DEALER OWNED WARRANTY CORP. D.O.W.C.

Transcription

1 DEALER OWNED WARRANTY CORP. D.O.W.C.

2 Randall Rabbitt Executive Vice President, National Sales Director Jim Smolich Chief Financial Officer

3 Since 1975 Oldest licensed Warranty Company in Florida Inventors of D.O.W.C. s

4 WHAT IT IS Domestic onshore vehicle whereby you the Dealer has total control and captures the highest percentage of underwriting profit and investment income, available to the Dealer market, while providing the highest quality product to your customers.

5 WHAT IT DOES Gives you the dealer, greater overall return of premium capital due to: Long Term Tax Deferral Elimination of fees and taxes Greater Investment returns DOWC qualifies for insurance company treatment for federal tax purposes, allowing for taxation only on investment income if net written premium is less than $1.2 million. $0 Tax on underwriting profit with small insurance company status

6 HOW IT S DONE You, the Dealer, are set up in your own Admin Obligor (AO) DOWC, which is perfect for your needs, goals and growth. You retain 100% of the underwriting profit and investment income. All of the cash remains in your control, and all of the investment decisions are made by you. You decide ownership, and all DOWC decisions are retained by you. There is no co-mingling of funds and you receive all of the benefits with no risk. Collectively we will design your program, customizing rates, coverages (better than factory if you so choose) and marketing materials. We never touch/control your cash. YOU send YOUR money to YOUR investment account, monthly or weekly.

7 HOW IT S DONE We control 100% of the administration including claims and accounting. You have immediate claims override authority. Reports are online daily, password protected. Monthly, we do a balance sheet and income statement for your company along with a myriad of detailed/customized reports. USWC has been vetted by AutoNation, Toyota, National City Bank, Key bank and some of the most prestigious and successful dealers in the US. We currently do business with all of the above and are 100% transparent and willing to share any of our financial info with you the dealer and/or your representatives.

8 Significant cash flow Wealth building tool Estate planning-wealth transfer You keep 100% of underwriting profit and investment income Future Growth Total Return % more return than other available options in the dealer market Total control of investment decisions Total control of design including rates, coverages, marketing materials and DOWC name Long term tax deferral due to insurance company treatment Distributions treated as dividends

9 Assets outside of the dealerships which assumes the obligation of the service contract Separate entity with no tie to dealership capital or dealers personal assets Crystal Ball look forward CLP provided by Allstate Capital loans no loan fees or handling charges Loans back to dealership to buy own floor plan Capital improvements Acquisitions Rainy day fund Investment income and underwriting profit far outpace other programs available to the automotive market USWC handles all of the day to day operations of your DOWC

10 Extremely lower Admin costs No ceding fees No premium taxes No excise taxes No annual maintenance fees No loss adjustment fees No claims fees No segregated cell fees No trust fees No run-off fees No just because fees No hidden fees You the dealer will know where every dollar is every day TOTAL TRANSPARENCY

11 TAX DEFERRAL Assumptions: 5 year service contract $2, Selling Price (Retail Premium) $1, F&I Cost $1, F&I Profit (Commission) Earnings Year 1 Year 2 Year 3 Year 4 Year 5 $500 $500 $500 $500 $500 F&I Commission Expense <$1500> <$1425> <$925> <$425> <$275> Admin Fee Expense <$125> <$925> <$425> $75 *$225 Taxable Income Taxable Income Dealer Pack Expense <$300> Estimated 5 Year Claim Expense <$ > <$ > <$ > <$350> (Franchise Specific) Total Expenses <$1925> <$275> $500 <$1425> * As policies layer on top of each other, DOWC normally becomes taxable in years 8-12

12 10 YEAR - PROFORMA ASSUMPTIONS Sample Proforma - Nissan How Many Years of Writing? 10 Capitalization Interest Rate Compounded Annually 5.00% Federal Income Tax 32.20% State Income Tax 5.30% 1 $7,027 VEHICLE SERVICE CONTRACT Policies Term Written Annually Average Premium Gross Written Premium PRE-PAID MAINTENANCE Policies Written Term Annually Average Premium Gross Written Premium 12 $0 12 $0 24 $0 24 $0 ROAD HAZARD PROTECTION PLAN Policies Term Written Annually Average Premium Gross Written Premium $1,800 $1,080, $0 36 $0 48 $0 48 $0 48 $ $1,800 $540, $0 60 $ $1,800 $1,080, $1,800 $540, $0 1,800 $1,800 $3,240,000 0 $0 0 $0 Annual Increase Contracts Written (%) Annual Increase Contracts Written (%) Annual Increase Contracts Written (%) Dealer Commission 50.00% Dealer Commission Dealer Commission Projected Loss Ratio 17.00% Projected Loss Ratio Projected Loss Ratio Administration Fee - Include Administration Fee - Include Administration Fee - Include ENTER $$ $125 ENTER $$ ENTER $$ CLI for Non-Florida CLI for Non-Florida CLI for Non-Florida OR % OR % OR % Business Business Business Loss Based on USWC Experience NOTES

