are presented below and throughout the notes to the consolidated financial statements. Estimates - The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Loss Reserves – The Company estimates losses and loss adjustment expenses based on the accumulation of case estimates for direct claims reported, net of deductions of amounts for reinsurance ceded on reported claims and subsequent to consultation with the Company’s independent actuary. Actual results could differ from these estimates. Reinsurance – Reinsurance contracts do not relieve the Company from its obligations to its insureds. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed to be uncollectible, when necessary. The Company evaluates the financial condition of their reinsurers to minimize exposure to significant losses from reinsurer insolvencies. Management believes that any liability arising from this contingency would not be material to the Company’s financial position. External Factors – The Company is highly regulated by the state in which it is domiciled, as well as states in which they do business. Such regulations, among other things, limit the amount of dividends and impose restrictions on the amount and types of investments. Investments – The Company invests in a professionally managed portfolio that contains debt and equity securities of publicly-traded companies, US Government obligations, government agencies, state and local government obligations, mutual funds and money market funds. Such investments are exposed to various risks such as interest rate, market or credit. Due to the level of risk associated with such investments and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risks in the near term would materially affect investment balances and the amounts reported in the consolidated financial statements.


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FDIC Limits – The Company maintains its cash and short-term investments with high quality financial institutions. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. From time to time the Company’s cash and short-term investments exceed those amounts guaranteed by the FDIC. The Company has not experienced any losses in such accounts as a result of this concentration and believes it is not exposed to any significant credit risk on cash balances. Risk-based Capital – The National Association of Insurance Commissioners (“NAIC”) has developed property-casualty risk-based capital (“RBC”) standards that relate an insurer’s reported statutory capital and surplus to the risks inherent in its overall operations. The RBC formula uses the statutory annual statement to calculate the minimum indicated capital level to protect the Company from the various risks that they face. The NAIC model law calls for various levels of regulatory action based on the magnitude of an indicated RBC capital deficiency, if any. The Company continues to monitor its internal capital requirements and the NAIC’s RBC requirements. The Company has determined that its capital levels are in excess of the minimum capital requirements for all RBC action levels. Management believes that the Company’s capital levels are sufficient to support the level of risk inherent in its operations.

c.) Concentrations of Geographic and Credit Risk The Company’s total direct gross written premium of $90,420,999 for the year ended December 31, 2013 included amounts written for insured parties in the States of New York (14.9%), Texas (10.3%), Florida (9.3%), California (6.4%), New Jersey (4.4%), and Pennsylvania (4.4%).

At December 31, 2013, approximately 40.6% and 13.1% of the Company’s consolidated investment portfolio is comprised of security issues in special revenues and political subdivisions, respectively, the vast majority of which are investment grade. This portfolio is widely diversified among various issuers and industries and is not dependent on the economic stability of one issuer and industry.

d.) Cash Equivalents Cash equivalents at December 31, 2013 and 2012 consist of short-term money market accounts and investments with an

original maturity of three months or less when purchased. e.) Investments All debt and equity securities owned by the Company are considered available-for-sale and are included in the financial

statements at their fair value as of the statement date. See Note 2, Fair Value Measurements, for policies related to the determination of fair value. Realized gains and losses on securities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive income (loss).

Declines in fair value of invested assets below cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining whether these losses are expected to be other-than-temporary, the Company considers severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, projected cash flows, issuer credit ratings and the intent and ability of the Company to hold the investment until the recovery of the cost.

When an other-than-temporary impairment loss is determined to have occurred on equity securities, the losses are charged to realized losses, which is included in realized gains and losses, within net income. The recognition method of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the income statement as an other-than-temporary impairment. If the Company does not expect to recover the amortized cost basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, less any current period credit loss, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive income. The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying


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collateral including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value of the underlying collateral. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairment write-downs were recognized in 2013 and 2012.

The Company has no investments in joint ventures, partnerships or limited liability companies.

The Company does not engage in any off-balance sheet, derivative or hedging activities.

At year-end 2013, the Company has assessed their investment portfolio to determine subprime exposure. The Company has determined they do not have any exposure for subprime mortgage related risks. The Company owned $24,716,892 and $2,065,240 of residential mortgage-backed securities and commercial mortgage-backed securities, respectively. These holdings combined represented 10% of the Company’s fixed-income portfolio. The individual mortgages which comprise these securities conform to strict underwriting standards, are considered AAA/AA equivalents and the residential mortgages further carry an explicit agency guarantee as to repayment of principal and interest. In addition, with all bonds held in the portfolio, the Company monitors loans on an ongoing basis for delinquency and loss trends that could signal collateral deterioration.

