This document discusses how small property and casualty insurance companies can benefit from Section 831(b) of the Internal Revenue Code. Specifically, companies writing less than $1.2 million in annual premiums will only pay taxes on investment income, not income from insurance policies. A simple example is provided showing how a small P&C insurer could generate over $2.4 million in net benefit over 5 years by leveraging this tax provision. Estate planning structures using such an insurer are also briefly outlined.

1. Small P&C Insurer Benefits under IRC § 831(b) Small property and casualty insurance company provision If the company writes less than $1.2 Million in premium income, it will only pay taxes on its investment income. Shareholders Parent Company Small P&C Insurer $1.2 MM Premium – Tax Exempt Insurance Policies

2. Net Benefit Example This is a simple example which does not take into account investment income nor time value of money *Policy Issuance Fee - Varies depending on number of policies from $10K to $80K. **Available for claims, surplus, and distributions to shareholders; Assumes 40% personal / corporate tax rate, 8% investment return. For discussion purposes only. Actual results may vary significantly. Year 1 Year 2 Year 3 Year 4 Year 5 Premium 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 Expenses (85,000) (35,000) (35,000) (35,000) (35,000) PIF* (10,000) (10,000) (10,000) (10,000) (10,000) $ Available** 1,105,000 2,260,000 3,415,000 4,570,000 5,725,000 Net Benefit 522,200 983,100 1,485,525 1,987,950 2,490,375

3. Estate Planning Structure Using an Insurance Company Mom / Dad Business P&C Insurer LLC Child Trust Mom / Dad 99% 1%

4. Estate Planning With a Insurance Company (Including Life Insurance) Life Insurance Mom / Dad Business P&C Insurer LLC Child Trust Mom / Dad 99% 1%

5. Exit Strategies Salaries/Management Fees Dividends Liquidation C-Corp Upstream Merger Estate Planning