$217,510,000 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY RATINGS: See RATINGS herein In the opinion of Nixon Peabody LLP, Special Tax Counsel, under existing law and assuming compliance with the tax covenants described herein, and the accuracy of certain representations and certifications described herein, interest on the Series 2016A Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). Special Tax Counsel is also of the opinion that such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed under the Code with respect to individuals and corporations; however, that for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining adjusted current earnings. In the opinion of Breazeale, Sachse & Wilson, L.L.P., Bond Counsel, under existing law, interest on the Series 2016B Taxable Refunding Bonds is includible in the gross income of the owners thereof for federal income tax purposes. In the opinion of Bond Counsel, under the Refunding Act, the Series 2016 Refunding Bonds and the income therefrom shall be exempt from all taxation by the State of Louisiana or any political subdivision thereof. See TAX MATTERS SERIES 2016A REFUNDING BONDS, TAX MATTERS SERIES 2016B TAXABLE REFUNDING BONDS, TAX MATTERS LOUISIANA TAXES, TAX MATTERS LEGAL OPINION, and CONSIDERATIONS FOR ERISA AND OTHER U.S. BENEFIT PLAN INVESTORS and the proposed forms of opinions of Special Tax Counsel and Bond Counsel attached hereto as APPENDIX C-1 and APPENDIX C-2, respectively. $217,510,000 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION $160,810,000 Assessment Revenue Refunding Bonds, Series 2016A $56,700,000 Taxable Assessment Revenue Refunding Bonds, Series 2016B Dated: Date of Delivery Due: As shown on inside cover page Louisiana Citizens Property Insurance Corporation, a nonprofit corporation and an entity considered to be a political instrumentality of the State of Louisiana (the Corporation ) is issuing (i) its $160,810,000 Assessment Revenue Refunding Bonds, Series 2016A (the Series 2016A Refunding Bonds ) and (ii) its $56,700,000 Taxable Assessment Revenue Refunding Bonds, Series 2016B (the Series 2016B Taxable Refunding Bonds, and, together with the Series 2016A Refunding Bonds, the Series 2016 Refunding Bonds ), pursuant to and secured by the Amended and Restated 2005 FAIR Plan Emergency Assessment Master Indenture of Trust dated as of April 1, 2006 (the Master Indenture ), as supplemented and amended through the date hereof and including by the Tenth Supplemental Indenture of Trust dated as of July 1, 2016 (the Tenth Supplemental Indenture, and, together with the Master Indenture, the Indenture ), each by and between the Corporation and Regions Bank, Baton Rouge, Louisiana, as trustee (the Trustee ). Capitalized terms used herein and not specifically defined shall have the meanings assigned to them in the Indenture. The Series 2016A Refunding Bonds are being issued in order to, together with other available monies, advance refund (a) $63,195,000 outstanding principal amount of the Assessment Revenue Bonds, Series 2006C 1, maturing June 1, 2017, to and including June 1, 2026, issued in the original aggregate principal amount of $75,000,000 (the Refunded Series 2006C-1 Bonds ), (b) $75,000,000 outstanding principal amount of the Assessment Revenue Bonds, Series 2006C 2, maturing June 1, 2026, issued in the original aggregate principal amount of $75,000,000 (the Refunded Series 2006C-2 Bonds ), and (c) $75,000,000 outstanding principal amount of the Assessment Revenue Bonds, Series 2006C-3, maturing June 1, 2025, issued in the original aggregate principal amount of $75,000,000 (the Refunded Series 2006C-3 Bonds, and, together with the Refunded Series 2006C-1 Bonds and the Refunded Series 2006C-2 Bonds, the Refunded Series 2006C Bonds ), and to pay the costs of issuance of the Series 2016A Refunding Bonds. The Refunded Series 2006C Bonds were originally issued for the purpose of providing funds to redeem Bond Anticipation Notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 in the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance a portion of the Plan Year Deficit for 2005, to make deposits in the Capitalized Interest Fund (herein defined) and the Debt Service Reserve Fund (herein defined), and to pay costs of issuance. See ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING herein. The Series 2016B Taxable Refunding Bonds are being issued in order to, together with other available monies, advance refund $49,785,000 outstanding principal amount of the Assessment Revenue Refunding Bonds, Series 2012, maturing June 1, 2017, to and including June 1, 2024, issued in the original aggregate principal amount of $53,620,000 (the Refunded Series 2012 Bonds, and, together with the Refunded Series 2006C Bonds, the Refunded Bonds ), and to pay the costs of issuance of the Series 2016B Taxable Refunding Bonds. The Refunded Series 2012 Bonds were issued for the purpose of providing funds to advance refund the Louisiana Citizens Property Insurance Corporation Assessment Revenue Bonds, Series 2006C-4, which were originally issued for the purpose of providing funds to redeem Bond Anticipation Notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 and the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance a portion of the Plan Year Deficit for 2005, to make deposits in the Capitalized Interest Fund and the Debt Service Reserve Fund, and to pay costs of issuance. See ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING herein. The Series 2016 Refunding Bonds are payable solely from and secured by the Pledged Revenues (as herein defined), which include primarily the 2005 Emergency Assessments (as hereinafter defined). See SECURITY AND SOURCE OF PAYMENT herein. The Series 2016 Refunding Bonds will be secured on a pari passu, parity basis with the Corporation s outstanding Assessment Revenue Refunding Bonds, Series 2015, issued in the amount of $333,295,000 and outstanding in the amount of $291,795,000 (the Outstanding Parity Bonds ). THE SERIES 2016 REFUNDING BONDS ARE OBLIGATIONS OF THE CORPORATION, PAYABLE SOLELY FROM THE TRUST ESTATE, INCLUDING PLEDGED REVENUES. THE SERIES 2016 REFUNDING BONDS AND THE OUTSTANDING PARITY BONDS ARE NOT SECURED BY THE FULL FAITH AND CREDIT OF THE STATE OF LOUISIANA. The Series 2016 Refunding Bonds are being issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Series 2016 Refunding Bonds, when issued, will be initially registered in the name of CEDE & CO., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as Securities Depository for the Series 2016 Refunding Bonds. Purchasers of the Series 2016 Refunding Bonds will not receive certificates representing their interest in the Series 2016 Refunding Bonds purchased. Principal of and interest on the Series 2016 Refunding Bonds will be payable by the Trustee to Cede & Co., which will remit such payments to the DTC Participants (as defined herein) for subsequent disbursement to purchasers of the Series 2016 Refunding Bonds. See APPENDIX F -- BOOK-ENTRY ONLY SYSTEM. Interest on the Series 2016 Refunding Bonds will be payable on each June 1 and December 1, commencing December 1, 2016, until maturity. The Series 2016 Refunding Bonds are not subject to redemption prior to maturity. The Series 2016 Refunding Bonds will mature in each of the years and bear interest at the rates shown on the inside cover page hereof. This cover page contains information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement, including all Appendices attached hereto, to obtain information essential to the making of an informed investment decision. The Series 2016 Refunding Bonds are offered when, as and if issued, subject to the approving opinion of Breazeale, Sachse & Wilson, L.L.P., Baton Rouge, Louisiana, Bond Counsel, and certain other conditions. Certain legal matters will be passed on for the Corporation by its general counsel, Paige M. Harper, Esq. Certain federal tax matters will be passed upon by Nixon Peabody LLP, Washington, D.C. Certain legal matters will be passed upon for the Trustee by its counsel, The Boles Law Firm, APC, Monroe, Louisiana. Certain legal matters will be passed upon for the Underwriter by its counsel, Foley & Judell, L.L.P., New Orleans, Louisiana. Government Consultants, Inc., Baton Rouge, Louisiana, serves as Independent Registered Municipal Advisor for the Corporation. It is expected that the Series 2016 Refunding Bonds will be available for delivery on or about July 28, 2016 through the facilities of DTC in New York, New York, against payment therefor. MORGAN STANLEY The date of this Official Statement is July 20, 2016.

2 $160,810,000 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION Assessment Revenue Refunding Bonds, Series 2016A MATURITY SCHEDULE Base CUSIP Due (June 1) Principal Amount Interest Rate Yield CUSIP 2023 $50,980, % 1.620% EC ,125, % 1.750% ED ,050, % 1.880% EE ,655, % 2.010% EF7 $56,700,000 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION Taxable Assessment Revenue Refunding Bonds, Series 2016B MATURITY SCHEDULE Base CUSIP Due (June 1) Principal Amount Interest Rate Yield CUSIP 2024 $36,405, % 2.640% EA ,295, % 2.740% EB6 CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, which is managed on behalf of S&P Capital I.Q., a business line of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP data herein is provided for convenience of reference only. Neither the Corporation, the Municipal Advisor nor the Underwriter and its agents take any responsibility for the accuracy of such data now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2016 Refunding Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2016 Refunding Bonds.

3 OFFICIALS AND PROFESSIONALS PARTICIPATING IN THE ISSUANCE OF THE SERIES 2016 REFUNDING BONDS Governing Board of Directors Chairperson Denise Brignac Eric Steven Berger Fred C. Bosse Jason G. Dupree Eugene "Gene" V. Galligan Senator Eric LaFleur Craig C. LeBouef Samuel P. Little A. Eugene Montgomery, III Johnny L. Reeves Kevin Reinke Preston Robinson Senator John R. Smith J. William Starr Representative Kirk Talbot Senior Management Richard Newberry, Chief Executive Officer Steve Cottrell, Chief Financial Officer Municipal Advisor Government Consultants, Inc. Bond Counsel Breazeale, Sachse & Wilson, L.L.P. Special Tax Counsel Nixon Peabody LLP Corporation Counsel Paige M. Harper, General Counsel Underwriter Morgan Stanley & Co. LLC Underwriter's Counsel Foley & Judell, L.L.P.

4 No dealer, broker, salesperson or other person has been authorized by the Corporation or Morgan Stanley & Co. LLC (the "Underwriter") to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Corporation or the Underwriter. This Official Statement does not constitute an offer of sell or the solicitation of any offer to buy, nor shall there be any sale of the Series 2016 Refunding Bonds by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. The information set forth herein concerning the Depository Trust Company ("DTC") has been furnished by DTC, and no representation is made by the Corporation or the Underwriter as to the completeness or accuracy of such information. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Assured Guaranty Municipal Corp. ("AGM") makes no representation regarding the Series 2016 Refunding Bonds or the advisability of investing in the Series 2016 Refunding Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "AGM RESERVE FUND SURETY POLICY". All of the information set forth herein has been obtained from the Corporation and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sales made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Corporation, AGM or DTC since the date hereof. BY ITS PURCHASE OF THE SERIES 2016 REFUNDING BONDS, AN INVESTOR IS ACKNOWLEDGING THAT IT HAS REVIEWED ALL THE INFORMATION IT DEEMS NECESSARY TO MAKE AN INFORMED DECISION, AND THAT IT IS NOT RELYING ON ANY REPRESENTATION OF THE UNDERWRITER OR ANY OF ITS OFFICERS, REPRESENTATIVES, AGENTS OR DIRECTORS IN REACHING ITS DECISION TO PURCHASE THE SERIES 2016 REFUNDING BONDS. THE INVESTOR, BY ITS PURCHASE OF THE SERIES 2016 REFUNDING BONDS, ACKNOWLEDGES ITS CONSENT FOR THE UNDERWRITER TO RELY UPON THE INVESTOR'S UNDERSTANDING OF AND AGREEMENT TO THE PRECEDING PARAGRAPH AS SUCH RELATES TO THE DISCLOSURE AND FAIR DEALING OBLIGATIONS THAT MAY BE APPLICABLE TO THE UNDERWRITER UNDER APPLICABLE SECURITIES LAWS AND REGULATIONS.

5 In connection with this offering, the Underwriter may over allot or effect transactions which stabilize or maintain the market price of the Series 2016 Refunding Bonds offered hereby at a level above that which might otherwise prevail in the open market, and such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2016 Refunding Bonds to certain dealers and others at prices or yields lower than the public offering prices or yields stated on the inside cover page of this Official Statement, and such public offering prices or yields may be changed from time to time by the Underwriter. The registration, qualification or exemption of the Series 2016 Refunding Bonds in accordance with the applicable securities law provision of the jurisdictions in which these securities have been registered, qualified or exempted does not mean that either these jurisdictions or any of their agencies have passed in any way upon the merits or qualifications of, or recommended, the securities, or their offer or sales. Neither these jurisdictions nor any of their agencies have guaranteed or passed upon the safety of the Series 2016 Refunding Bonds as an investment, upon the probability of any earnings thereon or upon the accuracy or adequacy of this Official Statement. The Series 2016 Refunding Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended. In making an investment decision, investors must rely on their own examinations of the Corporation and the terms of the offering, including the merits and risks involved. The statements contained in this Official Statement, and in other information provided by the Corporation that are not purely historical, are forward looking statements. All forward looking statements included in this Official Statement are based on information available to the Corporation on the date hereof, and the Corporation does not assume any obligation to update any such forward looking statements. See "FORWARD LOOKING STATEMENTS" herein.

6 TABLE OF CONTENTS INTRODUCTION...1 General...1 The Corporation and its Governing Authority...2 Authority and Purpose for Original Issuance of the Refunded Bonds and Refunding...3 Security Provisions...5 Emergency Assessment Stabilization Fund...5 Debt Service Reserve Fund...6 Operational and Financial Information About the Corporation...6 Form and Denominations...7 Date, Manner and Place of Delivery...7 Additional Information...7 ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING...8 Original Plan of Finance...8 Annual Collections of 2005 Emergency Assessments...8 Plan of Refunding...10 Security for the Series 2016 Refunding Bonds...11 Place of Payment...12 Payment of Interest...12 Maturities...12 LEVY OF EMERGENCY ASSESSMENTS ON DIRECT WRITTEN PREMIUM...12 Subject Lines of Business...12 Statewide Direct Written Premium...13 AGREEMENT WITH THE DEPARTMENT OF INSURANCE...16 SOURCES AND USES...18 DEBT SERVICE PAYMENTS...18 DESCRIPTION OF THE SERIES 2016 REFUNDING BONDS...19 General...19 Provisions Applicable if Book-Entry Only System is Terminated...19 Payment of the Series 2016 Refunding Bonds...20 Redemption...20 SECURITY AND SOURCE OF PAYMENT...20 General...20 Limited Obligations...21 Assessment Authority...21 Tax Credit for Affected Policyholders...24 Perfection of Security Interest...24 Indenture Provisions...25 i

7 AGM RESERVE FUND SURETY POLICY...28 Assured Guaranty Municipal Corp THE CORPORATION...31 History of Plans...31 Creation of the Corporation...32 Governing Board...34 Officers...35 Regulatory Oversight...36 Operational Matters...36 Policies Written...36 Depopulation...38 Premiums and Rates...38 Operations of the Corporation...39 Reinsurance...40 LOSS EXPOSURE AND LOSS ESTIMATION...41 THE PLAN OF OPERATION...44 Regular Assessments...44 Emergency Assessments...45 RISK FACTORS...47 Security Interest Limited to Pledged Revenues...47 Timely Remittance of Emergency Assessments...47 Additional Assessments by Other Entities in the State...48 Possible Changes in the Market for Property Insurance...48 Resources Available for Future Deficits...48 Future Catastrophic Events...49 Future Legislative and Regulatory Changes...49 Enforceability of Remedies...50 PENDING LITIGATION...50 RATINGS...51 UNDERWRITING...51 VERIFICATION OF MATHEMATICAL COMPUTATIONS...52 FORWARD LOOKING STATEMENTS...52 TAX MATTERS SERIES 2016A REFUNDING BONDS...53 Federal Income Tax...53 Original Issue Discount...53 Original Issue Premium...54 Ancillary Tax Matters...54 Changes in Federal or State Law and Post Issuance Events...55 ii

8 TAX MATTERS SERIES 2016B TAXABLE REFUNDING BONDS...55 Federal Income Tax...55 U.S. Holders...56 Taxation of Interest Generally...56 Original Issue Discount...57 Market Discount...58 Bond Premium...59 Surtax on Unearned Income...59 Sale or Redemption of Bonds...59 Non-U.S. Holders...60 Information Reporting and Backup Withholding...61 TAX MATTERS LOUISIANA TAXES...63 TAX MATTERS LEGAL OPINION...63 CONSIDERATIONS FOR ERISA AND OTHER U.S. BENEFIT PLAN INVESTORS...63 MUNICIPAL ADVISOR...65 FINANCIAL STATEMENTS...66 CONTINUING DISCLOSURE...66 General...66 Prior Undertakings...66 CERTIFICATION AS TO OFFICIAL STATEMENT...67 Appendix "A" Summary of the Indenture Appendix "B" Audited Financial Statements of the Corporation for Fiscal Year Ended December 31, 2015 Appendix "C-1" Proposed Form of Opinion of Special Tax Counsel Appendix "C-2" Proposed Form of Opinion of Bond Counsel Appendix "D" Form of Continuing Disclosure Agreement Appendix "E" Certain Information Regarding the Louisiana Economy Appendix "F" Book-Entry Only System iii

9 OFFICIAL STATEMENT $217,510,000 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION $160,810,000 Assessment Revenue Refunding Bonds, Series 2016A $56,700,000 Taxable Assessment Revenue Refunding Bonds, Series 2016B INTRODUCTION General The purpose of this Official Statement, including the cover page and the attached appendices, is to set forth information concerning the Louisiana Citizens Property Insurance Corporation, a nonprofit corporation and an entity considered to be a political instrumentality of the State of Louisiana (the "Corporation"), and (i) the $160,810,000 aggregate principal amount of the Corporation's Assessment Revenue Refunding Bonds, Series 2016A (the "Series 2016A Refunding Bonds"), and (ii) the $56,700,000 aggregate principal amount of the Corporation s Taxable Assessment Revenue Refunding Bonds, Series 2016B (the "Series 2016B Taxable Refunding Bonds," and, together with the Series 2016A Refunding Bonds, the "Series 2016 Refunding Bonds"), to be issued pursuant to and secured under the Amended and Restated 2005 FAIR Plan Emergency Assessment Master Indenture of Trust dated as of April 1, 2006 (the "Master Indenture"), as supplemented and amended through the date hereof and including by a Tenth Supplemental Indenture of Trust dated as of July 1, 2016 (the "Tenth Supplemental Indenture," and, together with the Master Indenture, the "Indenture"), each by and between the Corporation and Regions Bank, Baton Rouge, Louisiana, as trustee (the "Trustee"). The Series 2016A Refunding Bonds are being issued to provide sufficient funds to, together with other available monies, advance refund (a) $63,195,000 outstanding principal amount of the Assessment Revenue Bonds, Series 2006C-1, maturing June 1, 2017, to and including June 1, 2026, issued in the original aggregate principal amount of $75,000,000 (the "Refunded Series 2006C-1 Bonds"), (b) $75,000,000 outstanding principal amount of the Assessment Revenue Bonds, Series 2006C-2, maturing June 1, 2026, issued in the original aggregate principal amount of $75,000,000 (the "Refunded Series 2006C-2 Bonds"), and (c) $75,000,000 outstanding principal amount of the Assessment Revenue Bonds, Series 2006C-3, maturing June 1, 2025, issued in the original aggregate principal amount of $75,000,000 (the "Refunded Series 2006C-3 Bonds," and, together with the Refunded Series 2006C-1 Bonds and the Refunded Series 2006C-2 Bonds, the "Refunded Series 2006C Bonds"), and to pay the costs of issuance of the Series 2016A Refunding Bonds. The Refunded Series 2006C Bonds were issued by the Corporation for the purpose of providing funds to redeem Bond Anticipation Notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 in the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance a portion of the balance of the Plan Year Deficit for 2005, to make deposits in the Capitalized Interest Fund and the Debt Service Reserve Fund, and to pay costs of issuance. See "ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING" herein. 1

10 The Series 2016B Taxable Refunding Bonds are being issued in order to, together with other available monies, advance refund $49,785,000 outstanding principal amount of the Assessment Revenue Refunding Bonds, Series 2012, maturing June 1, 2017, to and including June 1, 2024, issued in the original aggregate principal amount of $53,620,000 (the "Refunded Series 2012 Bonds," and, together with the Refunded Series 2006C Bonds, the "Refunded Bonds"), and to pay the costs of issuance of the Series 2016B Taxable Refunding Bonds. The Refunded Series 2012 Bonds were issued for the purpose of providing funds to advance refund the Louisiana Citizens Property Insurance Corporation Assessment Revenue Bonds, Series 2006C-4, which were originally issued for the purpose of providing funds to redeem Bond Anticipation Notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 and the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance a portion of the Plan Year Deficit for 2005, to make deposits in the Capitalized Interest Fund and the Debt Service Reserve Fund, and to pay costs of issuance. See "ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING" herein. Capitalized terms used herein and not specifically defined shall have the meanings assigned to them in the Indenture. This Introduction is subject in all respects to more complete information contained in this Official Statement and should not be considered to be a complete statement of the facts necessary for making an investment decision. Capitalized terms used in this Introduction are defined elsewhere in this Official Statement. The material contained herein is presented in conjunction with the issuance of the Series 2016 Refunding Bonds in order that those interested in their purchase may have available adequate information on which to judge their merits. Brief descriptions of the Corporation, the Series 2016 Refunding Bonds, the Indenture and the Citizens Act (as hereinafter defined) are contained in the Official Statement. Such descriptions do not purport to be comprehensive or definitive and are qualified in their entirety by reference to such documents. A Summary of the Indenture is included as Appendix "A" hereto. The audited financial statements of the Corporation for fiscal year ended December 31, 2015 are included as Appendix "B" hereto. The proposed form of opinion of Nixon Peabody LLP, Special Tax Counsel, is included as Appendix "C-1" hereto. The proposed form of opinion of Breazeale, Sachse & Wilson, L.L.P., Bond Counsel, is included as Appendix "C-2" hereto. The proposed form of the Continuing Disclosure Agreement of the Corporation is included as Appendix "D" hereto. Certain information regarding the Louisiana economy is included as Appendix "E" hereto. A description of the Book-Entry Only System is included as Appendix "F" hereto. The Corporation and its Governing Authority The Louisiana Citizens Property Insurance Corporation is the issuer of the Series 2016 Refunding Bonds. The Corporation was created and established pursuant to Subpart B of Part XXX of Chapter 1 of Title 22 of the Louisiana Revised Statutes of 1950, as amended, and as further amended by Act No. 13 of the 2006 First Extraordinary Session of the Louisiana Legislature, and redesignated by Act No. 415 of the 2008 Regular Session of the Louisiana Legislature, being La. R.S. 22:2291, et seq. (collectively, the "Citizens Act"). The Citizens Act 2