f.) Premiums Premiums are deferred and earned on the daily pro rata basis over the terms of the respective policies, net of premiums

ceded. The standard term of a policy is twelve months. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of the policies in force as of the financial statement date or reserves established in anticipation of extended reporting endorsements available to eligible policyholders upon death, disability or retirement.

g.) Premiums Receivable The Company assesses the collectability of premiums receivable and the potential amount that may become

uncollectible. Premiums past due ninety days of the original due date are written off and coverage is cancelled. h.) Deferred Policy Acquisition Costs Certain costs of issuing and underwriting new and renewal business, which vary with and are directly related to the

successful acquisition of such business, principally commissions, premium taxes and variable underwriting and policy issue expenses, have been deferred, to the extent recoverable. Such costs are amortized as the related premium revenue is recognized. Policy acquisition costs of $9,690,204 and $9,369,200 were deferred in 2013 and 2012, respectively, and $9,456,165 and $10,471,727 were amortized in 2013 and 2012, respectively.

i.) Reinsurance The Company reinsures certain risks with other insurance organizations for the purpose of limiting their exposure to

losses on any single risk. In 2013 and 2012, OMSNIC retained the first $1,000,000 and Fortress retained the first $500,000 of each risk and reinsured amounts in excess of its retention. In addition, OMSNIC’s excess of loss reinsurance coverage has an aggregate deductible of $1,751,407 and $1,719,402 for years 2013 and 2012, respectively. Fortress’ excess of loss reinsurance coverage has an aggregate deductible of $687,395 and $668,204 for the years 2013 and 2012, respectively. Although reinsurance agreements contractually obligate the Company’s reinsurers to reimburse the Company for the reinsurers’ share of losses, the reinsurance agreements do not discharge the primary liability of the Company for all claims.

Premiums ceded to reinsurers on these reinsurance contracts are based primarily on a percentage of premiums earned or written on the underlying policies written by the Company. For certain contracts, the premiums ceded are subject to adjustment based on the actual losses incurred by reinsurers. Reinsurance recoveries due from reinsurers are reported as assets.

Accrued ceded premiums payable and amounts recoverable from reinsurers are based on actuarially developed estimates of losses based upon past experience of the Company modified by certain industry data of ultimate developed costs, which may differ from case estimates. Changes in the assumptions used in making these estimates for such things as legal actions and changes in actual experience could cause these estimates to change in the near term. These estimates


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are reviewed by management and, as adjustments become necessary, such adjustments are reflected in results of operations in the period in which they are determined.

The Company evaluates the financial condition of its reinsurers to minimize its exposure to significant losses from

reinsurer insolvencies. The Company holds collateral as security under reinsurance agreements in the form of letters of credit for any reinsurers not subject to the regulation of the Illinois Department of Insurance (“DOI”). In the opinion of management, all amounts due from reinsurers at December 31, 2013 and 2012 are considered recoverable.

In 2013 and 2012, cessions to Lloyd’s of London were 65% and 61%, respectively of total reinsurance ceded.

j.) Income Taxes The Company files a consolidated federal income tax return as an insurance company subject to taxation under section 832 of the Internal Revenue Code.

The Company accounts for deferred income taxes through an asset and liability approach. Income tax expense (benefit) is the consequence, as measured by the provisions of enacted tax rates, of all events that have been recognized in the consolidated financial statements. The deferred tax liability or asset represents the amount of taxes payable or refundable in future years as a result of differences between the bases of assets and liabilities for financial reporting and tax purposes. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are more likely than not to be realized based on available evidence.

The Company has not established a valuation reserve at December 31, 2013 and 2012, as they believe that all deferred tax assets are fully realizable. The Company has a past history of profitability and anticipates future profitability.

Income taxes paid during 2013 and 2012 were $6,000,000 and $7,300,000, respectively.

As of December 31, 2013, the Company does not have any unrecognized tax benefits and does not anticipate it will significantly increase in the next 12 months. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits as an element of income tax expense (benefit) in the consolidated statements of comprehensive income. The tax years which remain subject to examination by the taxing authorities are the years ended December 31, 2010, 2011, 2012 and 2013.

k.) Property and Equipment Equipment, furniture, leasehold improvements and internally developed software are recorded at cost less accumulated

depreciation or amortization. Equipment is depreciated on the straight-line method over three years. Furniture is depreciated on the straight-line method over five years and leasehold improvements are depreciated on the straight-line method over the remaining life of the lease. Internal and external costs incurred during the application development stage to develop internal-use computer software are capitalized and amortized on the straight-line method over three years. These costs include fees paid to third parties for services provided to develop the software and payroll-related costs incurred by employees directly associated with development.

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. Management has determined no impairment existed as of December 31, 2013 and 2012.