13 Tax Effected 1st YEAR 2nd YEAR 3rd YEAR 4th YEAR 5th YEAR 6th YEAR 7th YEAR 8th YEAR 9th YEAR 10th YEAR Description Model Model Model Model Model Model Model Model Model Model Summary Deferred Acq. Cost 1,655,734 2,898,710 3,728,930 4,239,872 4,542,851 4,666,067 4,689,867 4,689,867 4,689,867 4,689,867 Unearned Premium Reserve 2,907,630 5,090,418 6,548,364 7,445,628 7,977,690 8,194,068 8,235,864 8,235,864 8,235,864 8,235,864 FULLY EARNED SUMMARY Earned Premium 332,370 1,057,212 1,782,054 2,342,736 2,707,938 3,023,622 3,198,204 3,240,000 3,240,000 3,240,000 24,164,136 32,400,000 Investment Income 33,462 98, , , , , , , , ,834 2,901,042 6,047,676 Total Income 365,832 1,156,192 1,943,666 2,564,648 2,989,230 3,364,370 3,579,779 3,660,552 3,700,075 3,740,834 27,065,178 38,447,676 Claims 56, , , , , , , , , ,800 4,107,903 5,508,000 Dealership Commission (Amortized) 166, , ,027 1,171,368 1,353,969 1,511,811 1,599,102 1,620,000 1,620,000 1,620,000 12,082,068 16,200,000 Override Commission 0 0 Salaries/Bonuses/Overhead 0 0 Administration Fee (Amortized) 23,081 73, , , , , , , , ,000 1,678,065 2,250,000 Total Expenses 245, ,750 1,317,730 1,732,323 2,002,370 2,235,800 2,364,894 2,395,800 2,395,800 2,395,800 17,868,036 23,958,000 Profit Before Taxes 120, , , , ,861 1,128,569 1,214,885 1,264,752 1,304,275 1,345,034 9,197,142 14,489,676 Tax Basis Calculation: 0 Unearned Premium Reserve 20% 581, , , , ,412 43,276 8, ,647,173 (0) Deferred Acq. Cost 100% (1,655,734) (1,242,977) (830,219) (510,942) (302,980) (123,215) (23,801) (4,689,867) 0 Adjusted Tax Basis (954,144) (431,977) 87, , ,293 1,048,630 1,199,443 1,264,752 1,304,275 1,345, ,335,228 Total Tax Loss Carried Forward Balance (954,144) (1,386,121) (1,298,815) (797,979) (7,686) Less: Applicable Tax Loss Carried Forward ,040, Taxable Income ,040,944 1,199,443 1,264,752 1,304,275 1,345,034 6,154,448 14,489,676 Taxable Income ,040,944 1,199,443 1,264,752 1,304,275 1,345,034 6,154,448 14,489,676 Federal Income 32.20% , , , , ,101 1,981,732 4,665,676 State Income 5.30% ,170 63,570 67,032 69,127 71, , ,953 Profit After Taxes 120, , , , , , , , , ,646 6,889,224 9,056,047 Cumulative Profit After Taxes 120, ,506 1,120,442 1,952,767 2,939,627 3,677,843 4,442,936 5,233,406 6,048,578 6,889,224 Less: Dividends Paid Net Worth (Includes Initial Capital) 120, ,506 1,120,442 1,952,767 2,939,627 3,677,843 4,442,936 5,233,406 6,048,578 6,889,224 Investable Balance for Investment Income Calculation 1,371,960 2,686,213 3,939,876 5,158,523 6,374,466 7,205,844 7,988,933 8,779,403 9,594,575 10,435,221 Admitted Net Worth 120, ,506 1,120,442 1,952,767 2,939,627 3,677,843 4,442,936 5,233,406 6,048,578 6,889,224 Less: Net Worth Required 145, , , , , , , , , ,586 Cash or Loans Available for Distribution - 239, ,605 1,208,204 2,141,858 2,858,436 3,619,350 4,409,820 5,224,992 6,065,638 # of Service Contracts Written Over 10 Years = Profit After Taxes on 10 Years Production = Additional Profit per Service Contract Sold = 18,000 # of Service Co Years = Total Return of Premium $8,780,199 Profit After Tax Years Production = IBT IAT IAT IBT $488 16,200,000 16,200,000 Dealer Commissions 50% 50% 0 0 Override Commissions 0% 0% 0 0 Other Distributions 0% 0% 14,489,676 9,056,047 Profit (Und. + Inv. Inc.) 28% 45% 30,689,676 25,256,047 Total Return 78% 95% The assumptions and methods, set forth in a separate portion of this proforma, are an integral part of the proforma and should be read in connection with a study of the proforma. Actual activity and experience could differ from the assumptions and methods used in this proforma.