11 provides that the Corporation is a nonprofit corporation and an entity considered to be a political instrumentality of the State of Louisiana (the "State"). The assets of the Corporation are not considered part of the general fund of the State. THE SERIES 2016 REFUNDING BONDS AND THE OUTSTANDING PARITY BONDS ARE OBLIGATIONS OF THE CORPORATION, PAYABLE SOLELY FROM THE TRUST ESTATE, INCLUDING PLEDGED REVENUES. THE SERIES 2016 REFUNDING BONDS AND THE OUTSTANDING PARITY BONDS ARE NOT SECURED BY THE FULL FAITH AND CREDIT OF THE STATE. The governing authority of the Corporation is the Board of Directors of the Louisiana Citizens Property Insurance Corporation (the "Governing Board"). The Corporation operates two residual market insurance programs, called the FAIR Plan and the Coastal Plan (collectively, the "Insurance Plans"). The Citizens Act directs the Corporation to operate the Insurance Plans exclusively as residual market mechanisms to provide essential property insurance for residential and commercial property for applicants who are in good faith entitled, but are unable, to procure insurance through the voluntary market. The Citizens Act directed the Corporation to begin operating the Insurance Plans on January 1, See "THE CORPORATION" herein. Authority and Purpose for Original Issuance of the Refunded Bonds and Refunding The original issuance of the Refunded Bonds was authorized under the provisions of the Citizens Act and Chapter 13 of Title 39 of the Louisiana Revised Statutes of 1950, as amended, being La. R.S. 39:1421 et seq. (the "Bond Act" and, together with the Citizens Act, the "Act"), and also by a Plan of Operation (the "Plan of Operation") adopted by the Governing Board of the Corporation, approved by the Louisiana Senate Committee on Insurance and the Louisiana House Committee on Insurance (the "Insurance Committees"), and filed with the Office of Property and Casualty of the Louisiana Department of Insurance (the "Department of Insurance"), as required by the Citizens Act. On August 29, 2005, Hurricane Katrina struck the states of Louisiana, Mississippi and Alabama as a strong Category 3 storm. A storm surge from Hurricane Katrina breached the levy system that protected the City of New Orleans. Much of the City of New Orleans was subsequently flooded, and in addition, several parishes in south Louisiana sustained severe flooding and wind damage. In addition, on September 24, 2005, Hurricane Rita struck the states of Louisiana and Texas as a Category 3 storm. Wind and a storm surge from Hurricane Rita caused extensive damage in southwestern Louisiana. The Citizens Act and the Plan of Operation establish a process by which the Corporation may levy assessments in order to recover a deficit for an Insurance Plan in a particular calendar year (a "Plan Year"). The assessments apply to insurance policies issued under the following lines of property insurance: fire, allied lines, homeowners multiperil and the property insurance portion of commercial multiperil (the "Subject Liens of Business"). The assessments are based on the premiums charged for the policies (the "Direct Written Premium"). To recover a deficit, the Corporation may levy a regular assessment (the "Regular Assessment") on insurance companies to write the Subject Lines of Business in the State (the "Affected Insurance Companies") and 3

12 emergency assessments (the "Emergency Assessments") on policyholders insured by policies issued under the Subject Lines of Business in the State by the Affected Insurance Companies and the Corporation (the "Affected Policyholders"). When the Corporation levies a Regular Assessment, it must also impose market equalization charges (the "Market Equalization Charges") on policyholders insured by the Corporation. See "THE PLAN OF OPERATION" herein. As a result of losses on insured property caused by Hurricanes Katrina and Rita, the Governing Board projected a 2005 Plan Year Deficit for both Insurance Plans with respect to the 2005 Plan Year, and on October 19, 2005, the Governing Board levied a Regular Assessment on Affected Insurance Companies. The Regular Assessment was sufficient to recover the Plan Year Deficit with respect to the Coastal Plan but not the Plan Year Deficit with respect to the FAIR Plan. On January 19, 2006, the Governing Board, pursuant to the provisions of the Citizens Act, determined the amount of the deficit in calendar year 2005 after taking into account revenues received after collection of the Regular Assessment (the "2005 Plan Year Deficit"). In order to provide financing for the 2005 Plan Year Deficit, the Corporation issued (i) $678,205,000 in original aggregate principal amount of its Assessment Revenue Bonds, Series 2006B (the "Series 2006B Bonds"), which were refunded on July 23, 2015 with proceeds of the $333,295,000 Assessment Revenue Refunding Bonds, Series 2015 (the "Series 2015 Refunding Bonds") and which are no longer outstanding; (ii) $75,000,000 in original aggregate principal amount of its Assessment Revenue Bonds, Series 2006C-1 (the "Series 2006C-1 Bonds"), of which $63,195,000 is currently outstanding; (iii) $75,000,000 in original principal amount of its Assessment Revenue Bonds, Series 2006C-2 (the "Series 2006C-2 Bonds"), all of which are currently outstanding; (iv) $75,000,000 in original principal amount of its Assessment Revenue Bonds, Series 2006C-3 (the "Series 2006C-3 Bonds," and, together with the Series 2006C-1 Bonds and the Series 2006C-2 Bonds, the "Series 2006C Bonds"), all of which is currently outstanding; and (v) $75,000,000 in original principal amount of its Assessment Revenue Bonds, Series 2006C-4 (the "Series 2006C-4 Bonds"), which were refunded on March 15, 2012 with proceeds of the $53,620,000 Assessment Revenue Refunding Bonds, Series 2012 (the "Series 2012 Refunding Bonds"), and are no longer outstanding. $49,785,000 of the Series 2012 Refunding Bonds is currently outstanding, and $291,795,000 of the Series 2015 Refunding Bonds is currently outstanding. The outstanding principal amounts of the Series 2006C-1 Bonds, the Series 2006C-2 Bonds and the Series 2006C-3 Bonds are being advance refunded with proceeds of the Series 2016A Refunding Bonds, and on and after the Issuance Date (defined herein), will no longer be outstanding. The outstanding principal amount of the Series 2012 Refunding Bonds is being advance refunded with proceeds of the Series 2016B Taxable Refunding Bonds, and on and after the Issuance Date, will no longer be outstanding. The Series 2015 Refunding Bonds are hereinafter referred to as the "Outstanding Parity Bonds". To provide for repayment of the Outstanding Parity Bonds and the Series 2016 Refunding Bonds, on January 19, 2006, the Governing Board, pursuant to the provisions of the Citizens Act and a duly adopted resolution, authorized the levy of Emergency Assessments for the 2005 Plan Year Deficit on Affected Policyholders for as many years as needed to repay all of the Outstanding Parity Bonds and the Series 2016 Refunding Bonds (the "2005 Emergency 4

13 Assessments"). See "ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING" herein. The Series 2016 Refunding Bonds are being issued pursuant to the provisions of the Citizens Act and Chapter 14-A of Title 39 of the Louisiana Revised Statutes of 1950, as amended (the "Refunding Act") and other constitutional and statutory authority, in order to provide sufficient funds to advance refund the Refunded Bonds. Security Provisions The Series 2016 Refunding Bonds and the Outstanding Parity Bonds are secured by a pledge of the 2005 Emergency Assessments, the moneys and securities held in certain funds established under the Indenture (other than the Rebate Fund) and the interest earnings accruing to those funds (collectively, the "Pledged Revenues"). In addition, the Series 2016 Refunding Bonds and the Outstanding Parity Bonds are secured by the Debt Service Reserve Fund (as hereinafter defined) and the Policy (as hereinafter defined). No Emergency Assessments that may be levied with respect to a future Plan Year Deficit are pledged to the Series 2016 Refunding Bonds. See "SECURITY AND SOURCES FOR PAYMENT" herein. Pursuant to the Citizens Act, the Department of Insurance has certain responsibilities with respect to the levy and collection of Emergency Assessments. The Department of Insurance has issued a notice (Directive 198) to all Affected Insurance Companies establishing a required procedure for the collection and remittance of Regular Assessments and Emergency Assessments. In addition, the Department of Insurance entered into an Amended and Restated Department of Insurance Cooperative Endeavor Agreement dated as of April 11, 2006, as amended by the First Amendment to Amended and Restated Department of Insurance Cooperative Endeavor Agreement dated as of July 23, 2015, and as further amended by the Second Amendment to Amended and Restated Department of Insurance Cooperative Endeavor Agreement to be dated as of July 28, 2016 (collectively, the "DOI Agreement") each between the Corporation and the Trustee, pursuant to which the Department of Insurance has agreed to carry out its responsibilities with respect to the levy and collection of the 2005 Emergency Assessments and other matters related thereto. See "AGREEMENT WITH THE DEPARTMENT OF INSURANCE" herein. Emergency Assessment Stabilization Fund In connection with the issuance of the Series 2006B Bonds and the Series 2006C Bonds, there was created and established pursuant to the Master Indenture an Emergency Assessment Stabilization Fund. Currently there is $19,972, on deposit in the Emergency Assessment Stabilization Fund. No additional funds will be deposited in such fund and such Emergency Assessment Stabilization Fund shall not secure the Series 2016 Bonds, the Outstanding Parity Bonds or any Additional Bonds, including refunding bonds issued in the future. Such Emergency Assessment Stabilization Fund will be closed on the Issuance Date. All of such funds currently on deposit in the Emergency Assessment Stabilization Fund will be released therefrom on the Issuance Date and $16,649, will be deposited into the 5

14 Series 2016-A Escrow Fund (as hereinafter defined) of the Escrow Deposit Agreement dated as of July 1, 2016 (the "Escrow Deposit Agreement") by and between the Corporation and Regions Bank (the "Escrow Trustee"), and $3,323, will be deposited into the Series 2016B Escrow Fund (as hereinafter defined) of the Escrow Deposit Agreement. See "ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING Plan of Refunding" herein. Debt Service Reserve Fund The Indenture provides for the creation and establishment of a Debt Service Reserve Fund to provide additional security for the owners of the Outstanding Parity Bonds, the Series 2016 Refunding Bonds and any Additional Bonds. The Debt Service Reserve Fund is fully funded and currently has on deposit therein (a) $28,310, in cash and short term investments, and (b) a financial guaranty insurance policy (reserve fund) issued by Assured Guaranty Corp. ("AGC") in 2009 (the "Existing AGC Reserve Fund Surety Policy"), and a municipal bond debt service reserve insurance policy issued by Assured Guaranty Municipal Corp. ("AGM") in 2015 (the "Existing AGM Reserve Fund Surety Policy") for the purpose of providing additional security for the Series 2015 Refunding Bonds, the Series 2012 Refunding Bonds and the Series 2006C Bonds. In connection with the issuance of the Series 2016 Refunding Bonds, the Existing AGC Reserve Fund Surety Policy and the Existing AGM Reserve Fund Surety Policy will be cancelled and AGM will issue a new municipal bond debt service reserve insurance policy (the "New AGM Reserve Fund Surety Policy") for the purpose of providing additional security for the Outstanding Parity Bonds and the Series 2016 Refunding Bonds. Currently there is $28,310, on deposit in the Debt Service Reserve Fund. Upon issuance of the Series 2016 Refunding Bonds, the Debt Service Reserve Fund Requirement (as hereinafter defined) will be recalculated on the Issuance Date (as hereinafter defined) to reflect that the Series 2006C Bonds and the Series 2012 Refunding Bonds are no longer outstanding and that the Series 2016 Refunding Bonds are outstanding. As a result of the foregoing, $18,132, of funds currently on deposit in the Debt Service Reserve Fund will be released therefrom and will be deposited into the Series 2016-A Escrow Fund of the Escrow Deposit Agreement. See "ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING Plan of Refunding" herein. The New AGM Reserve Fund Surety Policy ($57,208,103.16) and cash and investments remaining on deposit in the Debt Service Reserve Fund ($10,178,794.52) will cause the Debt Service Reserve Fund to be fully funded as of the date of issuance of the Series 2016 Refunding Bonds. See "SECURITY AND SOURCE OF PAYMENT Indenture Provisions" and "AGM RESERVE FUND SURETY POLICY" herein. Operational and Financial Information About the Corporation This Official Statement includes information about the governance, management, and business operations of the Corporation. The audited financial statements for fiscal year ended 6

15 December 31, 2015 are included as Appendix "B" hereto. For more information, see Appendix "B". The Corporation is authorized to use any funds available to it to pay the principal and interest of the Series 2016 Refunding Bonds, but it has not pledged any funds or property other than the Pledged Revenues to secure payment of the Series 2016 Refunding Bonds. Form and Denominations The Series 2016 Refunding Bonds are being issued as fully registered bonds without coupons (initially in the book-entry only system), are in the denomination of $5,000 or any integral multiple thereof within a single maturity. See "APPENDIX F BOOK-ENTRY ONLY SYSTEM" hereto. Date, Manner and Place of Delivery It is expected that the Series 2016 Refunding Bonds will be delivered in book-entry only form through the facilities of DTC in New York, New York, on or about July 28, 2016 (the "Issuance Date"), against payment therefor in immediately available funds payable to the Corporation. Additional Information For any additional information concerning the Corporation, please address Mr. Steve Cottrell, Chief Financial Officer, Louisiana Citizens Property Insurance Corporation, 1 Galleria Boulevard, Suite 720, Metairie, Louisiana, (telephone (504) or address scottrell@lacitizens.com). For additional information concerning the Series 2016 Refunding Bonds being offered for sale, please address the Corporation's Municipal Advisor, Government Consultants, Inc. (Attention: L. Gordon King), 700 North 10 th Street, Annex Building, Baton Rouge, Louisiana (telephone (225) or address: gking@gc-la.net). 7

16 Original Plan of Finance ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING 2005 Plan Year Deficit Resulting from Storm Damage As a result of losses to property insured by the Corporation caused by Hurricanes Katrina and Rita, a Plan Year Deficit existed for both Insurance Plans with respect to the 2005 Plan Year, and on October 19, 2005, the Governing Board levied a Regular Assessment on Affected Insurance Companies. The Regular Assessment was sufficient to recover the Plan Year Deficit with respect to the Coastal Plan but not the Plan Year Deficit with respect to the FAIR Plan. On January 19, 2006, the Governing Board determined that, as of the December 31, 2005 fiscal year-end, a Plan Year operating deficit existed in the FAIR Plan. After making certain adjustments, the Governing Board determined that the amount of the 2005 Plan Year Deficit was $953,650,859. Of this amount, $128,644,233 was recovered through the Regular Assessment levied by the Corporation, resulting in a net deficit of $825,006,626 which was funded with the proceeds of the Outstanding Parity Bonds. The Governing Board has revised the amount of the 2005 Plan Year Deficit from time to time as a result of realizing increased losses with respect to property insured by the Corporation caused by Hurricanes Katrina and Rita. At its July 3, 2014 meeting, the Governing Board determined that the 2005 Plan Year Deficit was $1,329,071,776. The adjustments to the 2005 Plan Year Deficit have not been paid from the proceeds of any Additional Bonds but have been paid by the Corporation from legally available monies, including excess 2005 Emergency Assessments. Levy of Regular and Emergency Assessments In order to provide for the repayment of the Series 2006B Bonds, the Series 2006C Bonds and the Series 2006C-4 Bonds, the Governing Board, pursuant to the provisions of the Citizens Act, adopted a resolution on October 19, 2006, authorizing the levy of the 2005 Emergency Assessments. The 2005 Emergency Assessments became effective for policies issued or renewed on or after January 1, The historical collections for 2005 and uniform assessment percentage for the 2005 Emergency Assessments for each year effective June 1, 2007 is set forth below. Annual Collections of 2005 Emergency Assessments The Corporation has collected the following amounts from the 2005 Emergency Assessments annually through December 31, 2015 and for the months ended April 30, 2016: 8

17 Year Amount Emergency Assessment Rate Debt Service (In Millions) 2007* $53,625, % $ ,505, % ,960, % ,504, % ,991, % ,066, % ,656, % ,985, % ,896, % ** 35,386, % * Collection of 2005 Emergency Assessments began in April, 2007; numbers are rounded. ** Partial Year representing Emergency Assessments received as of April 30, Source: The Corporation Given the reduction in debt service due to the issuance of the Series 2016 Refunding Bonds and anticipated growth in direct written premiums of approximately 3%, the Corporation expects further reductions in the 2005 Emergency Assessments over the next three years to approximately 2.42%. The Governing Board is required by the Citizens Act and the Indenture to determine the uniform assessment percentage by August 1 st of each year, and to notify the Affected Insurance Companies of the uniform assessment percentage by September 15 th of each year. The Corporation is required by the Citizens Act and the Indenture to direct the Affected Insurance Companies to remit the 2005 Emergency Assessments directly to the Trustee, no less frequently than quarterly, and the Corporation is required by the Citizens Act and the Indenture to remit the 2005 Emergency Assessments that it collects from its policyholders to the Trustee on a quarterly basis. Pursuant to the Citizens Act, the Department of Insurance has certain responsibilities with respect to the levy and collection of Emergency Assessments. Directive 191, adopted on December 22, 2005, established a required procedure for the collection and remittance of Regular Assessments and Emergency Assessments. On August 29, 2007, the Department of Insurance issued Directive 198 which rescinded in its entirety Directive 191, and provides the procedure for the collection and remittance of Regular Assessments and Emergency Assessments. See Table 5 under "SECURITY AND SOURCES OF PAYMENT Assessment Authority Collection of Emergency Assessments" herein. Furthermore, the Corporation promulgated Regular Assessment Recoupment Procedures dated September 15, 2006, and Emergency Assessment Collection and Remittance Procedures dated September 15, 2006, which further establish the required procedure for the collection and remittance of Regular Assessments and Emergency Assessments. In addition, pursuant to the DOI Agreement, the Department of Insurance has agreed to carry out its responsibilities with respect to the levy and collection of the 2005 Emergency Assessments and other matters related thereto. See "AGREEMENT WITH THE DEPARTMENT OF INSURANCE" herein. 9

18 Plan of Refunding The Refunded Series 2006C Bonds were originally issued on April 11, 2006 pursuant to the Master Indenture and the Seventh Supplemental Indenture of Trust dated as of April 1, 2006, by and between the Corporation and the Trustee. The Series 2016A Refunding Bonds, together with other available monies, are being issued for the purpose of advance refunding the Refunded Series 2006C Bonds in the principal amount of $213,195,000, representing the aggregate principal amount of the Refunded Series 2006C Bonds currently outstanding, and to pay the costs of issuance of the Series 2016A Refunding Bonds. The Series 2016B Taxable Refunding Bonds, together with other available monies, are being issued for the purpose of advance refunding the Refunded Series 2012 Bonds in the principal amount of $49,785,000, representing the aggregate principal amount of the Refunded Series 2012 Bonds currently outstanding, and to pay the costs of issuance of the Series 2016B Taxable Refunding Bonds. The Refunded Series 2006C Bonds and the Refunded Series 2012 Bonds are collectively referred to herein as the "Refunded Bonds." In order to advance refund the Refunded Series 2006C Bonds, a portion of the proceeds derived from the sale of the Series 2016A Refunding Bonds, together with certain funds on deposit in the Emergency Assessment Stabilization Fund ($16,649,410.30), the Debt Service Reserve Fund ($18,132,013.00) and the Revenue Fund ($3,129,883.77), will be deposited and held in the Series 2016-A Escrow Fund (the "Series 2016-A Escrow Fund") created pursuant to the Escrow Deposit Agreement, solely for the benefit of the owners of the Refunded Series 2006C Bonds. In order to advance refund the Refunded Series 2012 Bonds, a portion of the proceeds derived from the sale of the Series 2016B Taxable Refunding Bonds, together with certain funds on deposit in the Emergency Assessment Stabilization Fund ($3,323,395.77), will be deposited and held in the Series 2016-B Escrow Fund (the "Series 2016-B Escrow Fund," and, together with the Series 2016-A Escrow Fund, the "Escrow Fund") created pursuant to the Escrow Deposit Agreement, solely for the benefit of the owners of the Refunded Series 2012 Bonds. The Escrow Trustee will use such proceeds to acquire certain noncallable direct United States of America government obligations (the "Defeasance Obligations"). Said Defeasance Obligations will be held by the Escrow Trustee pursuant to the terms of the Escrow Deposit Agreement. The Defeasance Obligations will mature at such times and in such amounts so that sufficient moneys will be available from such maturing principal, together with interest income to be derived from the Defeasance Obligations, and cash balances, if any, to pay when due the principal and interest on the Refunded Bonds prior to and on their maturity date or optional redemption date of June 1, 2018 (in the case of the Refunded Series 2006C Bonds) and prior to and on their maturity date or optional redemption date of June 1, 2022 (in the case of the Refunded Series 2012 Bonds). Upon the making of such deposit, in the opinion of Bond Counsel, there will be accomplished a full and proper defeasance of the Refunded Bonds and a full and proper discharge of the lien of the Master Indenture and the Amended and Restated Seventh Supplemental Indenture with respect to the Refunded 2006C Bonds, and a full and proper discharge of the lien of the Master Indenture and the Eighth Supplemental Indenture with respect to the Refunded Series 2012 Bonds, and Bond Counsel is further of the opinion that the use of the proceeds of the Series 2016 Refunding Bonds to pay the principal and interest on the 10