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The following summarizes depreciable assets by class as of December 31, 2013 and 2012:

2013

Classification Basis

Accumulated Depreciation / Amortization

Carrying Basis

Depreciation / Amortization

ExpenseEquipment $844,049 $707,589 $136,460 $96,879Capitalized software 428,076 352,411 75,665 54,752 Internally developed software 2,618,036 2,618,036 - - Furniture 826,267 824,349 1,918 2,153 Leasehold improvements 885,048 604,571 280,477 57,233 Total $5,601,476 $5,106,956 $494,520 $211,017

2012

Classification Basis

Accumulated Depreciation / Amortization

Carrying Basis

Depreciation / Amortization

ExpenseEquipment $906,956 $760,258 $146,698 $111,123Capitalized software 401,529 297,657 103,872 54,687 Internally developed software 2,618,036 2,618,036 - 49,672 Furniture 826,267 822,196 4,071 4,199 Leasehold improvements 885,048 547,338 337,710 57,233 Total $5,637,836 $5,045,485 $592,351 $276,914

l.) Reserve for Losses and Loss Adjustment Expenses The reserve for losses and loss adjustment expenses is based upon the accumulation of individual case estimates for

reported losses, plus actuarially developed incurred but not reserved estimates, based upon past experience, modified by certain industry data of ultimate expected developed costs which may differ from case estimates. Changes in the assumptions used in making these estimates for such things as legal actions and changes in actual experience could cause these estimates to change in the near term. These estimates are reviewed by management and, as adjustments become necessary, such adjustments are reflected in results of operations in the period in which they are determined. In the opinion of the Company’s management, the reserve for losses and loss adjustment expenses is sufficient to meet the Company’s liability for future claims payments. However, since the reserve for losses and loss adjustment expenses is necessarily based upon estimates and derived, in part, from the Company’s historical experience, the ultimate settlement of these liabilities may be significantly greater or less than the recorded amounts.

m.) Premium Deficiency Reserves

Premium deficiency reserves and the related expense are recognized when it is probable that losses, loss adjustment expense and policy maintenance costs under a group of existing contracts will exceed net unearned premiums and expected reinsurance recoveries. The Company evaluated if a premium deficiency reserve was needed on January 24, 2014 and determined that no premium deficiency reserve is required at either December 31, 2013 or 2012. The Company does not anticipate investment income as a factor in determining premium deficiency reserves.

n.) Newly Adopted Accounting Pronouncements

In December 2011, the FASB issued amended guidance related to disclosures about offsetting assets and liabilities. The amended guidance requires entities to disclose both gross information and net information about financial instruments, including derivatives, and transactions eligible for offset in the statement of financial position, as well as financial instruments and transactions subject to agreements similar to a master netting arrangement. This guidance will be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The guidance primarily impacts the Company’s disclosures, but otherwise does not have a material impact on the Company’s consolidated financial positions, results of operations and cash flows.


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o.) Pending Adoption Accounting Pronouncements In February 2013, the FASB issued guidance which requires an entity to provide information about amounts reclassified

out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. These amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.

This guidance is effective for fiscal years beginning after December 15, 2013. The adoption of this guidance will not have a material impact on the Company’s consolidated financial positions, results of operations and cash flows.

2. Fair Value Measurements

a.) Valuation Hierarchy Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants. GAAP requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, a fair value hierarchy for valuation inputs is utilized that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. The Company’s level 1 financial instruments primarily include actively traded equity securities and U.S. Treasury bonds.

Level 2: Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data. The Company’s level 2 financial instruments primarily include fixed-income securities and other investments for which public quotations are not available but that are priced by third-party pricing services or internal models using observable inputs. The level 2 financial instruments primarily include certain government securities such as agency bonds, investment-grade corporate bonds and municipal obligations.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that

market participants would use in pricing an asset or liability. b.) Determination of Fair Value The following methods and assumptions were used to estimate the fair value of each class of financial instruments for

which it is practicable to estimate that value: Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of those

investments. Cash and cash equivalents amounted to $27,791,259 and $8,034,447 at December 31, 2013 and 2012, respectively.

Equity securities: The fair values are determined using public quotations, when available. For equity securities that are not actively traded, estimated fair values are based on values of comparable issues.

Fixed securities: The fair values of fixed-income securities that are actively traded in the secondary market have been determined through the use of third-party pricing services using market observable inputs. Fixed-income securities where the Company does not receive a public quotation are valued based on values of comparable issues. Market rates used are applicable to the yield, credit quality and average maturity of each security.


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Other invested assets: The fair value is determined by the outstanding balance of a collateralized loan. As the loan was issued in 2012, the Company believes the current loan balance approximates fair value.

The following summarizes financial instruments measured at fair value on a recurring basis as of December 31, 2013 and 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

2013 Level 1 Level 2 Level 3 Total Fair ValueDebt securities:U.S. Treasury securities and obligations

of U.S. Government corporations and agencies:Guaranteed $ 1,362,737 $ - $ - $ 1,362,737Non-Guaranteed - 1,411,894 - 1,411,894

Municipal securities:States, territories, and possessions - 28,056,973 - 28,056,973 Political subdivisions of states, territories

and possessions - 51,252,865 - 51,252,865 Special revenue and assessments - 137,961,510 - 137,961,510

Industrial and miscellaneous - 21,386,463 - 21,386,463 Commercial - mortgage-backed /

asset-backed securities - 2,065,240 - 2,065,240 Residential - mortgage-backed /

asset-backed securities - 24,716,892 - 24,716,892 Subtotal debt securities 1,362,737 266,851,837 - 268,214,574

Equity securities:Common Stock - U.S. large-cap index funds 32,004,860 - - 32,004,860 Common Stock - U.S. mid-cap index funds 18,869,886 - - 18,869,886 Common Stock - U.S. small-cap index funds 20,584,973 - - 20,584,973 Common Stock - International funds 10,530,134 - - 10,530,134 Common Stock - Other 13,194,033 - - 13,194,033 Preferred Stock - 603,180 - 603,180

Subtotal equity securities 95,183,886 603,180 - 95,787,066 Other Invested Assets - - 649,709 649,709

Total investments $ 96,546,623 $ 267,455,017 $ 649,709 $ 364,651,349

Fair Value Hierarchy Level


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2012 Level 1 Level 2 Level 3 Total Fair ValueDebt securities:U.S. Treasury securities and obligations

of U.S. Government corporations and agencies:Guaranteed $ 1,740,804 $ - $ - $ 1,740,804Non-Guaranteed - 1,476,583 - 1,476,583

Municipal securities:States, territories, and possessions - 29,342,893 - 29,342,893 Political subdivisions of states, territories

and possessions - 63,187,830 - 63,187,830 Special revenue and assessments - 152,728,693 - 152,728,693

Industrial and miscellaneous - 26,689,172 - 26,689,172 Commercial - mortgage-backed /

asset-backed securities - 2,168,035 - 2,168,035 Residential - mortgage-backed /

asset-backed securities - 26,393,945 - 26,393,945 Subtotal debt securities 1,740,804 301,987,151 - 303,727,955

Equity securities:Common Stock - U.S. large-cap index funds 20,973,290 - - 20,973,290 Common Stock - U.S. mid-cap index funds 12,933,189 - - 12,933,189 Common Stock - U.S. small-cap index funds 13,334,013 - - 13,334,013 Common Stock - International funds 7,578,407 - - 7,578,407 Common Stock - Other 10,016,278 - - 10,016,278 Preferred Stock - 1,142,956 - 1,142,956

Subtotal equity securities 64,835,177 1,142,956 - 65,978,133Other Invested Assets - - 821,448 821,448


Fair Value Hierarchy Level


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3. Investments The amortized cost, gross unrealized holding gains and losses and fair value of investments held at December 31, 2013

and 2012, are as follows:

Amortized Fair2013 Cost Gains Losses ValueDebt securities:U.S. Treasury securities and obligations

of U.S. Government corporations and agencies:Guaranteed $ 1,325,793 $ 36,944 $ - $ 1,362,737Non-Guaranteed 1,426,005 - 14,111 1,411,894

Municipal securities:States, territories, and possessions 26,447,436 1,609,537 - 28,056,973Political subdivisions of states, territories

and possessions 48,241,418 3,068,731 57,284 51,252,865Special revenue and assessments 138,356,542 3,886,598 4,281,630 137,961,510

Industrial and miscellaneous 20,270,439 1,121,813 5,789 21,386,463Commercial - mortgage-backed /

asset-backed securities 1,986,694 78,546 - 2,065,240Residential - mortgage-backed /

asset-backed securities 24,214,428 574,368 71,904 24,716,892Subtotal debt securities 262,268,755 10,376,537 4,430,718 268,214,574

Equity securities:Common Stock - U.S. large-cap index funds 21,143,225 10,861,635 - 32,004,860Common Stock - U.S. mid-cap index funds 9,657,629 9,212,257 - 18,869,886Common Stock - U.S. small-cap index funds 10,147,256 10,437,717 - 20,584,973Common Stock - International funds 7,630,883 2,899,251 - 10,530,134Common Stock - Other 13,194,033 - - 13,194,033Preferred Stock 500,262 102,918 - 603,180

Subtotal equity securities 62,273,288 33,513,778 - 95,787,066Other invested assets 649,709 - - 649,709

Total investments $ 325,191,752 $ 43,890,315 $ 4,430,718 $ 364,651,349

Gross Unrealized Holding


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Amortized Fair2012 Cost Gains Losses ValueDebt securities:U.S. Treasury securities and obligations

of U.S. Government corporations and agencies:Guaranteed $ 1,675,825 $ 64,979 $ - $ 1,740,804Non-Guaranteed 1,477,211 - 628 1,476,583

Municipal securities:States, territories, and possessions 26,765,030 2,577,863 - 29,342,893Political subdivisions of states, territories

and possessions 58,166,263 5,021,567 - 63,187,830Special revenue and assessments 146,709,646 6,392,031 372,984 152,728,693

Industrial and miscellaneous 24,763,075 1,941,856 15,759 26,689,172Commercial - mortgage-backed /

asset-backed securities 1,986,961 181,074 - 2,168,035Residential - mortgage-backed /

asset-backed securities 25,196,436 1,218,514 21,005 26,393,945Subtotal debt securities 286,740,447 17,397,884 410,376 303,727,955

Equity securities:Common Stock - U.S. large-cap index funds 16,597,342 4,375,948 - 20,973,290Common Stock - U.S. mid-cap index funds 8,050,365 4,882,824 - 12,933,189Common Stock - U.S. small-cap index funds 8,543,637 4,790,376 - 13,334,013Common Stock - International funds 6,434,433 1,143,974 - 7,578,407Common Stock - Other 10,016,278 - - 10,016,278Preferred Stock 1,002,962 139,994 - 1,142,956

Subtotal equity securities 50,645,017 15,333,116 - 65,978,133Other invested assets 821,448 - - 821,448


Gross Unrealized Holding

The amortized cost and fair value of debt securities held at December 31, 2013, by contractual maturity, are shown

below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:

2013Amortized

CostFair

ValueOne year or less 28,931,605$ 28,759,938$ One year through five years 109,803,530 116,597,903 Five years through ten years 48,523,754 50,014,537 Ten years through twenty years 46,775,412 43,717,100 After twenty years 2,033,332 2,342,964 Mortgage-backed securities 26,201,122 26,782,132 Total 262,268,755$ 268,214,574$

The Company’s subsidiary, Fortress, has $5,516,608 of securities on deposit with insurance departments.


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The following summarizes the proceeds from sales of investments, excluding calls and maturities, and the gross realized gains and losses on those sales for 2013 and 2012:

2013 2012Proceeds from sales $160,928,207 $80,193,976Gross realized gains:

Debt securities 147,036 5,813Equity securities - 289,751

Gross realized losses:Debt securities (51,312) -Equity securities (2,700) (518)

Total realized gains $93,024 $295,046 The following tables show unrealized gross losses and fair value for the Company’s investments that are not deemed to

be other-than-temporarily impaired, aggregated by individual category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2013 and 2012:

Fair Unrealized Fair Unrealized Fair Unrealized2013 Value Losses Value Losses Value LossesU.S. Treasury securities and obligations of U.S. Government corporations and agencies:

Non-Guaranteed -$ -$ 1,411,894$ 14,111$ 1,411,894$ 14,111$ Municipal securities:

Political subdivisions of states,territories and possessions 4,556,946 57,284 - - 4,556,946 57,284

Special revenue and assessments 33,942,123 1,889,875 26,753,841 2,391,755 60,695,964 4,281,630 Industrial and miscellaneous 243,325 5,789 - - 243,325 5,789 Residential - mortgage-backed / asset-backed securities 10,217,513 62,681 409,802 9,223 10,627,315 71,904

Total bonds and notes 48,959,907 2,015,629 28,575,537 2,415,089 77,535,444 4,430,718 Total investments 48,959,907$ 2,015,629$ 28,575,537$ 2,415,089$ 77,535,444$ 4,430,718$

Fair Unrealized Fair Unrealized Fair Unrealized2012 Value Losses Value Losses Value LossesU.S. Treasury securities and obligations of U.S. Government corporations and agencies:

Non-Guaranteed 1,476,583$ 628$ -$ -$ 1,476,583$ 628$ Municipal securities:

Special revenue and assessments 44,656,730 372,984 - - 44,656,730 372,984 Industrial and miscellaneous - - 1,513,064 15,759 1,513,064 15,759 Residential - mortgage-backed / asset-backed securities 1,282,445 21,005 - - 1,282,445 21,005

Total bonds and notes 47,415,758 394,617 1,513,064 15,759 48,928,822 410,376 Total investments 47,415,758$ 394,617$ 1,513,064$ 15,759$ 48,928,822$ 410,376$

Total

Total12 Months or Less More than 12 Months

12 Months or Less More than 12 Months

Because the Company does not intend to sell the available-for-sale securities with unrealized losses and does not expect to be required to sell any of the securities before recovery to amortized cost, which may be maturity for debt securities, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2013.


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Investment income is as follows for 2013 and 2012, respectively:

2013 2012Bonds and notes interest $9,146,594 $9,452,380Cash and cash equivalents interest 4,283 2,584Equities dividends 1,288,426 1,248,684Other invested assets 45,361 30,998

Total securities interest and dividends $10,484,664 $10,734,646

4. Reinsurance

The effect of reinsurance on premiums written and earned for 2013 and 2012 are as follows:

Written Earned Written EarnedGross 90,420,999$ 88,955,332$ 88,990,358$ 87,092,533$ Ceded (3,987,132) (3,954,247) (7,951,616) (7,927,077)

Net 86,433,867$ 85,001,085$ 81,038,742$ 79,165,456$

2013 2012

5. Reserve for Losses and Loss Adjustment Expenses Activity in the reserve for losses and loss adjustment expenses for 2013 and 2012 is summarized as follows:

2013 2012Balance at January 1 $186,306,633 $180,434,271

23,689,447 19,815,243

Net balance at January 1 162,617,186 160,619,028Incurred related to - Current year 61,684,589 57,865,012 Prior years (14,438,562) (13,495,482) Total incurred 47,246,027 44,369,530Paid related to -

Current year 6,251,298 3,477,535 Prior years 49,906,335 38,893,837 Total paid 56,157,633 42,371,372Net balance at December 31 153,705,580 162,617,186

22,072,821 23,689,447

Balance at December 31 $175,778,401 $186,306,633

Less - Reinsurance recoverable net of unearned ceded premiums and other amounts receivable under reinsurance contracts of $382,118 and $600,072 at January 1, 2013 and 2012, respectively

Plus - Reinsurance recoverable net of unearned ceded premiums and other amounts receivable under reinsurance contracts of $511,081 and $382,118 at December 31, 2013 and 2012, respectively

In 2013 and 2012, the Company’s estimated cost of loss and loss adjustment expenses attributable to insured events of prior years decreased by a net $14,438,562 and $13,495,482, respectively. Direct loss and loss adjustment expense


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reserves were decreased in 2013 and 2012 due to recent loss development trends resulting in lower estimated ultimate loss and loss adjustment expenses relating to the Company’s claims-made policies impacting prior accident years. Increases or decreases of this nature occur as a result of claim settlements during the current year, and as additional information is received regarding unpaid individual claims. Recent loss development trends are also taken into account in evaluating the overall adequacy of unpaid losses and loss adjustment expenses.

6. Borrowed Money

As of December 31, 2013, the Company has no borrowed money outstanding. As of December 31, 2013, the Company has a $2,600,000 line of credit with JPMorgan Chase. There were no outstanding balances under the line of credit during 2013. The interest rate on borrowings under the line of credit will be at the borrower’s option of the LIBOR rate plus 2.0% or the Commercial Bank Floating rate. The Commercial Bank Floating rate is the higher of Prime rate or the One Month LIBOR rate plus 2.5%. At December 31, 2013, the following rates were:

Prime Rate – 3.25% LIBOR plus 2% - 2.17% One Month LIBOR plus 2.5% - 2.67%

The line of credit expires on October 31, 2014. The Company is required to maintain a collateral security deposit for the lines of credit with JPMorgan Chase. The Company’s fair value of assets in such security deposits are 138% of its line of credit. The Company’s investment securities with a fair value of $3,575,361 were held in security deposits at December 31, 2013.

7. Lease Commitments The Company has certain operating lease arrangements for office space which expire in January 2019. Total rent expense

under such arrangements was $758,000 and $747,000 in 2013 and 2012, respectively. The future minimum rental payments (before taxes and expenses) required under other operating leases as of December 31, 2013 that have initial or remaining non-cancelable lease terms are:

Year Amount 2014 $440,065 2015 451,986 2016 463,906 2017 475,827 2018 487,747

Thereafter 40,728 Total minimum payments required $2,360,259

The Company leases various office equipment under non-cancelable leases that expire through December 2017. Rental

expenses for 2013 and 2012 were $59,966 and $54,342, respectively. Future minimum rental payments are as follows:

Year Amount 2014 2015 2016

$59,184 49,700 22,430

2017 5,100 Total minimum payments required $ 136,414

Certain office equipment rental commitments have renewal options extending through the year 2017.