14 Sample Proforma - Nissan - Profit & Loss Model 150 Contracts Per Month Tax Effected $32,400, Net Written Premium % -$16,200, Dealership Commission Expense 50.00% $16,200, % -$2,250, Administration Expense 6.94% $13,950, % -$5,508, Claims 17.00% $8,442, Underwriting Profit 26.06% $6,047, Investment Income 18.67% -$5,433, Federal and State Taxes 16.77% $9,056, Total Back-End Profit 27.95% Total Return of Premium $16,200, Dealership Sale Commission 50.00% $9,056, Back-End Profit 27.95% $25,256, Total Return 77.95%

15 Tax Effected - Claims Based 1st YEAR 2nd YEAR 3rd YEAR 4th YEAR 5th YEAR 6th YEAR 7th YEAR 8th YEAR 9th YEAR 10th YEAR Description Model Model Model Model Model Model Model Model Model Model Summary Deferred Acq. Cost 1,655,734 2,898,710 3,728,930 4,239,872 4,542,851 4,666,067 4,689,867 4,689,867 4,689,867 4,689,867 Unearned Premium Reserve 2,907,630 5,090,418 6,548,364 7,445,628 7,977,690 8,194,068 8,235,864 8,235,864 8,235,864 8,235,864 FULLY EARNED SUMMARY Earned Premium 332,370 1,057,212 1,782,054 2,342,736 2,707,938 3,023,622 3,198,204 3,240,000 3,240,000 3,240,000 24,164,136 32,400,000 Investment Income 33,462 98, , , , , , , , ,545 3,053,581 6,543,276 Total Income 365,832 1,156,192 1,943,666 2,564,648 2,989,230 3,364,370 3,599,297 3,703,535 3,744,402 3,786,545 27,217,717 38,943,276 Claims 56, , , , , , , , , ,800 4,107,903 5,508,000 Dealership Commission (Amortized) 166, , ,027 1,171,368 1,353,969 1,511,811 1,599,102 1,620,000 1,620,000 1,620,000 12,082,068 16,200,000 Override Commission 0 0 Salaries/Bonuses/Overhead 0 0 Administration Fee (Amortized) 23,081 73, , , , , , , , ,000 1,678,065 2,250,000 Total Expenses 245, ,750 1,317,730 1,732,323 2,002,370 2,235,800 2,364,894 2,395,800 2,395,800 2,395,800 17,868,036 23,958,000 Profit Before Taxes 120, , , , ,861 1,128,569 1,234,402 1,307,735 1,348,602 1,390,745 9,349,681 14,985,276 Taxable Income ,307,735 1,348,602 1,390,745 4,047,082 14,985,276 Federal Income 32.20% , , ,820 1,303,160 4,825,259 State Income 5.30% ,310 71,476 73, , ,220 Profit After Taxes 120, , , , ,861 1,128,569 1,234, , , ,216 7,832,025 9,365,797 Cumulative Profit After Taxes 120, ,506 1,120,442 1,952,767 2,939,627 4,068,197 5,302,599 6,119,933 6,962,809 7,832,025 Less: Dividends Paid Net Worth (Includes Initial Capital) 120, ,506 1,120,442 1,952,767 2,939,627 4,068,197 5,302,599 6,119,933 6,962,809 7,832,025 Investable Balance for Investment Income Calculation 1,371,960 2,686,213 3,939,876 5,158,523 6,374,466 7,596,198 8,848,596 9,665,930 10,508,806 11,378,022 Admitted Net Worth 120, ,506 1,120,442 1,952,767 2,939,627 4,068,197 5,302,599 6,119,933 6,962,809 7,832,025 Less: Net Worth Required 145, , , , , , , , , ,586 Cash or Loans Available for Distribution - 239, ,605 1,208,204 2,141,858 3,248,790 4,479,013 5,296,347 6,139,223 7,008,439 # of Service Contracts Written Over 10 Years = Profit After Taxes on 10 Years Production = Additional Profit per Service Contract Sold = 18,000 # of Service Co Years = Total Return of Premium $9,457,065 Profit After Tax Years Production = IBT IAT IAT IBT $525 16,200,000 16,200,000 Dealer Commissions 50% 50% 0 0 Override Commissions 0% 0% 0 0 Other Distributions 0% 0% 14,985,276 9,365,797 Profit (Und. + Inv. Inc.) 29% 46% 31,185,276 25,565,797 Total Return 79% 96% The assumptions and methods, set forth in a separate portion of this proforma, are an integral part of the proforma and should be read in connection with a study of the proforma. Actual activity and experience could differ from the assumptions and methods used in this proforma.