19 Refunded Bonds as contemplated in the Escrow Deposit Agreement would not be avoidable as preferential payments under Section 547 of the Bankruptcy Code, or under any other insolvency proceeding applicable to the Corporation. Under the Master Indenture, the Master Indenture and the lien, rights and interests created thereunder shall cease, determine and become null and void with respect to the Refunded Bonds. The Escrow Fund shall be held by the Escrow Trustee separate and apart from all other funds and accounts held by the Escrow Trustee. The Escrow Trustee will have no lien whatsoever upon any moneys in the Escrow Fund for any of its fees and costs incurred in carrying out the provisions of the Escrow Deposit Agreement, which fees and costs will be paid to the Escrow Trustee by the Corporation from other available funds. The accuracy of the arithmetic computations of the adequacy of the amounts of maturity principal of and interest on the Defeasance Obligations on deposit in the Escrow Fund to pay the redemption prices of and interest on the Refunded Bonds to their maturity date or redemption date, as the case may be, and the accuracy of the arithmetic computations of the adequacy of the amounts of maturity principal of and interest on the Defeasance Obligations on deposit in the Escrow Fund to pay the maturity amount of the Refunded Bonds maturing prior to the applicable redemption date, and the redemption prices of and interest on the Refunded Bonds to their applicable redemption date, will each be independently verified by Causey Demgen & Moore P.C., Denver, Colorado. See "VERIFICATION OF MATHEMATICAL COMPUTATIONS" herein. A copy of the Escrow Deposit Agreement will be available at the Municipal Securities Rulemaking Board, Washington, D.C. as of the date of the issuance of the Series 2016 Refunding Bonds. Security for the Series 2016 Refunding Bonds The Series 2016 Refunding Bonds and the Outstanding Parity Bonds are secured by a pledge of the Pledged Revenues. No Emergency Assessments that may be levied with respect to a future Plan Year Deficit will be pledged to secure the Series 2016 Refunding Bonds. See "SECURITY AND SOURCE OF PAYMENT" herein. The 2005 Emergency Assessments will continue to be levied and collected as described above until the Series 2016 Refunding Bonds, as well as the Outstanding Parity Bonds, are paid in full. THE SERIES 2016 REFUNDING BONDS ARE BEING ISSUED ON A PARI PASSU, PARITY BASIS AS TO SECURITY AND SOURCE OF PAYMENT WITH THE OUTSTANDING PARITY BONDS. Of the funds established by the Indenture, the Debt Service Reserve Fund is intended to provide for payment when due of the principal and interest on the Series 2016 Refunding Bonds and the Outstanding Parity Bonds in the event the 2005 Emergency Assessments collected in any period are insufficient to make those payments. The Debt Service Reserve Fund Requirement for the Outstanding Parity Bonds and the Series 2016 Refunding Bonds will be fully funded on the Issuance Date from the New AGM Reserve Fund Surety Policy ($57,208,103.16) and cash on hand in the Debt Service Reserve 11

20 Fund ($10,178,794.52). See "AGM RESERVE FUND SURETY POLICY" herein. The Debt Service Reserve Fund provides additional security for the benefit of the owners of the Outstanding Parity Bonds and the Series 2016 Refunding Bonds, and may provide additional security for any Additional Bonds issued in the future. The Indenture also provides that additional bonds may be issued, on a parity with the Outstanding Parity Bonds and the Series 2016 Refunding Bonds ("Additional Bonds") only with respect to the 2005 Plan Year Deficit. The Corporation presently has no intention of issuing any Additional Bonds. For more information, including definitions of the Debt Service Reserve Fund Requirement and the provisions for the issuance of Additional Bonds, see "SECURITY AND SOURCE OF PAYMENT - Indenture Provisions" herein. For information about the New AGM Reserve Fund Surety Policy, see "AGM RESERVE FUND POLICY" herein. Place of Payment Principal of the Series 2016 Refunding Bonds is payable by check or draft or wire transfer by the Trustee to Cede & Co., as nominee of DTC. Any successor Trustee shall (i) be a bank or trust company in good standing, located in or incorporated under the laws of the State, duly authorized to exercise trust powers and subject to examination by federal or state authorities, and (ii) have a reported capital and surplus of not less than $75,000,000 at the time of its appointment. Payment of Interest Interest on the Series 2016 Refunding Bonds is payable semiannually on each June 1 and December 1 (each an "Interest Payment Date"), commencing December 1, 2016, with interest payable by check, and if in holding by wire, mailed by the Trustee to the Beneficial Owners (determined as of the 15th calendar day of the month next preceding said Interest Payment Date) in accordance with the terms of the DTC Representation Letter. In the case of a holder of $1,000,000 or more in aggregate principal amount of the Series 2016 Refunding Bonds, upon the written request of such holder to the Trustee specifying the account or accounts to which such payment shall be made, such payments shall be made by wire transfer of immediately available funds. See "APPENDIX F BOOK-ENTRY ONLY SYSTEM." Maturities The Series 2016 Refunding Bonds will mature on the dates and bear interest at the rates indicated on the inside front cover page of this Official Statement. LEVY OF EMERGENCY ASSESSMENTS ON DIRECT WRITTEN PREMIUM Subject Lines of Business Every Affected Insurance Company is required quarterly and annually to file with the Commissioner of Insurance a true statement of its financial condition, transactions, and affairs, including a listing of the premiums received by line of business. The following descriptions, which are adapted from a manual of the National Association of Insurance Commissioners, apply to the Subject Lines of Business. 12

21 Fire Fire coverage protects the insured against the loss to real or personal property from damage caused by the peril of fire or lightning, including business interruption, loss of rents, etc. Both residential and commercial fire policies are included in this Subject Line of Business. Allied Lines Allied lines coverage is generally written with property insurance and could include glass, tornado, windstorm, and hail; sprinkler and water damage; explosion, riot, and civil commotion; and damage from aircraft and vehicle, etc. Both residential and commercial allied lines policies are included in this Subject Line of Business. Homeowners Multiperil Homeowners multiperil is generally a package policy combining broad property coverage for the personal property and/or structure with broad personal liability coverage. Coverage applies to the dwelling, appurtenant structures, and unscheduled personal property, and coverage typically extends to additional living expenses. Mobile homes at a fixed location are also covered under a homeowners multiperil policy; however, the Insurance Plans do not afford mobile home coverage on a homeowner multiperil policy form. Mobile home coverage is only provided on the standard fire policy with optional allied lines coverage available. Commercial Multiperil (Property Insurance Portion) A commercial multiperil policy is a contract for a commercial enterprise which packages two or more insurance coverages protecting an enterprise from various property and liability risk exposures. Such policies frequently include fire, allied lines, and various other coverages including liability. In general, commercial multiperil policies are typically purchased by businesses such as apartment buildings, offices, retail outlets, motels, restaurants, dry cleaners, and convenience stores. However, businesses such as grocery stores or hotel chains, shopping malls, manufacturing, or refining facilities may also purchase commercial multiperil policies. The property insurance portion normally covers buildings and other structures (leased or owned); furniture, equipment, and supplies; inventory; data processing equipment; and outdoor property not attached to a building. The property insurance portion covers against losses caused by fire, lightning, windstorm, hail; and aircraft and vehicles that damage the property of the insured. The Insurance Plans only afford coverage for the property insurance portion of the commercial multiperil policy. Statewide Direct Written Premium For any assessment year, Emergency Assessments are assessed as a uniform percentage of the statewide Direct Written Premium for policies in the Subject Lines of Business issued by the Affected Insurance Companies and the Direct Written Premium for policies issued by the Corporation. See "SECURITY AND SOURCE OF PAYMENT - Assessment Authority" herein. 13

22 Table 1 shows the dollar amount of the statewide Direct Written Premium over the past ten years. Table 2 shows the top ten insurance companies for the year 2015, based on the dollar amount of Direct Written Premium for the Subject Lines of Business, including Affected Insurance Companies and the Corporation. Table 3 shows the statewide 2015 Direct Written Premium by Subject Lines of Business: TABLE 1 STATEWIDE DIRECT WRITTEN PREMIUM 1 Year Direct Written Premium (In Millions) 2015 $2, $2, , , , , , , , , Source: Department of Insurance, numbers are rounded. 14

23 Insurance Company TABLE 2 TOP TEN INSURANCE COMPANIES FOR SUBJECT LINES OF BUSINESS Direct Written Premium (In Millions) State Farm Group $572.4 Allstate Insurance Group Liberty Mutual Group Louisiana Citizens Property Insurance Corporation Southern Farm Bureau Casualty Group United Services Automobile Association Group Progressive Group 92.0 Farmers Insurance Group 66.2 Lighthouse Property Insurance Corporation 65.4 Assurant Inc Group Compiled by the Corporation based on data supplied by the Louisiana Department of Insurance. The amounts are for the year ending December 31, Information concerning parent and subsidiaries has been consolidated and presented as a group. Numbers are rounded. TABLE STATEWIDE DIRECT WRITTEN PREMIUM BY SUBJECT LINES OF BUSINESS 1 Subject Lines of Business 2015 Direct Written Premium (In Millions) Fire $215.1 Allied Lines Homeowners Multiperil 1,787.3 Commercial Multiperil Total $2,620.7 Compiled by the Corporation based on data supplied by the Louisiana Department of Insurance. The amounts are for the year ending December 31, The statewide Direct Written Premium in future years may differ substantially due to changes in insurance premiums and the value of insured property in the State. The uniform assessment percentage for each 2005 Emergency Assessment is determined with respect to the statewide Direct Written Premium for the Subject Lines of Business for the prior year. The resulting 2005 Emergency Assessment is then assessed and collected as a uniform assessment percentage of the statewide Direct Written Premium for the Subject Lines of Business. As a result, there can be no certainty that the uniform assessment percentage will result in the 15

24 expected revenues when collected. See "RISK FACTORS - Possible Changes in the Market for Property Insurance" herein. AGREEMENT WITH THE DEPARTMENT OF INSURANCE Pursuant to the Citizens Act, the Department of Insurance has certain responsibilities with respect to the levy and collection of Emergency Assessments. In addition, the Department of Insurance has entered into the DOI Agreement with the Corporation and the Trustee in which the Department of Insurance agrees to carry out its responsibilities with respect to the levy and collection of the 2005 Emergency Assessments and other matters related thereto. The DOI Agreement contains certain representations and agreements of the Department of Insurance for the benefit of the Trustee and the Bondholders. The following summary of the DOI Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all provisions of the DOI Agreement, a copy of which is available from the Corporation upon written request. The Department of Insurance represents, among other things that it has the requisite authority to enter into the DOI Agreement, it has taken all action to authorize its execution of the DOI Agreement, and the DOI Agreement constitutes the valid and legally binding obligation of the Department of Insurance enforceable in accordance with its terms. The Department of Insurance agrees that it will take certain actions: (a) By July 1st of each year it will verify the Direct Written Premium for the Subject Lines of Business and all accounts of the Corporation for the Subject Lines of Business, and promptly upon its receipt of the Corporation's determination of the uniform assessment percentage for the 2005 Emergency Assessment to be levied, it will promptly (and in any event by no later than September 1st of each year) verify whether the criteria set forth in the Plan of Operation for the levy of the 2005 Emergency Assessment have been satisfied and verify the arithmetic calculations of the uniform assessment percentage for the 2005 Emergency Assessment to be levied for the next year by the Corporation. (b) To the extent of its authority and power, it will take all steps necessary or appropriate to enforce the collection and remittance of the 2005 Emergency Assessments, including revocation of the license of an Affected Insurance Company to do business in the State for failure to collect and pay the 2005 Emergency Assessments. (c) To use its best efforts to require the Corporation to fulfill its obligations under the Citizens Act, the Plan of Operation, the Outstanding Parity Bonds and the Series 2016 Refunding Bonds. The Department of Insurance also agrees that, unless otherwise required by law, it will refrain from taking the following actions: (a) It will not initiate, take, approve, or consent to any action which, so far as it could reasonably foresee, may impair the security interest of the Trustee in the 2005 Emergency Assessments. 16

25 (b) It will not initiate, take, approve, or consent to any action or proposal which, so far as it could reasonably foresee, would relieve the Corporation of its obligations, or affect its ability to perform its obligations, under, the Citizens Act, the Plan of Operation, or the Indenture. (c) It will not consent to any program the purpose or effect of which is to exempt any Affected Policyholder from 2005 Emergency Assessments. (d) It will not initiate, take, approve, or consent to any action or proposal which could materially reduce the statewide Direct Written Premium for the Subject Lines of Business. (e) It will not consent to the dissolution, termination, or deactivation of the Corporation, or to the creation of a new entity to perform the activities of the Corporation, if such creation could have a material adverse effect on the rights of the Trustee or the Bondholders. The DOI Agreement is binding until (i) the Outstanding Parity Bonds, the Series 2016 Refunding Bonds and any Additional Bonds are paid in full, and (ii) all other amounts associated therewith are paid in full or defeased, including any amounts owed to issuers of credit enhancement devices. The Indenture provides that a material misrepresentation by the Department of Insurance, a breach by the Department of Insurance of its obligations, or the termination of the DOI Agreement by the Department of Insurance and failure by the Department of Insurance to remedy the same within five days after written notice is an event of default under the Indenture. See "APPENDIX A SUMMARY OF THE INDENTURE" attached hereto. The DOI Agreement provides that the obligations of the Department of Insurance under the DOI Agreement are enforceable by a writ of mandamus or injunction issued by a court of competent jurisdiction. There can be no assurance that a court would issue such a writ of mandamus or injunction or that a court would not issue a declaratory judgment that the Department of Insurance acted in excess of its statutory authority in executing the DOI Agreement and/or an injunction restraining the Department of Insurance from performing its obligations under the DOI Agreement. The DOI Agreement provides that the Department of Insurance shall not have any monetary liability under the DOI Agreement. In addition, no officer, employee or agent of the Department of Insurance in his or her individual capacity will have any personal liability under the DOI Agreement. 17

26 SOURCES AND USES Sources of Funds: Principal Amount of the Series 2016 Refunding Bonds $217,510, Emergency Assessment Stabilization Fund Transfer 19,972, Debt Service Reserve Fund Transfer 18,132, Revenue Fund Transfer 3,129, Original Issue Premium 39,366, Total Sources of Funds $298,111, Uses of Funds: Deposit to the Escrow Fund $296,299, Costs of Issuance 1 1,811, Total Uses of Funds $298,111, Includes legal fees, municipal advisory fees, Underwriter's discount and other costs of issuance. DEBT SERVICE PAYMENTS Table 4 shows principal and interest amounts for each Bond Year for the Series 2016 Refunding Bonds and the actual Debt Service Requirements for each Bond Year for the Outstanding Parity Bonds. For a definition of the term "Debt Service Requirements," see "SECURITY AND SOURCE OF PAYMENT - Indenture Provisions - Determination of Debt Service Requirements" herein. TABLE 4 DEBT SERVICE REQUIREMENTS Bond Year Ending June 1 Outstanding Parity Bonds Principal and Interest Series 2016 Refunding Bonds Principal Series 2016 Refunding Bonds Interest Total Debt Service $57,829,750 $8,044, $65,874, ,807,750 9,557, ,365, ,828,750 9,557, ,386, ,827,750 9,557, ,385, ,807,750 9,557, ,365, ,828,750 9,557, ,386, $50,980,000 9,557, ,537, ,530,000 7,008, ,538, ,345,000 5,191, ,536, ,655,000 2,882, ,537, Total $344,930,500 $217,510,000 $80,473, $642,913,

27 DESCRIPTION OF THE SERIES 2016 REFUNDING BONDS General The Series 2016 Refunding Bonds will be dated the Issuance Date and will bear interest at the rates set forth in the inside cover page hereof, from the cited date, or the most recent Interest Payment Date on which the interest has been paid on the Bonds, payable on each Interest Payment Date, commencing December 1, The Series 2016 Refunding Bonds will be issued and delivered only as fully registered bonds, without coupons, in denominations of $5,000 or any multiple thereof (an "Authorized Denomination"). The Series 2016 Refunding Bonds will be registered in the name of Cede & Co., as registered owner and nominee of DTC. DTC will act as Securities Depository for the Series 2016 Refunding Bonds, and individual purchases of Series 2016 Refunding Bonds may be made in book-entry form only. So long as the Series 2016 Refunding Bonds are in book-entry only form, purchasers of Series 2016 Refunding Bonds will not receive certificates representing their interest in the Series 2016 Refunding Bonds purchased. See "APPENDIX F BOOK- ENTRY ONLY SYSTEM" hereto. Provisions Applicable if Book-Entry Only System is Terminated In the event the Series 2016 Refunding Bonds are removed from the Book-Entry Only System, the principal of and the interest on the Series 2016 Refunding Bonds shall be payable to the person in whose names the Series 2016 Refunding Bonds are registered on the Bond Register on the applicable Record Date. Payments of interest on the Series 2016 Refunding Bonds shall be made to the Registered Owners of the Series 2016 Refunding Bonds (as determined at the close of business on the Record Date next preceding the applicable Interest Payment Date) by check drawn upon the Trustee and mailed by first class as they appear on the Bond Registrar or to such other address as may be furnished in writing by any Registered Owner to the Trustee prior to the applicable Record Date. The principal amount of any Series 2016 Refunding Bond, together with interest payable on any bond payment date (other than interest payable on a regularly scheduled Interest Payment Date) will be made by check only upon presentation and surrender of the Series 2016 Refunding Bond on or after its maturity date or the date fixed for purchase other payment at the office of the Trustee designated by the Trustee for that purpose. Notwithstanding the foregoing, payment of principal of and interest on any Series 2016 Refunding Bond shall be made by wire transfer to any account within the United States of America designated by a Bondholder owning $1,000,000 or more in aggregate principal amount of Series 2016 Refunding Bonds (if requested in writing of the Trustee by such Bondholder not less than five (5) days prior to the applicable Interest Payment Date and if such Bondholder otherwise complies with the reasonable requirements of the Trustee). A request for wire transfer may specify that it is effective unless and until rescinded in writing by the Bondholder at least five (5) days prior to the Record Date for the first Series 2016 Refunding Bond payment date to which such rescission is designated to apply. If interest on the Series 2016 Refunding Bonds is in default, the Trustee shall, prior to payment of interest, establish a special record date (the "Special Record Date") for such payment, which Special Record Date shall be not more than fifteen (15) nor less than ten (10) days prior to the date of the proposed payment. Payment of such defaulted interest shall then be made by check or wire transfer, as described above, mailed 19

28 or remitted to the person in whose names the Series 2016 Refunding Bonds are registered on the Special Record Date at the addresses or accounts of such persons shown on the Bond Register. Payment of the Series 2016 Refunding Bonds While the Series 2016 Refunding Bonds are in book-entry only form, payment of principal will be made by wire transfer to the Securities Depository or its nominee upon the presentation and surrender of the Series 2016 Refunding Bonds at the Principal Office of the Trustee. Payment of interest will be made by wire transfer to the Securities Depository or its nominee on the payment date. The principal of and interest on the Series 2016 Refunding Bonds shall be payable in lawful money of the United States of America. Such amounts shall be paid by the Trustee on the applicable Payment Dates by check mailed by the Trustee to the respective Holders thereof on the applicable Record Date at their addresses as they appear as of the close of business on the applicable Record Date in the books kept by the Trustee, as bond registrar, except that in the case of such a Holder of $1,000,000 or more in aggregate principal amount of such Series 2016 Refunding Bonds, upon the written request of such Holder to the Trustee, specifying the account or accounts to which such payment shall be made, such payments shall be made by wire transfer of immediately available funds on the applicable Payment Date following such Record Date. Any request referred to in the preceding sentence shall remain in effect until revoked or revised by such Holder by an instrument in writing delivered to the Trustee. Redemption General The Series 2016 Refunding Bonds are not subject to redemption prior to maturity. SECURITY AND SOURCE OF PAYMENT The Series 2016 Refunding Bonds and the Outstanding Parity Bonds are payable from, and secured by a pledge of, the Trust Estate, which includes the Pledged Revenues, which consist solely of the 2005 Emergency Assessments, the money and securities held in the funds established under the Indenture (other than the Rebate Fund), and the interest earnings accruing to those funds (other than interest accruing to the Rebate Fund). The Series 2016 Refunding Bonds and the Outstanding Parity Bonds are obligations of the Corporation payable from the Pledged Revenues, but they are not secured by any other revenues or assets of the Corporation. No assurance is given that revenues or assets of the Corporation other than the Pledged Revenues would be available to pay the principal or interest on the Outstanding Parity Bonds or the Series 2016 Refunding Bonds. Any revenues or assets of the Corporation accounted for as part of the FAIR Plan (other than the Pledged Revenues) could be applied to the operating costs associated with the FAIR Plan, including existing or future claims made on insurance policies issued under the FAIR Plan, or could be pledged to secure indebtedness of the Corporation other than the Series 2016 Refunding Bonds. Creditors of the FAIR Plan have no claim against, or recourse to, the assets in the account of the Coastal Plan. 20

29 Limited Obligations THE SERIES 2016 REFUNDING BONDS AND THE OUTSTANDING PARITY BONDS ARE OBLIGATIONS OF THE CORPORATION, PAYABLE SOLELY FROM THE TRUST ESTATE, WHICH INCLUDES THE PLEDGED REVENUES. THE SERIES 2016 REFUNDING BONDS AND THE OUTSTANDING PARITY BONDS ARE NOT SECURED BY THE FULL FAITH AND CREDIT OF THE STATE. Assessment Authority The Citizens Act and the Plan of Operation establish a process by which the Corporation may levy a Regular Assessment and may levy Emergency Assessments for each Plan to recover a Plan Year Deficit in a given Insurance Plan. In the event that a Plan Year Deficit exists in either Insurance Plan, the Corporation is required to levy a Regular Assessment and Market Equalization Charges. If the amount recovered by the Regular Assessment is insufficient to recover the deficit, the Corporation is required to levy Emergency Assessments. An Emergency Assessment may not be levied unless all surplus and excess reserves, over and above reasonably anticipated recurring operating costs, have been exhausted and the Governing Board has projected a Plan Year Deficit in the Insurance Plan for which an Emergency Assessment is to be levied. The Corporation levied a Regular Assessment, Market Equalization Charges and the 2005 Emergency Assessments for the 2005 Plan Year Deficit. Of those amounts, only the 2005 Emergency Assessment has been pledged to secure the Outstanding Parity Bonds and the Series 2016 Refunding Bonds. Additional information about the procedure for levying a Regular Assessment is provided under "THE PLAN OF OPERATION - Regular Assessments" herein. Emergency Assessments Emergency Assessments are levied by the Corporation for as many years as necessary to cover a Plan Year Deficit. Emergency Assessments are collected from all Affected Policyholders by Affected Insurance Companies and the Corporation upon issuance or renewal of policies for Subject Lines of Business. The Emergency Assessments may not be levied until verified by the Department of Insurance, which is directed by the Citizens Act to verify the arithmetic calculations within 30 days after receipt of the information upon which the determination is based. The aggregate amount of Emergency Assessments levied for an Insurance Plan in any calendar year may not exceed the greater of 10% of the amount needed to cover the Plan Year Deficit (plus interest, fees, commissions, required reserves, and other costs associated with financing of a Plan Year Deficit) or 10% of the aggregate statewide Direct Written Premium for the Subject Lines of Business on policies of Affected Insurance Companies and the Corporation for the prior year (plus interest fees, commissions, required reserves, and other costs associated with the financing of the Plan Year Deficit). A failure by an Affected Policyholder to pay an Emergency Assessment is required by the Plan of Operation to be treated as a failure to pay a premium and shall be sufficient cause to cancel the policy. Further, with respect to its policies, the Corporation has covenanted 21

30 in the Indenture that to the extent permitted by law, a failure to pay premium by its policyholder, unless promptly remedied after notice, shall result in termination of such policy by the Corporation. Directive 198 provides that the Corporation shall be paid Emergency Assessments from the first dollars collected by an Affected Insurance Company from its Affected Policyholders. The Corporation is authorized to pledge the proceeds of assessments, insurance and reinsurance recoverables, surcharges, and other funds available to the Corporation as the source of revenue for and to secure bonds or other indebtedness. However, the Corporation has pledged only the Pledged Revenues (which include the 2005 Emergency Assessments) to secure the payment of the Series 2016 Refunding Bonds and the Outstanding Parity Bonds. The Series 2016 Refunding Bonds and the Outstanding Parity Bonds are not secured by any Regular Assessments, any Market Equalization Charges, or any Emergency Assessments other than the 2005 Emergency Assessments. Any Plan Year Deficit that may materialize in any future year would be funded with a Regular Assessment and, if necessary, Emergency Assessments, which would be subject to the above limitations, which are applicable for each Plan Year Deficit. The 10% limitations described above are not applied on an aggregate basis, and accordingly, any future Plan Year Deficit would not impact the security or source of payment for the Series 2016 Refunding Bonds. Collection of Emergency Assessments The Corporation has covenanted in the Master Indenture and the Ninth Supplemental Indenture to levy an amount that is not less than the 2005 Emergency Assessment Minimum Levy Requirement and has also covenanted that, in setting a uniform percentage to be assessed on the Direct Written Premium, it will take into consideration the actual or projected amount of uncollected 2005 Emergency Assessments, including amounts that may be unavailable as a result of any projected decrease in the aggregate amount of Direct Written Premium and amounts the Corporation determines may be unavailable for any other reason. For a definition of "2005 Emergency Assessment Minimum Levy Requirement," see "SECURITY AND SOURCE OF PAYMENT - Indenture Provisions - Levy Covenant" herein. The Citizens Act directs the Governing Board to levy the Emergency Assessments for as many years as necessary to cover a Plan Year Deficit, and the Governing Board must annually determine a uniform percentage to be assessed in each year on the Direct Written Premium for the Subject Lines of Business and the Insurance Plans. The Emergency Assessment is levied directly on each Affected Policyholder and collected by the Affected Insurance Company to which the premium is paid (and by the Corporation with respect to the Emergency Assessments levied on its policyholders). The Emergency Assessment must be shown on the declarations page as a separately described surcharge. The assessment amount must be calculated as a percent of the premium, but it is not considered premium and is not subject to premium taxes, commissions, service fees, and other service charges. 22

31 The Corporation will notify each Affected Insurance Company of the uniform assessment percentage of the Emergency Assessment and the implementation date, which will apply to each Affected Policyholder based on the policy effective date Emergency Assessments that are collected by Affected Insurance Companies and the Corporation are required to be remitted to the Trustee on a calendar quarter basis. The full amount of collected Emergency Assessments must be remitted even if the premium is not fully earned. Directive 198 requires each Affected Insurance Company to submit its payment and a detailed report to the Corporation on or before the end of the month following the close of the calendar quarter. An Affected Insurance Company may lose its license to write insurance in the State if it does not collect and remit Emergency Assessments. Since the 2005 Emergency Assessments have been collected, no Affected Insurance Companies have lost their license to write insurance as a result of a failure to collect and remit Emergency Assessments. The Corporation has directed each Affected Insurance Company, and the Corporation has covenanted in the Indenture, to remit the 2005 Emergency Assessments it collects directly to the Trustee. Table 5 shows the timetable for the levy and collection of the 2005 Emergency Assessments in each year. TABLE 5 TIMETABLE FOR LEVY AND COLLECTION OF 2005 EMERGENCY ASSESSMENTS Source for Action Date Deadline Affected Insurance Companies and the Corporation report Direct Written Premium for prior year to the Department of Insurance The Department of Insurance certifies the total Direct Written Premium to the Corporation The Trustee determines the Debt Service Requirements for the next Bond Year* The Corporation confirms or revises its determination of the 2005 Plan Year Deficit The Corporation determines the 2005 Emergency Assessment Minimum Levy Requirement for the next Bond Year and the uniform assessment percentage for the next Bond Year The Department of Insurance verifies the Corporation's determination of the uniform assessment percentage for the next Bond Year The Corporation notifies Affected Insurance Companies of the uniform assessment percentage for the next Bond Year Effective Date for 2005 Emergency Assessment at the uniform assessment percentage for the year April 1 st July 1 st July 1 st August 1 st August 1st September 1st September 15th January 1st of the following year Statutory Law DOI Agreement Indenture Indenture Indenture DOI Agreement Indenture Indenture 23

32 Action End of Quarterly Collection Periods Deadline for Remittance to the Trustee of Quarterly Collections by Affected Insurance Companies and the Corporation *"Bond Year" is defined as each one-year period ending on June 1 and on each subsequent anniversary of that date until the Outstanding Bonds are retired. Tax Credit for Affected Policyholders Date March 31st, June 30th, September 30th, and December 31st of the following year April 30th, July 31st, and October 31st of the following year and January 31st of the year after that Source for Deadline Directive 198 (as to Affected Insurance Companies) and the Indenture (as to the Corporation) Directive 198 (as to Affected Insurance Companies) and the Indenture (as to the Corporation) In December, 2006, the Louisiana Legislature enacted La. R.S. 47:6025, which provided for a refundable income tax credit in an amount equal to the 2005 Emergency Assessment paid by a resident of the State in any year, commencing January 1, La. R.S. 47:6025 was amended pursuant to (i) Act No. 125 of the 2015 Regular Session of the Louisiana Legislature to provide that effective July 1, 2015, through June 30, 2018, the refundable income tax credit would be in an amount equal to seventy-two percent (72%) of the 2005 Emergency Assessment paid by a resident of the State in any year and (ii) Act No. 9 of the 2016 Second Extraordinary Session of the Louisiana Legislature to provide that effective for any taxable year beginning on or after January 1, 2016, the refundable tax credit would be in an amount equal to twenty-five percent (25%) of the said 2005 Emergency Assessment. There is currently no expiration date for such State income tax credit. However, no assurance can be given that such State income tax credit will not be repealed or modified further by the Louisiana Legislature in the future. Perfection of Security Interest In the opinion of Bond Counsel, the Trustee will have a first priority perfected security interest in the 2005 Emergency Assessments to be paid by Affected Policyholders. The Trustee has perfected its security interest in the 2005 Emergency Assessments (including 2005 Emergency Assessments held by the Affected Insurance Companies prior to remittance to the Trustee) by filing a UCC-1 financing statement, as continued, in the Louisiana UCC records. Pursuant to Directive 198, Affected Insurance Companies are required to collect 2005 Emergency Assessments from their policyholders and to remit such funds directly to the Trustee on a quarterly basis. In the event that an Affected Insurance Company should become insolvent and be subject to liquidation prior to the time that the Affected Insurance Company remits collected 2005 Emergency Assessments to the Trustee, such funds in the possession of the Affected Insurance Company on the commencement of an insolvency proceeding may be subject to the prior claims of creditors of the Affected Insurance Company or by a trustee in the insolvency proceeding. 24

33 Indenture Provisions Determination of Debt Service Requirements The Master Indenture requires the periodic determination of the "Debt Service Requirements". "Debt Service Requirements" means for any Bond Year and for all Series of Bonds, including the Series 2016 Refunding Bonds, the Outstanding Parity Bonds, and Additional Bonds, as of the date thereof, an amount equal to the sum of (a) all interest payable during such Bond Year on all Outstanding Bonds; (b) the Principal Installments of Outstanding Bonds falling due during such Bond Year; (c) any fees and premiums due in such Bond Year to any Applicable Credit Facility Provider; (d) any Hedge Payments (other than Termination Payments) due in such Bond Year; and (e) any Administrative Expenses due in such Bond Year. In the case of Variable Rate Debt, with respect to a particular Bond Year, the interest rate thereon shall be calculated on the assumption that such Variable Rate Debt will bear interest during such period at the least of (i) the Maximum Rate; (ii) if, and to the extent, on such date of calculation the interest rate on such Variable Rate Debt shall then be hedged for a specified period, the interest rate used for such specified period for the purposes of the foregoing calculation shall be such hedged interest rate; (iii) or a rate equal to the greater of (a) the Revenue Bond Index published by The Bond Buyer, or such other reasonable index selected by the Trustee, in consultation with the Remarketing Agent and the Auction Agent, if The Bond Buyer is no longer published or (b) the SIFMA Municipal Swap Index, each as reported three Business Days preceding the date of calculation. Such interest and Principal Installments for all Series of the Series 2016 Refunding Bonds shall be calculated on the assumption that no Series of Bonds at the date of calculation will cease to be Outstanding except by reason of the payment of each Principal Installment on the due date thereof. Except for the first Bond Year, Debt Service Requirements for a Bond Year shall be determined by the Trustee annually on July 1st of the preceding year. For the first Bond Year, the Debt Service Requirements for a Series of Bonds shall be set forth in the Supplemental Indenture authorizing such Series of Bonds; provided, however, that the Ninth Supplemental Indenture provides that the determination of the Debt Service Requirements for the Bond Year commencing June 2, 2015 will be recalculated on the Issuance Date in order to reflect that on and after the Issuance Date, the Series 2006B Bonds maturing June 1, 2016 to and including June 1, 2023, will no longer be Outstanding for purposes of the Master Indenture. There are no Hedge Agreements currently and the Corporation has no intention of entering into such Hedge Agreements in the future. Levy Covenant The Corporation has covenanted in the Master Indenture to levy for any future year 2005 Emergency Assessments in an amount that is not less than the 2005 Emergency Assessment Minimum Levy Requirement. The Indenture defines "2005 Emergency Assessment Minimum Levy Requirement" to mean with respect to the amount of 2005 Emergency Assessments to be levied in any future calendar year, after taking into account moneys, if any, on deposit in the Bond Fund and the Capitalized Interest Fund which are set aside to pay the Debt Service Requirements in such future Bond Year, the amount necessary to (i) pay the Debt Service Requirements in the next succeeding Bond Year, (ii) cure any deficiency in the Debt Service 25

34 Reserve Fund meeting the Debt Service Reserve Requirement; (iii) pay rebate, yield reduction payments, or other amounts due as required by Section 148 of the Code, if any; and (iv) pay Termination Payments; if any. However, in no event shall the 2005 Emergency Assessment Minimum Levy Requirement in any calendar year exceed the greater of (A)(1) ten percent (10%) of the amount needed to cover the 2005 Plan Year Deficit, plus (2) interest, fees, commissions, required reserves (including amounts required to replenish reserves), and other costs associated with financing the 2005 Plan Year Deficit or (B)(1) 10% of the aggregate statewide Direct Written Premiums for Subject Lines of Business and for all plan accounts of the Corporation for the prior year, plus (2) interest, fees, commissions, required reserves (including amounts required to replenish reserves), and the costs associated with financing the 2005 Plan Year Deficit. For definitions of capitalized terms not previously defined, see "APPENDIX A SUMMARY OF THE INDENTURE" herein. The Corporation has agreed in the Master Indenture that in setting a uniform percentage to be assessed on the Direct Written Premium, the Corporation shall take into consideration the actual or projected amount of uncollected 2005 Emergency Assessments, including amounts that may be unavailable as a result of any projected decrease in the aggregate amount of Direct Written Premium and amounts that the Corporation determines may be unavailable for any other reason. If an event of default occurs and is continuing under the Indenture, the Corporation has covenanted to levy the maximum amount of the 2005 Emergency Assessments that is permitted under the Citizens Act and the Plan of Operation. See "RISK FACTORS - Security Interest Limited to Pledged Revenues" herein. The Corporation expects that the 2015 Emergency Assessments will provide for the payment of principal and interest on the Series 2016 Refunding Bonds and the Outstanding Parity Bonds on an ongoing basis; however, because the Direct Written Premium may vary from year to year, the actual amount that will be collected is subject to change. See "RISK FACTORS - Possible Changes in the Market for Property Insurance" herein. Flow of Funds The Indenture requires the Trustee to deposit all the Pledged Revenues, including 2005 Emergency Assessments in the Revenue Fund. From the Revenue Fund, amounts are transferred on a quarterly basis to the following funds: To the Bond Fund, in an amount sufficient to cause the account on deposit in the Bond Fund to equal that portion of the Debt Service Requirements due during the succeeding three-month period; and To the Debt Service Reserve Fund, in an amount sufficient to cause the amount on deposit to equal the Debt Service Reserve Fund Requirement. In addition, amounts are transferred annually on May 15th, after the previously described transfers have been made, for the following purposes and in the following order of priority: 26

35 To any applicable Hedge Counterparty, an amount equal to any Termination Payments. As directed by an Authorized Corporation Representative, the amount necessary to pay the principal of and interest on Subordinated Debt then due and payable. To the Claims Payment Fund, as directed by an Authorized Corporation Representative, to pay additional claims (and associated expenses) that are, after the Date of Issue of the most recent Series of Bonds or Additional Bonds, determined by the Governing Board to be included in the 2005 Plan Year Deficit. To the Redemption Fund, any remaining moneys to effect the redemption of Bonds or to purchase Bonds prior to their maturity, unless the Trustee is directed by an Authorized Corporation Representative to retain such moneys in the Revenue Fund. The Indenture provides that, if at any time amounts in the Bond Fund are not sufficient to make timely payments of the Debt Service Requirement then due, then amounts in the Debt Service Reserve Fund shall be applied to make those payments. The Corporation has pledged all the 2005 Emergency Assessments to secure payment of the Series 2016 Refunding Bonds and the Outstanding Parity Bonds. Except as described above, no 2005 Emergency Assessments that are deposited in the Revenue Fund may be transferred to the Corporation until payment of the Series 2016 Refunding Bonds and the Outstanding Parity Bonds has been made or provided for. Escrow Fund On the Issuance Date, a portion of the proceeds of the Series 2016 Refunding Bonds, together with other available funds of the Corporation, will be deposited into the Escrow Fund created and established pursuant to the Escrow Deposit Agreement. See "ORIGINAL PLAN OF FINANCE AND PLAN OF REFUNDING Plan of Refunding" herein. Debt Service Reserve Fund Amounts in the Debt Service Reserve Fund are available to pay principal and interest on the Series 2016 Refunding Bonds, the Outstanding Parity Bonds and any Additional Bonds in the event amounts in the Bond Fund are less than the Debt Service Requirements. The Debt Service Reserve Fund Requirement ($67,386,425.00) will be satisfied on the Date of Issue with cash and short-term investments ($10,178,794.52) and the New AGM Reserve Fund Surety Policy ($57,208,103.16) on deposit in the Debt Service Reserve Fund. See "AGM RESERVE FUND SURETY POLICY" herein. The Master Indenture defines "Debt Service Reserve Requirement" to mean, as of the date of any determination thereof, an amount equal to 100% of the maximum annual principal and interest due on all Series of Bonds at the time outstanding; provided, however, that the Debt Service Reserve Requirement for any Series of Bonds may be satisfied with a Debt Service 27

36 Reserve Investment, all as shall be determined in a Supplemental Indenture authorizing such Series of Bonds. In accordance with the provisions of the Master Indenture, funds on deposit in the Debt Service Reserve Fund in excess of the Debt Service Reserve Fund Requirement are required to be transferred on each February 15, May 15, August 15 and November 15 into the Revenue Fund. The Master Indenture defines "Debt Service Reserve Investment" to mean an irrevocable transferable letter or line of credit or any insurance policy, surety bond or other evidence of insurance, if any, deposited to the credit of the Debt Service Reserve Fund or any account thereof in lieu of or in partial substitution for cash or securities on deposit therein. Pursuant to the provisions of the Amended and Restated Seventh Supplemental Indenture, the provisions of the Ninth Supplemental Indenture and the Tenth Supplemental Indenture, the issuer of the Debt Service Reserve Investment shall be an entity whose obligations are rated not less that "A3" by Moody's and "AA" by S&P at the time of delivery of such Debt Service Reserve Investment. See "AGM RESERVE FUND SURETY POLICY" for information on the current ratings of AGM. Additional Bonds Additional Bonds may be issued by the Corporation on parity with the Outstanding Parity Bonds and the Series 2016 Refunding Bonds, solely to assist the Corporation in financing any additional 2005 Plan Year Deficit, funding a deposit, if any, to the Debt Service Reserve Fund, funding a deposit to the Capitalized Interest Fund, if required by the Indenture or any Supplemental Indenture, and paying costs of issuance related to the Additional Bonds. The Master Indenture provides that the sum of the principal amounts maturing in any year of the Additional Bonds and the Outstanding Bonds which shall not be redeemed in full with the proceeds of the Additional Bonds shall not exceed 10% of the amount needed to cover the 2005 Plan Year Deficit (as determined pursuant to the Citizens Act and the Plan of Operation) and certified by the Corporation to the Trustee. The Corporation presently has no intention of issuing any Additional Bonds. However, the Corporation may issue Refunding Bonds in the future. See "Additional Bonds; Refunding Bonds; Subordinated Debt" in Appendix "A". Refunding Bonds may be issued provided that the conditions in the Master Indenture for issuing Additional Bonds have been satisfied. All such conditions have been satisfied with respect to the refunding of the Refunded Bonds. AGM RESERVE FUND SURETY POLICY On the Issuance Date, Assured Guaranty Municipal Corp. ("AGM") will issue the New AGM Reserve Fund Surety Policy for the Debt Service Reserve Fund with respect to a portion of the Debt Service Reserve Fund Requirement for the Outstanding Parity Bonds and the Series 2016 Refunding Bonds. Under the terms of the New AGM Reserve Fund Surety Policy, AGM will unconditionally and irrevocably guarantee to pay that portion of the scheduled principal and interest on the Series 2016 Refunding Bonds and the Outstanding Parity Bonds that becomes due 28

37 for payment but shall be unpaid by reason of nonpayment by the Corporation (the "AGM Insured Payments"). AGM will pay each portion of an AGM Insured Payment that is due for payment and unpaid by reason of nonpayment by the Corporation to the Trustee, as beneficiary of the New AGM Reserve Fund Surety Policy on behalf of the Holders of the Series 2016 Refunding Bonds and/or the Outstanding Parity Bonds on the later to occur of (i) the date such scheduled principal or interest becomes due for payment or (ii) the Business Day next following the day on which AGM receives a demand for payment therefor in accordance with the terms of the New AGM Reserve Fund Surety Policy. No payment shall be made under the New AGM Reserve Fund Surety Policy in excess of $57,208, (the "AGM Reserve Fund Surety Policy Limit"). Pursuant to the terms of the AGM Reserve Fund Surety Policy, the amount available at any particular time to be paid to the Trustee shall automatically be reduced to the extent of any payment made by AGM under the New AGM Reserve Fund Surety Policy, provided, that, to the extent of the reimbursement of such payment to AGM, the amount available under the New AGM Reserve Fund Surety Policy shall be reinstated in full or in part, in an amount not to exceed the AGM Reserve Fund Surety Policy Limit. The New AGM Reserve Fund Surety Policy does not insure against nonpayment caused by the insolvency or negligence of the Trustee. The New AGM Reserve Fund Surety Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO". AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated "AA" (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor s Financial Services LLC ("S&P"), "AA+" (stable outlook) by Kroll Bond Rating Agency, Inc. ("KBRA") and "A2" (stable outlook) by Moody s Investors Service, Inc. ("Moody s"). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such 29

38 ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On June 29, 2015, S&P issued a credit rating report in which it affirmed AGM s financial strength rating of "AA" (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On December 8, 2015, Moody s published a credit opinion maintaining its existing insurance financial strength rating of "A2" (stable outlook) on AGM. AGM can give no assurance as to any further ratings action that Moody s may take. On December 10, 2015, KBRA issued a financial guaranty surveillance report in which it affirmed AGM s insurance financial strength rating of "AA+" (stable outlook). AGM can give no assurance as to any further ratings action that KBRA may take. For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM At March 31, 2016, AGM s policyholders surplus and contingency reserve were approximately $3,742 million and its net unearned premium reserve was approximately $1,530 million. Such amounts represent the combined surplus, contingency reserve and net unearned premium reserve of AGM, AGM s wholly owned subsidiary Assured Guaranty (Europe) Ltd. and 60.7% of AGM s indirect subsidiary Municipal Assurance Corp.; each amount of surplus, contingency reserve and net unearned premium reserve for each company was determined in accordance with statutory accounting principles. Incorporation of Certain Documents by Reference Portions of the following documents filed by AGL with the Securities and Exchange Commission (the "SEC") that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (filed by AGL with the SEC on February 26, 2016); and (ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 (filed by AGL with the SEC on May 5, 2016). 30

39 All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof "furnished" under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Series 2016 Refunding Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption "AGM RESERVE FUND SURETY POLICY Assured Guaranty Municipal Corp." or included in a document incorporated by reference herein (collectively, the "AGM Information") shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters AGM makes no representation regarding the Series 2016 Refunding Bonds or the advisability of investing in the Series 2016 Refunding Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "AGM RESERVE FUND SURETY POLICY Assured Guaranty Municipal Corp." History of Plans THE CORPORATION The State instituted the Louisiana Joint Reinsurance Plan (the predecessor of the FAIR Plan) in 1968 to provide a residual market for adequate insurance on property in the State as a result of civil unrest and urban civil disobedience causing property damage in inner cities within the State. Due to market demands, the FAIR Plan expanded its area of coverage to include any area of the State not contained within the designated Coastal Plan area. The FAIR Plan underwent a number of statutory revisions culminating in the program set forth in Act 424 of the 1992 Regular Legislative Session under the name "The Louisiana Joint Reinsurance Plan." The Citizens Act recreated and continued the FAIR Plan as an Insurance Plan of the Corporation, beginning January 1,

40 The State likewise instituted the Louisiana Insurance Underwriting Plan (the predecessor of the Coastal Plan) in 1970 to provide a residual market for adequate insurance on property in the coastal areas of the State as a result of the damage caused by Hurricane Camille. The Coastal Plan was created in Act 35 of the 1970 Regular Session and was recreated and continued by the Citizens Act as an Insurance Plan of the Corporation beginning January 1, All insurance companies licensed to write property insurance covering risks located in the State were required by law to participate in predecessor insurance plans as a condition of their license to transact business in the State so that the economic burden of insuring such risks would not fall on a few insurance companies that were willing to do so. Furthermore, State-mandated participation in the predecessor insurance plans was designed to assure an adequate market for fire, extended coverage, and vandalism and malicious mischief and, if necessary, homeowners insurance in coastal and non-coastal areas of the State. Since January of 2000, property losses were experienced by the participants in the predecessor insurance plans resulting from a hailstorm, Hurricane Lili, and Tropical Storm Isidore which required assessments by the predecessor insurance plans, against the participating insurance companies. Those assessments were not recoverable from policyholders of such companies. As a result, insurance companies had become increasingly reluctant to write insurance in the State. This situation led to the adoption of the Citizens Act, which is designed to strengthen the voluntary insurance market by giving Affected Insurance Companies the ability to recoup a Regular Assessment from their Affected Policyholders and authorizing the Corporation to impose Emergency Assessments on its policyholders. The Citizens Act was determined by the State legislature to be necessary to the economic welfare of the State since, without an adequate voluntary insurance market, the orderly growth and development of the State would be impeded. These predecessor plans ceased writing new or renewal business as of December 31, The Corporation and its Governing Board have no authority to govern or manage these predecessor plans, which will continue to operate until all of their outstanding claims have been closed. Creation of the Corporation By the Citizens Act, the Louisiana Legislature created a new residual market mechanism for property insurance in the State. The Citizens Act created the Corporation and vested it with authority to operate the Insurance Plans, which are to function exclusively as residual market mechanisms to provide essential property insurance for residential and commercial property in the State, solely for applicants who are in good faith entitled, but are unable, to procure insurance through the voluntary market. The Governing Board of the Corporation was given authority to administer the affairs of the Corporation, and as of January 1, 2004, to issue insurance policies under the Insurance Plans. The Corporation maintains its home office at 1 Galleria Boulevard, Suite 720, Metairie, Louisiana. It operates under the supervision of the 16-member Governing Board. The Plan of Operation provides that senior management of the Corporation is engaged by, and serve at the 32

41 pleasure of, the Commissioner of Insurance. The Plan of Operation, which governs all fundamental business operations of the Corporation, is required to be (and has been) approved by the Insurance Committees and filed with the Office of Property and Casualty of the Department of Insurance pursuant to the Citizens Act. The Corporation is subject to the open meetings laws, public records laws, and public bid laws for procurement of service-provider contracts. Pursuant to the Citizens Act, all revenues, assets, liabilities, losses, and expenses of the Corporation are to remain divided into two separate accounts and records for the two Insurance Plans. The Corporation's assets are not part of the general fund of the State and are not subject to debts, claims, or liabilities of the State in order that the funds be preserved for the activities of the Insurance Plans. The Citizens Act provides in Section 22:2311 A as follows: "Prior to the date that is two years and one day after which the corporation no longer has any bonds outstanding, the corporation is prohibited from filing and shall have no authority to file a voluntary petition under the Federal Bankruptcy Code as it may, from time to time be in effect, and neither any public official nor any organization, entity or other person shall authorize the corporation to be or to become a debtor under the Federal Bankruptcy Code during such period. The provisions of this Section shall be part of any contractual obligation owed to the holders of bonds issued under this Subpart " The two Insurance Plans operated by the Corporation are known as the FAIR Plan and the Coastal Plan. The FAIR Plan provides insurance with respect to residential properties in the noncoastal areas in the State, and the Coastal Plan provides insurance with respect to residential properties in the coastal areas of the State. The Corporation prepares, and files with the Department of Insurance, Annual Statements with respect to each Insurance Plan. The Annual Statements are presented on the basis of Statutory Accounting Practices prescribed or permitted by the Department of Insurance. The Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners has been adopted by the Department of Insurance as a component of prescribed or permitted practices. The Corporation has the statutory authority to provide property insurance to eligible applicants, to purchase reinsurance, to borrow funds, to sue or be sued, to enter into contracts, and to employ or retain persons to perform its duties. The Corporation is statutorily required to maintain separate accounts for the two Insurance Plans, retain profits and excess reserves to offset deficits, develop and annually reassess a prudent reinsurance program for the Plans, and to take all actions necessary to facilitate and maintain the tax-exempt status of the Corporation for its income and operations and those of the Insurance Plans and to facilitate tax-exempt status for bonds and other indebtedness to be issued by or on behalf of the Corporation or the Insurance Plans. The Corporation may borrow funds to effect its purposes. When the Governing Board, with the consent of the Insurance Committees, determines that operation of the Insurance Plans is no longer required and there are no outstanding bonds or other financial obligations of the Corporation, the Corporation may liquidate and distribute any net assets, after appropriate reserves for contingencies, to the general fund of the State. 33

42 Governing Board The Governing Board of the Corporation is a board of directors consisting of 16 members. The members of the Governing Board elect a chairman, who (with the Governing Board's approval) appoints an executive committee, an investment committee, an audit committee, and an actuarial committee. The members of the Governing Board receive no salary, but their reasonable travel and other expenses may be reimbursed. Pursuant to the Citizens Act, the Governing Board comprises the following members: The commissioner of the Department of Insurance, or an employee of the Department of Insurance as his designee. The State Treasurer, or an employee of the Department of the Treasury as his designee. The chairman of the House Committee on Insurance, or a member of that committee designated by the chairman. The chairman of the Senate Committee on Insurance, or a member of that committee designated by the chairman. Six representatives appointed by the Governor, one from a list of two nominees from the Louisiana Bankers Association; one from a list of two nominees from the Louisiana Homebuilders Association; one from a list of two nominees from the Society of Louisiana Certified Public Accountants; one from a list of two nominees from the Louisiana District Attorneys Association; and the remaining two representatives shall be appointed at large. One member appointed by the Commissioner from a list of three nominees from the Professional Insurance Agents of Louisiana, or its successor. One member appointed by the Commissioner from a list of three nominees from the Independent Insurance Agents of Louisiana, or its successor. One member appointed by the Governor from a list of three nominees from the Property Casualty Insurers Association of America, or its successor. One member appointed by the Governor from a list of three nominees from the American Insurance Association, or its successor. One member appointed by the Governor from a list of three nominees from the largest domestic property insurer in the state. One member appointed by the Commissioner from a list of three nominees from the Louisiana Chapter of the National Association of Insurance and Financial Advisors, or its successor. 34

43 The following individuals currently serve, by virtue of office or appointment, as the members of the Governing Board: Chairperson Denise Brignac, Designee for the Commissioner of Insurance Preston Robinson, Designee for the State Treasurer Representative Kirk Talbot, Chairman of the House Insurance Committee Senator John Smith, Chairman of the Senate Insurance Committee Johnny Reeves, Louisiana Homebuilders Association, appointed by the Governor Representative Sam Little, Largest Domestic Representative, appointed by the Governor Eric Berger, Property Casualty Insurers Association, appointed by the Governor Gene Galligan, Professional Insurance Agents Representative, appointed by the Commissioner Craig C. LeBouef, Society of Louisiana Certified Public Accountants, appointed by the Governor Fred C. Bosse, American Insurance Association, appointed by the Governor Senator Eric LaFleur, Independent Insurance Agents & Brokers Representative, appointed by the Commissioner A. Eugene Montgomery, III, Louisiana Bankers Association, appointed by the Governor J. William Starr, Louisiana District Attorneys Association, appointed by the Governor Kevin Reinke, Louisiana Chapter of the National Association of Insurance and Financial Advisors, appointed by the Commissioner Jason G. Dupree, At-Large appointment Denise Brignac currently serves as Chairperson of the Governing Board. Ms. Brignac was appointed by Commissioner James J. Donelon. There is currently one (1) vacancy on the Governing Board, representing an at large appointment. Pursuant to the requirements of the Citizens Act, the election of the chairman of the Governing Board was confirmed by the Louisiana Senate. Pursuant to the Citizens Act, any member of the Governing Board who is not an elected official was confirmed by the Louisiana Senate. Officers The following individuals are the officers of the Corporation. 35

44 Richard Newberry, Chief Executive Officer Richard Newberry, a former insurance executive, has 23 years of experience in the insurance industry. Most of that time was spent at Oklahoma Farm Bureau Mutual Insurance Co., where his last position was executive vice president and general manager. Steve Cottrell, Chief Financial Officer Steve Cottrell has 35 years of accounting and financial experience, primarily in retail and insurance companies. He has held multiple accounting and finance leadership positions for more than 25 years. Before joining the Corporation in May, 2008, Mr. Cottrell was the Chief Financial Officer for Cunningham Lindsey Inc., a publicly traded global insurance services company. Prior to his time at Cunningham Lindsey, Mr. Cottrell was a Senior Director of Finance at Aon Insurance. Mr. Cottrell has an undergraduate degree in Accounting from Brigham Young University, a Masters of Business Administration degree in finance from North Illinois University and is a Certified Public Accountant. Other: Vijay Ramachandran, Chief Operating Officer, has been with the Corporation since February, Ricky Lindsey, Chief Information Officer, has been with the Corporation since April, Paige Harper, General Counsel and Chief Administrative Officer, has been with the Corporation since June, Regulatory Oversight The Corporation is exempt from some, but not all, regulatory requirements applicable to insurance companies. Neither the Corporation nor the Insurance Plans are required to obtain a certificate of authority from the Commissioner of the Department of Insurance, and they may not participate in the Louisiana Insurance Guaranty Association. The Corporation, in its administration of the Insurance Plans, is required to file, in the Office of Property and Casualty of the Department of Insurance, quarterly statements in the same format that is statutorily prescribed for insurance companies, and annual audited statements which summarize the transactions, operations, and affairs of each Insurance Plan. It is also required to report quarterly to the Office of Property and Casualty on the types, premium, exposure, and distribution by parish of its policies-in-force. Operational Matters The Plan of Operation provides for the establishment of facilities and operating procedures for the Corporation and for management of the Corporation. It establishes procedures to determine the amounts of property coverage to be provided covering certain risks, for the purchase and cessation of reinsurance, and for levying and collecting assessments. It also establishes procedures for hiring service providers and for processing applications for insurance. Policies Written Table 6 shows the number of policies written and gross premium earned for the years ending December 31, 1999 through December 31, 2015 for the Corporation's Insurance Plans 36

45 and the predecessor insurance plans. Table 7 shows the gross premium by Subject Lines of Business for the years ending December 31, 2008 through December 31, 2015 for the Corporation's Insurance Plans. The number of policies written differs from the number of policies-in-force due to cancellations subsequent to the purchase or renewal of a policy. For information concerning the number of policies-in-force, see Table 9 under the caption "LOSS EXPOSURE AND LOSS ESTIMATION" herein. TABLE 6 TOTAL POLICIES WRITTEN AND GROSS PREMIUMS FOR INSURANCE PLANS AND PREDECESSOR PLANS FAIR Plan 1 Coastal Plan 2 Period Ending Total Policies Total Policies (December 31) Written Gross Premium Written Gross Premium ,511 $127,733,749 4,889 $12,651, , ,793,802 5,953 15,274, , ,949,829 6,302 17,050, , ,787,219 7,207 19,318, , ,817,089 7,740 20,357, , ,428,638 7,636 19,517, , ,806,875 8,159 19,444, , ,215,086 8,278 18,272, , ,408,566 8,433 18,448, , ,640,295 7,193 14,028, , ,576,381 7,304 11,085, , ,543,452 9,321 9,743, , ,382,214 9,617 9,493, ,071 59,472,221 9,395 8,444, ,439 42,770,050 9,359 7,736, ,852 37,586,658 9,601 6,957, ,951 36,879,400 9,595 7,054,461 1 The figures from 1999 through 2003 are for the Louisiana Joint Reinsurance Plan; the figures from 2004 through 2015 are for the FAIR Plan. 2 The figures from 1999 through 2003 are for the Louisiana Insurance Underwriting Plan; the figures from 2004 through 2015 are for the Coastal Plan. Source: Department of Insurance ( ) / The Corporation ( ) 37

46 TABLE 7 GROSS PREMIUM BY SUBJECT LINE OF BUSINESS FOR INSURANCE PLANS Period Ending (December 31) Fire Allied Lines Homeowners Multiperil FAIR Plan 2015 $18,884,599 $86,200,793 $22,648, ,751,891 93,242,475 32,799, ,247,688 93,075,783 38,626, ,235,318 88,603,487 47,948, ,672,700 80,158,024 62,986, ,270,530 78,691,332 79,466, ,504,304 80,286,059 93,016, ,705,221 87,047,670 93,462, Coastal Plan 2015 $1,569,104 $11,707,085 $ 944, ,850,760 12,221,559 1,202, ,065,224 13,365,328 1,619, ,545,408 14,447,199 2,325, ,922,469 14,494,874 2,940, ,895,071 13,459,226 3,163, ,215,569 12,543,700 3,685, ,450,511 11,195,138 3,627, Source: The Corporation Commercial Multiperil The Corporation accepts applications for insurance directly from property owners or through producers (insurance agents) licensed to write insurance in the State or other representatives of the property owners. The Corporation pays commissions only to producers licensed to write insurance in the State. The rates for commissions, which are established by the Plan of Operation, are currently calculated as 10% of the earned and collected policy premium. Using its contractual service providers, the Corporation issues policies and performs all policy service administration. Depopulation The Citizens Act requires that the Corporation work toward the ultimate depopulation of its insurance plans since it serves as a residual market for residential and commercial property. As such, the Corporation has developed a successful program resulting in the depopulation of 108,820 policies and $22.6 billion of total loss exposure since June of The most recent round of depopulation began in December, 2015 and removed 13,150 policies with $2.5 billion of total loss exposure from the Corporation. See "LOSS EXPOSURE AND LOSS ESTIMATION" herein. Premiums and Rates Before a change in the Corporation's premium rates is implemented, the Corporation must submit and gain approval of a rate filing with the Department of Insurance. This 38

47 requirement is similar to other private market insurance companies. However, the underlying guidelines with respect to rates, rating plans, and rate rules for the Corporation are set by La. R.S. 22:2303. This statute requires that rates be set by the governing board of the Corporation, to be adjusted annually, and exceed by 10% the higher of both the actuarially justified rate and the highest market rate. The highest market rate for each respective product is determined through surveying companies that either write at least 2% of the total direct written premium or have increased their number of policies by 25 or more. The procedures used to calculate the rates currently charged for property coverage under the FAIR Plan and the Coastal Plan were approved by the Department of Insurance. Personal lines rate changes for new and renewal policies for the years are shown below. TABLE 8 RATE INCREASES Date Rate Change 5/01/ % 7/01/ % 7/01/ % 1/01/ % 6/01/ % 6/01/ % 6/01/ % 6/01/ % 8/15/ % 6/01/16-2.4% Source: The Corporation Operations of the Corporation Premiums and Market Equalization Charges The Corporation's premium and surcharge revenues will vary depending on applicable rates, the number of policies in force, and the value of the properties insured. Revenue from Market Equalization Charges depends on whether (and the extent to which) a Regular Assessment is levied by the Corporation, and that revenue is realized and collected by the Corporation over a subsequent 12-month period as policies are issued or renewed. Premium income and Market Equalization Charges are not pledged as security for the Series 2016 Refunding Bonds or the Outstanding Parity Bonds. Prior Years' Surplus Annual net income, if any, is retained in surplus as a future source for paying claims and expenses and for off-setting negative operating results. See "APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CORPORATION FOR FISCAL YEAR ENDED 39

48 DECEMBER 31, 2015" herein. In addition, the Corporation's income is exempt from federal income taxes. Reinsurance The Corporation obtains excess of loss reinsurance every year. The reinsurance treaties are traditionally in effect for one calendar year with an inception date of June 1. The amount of coverage and the attachment point are reviewed annually and many factors are considered when purchasing reinsurance. These considerations include, but are not limited to, cash on hand, rates on line, and the amount of the Corporation's exposure. Guy Carpenter models the Corporation's exposure against nationally recognized catastrophe models to aid in evaluating the Corporation's exposure to loss. The Corporation concentrates on the 1 in 100 year events. The Plan of Operation mandates that the Corporation develop a prudent reinsurance program designed to, in conjunction with other available claims paying resources, minimize the possibility of levying future assessments on Louisiana policyholders. As shown on the chart below, the Corporation s reinsurance structure for 2016 includes private reinsurance obtained from both the traditional reinsurance markets and the capital markets. The Corporation has $650,000,000 in total reinsurance/catastrophe bonds for the 2016 storm season. Collectively, this coverage provides sufficient resources such that in 2016, the probability of a Regular Assessment is 0.67% and the probability of an Emergency Assessment is 0.42%. The Corporation s reinsurance program has been enhanced over the years with lower pricing, the ability to reinsure for a 1-in-130-year event (per the AIR Model), a $35,000,000 retention by Citizens in most loss scenarios, diversification with added reinsurers including 13 newly added reinsurers over the past three years, and improved contract terms. The contract terms have been enhanced to improve cash flow by allowing Corporation to bill reinsurers for paid claims and claims Corporation expects to pay within 30 days. Additionally, the definition of "wind loss occurrence" has been expanded to cover hurricanes with a duration up to 5 days, and the definition of "reinsurance events" has been expanded to cover named storms as well as hurricanes. Similar definitions of coverage and provisions allowing for billing of claims in advance were also added to Cat Bond terms in Pelican III issuance. In addition, the Corporation has a $100,000,000 line of credit to ensure the availability of funds in the event of a large loss event. Such line of credit is secured solely by legally available revenues of the Corporation and the security pledged does not include the 2005 Emergency Assessment or any Emergency Assessment levied in the future. The 2016/2017 Louisiana Citizens Reinsurance Structure chart shown below provides a general overview of the Coastal Account capital structure and shows the relationship among Citizens various forms of reinsurance coverage. As described herein, Private Reinsurance is not part of Pledged Revenues under the Indenture and is included for illustrative purposes only. The illustration is projected for the 2016 hurricane season and is subject to daily change based on exposures and due to daily policy count and other factors. In addition, the Corporation does not rely on a State supervised reinsurer. 40

49 2015/2016 Louisiana Citizens Reinsurance Structure Designed to Prevent Future Emergency Assessments Probability of Assessment Aggregate layer drops down to fill in holes and pay the retention in the event of a 2 nd storm Regular Assessment = 0.67% Emergency Assessment = 0.42% Blended Avg. Attachment: 8 Year PML Blended Avg. Exhaustion: 100 Year PML Layer 2 RPP Layer 1 RPP The Corporation believes that such amounts together with its other available claimspaying resources will allow it to continue to be able to pay policyholder claims in a timely manner. The Corporation s loss exposure is dependent upon, among other things, the number, type and geographic distribution of its policies, the dollar amount of the policies and the policy coverage terms. LOSS EXPOSURE AND LOSS ESTIMATION The loss exposure in each Insurance Plan depends upon, among other things, the number, type, and geographic distribution of its policies, the dollar amount of the policies, and the policy coverage terms. Table 9 sets forth the total policies-in-force and loss exposure for the Insurance Plans as of March 31, 2016, through December 31, Table 10 shows the loss exposure for the Insurance Plans for certain parishes, as of December 1, 2015, and includes information on depopulation as required by the Citizens Act. The Map shows the loss exposure geographically in the State. 41

50 Date (December 31) TABLE 9 POLICIES-IN-FORCE AND TOTAL LOSS EXPOSURE FOR INSURANCE PLANS Total Loss Exposure (In Millions) Policies-In-Force 2016* 69,406 $13, ,400 13, ,664 17, ,314 18, ,010 21, ,204 21, ,836 23, ,498 27, ,512 27, *as of March 31, 2016 Source: The Corporation TABLE 10 TOTAL LOSS EXPOSURE BY PARISH FOR INSURANCE PLANS 1 (MILLIONS) Total Loss Exposure Before Takeout Total Loss Exposure After Takeout Parish Depopulation Orleans $4, $3, $ Jefferson 3, , Terrebonne 1, Saint Tammany Lafourche Lafayette Saint Bernard Iberia Saint Mary Remaining Parishes 3, , TOTAL $15, $13, $2, As of March 31, (Totals may not add due to rounding) Source: The Corporation 42

51 The Insurance Plans are exposed to losses from many types of occurrences, but they are particularly sensitive to losses from hurricanes because of the potential for claims from a large number of policyholders resulting from a single occurrence. Loss modeling firms have developed various estimation methodologies based on certain simulation techniques to provide management of insurance companies and others with a measure of loss exposure for the insurance company's current book of business. These methodologies involve the construction of computer programs that incorporate meteorological characteristics of hurricanes and damageability relationships for structures and, using assumptions deemed reasonable by such modeling firms, simulate the property losses caused by hypothetical hurricane occurrences on insured properties. A probable maximum loss (or a "PML") is a probability statement, based upon a loss modeling firm's computer simulations, which shows the amount of losses that are likely to be exceeded only once in each return period. For example, the 100-year PML (occurrence basis) is the single storm loss amount that a loss model estimates to be exceeded on average only once in a 100-year period. A PML may also be given in terms of annual aggregate loss amounts. For example, the 100-year PML (annual aggregate basis) is the aggregate annual loss amount that a model estimates to be exceeded on average only once in a 100-year period. 43

52 During its annual budgeting process, the Corporation uses the output of the loss models and the resulting PML figures to determine, before each storm season, a prudent level of claims paying resources it must be able to access. Like all residual market mechanisms, the Corporation's control over its post-event liquidity is limited because the Regular Assessment and Emergency Assessments are based on the statewide Direct Written Premiums. However, the Corporation may obtain pre-event liquidity by purchasing prudent levels of reinsurance and charging rates consistent with its Plan of Operation in order to generate sufficient levels of cash. The Corporation has used and will continue to use the PML figures as a management tool to estimate the appropriate level of pre-event liquidity it requires in any given year. See "RISK FACTORS - Resources Available to the Corporation for Future Deficits" and "THE CORPORATION Operations of the Corporation" herein. THE PLAN OF OPERATION The Citizens Act requires the Corporation to adopt a Plan of Operation, which must be filed with and approved by the Insurance Committees and filed with the Office of Property and Casualty of the Department of Insurance. Any amendments to that Plan of Operation must be approved by the Governing Board and similarly filed with and approved by the Insurance Committees and filed with the Office of Property and Casualty of the Department of Insurance. The Corporation has adopted a Plan of Operation in accordance with the requirements of the Citizens Act. The following summary of certain provisions of the Plan of Operation does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Plan of Operation. A copy of the Plan of Operation is available from the Corporation upon written request and is currently available on the Corporation's web site ( Regular Assessments When a Plan Year Deficit is not greater than 10% of the aggregate statewide Direct Written Premium for the Subject Lines of Business for the prior calendar year, the entire Plan Year Deficit shall be recovered through a Regular Assessment on Affected Insurance Companies. Each Affected Insurance Company participates in the Regular Assessment in the proportion that its net Direct Written Premium bears to the aggregate net Direct Written Premiums in the State by all Affected Insurance Companies. An Affected Insurance Company is permitted to recoup the Regular Assessment from its policyholders by applying a surcharge to all policies it issued for the Subject Lines of Business. The surcharge must be a uniform percentage of premium; however, it is not considered premium. Regular Assessments are not pledged to secure payment of the principal or interest on the Series 2016 Refunding Bonds or Outstanding Parity Bonds. When a Plan Year Deficit exceeds 10% of the aggregate statewide Direct Written Premium for the Subject Lines of Business for the prior calendar year, the Citizens Act directs the Corporation to levy a Regular Assessment on Affected Insurance Companies in an amount equal to the greater of 10% of the Plan Year Deficit or 10% of the aggregate statewide Direct Written Premium for the Subject Lines of Business for the prior calendar year. Any remaining deficit shall be recovered through Emergency Assessments. 44

53 The Corporation is not subject to a Regular Assessment; however, when a Regular Assessment is levied, all policies written by the Corporation are subject to a Market Equalization Charge. The charge is the ratio of the total Regular Assessment levied by the Corporation to the aggregate statewide Direct Written Premium for Subject Lines of Business for the prior year. The Corporation treats the amounts collected from a Market Equalization Charge the same as premium income. Directive 198 and the Corporation's Regular Assessment Recoupment procedures dated September 15, 2006, require, among other things, each Affected Insurance Company to remit the Regular Assessment within 45 days of the date of notification of the Regular Assessment. Because of the short period of time in which a Regular Assessment may be levied and collected following assessment, a Regular Assessment is treated by the Corporation as an immediately available claims-paying resource. Emergency Assessments The Plan of Operation establishes the procedures to be followed by the Corporation in levying Emergency Assessments pursuant to the Citizens Act, including the 2005 Emergency Assessments. The Plan of Operation provides that the Governing Board has the duty to levy Emergency Assessments in accordance with the provision of the Plan of Operation, and it charges the Corporation's Chief Executive Officer with the responsibility to administer the implementation and collection of all Emergency Assessments. The Plan of Operation also obligates the Governing Board to levy Emergency Assessments as authorized by the Citizens Act separately for each of the Insurance Plans, with no Emergency Assessment for one of those Insurance Plans to be levied as a result of a Plan Year Deficit in the other Insurance Plan. It also requires the Corporation to adopt a uniform schedule for Affected Insurance Companies to remit Emergency Assessments to the Corporation. The Plan of Operation contains the following additional provisions which are applicable to the imposition of Emergency Assessments: (1) Upon determination by the Governing Board that a Plan Year Deficit in an Insurance Plan exceeds the amount that will be recovered through Regular Assessments, the Governing Board shall levy, after verification by the Department of Insurance, Emergency Assessments, for as many years as necessary to cover the Plan Year Deficit, to be collected from all Affected Policyholders upon issuance or renewal of policies for Subject Lines of Business, excluding National Flood Insurance policies. (2) The amount of an Emergency Assessment levied in a particular year shall be a uniform percentage of that year's Direct Written Premium for the Subject Lines of Business for the Affected Insurance Companies and that year's Direct Written Premium for all accounts of the Corporation, as determined by the Governing Board and verified by the Department of Insurance. In setting the uniform percentage to be levied in a particular Plan Year, the Governing Board shall take into consideration the actual or projected amount of uncollected assessments, and of assessments that are collected but become unavailable as a result of having been pledged as security for, or for application 45

54 in respect of, indebtedness of the Corporation imposed in a prior year with respect to the Plan Year Deficit. (3) The aggregate amount of Emergency Assessments levied in any calendar year for a Plan Year Deficit shall not exceed the greater of: (a) 10% of the amount needed to cover the Plan Year Deficit, plus interest, fees, commissions, required reserves, and other costs associated with the financing of the Plan Year Deficit, or (b) 10% of the aggregate statewide direct written premiums for the Subject Lines of Business and for all accounts of the Corporation for the prior year, plus interest, fees, commissions, required reserves, and other costs associated with financing the original deficit. (c) To the extent the aggregate amount of Emergency Assessments will not exceed the greater of (a) or (b) above, the Governing Board shall impose Emergency Assessments in the amount required by any applicable loan agreement, trust indenture, or other financing agreement. (4) Emergency Assessments shall be shown separately on the declarations page of policies issued for Subject Lines of Business and are not part of the insurance company's rate, are not premium, and are not subject to any premium taxes, commissions, fees, or other charges. However, failure by an Affected Policyholder to pay the Emergency Assessment shall be treated as failure to pay premium. (5) When an Emergency Assessment is levied by the Corporation, the assessment percentage applicable to each Affected Policyholder is the ratio of the total amount being assessed by the Corporation to the aggregate statewide Direct Written Premium for the Subject Lines of Business for the prior year. (6) The FAIR and the Coastal Plans and each Affected Insurance Company that writes the Subject Lines of Business shall collect Emergency Assessments from their Affected Policyholders without such obligation being affected by any credit, limitation, exemption, or deferment. (7) Emergency Assessments are fully earned, first dollar collected surcharges (which means that they are deemed paid out of the first money paid for a policy of insurance by an Affected Policyholder, even if the Affected Policyholder does not pay the full amount of the premium and Emergency Assessments). (8) All persons who procure a policy of insurance of one or more Subject Lines of Business from an Affected Insurance Company or one of the Insurance Plans are subject to Emergency Assessments. The Corporation's Emergency Assessment Collection and Remittance Procedures dated September 15, 2006, requires, among other things, each Affected Insurance Company to prepare and provide to the Corporation an aggregate quarterly report showing policy number, policy 46

55 effective date, premium written at the inception of the policy, premium allocated to subject lines of business if different than the premium at the policy inception date, Emergency Assessment amount collected, and the date of collection. The aggregate quarterly report and remittance of all Emergency Assessment collections are required to be submitted by the Affected Insurance Company to the Corporation on or before the end of the month following the close of the calendar quarter. Each Affected Insurance Company is required to remit all Emergency Assessments collected by it directly to the Trustee. RISK FACTORS Prospective investors in the Series 2016 Refunding Bonds should consider all the information contained in this Official Statement, including the risk factors described in this section. The risk factors described herein are for illustrative purposes only and are not meant to be an exhaustive list of the risk factors associated with the purchase of the Series 2016 Refunding Bonds. Security Interest Limited to Pledged Revenues The Series 2016 Refunding Bonds are secured, together with the Outstanding Parity Bonds, to the extent and as provided in the Indenture, by a pledge of the Trust Estate, which includes the Pledged Revenues, which consist solely of the 2005 Emergency Assessments, the money and securities held in the Debt Service Reserve Fund, and other funds established under the Indenture (other than the Rebate Fund), and the interest earnings accruing to those funds (other than the interest earnings accruing to the Rebate Fund). The Corporation expects to make payments of the principal and interest on the Series 2016 Refunding Bonds and the Outstanding Parity Bonds from the 2005 Emergency Assessments that it levies and collects and has not pledged any collateral or security other than the Pledged Revenues to payment of the principal or interest on the Series 2016 Refunding Bonds. The Series 2016 Refunding Bonds and the Outstanding Parity Bonds are not secured by Regular Assessments, Market Equalization Charges, or any future Emergency Assessments. The Owners of the Series 2016 Refunding Bonds could suffer a loss or fail to obtain payment on a timely basis if the 2005 Emergency Assessments are not levied and collected in amounts sufficient to make timely payments on the Series 2016 Refunding Bonds. The Corporation has agreed that, if an event of default occurs and is continuing under the Indenture, it will levy the 2005 Emergency Assessments for each year in the maximum amount permitted under the Citizens Act and the Plan of Operation. If an event of default occurs and is continuing, the Series 2016 Refunding Bonds and the Outstanding Parity Bonds are subject to acceleration, but no assurance is given that Pledged Revenues or other assets of the Corporation would be available to pay principal of and interest on the Series 2016 Refunding Bonds and the Outstanding Parity Bonds in full upon acceleration. Timely Remittance of Emergency Assessments A business failure or other event causing a disruption in the collection and remittance, or a failure to collect or to remit, the 2005 Emergency Assessments by one or more Affected 47

56 Insurance Companies could adversely affect the payment of the Series 2016 Refunding Bonds on a timely basis. It is expected that amounts in the Debt Service Reserve Fund would be available in case of such disruption, and to the extent funds remaining on deposit in the Debt Service Reserve Fund are less than the Debt Service Fund Reserve Requirement, Pledged Revenues, after payment of principal and interest on the Series 2016 Refunding Bonds, are required to be deposited into the Debt Service Reserve Fund until the Debt Service Reserve Fund Requirement has been satisfied. However, the amounts in the Debt Service Reserve Fund could be insufficient, particularly during any period when such fund is not fully funded. Additional Assessments by Other Entities in the State Louisiana Insurance Guaranty Association ("LIGA"), a nonprofit unincorporated legal entity created pursuant to Louisiana Revised Statutes 22:2501, et seq., was created to provide a mechanism for the payment of covered claims under certain insurance policies because of the insolvency of an insurer. LIGA may levy assessments up to 1% of the Direct Written Premium to pay claims of insolvent insurors. Possible Changes in the Market for Property Insurance In general, the demand for property insurance in the State may be affected by changes in premiums charged, risks covered or deductibles imposed. The levy of the Regular Assessment in 2006 and the Emergency Assessment (3.6% in 2007, 5.0% in 2008 and 2009, 4.3% in 2010, 4.0% in 2011, 3.9% in 2012, 3.74% in 2013, 3.54% in 2014, 3.42% in 2015 and 2.93% in 2016) increased the cost of property insurance to all policyholders in the State. Due to the efforts of the Department of Insurance and the Louisiana Legislature, additional insurance companies have been attracted to the property insurance market in the State. As a result of new competition entering the market, the outlook for the near future is stable. However, no assurance can be given that future events, such as frequent and severe hurricane and storm activity, will not negatively impact the market for voluntary insurance companies. Resources Available for Future Deficits As a provider of residual market plans, the Corporation is required to offer insurance to applicants "who are in good faith entitled, but are unable, to procure insurance through the voluntary market." The Insurance Plans may be unable to refuse an applicant for reasons available to a voluntary market insurance company, for example, to avoid a concentration risk or other actuarially significant risks. The maximum amount that the Corporation will insure under any single policy is currently $550,000. The procedures used to calculate the rates charged by the Corporation for its property coverage are required by the Citizens Act to be 10% higher than the actuarial determined rates, or 10% higher than the highest rate charged by a market company, whichever is greater. The private market is defined as any company writing at least 2% of the premium in the parish or having a net increase in policy counts of at least 25 in a parish. The procedures for determining the rates must be approved by the Department of Insurance. 48

57 The Corporation's current reinsurance policy remains in effect until May 31, In the event storm losses exceed the Corporation's claims paying resources (including reinsurance) it may incur a deficit in the future, but the Corporation would have the right to levy assessments to recover the deficit. See discussion under "Possible Changes in the Market for Property Insurance" above. In the event the Corporation experiences a Plan Year Deficit, it is statutorily authorized to levy a Regular Assessment and, if needed, Emergency Assessments, which would be applied to pay that subsequent deficit. Though the Indenture allows Additional Bonds to be issued, it limits the amount of such Additional Bonds to the amount needed to finance the 2005 Plan Year Deficit, as it may be redetermined in the future. Any such Additional Bonds, the Series 2016 Refunding Bonds, and the Outstanding Parity Bonds would have an equal claim on the 2005 Emergency Assessments. Any borrowing arising from a future Plan Year Deficit would have no claim on the 2005 Emergency Assessments but could be secured by Emergency Assessments levied with respect to that future Plan Year Deficit. No assurance can be given that the Corporation would be able to successfully complete any future borrowing. Furthermore, Emergency Assessments levied by the Corporation with respect to future Plan Year Deficits, if any, would be payable by Affected Policyholders on the same basis with and collected by Affected Insurance Companies and the Corporation at the same time as the 2005 Emergency Assessments. At the present time, the Corporation has no intention of issuing any Additional Bonds. However, the Corporation may issue Refunding Bonds in the future if financial conditions permit. See "Additional Bonds; Refunding Bonds; Bond Anticipation Notes; Subordinated Debt" in Appendix A. Future Catastrophic Events The State is generally susceptible to hurricanes and similar storms in which winds are from time to time powerful enough to cause destruction. It is not possible to quantify at present with any certainty whether future catastrophic events, such as hurricanes, similar storms, or multiple storms in a season, will trigger an additional Emergency Assessment, which Emergency Assessment will not secure the Series 2016 Refunding Bonds or the Outstanding Parity Bonds. Additional hurricanes and storms in the State may lead to a reduction of insurance companies writing property insurance policies in the future. Future Legislative and Regulatory Changes The Corporation is an entity created by the State legislature and governed by a board that is appointed by elected officials of the State. There can be no assurance that the State Legislature will not attempt to amend the Citizens Act, the insurance laws or regulations, or other laws of the State in a manner that would adversely affect the financial condition or operations of the Corporation. Also, an interpretation of, or a change in the interpretation of, any law or regulation binding upon the Corporation by the Department of Insurance could adversely affect the financial condition or operations of the Corporation. However, the Citizens Act provides that the State Legislature covenants and agrees with the Corporation and the owners of its bonds that, as 49

58 long as bonds of the Corporation remain outstanding, the State and any public instrumentality thereof and the State Legislature will not in any way impair the rights and remedies of such owner or the security for such bonds, until all such bonds are fully paid and discharged. In the opinion of Bond Counsel, any attempt by the State, any public instrumentality thereof, or the State Legislature to impair the rights and remedies of the owners of the Series 2016 Refunding Bonds and the Outstanding Parity Bonds or the security for the Series 2016 Refunding Bonds and the Outstanding Parity Bonds would be contrary to the express provisions of the Citizens Act described above and is likely to be subject to a successful constitutional challenge as violations of the "Contract Clause" of the State and United States Constitutions. In rendering this opinion, Bond Counsel assumed that proper legal arguments will be presented before the court and the courts at all levels will give appropriate weight to the legal theories and arguments presented by and on behalf of the Corporation, and proper deference to the language of the Citizens Act, and therefore there can be no assurance that a court of last resort will concur with this legal conclusion. Enforceability of Remedies The remedies available to the beneficial owners of the Series 2016 Refunding Bonds upon an Event of Default under the Indenture depend in many respects upon judicial actions that are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, the remedies specified by the Indenture may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2016 Refunding Bonds (including approving opinions of Special Tax Counsel and Bond Counsel) will be qualified, as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors enacted before or after such delivery. PENDING LITIGATION As of April 30, 2016 there were 449 open litigation matters against the Corporation. The majority of these lawsuits are first-party suits related to Hurricanes Katrina and Isaac. Unpaid loss and loss adjustment expenses of approximately $5.6 million are included on the balance sheet, excluding the Oubre class action suit described below. The balance of the litigated matters are related to first party losses, third-party bodily injury claims, subrogation or claims where the issue of coverage is in dispute. The Corporation is also a defendant in a class action suit resulting from Hurricanes Katrina and Rita entitled: Oubre v. Louisiana Citizens Property Insurance Corporation. The plaintiffs in this suit allege that the Corporation failed to timely initiate loss adjustment of property damage claims within thirty (30) days as required by the Louisiana statutory law in effect on the dates of Hurricanes Katrina and Rita exposing the Corporation to penalties up to a mandatory limit of $5, On July 23, 2012 the Corporation settled the first phase of this class action suit with a payment of $104.7 million to the plaintiff counsel for distribution to the class members. The Corporation entered into a settlement with the class for the remaining Oubre claims. The Corporation has paid $100.1 million towards the final settlement as of May 31, 2016 and has a reserve of $44.1 million for the remaining settlement (included in unpaid losses on the 50

59 balance sheet). The Corporation will continually review the reserve to ensure that it meets the anticipated settlement costs. The Louisiana statutory law referred to in the preceding paragraph was amended by Act 488 of the 2009 Regular Session of the Louisiana Legislature and now provides that in the case of a catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim within thirty (30) days after notification of loss by the claimant except that the Commissioner of Insurance may promulgate a rule for extending the time period for initiating a loss adjustment for damages arising from a presidentially declared emergency or disaster or a gubernatorially declared emergency or disaster up to an additional thirty (30) days, and thereafter, only one additional extension of the period of time for initiating loss adjustment may be allowed and must be approved by the Senate Committee on Insurance and the House Committee on Insurance. RATINGS Moody's Investors Service, Inc. ("Moody's"), and Standard & Poor s Global Ratings, a business unit of Standard & Poor s Financial Services LLC ("S&P"), have assigned ratings of "A1," and "A (stable)" to the Series 2016 Refunding Bonds. Such ratings reflect only the views of such organizations and are not a recommendation to buy, sell or hold the Series 2016 Refunding Bonds. Any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Service, Inc. 7 World Trade Center at 250 Greenwich Street New York, New York Telephone: (212) Standard & Poor's Ratings Services 55 Water Street New York, New York Telephone: (212) Generally a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such ratings agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2016 Refunding Bonds. UNDERWRITING The Series 2016 Refunding Bonds are being purchased by Morgan Stanley & Co. LLC (the "Underwriter"). The purchase price of the Series 2016A Refunding Bonds is $199,930, (representing the principal amount of the Series 2016A Refunding Bonds, less Underwriter's discount of $246,435.89, plus original issue premium of $39,366,880.90). The purchase price of the Series 2016B Taxable Refunding Bonds is $56,613, (representing the principal amount of the Series 2016B Taxable Refunding Bonds, less Underwriter s discount 51

60 of $86,890.84). The Bond Purchase Agreement executed by the Corporation and the Underwriter provides that the Underwriter will purchase all of the Series 2016 Refunding Bonds, if any are purchased. The Underwriter intends to offer the Series 2016 Refunding Bonds to the public initially at the offering prices set forth on the inside cover page of this Official Statement, which may subsequently change without any requirement or prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2016 Refunding Bonds to the public. In connection with this offering, the Underwriter may over allot or effect transactions which stabilize or maintain the market price of the Series 2016 Refunding Bonds offered hereby at a level above that which otherwise prevail in the open market. Such stabilization, if commenced, may be discontinued at any time. Morgan Stanley, parent company of Morgan Stanley & Co. LLC, the underwriter of the Series 2016 Refunding Bonds, has entered into a retail distribution arrangement with its affiliate, Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2016 Refunding Bonds. VERIFICATION OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by the Underwriters on behalf of the Corporation relating to (a) computation of forecasted receipts of principal and interest on the Defeasance Obligations (and the forecasted payments of principal and interest to pay at redemption the Refunded Bonds) and (b) computation of the yields on the Bonds and the Defeasance Obligations was verified by Causey Demgen & Moore P.C., Denver, Colorado. Such computations were based solely on assumptions and information supplied by the Underwriter on behalf of the Corporation. Causey Demgen & Moore P.C., Denver, Colorado has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome FORWARD LOOKING STATEMENTS The statements contained in this Official Statement, and in other information provided by the Corporation, that are not purely historical, are forward-looking statements. All forwardlooking statements included in this Official Statement are based on information available to the Corporation on the date hereof, and the Corporation does not assume any obligation to update any such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates that are inherently subject to numerous risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and 52

61 other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. Federal Income Tax TAX MATTERS SERIES 2016A REFUNDING BONDS The delivery of the Series 2016A Refunding Bonds is subject to the opinion of Nixon Peabody LLP, Special Tax Counsel, to the effect that the interest on the Series 2016A Refunding Bonds is excluded from gross income of the owners thereof for federal income tax purposes. The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the Series 2016A Refunding Bonds for interest thereon to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2016A Refunding Bonds to be included in gross income for federal income tax purposes retroactive to the Issuance Date of the Series 2016A Refunding Bonds. Pursuant to the Indenture and the Tax Certificate as to Arbitrage and the provisions of Sections 103 and of the Internal Revenue Code of 1986 (the "Tax Certificate"), the Corporation has covenanted to comply with the applicable requirements of the Code in order to maintain the exclusion of the interest on the Series 2016A Refunding Bonds from gross income for federal income tax purposes pursuant to Section 103 of the Code. In addition, the Corporation has made certain representations and certifications in the Indenture and Tax Certificate. In rendering its opinion as to certain federal tax matters, Special Tax Counsel will rely upon the approving opinion of Breazeale, Sachse & Wilson, L.L.P., Bond Counsel, relating among other things to the validity of the Series 2016A Refunding Bonds. Special Tax Counsel will not independently verify the accuracy of those representations and certifications or that opinion. In the opinion of Nixon Peabody LLP, Special Tax Counsel, under existing law and assuming compliance with the aforementioned covenant, and the accuracy of certain representations and certifications made by the Corporation described above, and in reliance on the approving opinion of Bond Counsel as to the validity of the Series 2016A Refunding Bonds, interest on the Series 2016A Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code. Special Tax Counsel is also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code with respect to individuals and corporations. Interest on the Series 2016A Refunding Bonds is, however, included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. Original Issue Discount Bond Counsel is further of the opinion that the excess of the principal amount of a maturity of the Series 2016A Refunding Bonds over the price at which price a substantial amount of such maturity of the Series 2016A Refunding Bonds was sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or 53