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8. Income Taxes The provision for income taxes for 2013 and 2012 consists of the following:

2013 2012Federal - Current $6,732,265 $6,438,038 Deferred 668,486 (185,444)State and Local 82,855 91,777 Total tax expense $7,483,606 $6,344,371

The table below reconciles the difference between the tax provision and the federal statutory income tax rate for 2013 and 2012:

Amount Percent Amount PercentFederal taxes at statutory rate $8,997,416 35.0% $7,740,011 35.0%Tax-exempt interest income, net (1,375,163) (5.3%) (1,391,938) (6.3%)Dividend received deduction, net (223,988) (0.9%) (172,046) (0.8%)Prior year adjustment (2,858) 0.0% 69,479 0.3%Other, net 88,199 0.3% 98,865 0.4% Total tax expense $7,483,606 29.1% $6,344,371 28.6%

2013 2012

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and

liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities, as of December 31, 2013 and 2012, are shown in the table below:

2013 2012Loss reserves $4,112,901 $4,840,814Unearned premiums, net 3,486,435 3,386,141Advanced premiums 86,184 76,991Deferred acquisition costs (1,849,440) (1,767,527)Unrealized security gains and losses (13,849,231) (11,312,214)Investment impairment 1,868,919 1,868,919Licensing fees 103,747 122,526Deferred compensation 821,844 748,555Other, net (199,687) (177,030) Net deferred tax liability ($5,418,328) ($2,212,825)

At December 31, 2013, gross deferred tax assets and liabilities totaled $10,559,787 and $15,978,115, respectively. At December 31, 2012 gross deferred tax assets and liabilities totaled $11,108,710 and $13,321,535, respectively.

The statute of limitations has expired for tax years through 2009. The Illinois Department of Revenue examined the Company’s 2009, 2010 and 2011 Illinois state income and franchise tax returns. There were no material adjustments from examinations. The Company has no liability for tax contingencies computed in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes, at December 31, 2013 or 2012, and believes it is reasonably possible that the tax contingencies balance will not increase within the next twelve months. No amounts have been accrued for interest or penalties with respect to tax contingencies.


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9. Related Party Transactions Other underwriting expenses include $600,000 in 2013 and 2012 paid to the Association, under an endorsement and

royalty agreement in connection with the advertising, marketing, promotion and sale of professional liability insurance with an expiration date of December 31, 2016. Under the terms of the endorsement and royalty agreement, OMSNIC pays the Association a monthly fee of $50,000.

Legal fees of $430,703 and $915,478 in 2013 and 2012, respectively, were paid to firms in which directors of Fortress are partners. Consulting fees of $71,633 in 2013 were paid to a director of Fortress.

10. Dividend Restrictions OMSNIC has a statutory surplus of $191,543,446 at December 31, 2013 and statutory net income of $21,430,215 for the

year then ended. At December 31, 2013, OMSNIC may pay up to $21,430,215 in dividends without the prior approval of the Director of the DOI. No dividends may be paid on common shares or preferred shares if payments for repurchases of preferred shares, as discussed in Note 11, are suspended by law, regulation, order of the DOI, the Board of Directors or if the number of shareholders is fewer than 1,000. Additionally, under OMSNIC’s bylaws, dividends cannot be paid on common stock unless dividends of at least $8.00 per share have been paid on preferred stock in that year. The annual maximum dividend payable on common stock is $.10 per share.

Fortress has a statutory surplus of $59,725,083 at December 31, 2013 and statutory net loss of $2,894,735 for the year then ended. At December 31, 2013, Fortress may pay up to $4,895,493 in dividends without prior approval of the Director of the DOI.

As required by the Illinois Insurance Code, OMSNIC must maintain minimum capital of $1,000,000 and minimum policyholders’ surplus of $500,000. Under the most restrictive insurance laws of the states where Fortress is licensed to do business, Fortress must maintain total minimum capital and surplus of $1,500,000.

11. Capital Stock New insureds are required to purchase one common share plus preferred shares in an amount equal to 75% of the

premium for the first $250,000 in coverage. There is not a market for the Company’s shares. The terms for the purchase and sale of shares are highly restricted. Such transactions are generally limited to the issuance of shares when a shareholder first becomes a policyholder and to the repurchase of shares when a policyholder terminates coverage. The transferability of common shares is restricted to the Company or another shareholder, and only at a price of $1.00 per share. Preferred shares are only transferable to the Company. Preferred shares are non-voting.

Common and preferred shares are repurchased by the Company when a policyholder terminates his or her insurance coverage. The repurchase price for common shares is $1.00 per share. Subject to specific exceptions enumerated in the Articles of Incorporation and By-laws of the Company, the repurchase price for preferred shares is the price per share as of the termination date, or, if lower, at the time of the policyholder’s death, disability or retirement. The preferred share price is calculated each April 1 as the prior year’s ending statutory surplus adjusted for the difference in market value versus carrying cost of investments and certain other adjustments as defined in the Company’s Amended and Restated Articles of Incorporation. As of December 31, 2013, the preferred share price was $1,323.97 per share. Payment for repurchased shares is deferred until death, disability or retirement of the policyholder. Repurchased common and preferred shares are held as treasury stock.