16 Sample Proforma - Nissan - Profit & Loss Model 150 Contracts Per Month Tax Effected - Claims Based $32,400, Net Written Premium % -$16,200, Dealership Commission Expense 50.00% $16,200, % -$2,250, Administration Expense 6.94% $13,950, % -$5,508, Claims 17.00% $8,442, Underwriting Profit 26.06% $6,543, Investment Income 20.20% -$5,619, Federal and State Taxes 17.34% $9,365, Total Back-End Profit 28.91% Total Return of Premium $16,200, Dealership Sale Commission 50.00% $9,365, Back-End Profit 28.91% $25,565, Total Return 78.91%

17 Captive Insurance Company Comparison Description DOWC CFC NCFC Premium Earned or Ceded 35,292,000 9,155,730 9,155,730 Investment Income 6,801,109 2,118,000 2,198,154 Total Income 42,093,109 11,273,730 11,353,884 Claims 4,587,960 4,587,960 4,587,960 Dealership Commission (Amortized) 20,822,280 n/a n/a Override Commission Salaries/Bonuses/Overhead Administration Fee (Amortized) 3,114,000 n/a n/a Premium Tax n/a 119, ,024 Ceding Fees n/a 274, ,229 Excise Tax n/a n/a 91,557 Total Expenses 28,524,240 4,981,656 5,164,771 Profit Before Taxes 13,568,869 6,292,073 6,189,113 Federal Income % for NCFC 4,369, ,300 1,237,823 State Income 6.5% 881, Profit After Taxes 8,317,717 5,550,773 4,951,290 Cumulative Profit After Taxes 8,317,717 5,550,773 4,951,290 Less: Dividends Paid Net Worth (Includes Initial Capital) 8,317,717 5,550,773 4,951,290 Investable Balance for Investment Income Calculation 8,317,717 5,550,773 4,951,290

18 During warehouse period: Dealer forms Corporation and decides ownership Coverage and Form Creation USWC s compliance department handles all DOWC licensing and state/lender approvals, as needed In conjunction with USWC, you the dealer will decide on coverage and rate structures for VSC, pre-paid Maintenance, Road Hazard and Etch and Combo products 4 in 1 Set kick off date USWC team conducts thorough and comprehensive Kick Off involving F&I, Sales, Service and back office. Accounting Decide on investment banker/strategy Retain and control 100% of reserves/underwriting profits/investment income Determine ownership: Estate Planning, Golden Handcuffs, Wealth Building, etc. Upon licensing, 100% ceding less claims and admin fees Rates and Underwriting Establish guidelines and eligibility; determine policy goodwill Determine transmittal process- E Contracting/Online Entry/USPS Establish dealer cost, any packs, commissions

19 Claims Decide claims parameters: part costs & labor rates, pre-existing conditions, good will and approval guidelines Establish claim payment guidelines Parts Cost plus, List less Labor Factory (recommended) All Data, Mitchell Establish parameters for the use of third party inspectors for questionable claims Establish transient claim guidelines USWC currently returns 87.6% of all claim dollars back to selling dealer/group.

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24 Lower admin costs Elimination of fees and taxes NO ceding fees, claims fees, premium taxes, excise taxes, annual maintenance fees, loss adjustment expenses and/or claims fees, segregated cell fees, trust expenses, etc Long term Tax Deferral and Tax Advantages Taxation only on investment income $0 Tax of underwriting profit Templates customized to dealers needs/wishes Greater Investment Returns Estate planning-wealth building-capital acquisitions Total Dealer Control Customize service contract programs including 3/3-Lifetime, Pre-Paid Maintenance, Etch, Tire & Wheel and Combo Products Full suite of monthly Financial Reports (including balance sheet and income statement) online 24/7, password protected Dealer knows where every dollar is every day USWC will compile a comprehensive side by side analysis against your current program, resulting in 25-50% overall greater returns/savings. Innovative package of aggressively priced, customized F&I and front end products, as well as in store training and income development capital. Dividend treatment of distributions Capital loans available Fully supported by a 40 year old company which invented and specializes in DOWC s

25 Mark Macek President Office Phone: ext. 242 Cell Phone: Jim Smolich Chief Financial Officer Office Phone: ext. 246 Cell Phone: Randall Rabbitt Executive Vice President, National Sales Director Office Phone: ext. 231 Cell Phone: