In addition, TermMonster has associated Dowling Risk Analysis, insurance industry research and analysis firm to assist us in our insurance company due diligence process.

Dowling Risk Analysis – DRA issues confidential, independent research on insurance companies specifically to assist in the internal due diligence of fiduciaries. Unlike public credit rating agencies, insurance companies do not compensate Dowling Risk Analysis for issuing ratings and research. In addition to the comprehensive research provided, TermMonster has implemented both the DRA Credit Rating and DRA ALIRT Score and flag system as part of our due diligence screening process.

TermMonster’s Policy Regarding Insurance Company Financial Strength

Approved

Insurance carriers categorized as ‘Approved’ have no restrictions other than specific products being approved by TermMonster and available through a TermMonster selling agreement.

Carriers must meet both Criteria 1 and Criteria 2 as described below in order to be categorized as ‘Approved’.

Criteria 1 – Financial Strength Ratings

The carrier must be rated by at least two of the four rating agencies listed below. Furthermore, the carrier must be rated within the “A” range of all the rating agencies that rate the company. For example, if only two rating agencies publish ratings for the carrier then those two ratings must meet the minimum ratings listed below, if all four of the rating agencies publish ratings for the carrier then all four ratings must meet the minimum ratings listed below. The minimum ratings by each rating agency are:

•  A.M. Best: A (3rd highest), which is defined as “Excellent”
•  S&P: A (6th highest), which is defined as “strong”
•  Moody’s: A2 (6th highest), which is defined as “good”
•  Fitch: A (6th highest), which is defined as “strong”

Criteria 2 – 3rd-Party Screening In-Depth Criteria

Carrier must in addition to the above, meet two of four guidelines listed below:

•  Dowling Risk Analysis (DRA) rating is “A” or above, and
•  A.M. Best Financial Size Category is VI or greater, and
•  DRA ALIRT Score equals 45 or more, and
•  Company has 3 or fewer DRA Flags

Watch List / Alert Status

Carrier’s whose Criteria 1 and 2 ratings fall one level below “Approved List” levels, will be placed on TermMonster’s Watch List for monitoring and possible downgrade to Alert status.

Criteria 1

Carrier must be rated by at least two of four nationally recognized ratings agencies. Furthermore, two of four ratings must comply with the minimum rating levels shown below:

•  A.M. Best: A- (4th highest), which is defined as “good”
•  S&P: A- (7th highest), which is defined as “…….
•  Moody’s: A3 (7th highest), which is defined as “…..
•  Fitch: A- (7th highest), which is defined as “……”

Criteria 2

In addition to the above, carrier should at least one of four guidelines listed below:

•  Dowling Risk Analysis (DRA) rating is “A” or above, and
•  A.M. Best Financial Size Category is VI or greater, and
•  DRA ALIRT Score equals 45 or more, and
•  Company has 3 or fewer DRA Flags

Watch List / Alert Protocol

Once a carrier has been classified as “Watch List”, the carrier will be monitored closely and the following steps will be taken:

•  Preliminary Questionnaire to be prepared by TermMonster and completed by carrier with a minimum amount of information including but not limited to the following:

•  Downgrade, occurrence or event causing Watch List status
•  Explanation/interpretation from carrier
•  Confirmation as to which entity is downgrade based on i.e., holding company, parent company, etc
•  How does downgrade/change in financials impact carrier claims paying ability
•  Provide breakdown of business with general account exposure including:
-  Products
-  Features & Benefits
         -  Living Benefits
         -  Death Benefits
-  Other

Prior to questionnaire being sent to carrier, ALIRT will review and further adapt/expand questionnaire on a case by case basis. This approach will allow TermMonster to analyze consistent information across carriers as they drop to watch list yet also allow for an added layer of analysis based on each situation.

Timeline:

•  TermMonster should submit customized questionnaire within 5 business days of downgrade or event
•  Carriers have 5 business days with which to respond
•  TermMonster has 5 business days to review results and present to Investment Policy Committee / Sales Practice Committee for final determination

Potential Watch List Outcomes

•  Secondary review 60 days from downgrade or event date
•  On-going 90-day reviews or as often as necessary; may require carrier to complete questionnaire
•  Customized advisor notification letter and/or intranet (Resource Center) site notification
•  Downgrade to Alert

If, under Watch List monitoring there is emerging information causing discomfort in allowing for on-going sales and marketing on a ‘business as usual’ basis, carrier may be downgraded to Alert status where the following could occur:

•  Product sales may limit investment options with general account exposure
•  New product sales may require signed client disclosure

Wholesaling and marketing activity may be limited or curtailed

Carriers must meet Criteria 1 and 2 to remain categorized as ‘Watch List’ or that carrier will be downgraded to ‘Unapproved’.

Unapproved

If a carrier does not meet Criteria 1 and 2 as defined in the ‘Watch List’ category above, that carrier will be categorized as unapproved at TermMonster and sales will be suspended.

Carrier Level Recap

•  Approved
    -  No change
•  Watch List
    -  Monitoring
    -  Advisor disclosure of monitoring
    -  Based on results of monitoring, carrier could be downgraded to Alert level status
•  Alert Status
    -  May limit sales of products with general account exposure
    -  May require client disclosure for new sales
    -  May limit or curtail wholesaling and marketing activity
•  Unapproved
    -  No wholesaling
    -  No marketing
    -  No sales