At December 31, 2013 and 2012, the Company has a liability included in accrued expenses and other liabilities, in the form of subordinated debentures, of $4,077,066 and $3,638,035, respectively, for repurchases of preferred shares made on cessation of coverage for reasons other than death, disability or retirement. In 2013 and 2012, the Company issued, on a net basis, $439,031 and $351,326, respectively, of preferred shares through the redemption of subordinated debentures.

In liquidation of the Company, the holders of preferred shares are entitled to receive all liquidation proceeds up to $100 per share before the holders of common shares receive $1.00 per share. All remaining liquidation proceeds then goes to holders of preferred shares.


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12. Other Comprehensive Income (Loss) The following table sets forth the components of other comprehensive income (loss) and the related tax effect for 2013

and 2012:

2013 Total

Income Tax Benefit

(Expense) NetAvailable-for-sale securities:

Net unrealized holding gainsarising during the period $7,231,997 ($2,569,575) $4,662,422

Less: reclassification for net realizedlosses included in income (93,024) 32,558 ($60,466)

Other comprehensive income (loss) $7,138,973 ($2,537,017) $4,601,956

2012 Total

Income Tax Benefit

(Expense) NetAvailable-for-sale securities:

Net unrealized holding gainsarising during the period $5,568,467 ($1,948,963) $3,619,504

Less: reclassification for net realizedgains included in income (295,046) 103,266 (191,780)

Other comprehensive income (loss) $5,273,421 ($1,845,697) $3,427,724 13. Defined Contribution Plan and Deferred Compensation Plan The Company has established an employee 401(k) plan for which all employees who have attained the age of 21 are eligible to

participate on a voluntary basis. The 401(k) plan calls for the Company to match employee contributions up to 4% of an employee’s compensation, limited to the maximum allowed under federal tax laws, which was $10,200 and $10,000 per employee for 2013 and 2012, respectively. The Company funds its full obligation under the 401(k) plan annually. The Company’s contributions to the 401(k) plan were approximately $220,000 and $223,000 for the year ended December 31, 2013 and 2012, respectively. At December 31, 2013, the fair value of the 401(k) plan assets was $6,140,000.

The Company has established a Deferred Compensation Plan for all employees. Under the terms of the plan, units are credited to eligible employees in an amount equal to 5% of an employee’s base annual salary as of April 1 of the grant year, divided by the price per share of the Company’s preferred stock. An employee vests in phantom stock awards on the fifth anniversary of the grant. Grants of deferred compensation units that have not vested are forfeited upon termination of employment except in the case of death, disability or retirement. The plan is not funded.

The following summarizes the units granted, paid and forfeited in 2013 and 2012:

2013 2012 Units outstanding at January 1 2,472.62 2,616.12 Plus: units granted 288.96 292.93 Less: units paid (268.83) (273.01) Less: units forfeited (110.65) (163.42) Units outstanding at December 31 2,382.10 2,472.62 Vested units at December 31 953.39 898.71

Payment of vested amounts is made on the vesting date unless an employee elects to defer payment to a later date. Payment of all

unpaid vested amounts is made upon termination of employment. Payments of $355,923 and $322,717 were made to employees for vested units under the plan in 2013 and 2012.


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The total cost of the deferred compensation units granted is expensed pro rata over the five-year vesting period. Adjustments

due to changes in the price per share which is used in the deferred compensation calculation or forfeitures are expensed in the year of the change. Included in loss adjustment expenses and salary expense for 2013 are $177,866 and $633,425 and for 2012 are $132,331 and $712,849, respectively, for unvested and vested units. As of December 31, 2013 and December 31, 2012, $2,348,125 and $2,138,727 were included in other liabilities relating to the plan. The total compensation cost for unvested units that have not yet been included in expense as of December 31, 2013 is $805,704.

Assuming no forfeitures or terminations of employment and using the share price at December 31, 2013, the scheduled payout of grants as of December 31, 2013, adjusted for elective employee deferrals, is as follows:

Year Deferred Compensation Units Amount 2014 287.80 $381,039 2015 356.99 $472,6442016 388.20 $513,9652017 262.39 $347,3962018 287.59 $380,761

After 2018 799.13 $1,058,024 14. Contingencies

The Company is periodically involved in various legal actions and proceedings arising from the normal course of operations. Management believes, based on known facts, that the ultimate liability, if any, not covered by insurance, arising from all the legal actions and proceedings will not have a material adverse effect upon the financial position of the Company.

The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other property and casualty insurance companies. The Company currently estimates any guaranty fund assessments for known insolvencies will be immaterial to the consolidated financial statements.

15. Subsequent Events

All of the effects of subsequent events that provide additional evidence about conditions that existed at the consolidated balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the consolidated balance sheet date but arose after, but before the consolidated financial statements are available to be issued. In some cases, nonrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading. Subsequent events have been evaluated through April 11, 2014, which is the date that the consolidated financial statements were available to be issued.

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