62 wholesalers) (each, a "2016A Discount Bond" and collectively the "2016A Discount Bonds") constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on the Series 2016A Refunding Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each 2016A Discount Bond and the basis of each 2016A Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning the 2016A Discount Bonds, even though there will not be a corresponding cash payment. Owners of the 2016A Discount Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such 2016A Discount Bonds. Original Issue Premium Series 2016A Refunding Bonds sold at prices in excess of their principal amounts are "2016A Premium Bonds". An initial purchaser with an initial adjusted basis in a 2016A Premium Bond in excess of its principal amount will have amortizable bond premium which is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each 2016A Premium Bond based on the purchaser s yield to maturity (or, in the case of 2016A Premium Bonds callable prior to their maturity, over the period to the call date, based on the purchaser s yield to the call date and giving effect to any call premium). For purposes of determining gain or loss on the sale or other disposition of a 2016A Premium Bond, an initial purchaser who acquires such obligation with an amortizable bond premium is required to decrease such purchaser s adjusted basis in such 2016A Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Bonds. Owners of the 2016A Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such 2016A Premium Bonds. Ancillary Tax Matters Ownership of the Series 2016A Refunding Bonds may result in other federal tax consequences to certain taxpayers, including, without limitation, certain S corporations, foreign corporations with branches in the United States, property and casualty insurance companies, individuals receiving Social Security or Railroad Retirement benefits, and individuals seeking to claim the earned income credit. Ownership of the Series 2016A Refunding Bonds may also result in other federal tax consequences to taxpayers who may be deemed to have incurred or continued indebtedness to purchase or to carry the Series 2016A Refunding Bonds. Prospective investors are advised to consult their own tax advisors regarding these rules. Interest paid on tax-exempt obligations such as the Series 2016A Refunding Bonds is subject to information reporting to the Internal Revenue Service (the "IRS") in a manner similar to interest paid on taxable obligations. In addition, interest on the Series 2016A Refunding Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails 54

63 to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. Special Tax Counsel is not rendering any opinion as to any federal tax matters other than those described in the opinion attached as Appendix C-1. Prospective investors, particularly those who may be subject to special rules described above, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Series 2016A Refunding Bonds, as well as any tax consequences arising under the laws of any state or other taxing jurisdiction. Changes in Federal or State Law and Post Issuance Events Legislative or administrative actions and court decisions, at either the federal or state level, could have an adverse impact on the potential benefits of the exclusion from gross income of the interest on the Series 2016A Refunding Bonds for federal or state income tax purposes, and thus on the value or marketability of the Series 2016A Refunding Bonds. This could result from changes to federal or state income tax rates, changes in the structure of federal or state income taxes (including replacement with another type of tax), repeal of the exclusion of the interest on the Series 2016A Refunding Bonds from gross income for federal or state income tax purposes, or otherwise. We note that in each year since 2011, President Obama released legislative proposals that would limit the extent of the exclusion from gross income of interest on obligations of states and political subdivisions under Section 103 of the Code (including the Series 2016A Bonds) for taxpayers whose income exceeds certain thresholds. It is not possible to predict whether any legislative or administrative actions or court decisions having an adverse impact on the federal or state income tax treatment of holders of the Series 2016A Refunding Bonds may occur. Prospective purchasers of the Series 2016A Refunding Bonds should consult their own tax advisers regarding the impact of any change in law on the Series 2016A Refunding Bonds. Special Tax Counsel and Bond Counsel have not undertaken to advise in the future whether any events after the date of issuance and delivery of the Series 2016A Refunding Bonds may affect the tax status of interest on the Series 2016A Refunding Bonds. Special Tax Counsel and Bond Counsel express no opinion as to any federal, state or local tax law consequences with respect to the Series 2016A Refunding Bonds, or the interest thereon, if any action is taken with respect to the Series 2016A Refunding Bonds or the proceeds thereof upon the advice or approval of other counsel. Federal Income Tax TAX MATTERS SERIES 2016B TAXABLE REFUNDING BONDS The following is a summary of certain anticipated United States federal income tax consequences of the purchase, ownership and disposition of the Series 2016B Taxable Refunding Bonds. The summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder and the judicial and administrative rulings and decisions now in effect, all of which are subject to change. Such 55

64 authorities may be repealed, revoked, or modified, possibly with retroactive effect, so as to result in United States federal income tax consequences different from those described below. The summary generally addresses Series 2016B Taxable Refunding Bonds held as capital assets within the meaning of Section 1221 of the Code and does not purport to address all aspects of federal income taxation that may affect particular investors in light of their individual circumstances or certain types of investors subject to special treatment under the federal income tax laws, including but not limited to financial institutions, insurance companies, dealers in securities or currencies, persons holding such Series 2016B Taxable Refunding Bonds as a hedge against currency risks or as a position in a "straddle," "hedge," "constructive sale transaction" or "conversion transaction" for tax purposes, or persons whose functional currency is not the United States dollar. It also does not deal with holders other than original purchasers that acquire Series 2016B Taxable Refunding Bonds at their initial issue price except where otherwise specifically noted. Potential purchasers of the Series 2016B Taxable Refunding Bonds should consult their own tax advisors in determining the federal, state, local, foreign and other tax consequences to them of the purchase, holding and disposition of the Series 2016B Taxable Refunding Bonds. The Corporation has not sought and will not seek any rulings from the Internal Revenue Service with respect to any matter discussed herein. No assurance can be given that the Internal Revenue Service would not assert, or that a court would not sustain, a position contrary to any of the tax characterizations and tax consequences set forth below. U.S. Holders As used herein, the term U.S. Holder means a beneficial owner of Series 2016B Taxable Refunding Bonds that is (a) an individual citizen or resident of the United States for federal income tax purposes, (b) a corporation, including an entity treated as a corporation for federal income tax purposes, created or organized in or under the laws of the United States or any State thereof (including the District of Columbia), (c) an estate whose income is subject to federal income taxation regardless of its source, or (d) a trust if a court within the United States can exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. Notwithstanding clause (d) of the preceding sentence, to the extent provided in Treasury regulations, certain trusts in existence on August 20, 1996, and treated as United States persons prior to that date that elect to continue to be treated as United States persons also will be U.S. Holders. In addition, if a partnership (or other entity or arrangement treated as a partnership for federal income tax purposes) holds Series 2016B Taxable Refunding Bonds, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. If a U.S. Holder is a partner in a partnership (or other entity or arrangement treated as a partnership for federal income tax purposes) that holds Series 2016B Taxable Refunding Bonds, the U.S. Holder is urged to consult its own tax advisor regarding the specific tax consequences of the purchase, ownership and dispositions of the Series 2016B Taxable Refunding Bonds. Taxation of Interest Generally Interest on the Series 2016B Taxable Refunding Bonds is not excluded from gross income for federal income tax purposes under Code section 103 and so will be fully subject to 56

65 federal income taxation. Purchasers (other than those who purchase Series 2016B Taxable Refunding Bonds in the initial offering at their principal amounts) will be subject to federal income tax accounting rules affecting the timing and/or characterization of payments received with respect to such Series 2016B Taxable Refunding Bonds. In general, interest paid on the Series 2016B Taxable Refunding Bonds and recovery of any accrued original issue discount and market discount will be treated as ordinary income to a Bondholder, and after adjustment for the foregoing, principal payments will be treated as a return of capital to the extent of the U.S. Holder s adjusted tax basis in the Series 2016B Taxable Refunding Bonds and capital gain to the extent of any excess received over such basis. Original Issue Discount The following summary is a general discussion of certain federal income tax consequences of the purchase, ownership and disposition of Series 2016B Taxable Refunding Bonds issued with original issue discount ("2016B Discount Bonds"). A Series 2016B Taxable Refunding Bond will be treated as having been issued at an original issue discount if the excess of its "stated redemption price at maturity" (defined below) over its issue price (defined as the initial offering price to the public at which a substantial amount of the Series 2016B Taxable Refunding Bonds of the same maturity have first been sold to the public, excluding bond houses and brokers) equals or exceeds one quarter of one percent of such Bond s stated redemption price at maturity multiplied by the number of complete years to its maturity (or, in the case of an installment obligation, its weighted average maturity). A Bond s "stated redemption price at maturity" is the total of all payments provided by the Series 2016B Taxable Refunding Bond that are not payments of "qualified stated interest." Generally, the term "qualified stated interest" includes stated interest that is unconditionally payable in cash or property (other than debt instruments of the Corporation) at least annually at a single fixed rate or certain floating rates. In general, the amount of original issue discount includible in income by the initial holder of a 2016B Discount Bond is the sum of the "daily portions" of original issue discount with respect to such Series 2016B Taxable Refunding Bond for each day during the taxable year in which such holder held such Bond. The daily portion of original issue discount on any Discount Series 2016B Taxable Refunding Bond is determined by allocating to each day in any "accrual period" a ratable portion of the original issue discount allocable to that accrual period. An accrual period may be of any length, and may vary in length over the term of a Bond, provided that each accrual period is not longer than one year and each scheduled payment of principal or interest occurs at the end of an accrual period. The amount of original issue discount allocable to each accrual period is equal to the difference between (i) the product of the Bond s adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account the length of the particular accrual period) and (ii) the amount of any qualified stated interest payments allocable to such accrual period. The "adjusted issue price" of a 2016B Discount Bond at the beginning of any accrual period is the sum of the issue price of the 2016B Discount Bond plus the amount of original issue discount allocable to all prior accrual periods minus the amount of any prior payments on the Series 2016B Taxable Refunding Bond that were 57

66 not qualified stated interest payments. Under these rules, holders generally will have to include in income increasingly greater amounts of original issue discount in successive accrual periods. Holders utilizing the accrual method of accounting may generally, upon election, include in gross income all interest (including stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium) on the Series 2016B Taxable Refunding Bond by using the constant yield method applicable to original issue discount, subject to certain limitations and exceptions. Market Discount Any owner who purchases a Series 2016B Taxable Refunding Bond at a price which includes market discount (i.e., at a purchase price that is less than its adjusted issue price in the hands of an original owner) in excess of a prescribed de minimis amount will be required to recharacterize all or a portion of the gain as ordinary income upon receipt of each scheduled or unscheduled principal payment or upon other disposition. In particular, such owner will generally be required either (a) to allocate each such principal payment to accrued market discount not previously included in income and to recognize ordinary income to that extent and to treat any gain upon sale or other disposition of such a Series 2016B Taxable Refunding Bond as ordinary income to the extent of any remaining accrued market discount or (b) to elect to include such market discount in income currently as it accrues on all market discount instruments acquired by such owner on or after the first day of the taxable year to which such election applies. The Code authorizes the Treasury Department to issue regulations providing for the method for accruing market discount on debt instruments the principal of which is payable in more than one installment. Until such time as regulations are issued by the Treasury Department, certain rules described in the legislative history of the Tax Reform Act of 1986 will apply. Under those rules, market discount will be included in income either (a) on a constant interest basis or (b) in proportion to the accrual of stated interest. An owner of a Series 2016B Taxable Refunding Bond who acquires such Series 2016B Taxable Refunding Bond at a market discount also may be required to defer, until the maturity date of such Series 2016B Taxable Refunding Bonds or the earlier disposition in a taxable transaction, the deduction of a portion of the amount of interest that the owner paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry a Series 2016B Taxable Refunding Bond in excess of the aggregate amount of interest (including original issue discount) includable in such owner s gross income for the taxable year with respect to such Bond. The amount of such net interest expense deferred in a taxable year may not exceed the amount of market discount accrued on the Series 2016B Taxable Refunding Bond for the days during the taxable year on which the owner held the Series 2016B Taxable Refunding Bond and, in general, would be deductible when such market discount is includable in income. The amount of any remaining deferred deduction is to be taken into account in the taxable year in which the Series 2016B Taxable Refunding Bond matures or is disposed of in a taxable transaction. In the case of a disposition in which gain or loss is not recognized in whole or in part, any remaining deferred deduction will be allowed to the extent gain is recognized on the disposition. This 58

67 deferral rule does not apply if the Bondholder elects to include such market discount in income currently as described above. Bond Premium A purchaser of a Series 2016B Taxable Refunding Bond who purchases such Series 2016B Taxable Refunding Bond at a cost greater than its remaining redemption amount will have amortizable bond premium. If the holder elects to amortize this premium under Section 171 of the Code (which election will apply to all Series 2016B Taxable Refunding Bonds held by the holder on the first day of the taxable year to which the election applies and to all Series 2016B Taxable Refunding Bonds thereafter acquired by the holder), such a holder must amortize the premium using constant yield principles based on the holder s yield to maturity. Amortizable bond premium is generally treated as an offset to interest income, and a reduction in basis is required for amortizable bond premium that is applied to reduce interest payments. Purchasers of any Series 2016B Taxable Refunding Bonds who acquire such Series 2016B Taxable Refunding Bonds at a premium should consult with their own tax advisors with respect to state and local tax consequences of owning such Series 2016B Taxable Refunding Bonds. Surtax on Unearned Income Recently enacted legislation generally imposes a tax of 3.8% on the "net investment income" of certain individuals, trusts and estates for taxable years beginning after December 31, Among other items, net investment income generally includes gross income from interest and net gain attributable to the disposition of certain property, less certain deductions. U.S. Holders should consult their own tax advisors regarding the possible implications of this legislation in their particular circumstances. Sale or Redemption of Bonds A Bondholder s adjusted tax basis for a Series 2016B Taxable Refunding Bond is the price such owner pays for the Series 2016B Taxable Refunding Bond plus the amount of original issue discount and market discount previously included in income and reduced on account of any payments received on such Series 2016B Taxable Refunding Bond other than "qualified stated interest" and any amortized bond premium. Gain or loss recognized on a sale, exchange or redemption of a Bond, measured by the difference between the amount realized and the Bondholder s tax basis as so adjusted, will generally give rise to capital gain or loss if the Series 2016B Taxable Refunding Bond is held as a capital asset (except in the case of Series 2016B Taxable Refunding Bonds acquired at a market discount, in which case a portion of the gain will be characterized as interest and therefore ordinary income). If the terms of the Series 2016B Taxable Refunding Bonds are materially modified, in certain circumstances, a new debt obligation would be deemed created and exchanged for the prior obligation in a taxable transaction. Among the modifications which may be treated as material are those which related to the redemption provisions and, in the case of a nonrecourse obligation, those which involve the substitution of collateral. The defeasance of the Series 59

68 2016B Taxable Refunding Bonds may also result in a deemed sale or exchange of such Series 2016B Taxable Refunding Bonds under certain circumstances. EACH POTENTIAL HOLDER OF SERIES 2016B TAXABLE REFUNDING BONDS SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING (1) THE TREATMENT OF GAIN OR LOSS ON SALE OR REDEMPTION OF THE SERIES 2016B TAXABLE REFUNDING BONDS, AND (2) THE CIRCUMSTANCES IN WHICH SERIES 2016B TAXABLE REFUNDING BONDS WOULD BE DEEMED REISSUED AND THE LIKELY EFFECTS, IF ANY, OF SUCH REISSUANCE. Non-U.S. Holders The following is a general discussion of certain United States federal income tax consequences resulting from the beneficial ownership of Series 2016B Taxable Refunding Bonds by a person other than a U.S. Holder, a former United States citizen or resident, or a partnership or entity treated as a partnership for United States federal income tax purposes (a "Non-U.S. Holder"). Subject to the discussion of backup withholding and the Foreign Account Tax Compliance Act ("FATCA"), payments of principal by the Corporation or any of its agents (acting in its capacity as agent) to any Non-U.S. Holder will not be subject to federal withholding tax. In the case of payments of interest to any Non-U.S. Holder, however, federal withholding tax will apply unless the Non-U.S. Holder (1) does not own (actually or constructively) 10- percent or more of the voting equity interests of the Corporation, (2) is not a controlled foreign corporation for United States tax purposes that is related to the Corporation (directly or indirectly) through stock ownership, and (3) is not a bank receiving interest in the manner described in Section 881(c)(3)(A) of the Code. In addition, either (1) the Non-U.S. Holder must certify on the applicable IRS FormW-8 (series) (or successor form) to the Corporation, its agents or paying agents or a broker under penalties of perjury that it is not a U.S. person and must provide its name and address, or (2) a securities clearing organization, bank or other financial institution, that holds customers securities in the ordinary course of its trade or business and that also holds the Series 2016B Taxable Refunding Bonds must certify to the Corporation or its agent under penalties of perjury that such statement on the applicable IRS Form W-8 (series) (or successor form) has been received from the Non-U.S. Holder by it or by another financial institution and must furnish the interest payor with a copy. Interest payments may also be exempt from federal withholding tax depending on the terms of an existing Federal Income Tax Treaty, if any, in force between the U.S. and the resident country of the Non-U.S. Holder. The U.S. has entered into an income tax treaty with a limited number of countries. In addition, the terms of each treaty differ in their treatment of interest and original issue discount payments. Non-U.S. Holders are urged to consult their own tax advisor regarding the specific tax consequences of the receipt of interest payments, including original issue discount. A Non-U.S. Holder that does not qualify for exemption from withholding as described above must provide the Corporation or its agent with documentation as to his, her, or its identity to avoid the U.S. backup withholding tax on the amount allocable to a Non-U.S. Holder. The documentation may require that the Non-U.S. Holder provide a U.S. tax identification number. 60

69 If a Non-U.S. Holder is engaged in a trade or business in the United States and interest on a Series 2016B Taxable Refunding Bond held by such holder is effectively connected with the conduct of such trade or business, the Non-U.S. Holder, although exempt from the withholding tax discussed above (provided that such holder timely furnishes the required certification to claim such exemption), may be subject to United States federal income tax on such interest in the same manner as if it were a U.S. Holder. In addition, if the Non-U.S. Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% (subject to a reduced rate under an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments. For purposes of the branch profits tax, interest on a Series 2016B Taxable Refunding Bond will be included in the earnings and profits of the holder if the interest is effectively connected with the conduct by the holder of a trade or business in the United States. Such a holder must provide the payor with a properly executed IRS Form W-8ECI (or successor form) to claim an exemption from United States federal withholding tax. Generally, any capital gain realized on the sale, exchange, retirement or other disposition of a Series 2016B Taxable Refunding Bond by a Non-U.S. Holder will not be subject to United States federal income or withholding taxes if (1) the gain is not effectively connected with a United States trade or business of the Non-U.S. Holder, and (2) in the case of an individual, the Non-U.S. Holder is not present in the United States for 183 days or more in the taxable year of the sale, exchange, retirement or other disposition, and certain other conditions are met. For newly issued or reissued obligations, such as the Series 2016B Taxable Refunding Bonds, FATCA imposes U.S. withholding tax on interest payments and, for dispositions after December 31, 2018 (see IRS Notice ), gross proceeds of the sale of the Series 2016B Taxable Refunding Bonds paid to certain foreign financial institutions (which is broadly defined for this purpose to generally include non-u.s. investment funds) and certain other non-u.s. entities if certain disclosure and due diligence requirements related to U.S. accounts or ownership are not satisfied, unless an exemption applies. An intergovernmental agreement between the United States and an applicable non-u.s. country may modify these requirements. In any event, Bondholders or beneficial owners of the Series 2016B Taxable Refunding Bonds shall have no recourse against the Corporation, nor will the Corporation be obligated to pay any additional amounts to "gross up" payments to such persons, as a result of any withholding or deduction for, or on account of, any present or future taxes, duties, assessments or government charges with respect to payments in respect of the Series 2016B Taxable Refunding Bonds. Non-U.S. Holders should consult their own tax advisors with respect to the possible applicability of federal withholding and other taxes upon income realized in respect of the Series 2016B Taxable Refunding Bonds. Information Reporting and Backup Withholding For each calendar year in which the Series 2016B Taxable Refunding Bonds are outstanding, the Corporation, its agents or paying agents or a broker is required to provide the IRS with certain information, including a holder s name, address and taxpayer identification number (either the holder s Social Security number or its employer identification number, as the case may be), the aggregate amount of principal and interest paid to that holder during the calendar year and the amount of tax withheld, if any. This obligation, however, does not apply 61

70 with respect to certain U.S. Holders, including corporations, tax-exempt organizations, qualified pension and profit sharing trusts, and individual retirement accounts and annuities. If a U.S. Holder subject to the reporting requirements described above fails to supply its correct taxpayer identification number in the manner required by applicable law or under-reports its tax liability, the Corporation, its agents or paying agents or a broker may be required to make "backup" withholding of tax on each payment of interest or principal on the Series 2016B Taxable Refunding Bonds. This backup withholding is not an additional tax and may be credited against the U.S. Holder s federal income tax liability, provided that the U.S. Holder furnishes the required information to the IRS. Under current Treasury Regulations, backup withholding and information reporting will not apply to payments of interest made by the Corporation, its agents (in their capacity as such) or paying agents or a broker to a Non-U.S. Holder if such holder has provided the required certification that it is not a U.S. person (as set forth in the second paragraph under " Non-U.S. Holders" above), or has otherwise established an exemption (provided that neither the Corporation nor its agent has actual knowledge that the holder is a U.S. person or that the conditions of an exemption are not in fact satisfied). Payments of the proceeds from the sale of a Series 2016B Taxable Refunding Bond to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but not backup withholding) may apply to those payments if the broker is one of the following: a U.S. person; a controlled foreign corporation for U.S. tax purposes; a foreign person 50-percent or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment was effectively connected with a United States trade or business; or a foreign partnership with certain connections to the United States. Payment of the proceeds from a sale of a Series 2016B Taxable Refunding Bond to or through the United States office of a broker is subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its taxpayer identification number or otherwise establishes an exemption from information reporting and backup withholding. The preceding federal income tax discussion is included for general information only and may not be applicable depending upon a holder s particular situation. Holders should consult their tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of the Series 2016B Taxable Refunding Bonds, including the tax consequences under federal, state, local, foreign and other tax laws and the possible effects of changes in those tax laws. 62

71 IN ALL EVENTS, ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES 2016B TAXABLE REFUNDING BONDS. TAX MATTERS LOUISIANA TAXES Breazeale, Sachse & Wilson, L.L.P., Bond Counsel, is of the opinion that, pursuant to the Refunding Act, the Series 2016 Refunding Bonds and the income therefrom shall be exempt from all taxation by the State or any political subdivision thereof. Each prospective purchaser of the Series 2016 Refunding Bonds should consult his or her own tax advisor as to the status of interest on the Series 2016 Refunding Bonds under the tax laws of any state other than Louisiana. TAX MATTERS LEGAL OPINION The approving opinions of Special Tax Counsel and Bond Counsel will be attached on the Series 2016 Refunding Bonds. A manually executed original of these opinions will be delivered to the Underwriter on the Issuance Date. A form of the legal opinion of Special Tax Counsel appears in APPENDIX "C-1" to this Official Statement. Reference is made to the section titled "TAX MATTERS SERIES 2016A REFUNDING BONDS - Federal Income Tax" herein for additional information regarding the opinion of Special Tax Counsel. A form of the legal opinion of Bond Counsel appears in APPENDIX "C-2" to this Official Statement. See "TAX MATTERS LOUISIANA TAXES" herein for additional information relating to the opinion of Bond Counsel. CONSIDERATIONS FOR ERISA AND OTHER U.S. BENEFIT PLAN INVESTORS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes certain fiduciary obligations and prohibited transaction restrictions on employee pension and welfare benefit plans subject to Title I of ERISA ("ERISA Plans"). Section 4975 of the Code imposes essentially the same prohibited transaction restrictions on tax-qualified retirement plans described in Section 401(a) and 403(a) of the Code, which are exempt from tax under Section 501(a) of the Code, other than governmental and church plans as defined herein ("Qualified Retirement Plans"), and on Individual Retirement Accounts ("IRAs") described in Section 408(b) of the Code (collectively, "Tax-Favored Plans"). Certain employee benefit plans such as governmental plans (as defined in Section 3(32) of ERISA), and, if no election has been made under Section 410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA requirements. Additionally, such governmental and non-electing church plans are not subject to the requirements of Section 4975 of the Code. Accordingly, assets of such plans may be invested in the Series 2016 Refunding Bonds without regard to the ERISA and Code considerations described below, subject to the provisions of applicable federal and state law. In addition to the imposition of general fiduciary obligations, including those of investment prudence and diversification and the requirement that a plan s investment be made in accordance with the documents governing the plan, Section 406 of ERISA and Section 4975 of 63

72 the Code prohibit a broad range of transactions involving assets of ERISA Plans and Tax- Favored Plans and entities whose underlying assets include plan assets by reason of ERISA Plans or Tax-Favored Plans investing in such entities (collectively, "Benefit Plans") and persons who have certain specified relationships to the Benefit Plans ("Parties In Interest" or "Disqualified Persons"), unless a statutory or administrative exemption is available. The definitions of "Party in Interest" and "Disqualified Person" are expansive. While other entities may be encompassed by these definitions, they include, most notably: (1) fiduciary with respect to a plan; (2) a person providing services to a plan; and (3) an employer or employee organization any of whose employees or members are covered by the plan. Certain Parties in Interest (or Disqualified Persons) that participate in a prohibited transaction may be subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of ERISA (or Section 4975 of the Code) unless a statutory or administrative exemption is available. Certain transactions involving the purchase, holding or transfer of the Series 2016 Refunding Bonds might be deemed to constitute prohibited transactions under ERISA and Section 4975 of the Code if assets of the Corporation were deemed to be assets of a Benefit Plan. Under final regulations issued by the United States Department of Labor (the "Plan Assets Regulation"), the assets of the Corporation would be treated as plan assets of a Benefit Plan for the purposes of ERISA and Section 4975 of the Code only if the Benefit Plan acquires an "equity interest" in the Corporation and none of the exceptions contained in the Plan Assets Regulation is applicable. An equity interest is defined under the Plan Assets Regulation as an interest in an entity other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there can be no assurances in this regard, it appears that the Series 2016 Refunding Bonds should be treated as debt without substantial equity features for purposes of the Plan Assets Regulation. This determination is based upon the traditional debt features of the Series 2016 Refunding Bonds, including the reasonable expectation of purchasers of Series 2016 Refunding Bonds that the Series 2016 Refunding Bonds will be repaid when due, traditional default remedies, as well as the absence of conversion rights, warrants and other typical equity features. The debt treatment of the Series 2016 Refunding Bonds for ERISA purposes could change subsequent to issuance of the Series 2016 Refunding Bonds. In the event of a withdrawal or downgrade to below investment grade of the rating of the Series 2016 Refunding Bonds or a characterization of the Series 2016 Refunding Bonds as other than indebtedness under applicable local law, the subsequent purchase of the Series 2016 Refunding Bonds or any interest therein by a Benefit Plan Investor is prohibited. However without regard to whether the Series 2016 Refunding Bonds are treated as an equity interest for such purposes, though, the acquisition or holding of Series 2016 Refunding Bonds by or on behalf of a Benefit Plan could be considered to give rise to a prohibited transaction if the Corporation or the Issuing and Paying Agent, or any of their respective affiliates, is or becomes a Party in Interest or a Disqualified Person with respect to such Benefit Plan. Most notably, ERISA and the Code generally prohibit the lending of money or other extension of credit between an ERISA Plan or Tax-Favored Plan and a Party in Interest or a Disqualified Person, and the acquisition of any of the Series 2016 Refunding Bonds by a Benefit Plan would involve the lending of money or extension of credit by the Benefit Plan. In such a case, however, certain exemptions from the prohibited transaction rules could be applicable 64

73 depending on the type and circumstances of the plan fiduciary making the decision to acquire a Bond. Included among these exemptions are: Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding transactions effected by certain "in-house asset managers"; PTCE 90-1, regarding investments by insurance company pooled separate accounts; PTCE 95-60, regarding transactions effected by "insurance company general accounts"; PTCE 91-38, regarding investments by bank collective investment funds; and PTCE 84-14, regarding transactions effected by "qualified professional asset managers." Further, the statutory exemption in Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provides for an exemption for transactions involving "adequate consideration" with persons who are Parties in Interest or Disqualified Persons solely by reason of their (or their affiliate s) status as a service provider to the Benefit Plan involved and none of whom is a fiduciary with respect to the Benefit Plan assets involved (or an affiliate of such a fiduciary). There can be no assurance that any class or other exemption will be available with respect to any particular transaction involving the Series 2016 Refunding Bonds, or that, if available, the exemption would cover all possible prohibited transactions. By acquiring a Series 2016 Refunding Bond (or interest therein), each purchaser and transferee (and if the purchaser or transferee is a Plan, its fiduciary) is deemed to represent and warrant that either (i) it is not acquiring the Series 2016 Refunding Bond (or interest therein) with the assets of a Benefit Plan Investor, governmental plan or church plan; or (ii) the acquisition and holding of the Series 2016 Refunding Bond(or interest therein) will not give rise to a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. Benefit Plan Investors may not purchase the Series 2016 Refunding Bonds at any time that the ratings on the Series 2016 Refunding Bonds are below investment grade or the Series 2016 Refunding Bonds have been characterized as other than indebtedness for applicable local law purposes. A purchaser or transferee who acquires Series 2016 Refunding Bonds with assets of a Benefit Plan Investor represents that such purchaser or transferee has considered the fiduciary requirements of ERISA or other similar laws and has consulted with counsel with regard to the purchase or transfer. Any ERISA Plan fiduciary considering whether to purchase the Series 2016 Refunding Bonds on behalf of an ERISA Plan should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such in investment and the availability of any of the exemptions referred to above. Persons responsible for investing the assets of Tax-Favored Plans that are not ERISA Plans should seek similar counsel with respect to the prohibited transaction provisions of the Code and the applicability of any similar state or federal law. MUNICIPAL ADVISOR The Governing Board has retained Government Consultants, Inc., Baton Rouge, Louisiana, as independent registered municipal advisor (the "Municipal Advisor") in connection with the issuance of the Series 2016 Refunding Bonds. The Municipal Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of information contained in the Official Statement. The Municipal Advisor is not a public accounting firm and has not been engaged by the Corporation to compile, review, examine or audit any information in the Official Statement in accordance with accounting standards. The Municipal Advisor is an independent 65

74 advisory firm that is registered as a municipal advisor with the Securities and Exchange Commission and will not participate in the underwriting of the Series 2016 Refunding Bonds. FINANCIAL STATEMENTS The financial statements of the Corporation as of and for the year ended December 31, 2015 included in this Official Statement have been audited by Duplantier Hrapmann Hogan & Maher, LLP, independent auditors, as stated in their reports appearing herein. See "APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CORPORATION FOR FISCAL YEAR ENDED DECEMBER 31, 2015". General CONTINUING DISCLOSURE The Corporation will enter into an undertaking (the "Undertaking") for the benefit of the holders of the Series 2016 Refunding Bonds to provide certain financial information and operating data concerning the Corporation annually and upon the occurrence of certain material events, notice of certain material events, in each case with the Municipal Securities Rulemaking Board ("MSRB") electronically through MSRB s Electronic Municipal Market Access system ("EMMA"). The specific nature of the information to be contained in the annual report or notices of material events is set forth in "Appendix D Form of Continuing Disclosure Agreement" herein, pursuant to the requirements of Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 (17 C.F.R. Part 240, c2-12) (the "Rule"). A failure by the Corporation to comply with the Undertaking will not constitute an Event of Default under the Indenture (although Bondholders will have any available remedy at law or in equity). Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by a broker dealer or municipal securities dealer before recommending the purchase or sale of the Series 2016 Refunding Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2016 Refunding Bonds and their market price. Except as stated below, during the last five (5) years, the Corporation has complied in all material respects with all of its continuing disclosure undertakings made by it in accordance with the Rule. Prior Undertakings The Corporation as entered into prior undertakings (the "Prior Undertakings") for the benefit of the owners of all (i) Series 2006B Bonds, (ii) Series 2006C Bonds, (iii) Series 2012 Refunding Bonds, and (iv) Series 2015 Refunding Bonds. The Prior Undertakings require the Corporation to provide certain financial information and operating data annually and upon the occurrence of certain material events, notice of certain material events, in each case with the MSRB electronically through EMMA. 66

75 During the five (5) years preceding the date of this Official Statement (the "Compliance Period"), certain operating data with respect to the Prior Undertakings was inadvertently not timely filed by the Corporation with EMMA; however, as of the date of this Official Statement, all such filings have been filed with EMMA. Furthermore, during the Compliance Period, due to an administrative oversight, the Corporation failed to timely file with EMMA its annual financial statements prepared in accordance with generally accepted accounting principles for the Fiscal Years Ended December 31, 2011, December 31, 2012 and December 31, 2013 as required by the Prior Undertakings. However, as of the date of this Official Statement, all such filings have been filed with EMMA. Except as provided below, the Financial Statements and Supplementary Information (Statutory Basis) required to be prepared by the Corporation in connection with the provisions of the Citizens Act were timely filed by the Corporation with EMMA during the Compliance Period; the Financial Statements and Supplementary Information (Statutory Basis) are not required to be prepared in accordance with generally accepted accounting principles; provided, however, that due to an administrative oversight, the Financial Statements and Supplementary Information (Statutory Basis) for the Fiscal Year Ended December 31, 2011 was filed two days late. THE FOREGOING DESCRIPTION OF INSTANCES OF NON-COMPLIANCE BY THE CORPORATION WITH ITS CONTINUING DISCLOSURE UNDERTAKINGS SHOULD NOT BE CONSTRUED AS AN ACKNOWLEDGMENT THAT ANY SUCH INSTANCE WAS MATERIAL. The Corporation is continuously reviewing and revising its continuing disclosure policies and procedures in order to ensure compliance with its continuing disclosure undertakings in the future on a timely basis. The Corporation has enrolled in the EMMA automated reminder system which alerts issuers and obligated persons to upcoming filing deadlines for financial and operating information. CERTIFICATION AS TO OFFICIAL STATEMENT At the time of payment for and delivery of the Series 2016 Refunding Bonds, the Governing Board of the Corporation will furnish the Underwriter a certificate signed by the Chairperson of the Governing Board to the effect that (i) the descriptions and statements, including financial data, of or pertaining to the Corporation, on the date of this Official Statement, on the date of the remarketing of the Series 2016 Refunding Bonds and on the date of the delivery thereof, were and are true in all material respects, and, insofar as such matters are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) insofar as the descriptions and statements, including financial data, of or pertaining to governmental and/or non-governmental entities other than the Corporation and their activities contained in this Official Statement are concerned, such descriptions, statements, and data have been obtained from sources which the Governing Board believed to be reliable and the Governing Board has no reason to believe that they are untrue or incomplete in any material 67

76 respect, and (iii) there has been no adverse material change in the affairs of the Corporation or the Governing Board between the date of this Official Statement and the Issuance Date. LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION /s/ Denise Brignac Denise Brignac, Chairperson of Governing Board 68

77 APPENDIX A SUMMARY OF THE INDENTURE The following is a summary of certain provisions of the Indenture, including certain defined terms used therein. The summary does not purport to be complete, and reference is made to the full text of the Indenture for a complete recital of its terms, including the defined terms used therein. DEFINITIONS The following words and terms used in this Official Statement have the following meanings, unless some other meaning is plainly intended, which means are provided in the Indenture. "Act" means collectively, the Citizens Act and the Bond Act. "Act of Bankruptcy" means the filing of a petition in bankruptcy or the commencement of a proceeding under the United States Bankruptcy Code or any other applicable law concerning insolvency, reorganization or bankruptcy by or against the Corporation as debtor, other than any involuntary proceeding which has been finally dismissed without entry of an order for relief or similar order and without effect on any amounts held in the Trust Estate and as to which all appeal periods have expired. "Additional Bonds" means any Bonds issued pursuant to the provisions of the Master Indenture. "Administrative Expenses" means the reasonable and necessary expenses (including the reasonable value of employee services and fees of Counsel) incurred by the Corporation in connection with the 2005 Emergency Assessments, the Bonds, the Master Indenture and any Supplemental Indenture and any transaction or event contemplated by the Master Indenture and any Supplemental Indenture, including but not limited to the fees and expenses of the Trustee, the Remarketing Agent, if any, the Auction Agent, if any, Broker-Dealer fees, if any, rating surveillance fees and any other fees and expenses properly incurred by the Corporation in connection with the issuance of the Bonds. Administrative Expenses shall be determined by the Corporation and submitted to the Trustee no later than June 25 of each year, commencing June 25, "Annual Statement" means the annual report of the Corporation required to be filed pursuant to the Citizens Act summarizing the transactions, conditions, operations and affairs of the FAIR Plan and Coastal Plan. "Applicable Credit Facility" means, with respect to a Series of Bonds, any credit enhancement mechanism such as an irrevocable letter of credit, a surety bond, a bond insurance policy, a corporate or other guarantee, a purchase agreement, a credit agreement, or other similar facility applicable to such Series of Bonds, as established pursuant to the Supplemental Indenture authorizing such Series of Bonds (it being understood that "Applicable Credit Facility" shall A-1

78 mean and refer to all Applicable Credit Facilities pertaining to any of the Series of Bonds Outstanding under the Master Indenture which are then secured by an Applicable Credit Facility). "Applicable Credit Facility Agreement" means, with respect to a Series of Bonds, any agreement pursuant to which the Applicable Credit Facility Provider issues the Applicable Credit Facility. The provisions of each Applicable Credit Facility Agreement shall be subject, in all material respects, to the provisions of the Master Indenture and the Supplemental Indenture authorizing such Series of Bonds (it being understood that "Applicable Credit Facility Agreement" shall mean and refer to any of the Applicable Credit Facility Agreements pertaining to all Series of Bonds Outstanding under the Master Indenture which are then secured by an Applicable Credit Facility). "Applicable Credit Facility Provider" means, with respect to a Series of Bonds, the provider or guarantor of the Applicable Credit Facility identified in the Supplemental Indenture authorizing such Series of Bonds (it being understood that "Applicable Credit Facility Provider" shall mean and refer to all Applicable Credit Facility Providers pertaining to any of the Series of Bonds Outstanding under the Master Indenture which are secured by an Applicable Credit Facility). "Auction Agent" means the auction agent, if any, appointed pursuant to the provisions of a Supplemental Indenture. "Authorized Corporation Representative" means any person at the time designated to act on behalf of the Corporation by a written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Corporation by the Chairman of its Governing Board and its Chief Executive Officer. Such certificate may designate an alternate or alternates. "Authorized Denominations" means the denominations in which Bonds of a particular Series are authorized for issuance, as shall be specified in a Supplemental Indenture authorizing such Series of Bonds. "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. 101 et seq., including as it may be amended from time to time. "Beneficial Owner" means a Person who is the beneficial owner of all or a portion of a Bond of which Cede & Co., as nominee for DTC, or any other nominee of a bond depository is the Registered Owner of the Bond. "Bond Act" means Chapter 13 of Title 39 of the Louisiana Revised Statutes of 1950, amended, being La. R.S. 39:1421, et seq. "Bond Anticipation Notes" means bonds issued by the Corporation pursuant to a Supplemental Indenture in accordance with the provisions of the Master Indenture in advance of permanent financing for the 2005 Plan Year Deficit. A-2

79 "Bond Counsel" means nationally recognized bond counsel mutually acceptable to the Corporation, the Trustee and the Applicable Credit Facility Provider. "Bond Fund" means the Fund of that title established pursuant to the provisions of the Master Indenture. "Bond Proceeds Fund" means the Fund of that title established pursuant to the provisions of the Master Indenture. "Bond Year" means, for the purposes of the Master Indenture, each one-year period ending on June 1 and on each subsequent anniversary of that date until the Bonds are retired. "Bondholder" or "Registered Owner" means the Person or Persons in whose name or names a Bond shall be registered on books of the Registrar for that purpose in accordance with the terms of the Master Indenture. A Supplemental Indenture with respect to a Series of Bonds may provide for the Applicable Credit Provider to act on behalf of Bondholders of that Series that are secured by the related Applicable Credit Facility with respect to notices and consents to be given hereunder. "Bonds" means, collectively, each series of the Corporation s Assessment Revenue Bonds issued pursuant to a Supplemental Indenture to finance the 2005 Plan Year Deficit, including Bond Anticipation Notes, Additional Bonds and Refunding Bonds issued pursuant to the provisions of a Supplemental Indenture. "Broker-Dealer" means any broker-dealer, if any, appointed pursuant to the provisions of a Supplemental Indenture, except as otherwise provided in a Supplemental Indenture for Bonds of a particular Series. "Business Day" means, except as otherwise provided in a Supplemental Indenture with respect to a particular Series of Bonds, a day on which interbank wire transfers can be made on the Fedwire System, and a day on which banks located in the city or cities in which the principal offices of the Corporation, the Trustee, any Applicable Credit Facility Provider, Auction Agent and Remarketing Agent are located, are not required or authorized to remain closed, and on which the New York Stock Exchange is not closed. "Capitalized Interest Fund" means the Fund of that title established pursuant to the provisions of the Master Indenture. "Capitalized Interest Period" means, with respect to a particular Series of Bonds, the period from the Date of Issue of such Series of Bonds to and including the last day for which a deposit was made to provide for the payment of interest for such Series of Bonds, as more specifically set forth in a Supplemental Indenture. "Citizens Act" means Subpart B of Part XXX of Chapter 1 of Title 22 of the Louisiana Revised Statutes of 1950, as amended, being La. R.S. 22:1430, et seq., as further amended by Act No. 13 of the 1 st Extraordinary Session of 2006 of the Louisiana Legislature and redesignated La. R.S. 22:2291 et. seq., by the Louisiana Legislature by Act 415 of A-3

80 "Claims Payment Fund" means the Fund of that title established as provided the provisions of the Master Indenture. "Coastal Plan" means the Corporation s insurance program which provides a residual market for adequate insurance on property in the coastal areas of the State pursuant to the Citizens Act. "Code" means the United States Internal Revenue Code of 1986, as amended, to the extent applicable to any particular Series of the Bonds, and applicable regulations thereunder. "Cooperative Endeavor Agreement" means that certain Amended and Restated Department of Insurance Cooperative Endeavor Agreement dated as of April 1, 2006 by and among the Corporation, the Louisiana Department of Insurance and the Trustee. "Corporation" means the Louisiana Citizens Property Insurance Corporation, a nonprofit corporation and a political instrumentality established by the State pursuant to the Citizens Act, including its residual market insurance programs known as the Coastal Plan and the FAIR Plan and any successor body to the duties or functions of the Corporation. "Counsel" means an attorney at law or a firm of attorneys (who may be an employee of or counsel to the Corporation or the Trustee) duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. "Date of Issue" means, with respect to a Series of Bonds, the date on which such Series of Bonds are issued and delivered to the initial purchasers thereof. "Debt Service Reserve Fund" means the Fund of that name established pursuant to the provisions of the Master Indenture. "Debt Service Requirements" means for any Bond Year and for all Series of Bonds, an amount equal to the sum of (a) all interest payable during such Bond Year on all Outstanding Bonds; (b) the Principal Installments of Outstanding Bonds falling due during such Bond Year; (c) any fees and premiums due in such Bond Year to any Applicable Credit Facility Provider; (d) any Hedge Payments (other than Termination Payments) due in such Bond Year; and (e) any Administrative Expenses due in such Bond Year. In the case of Variable Rate Debt, with respect to a particular Bond Year, the interest rate thereon shall be calculated on the assumption that such Variable Rate Debt will bear interest during such period at the least of (i) the Maximum Rate; (ii) if, and to the extent, on such date of calculation the interest rate on such Variable Rate Debt shall then be hedged for a specified period, the interest rate used for such specified period for the purposes of the foregoing calculation shall be such hedged interest rate; (iii) if the Variable Rate Debt is treated as Tax Exempt Bonds, a rate equal to the greater of (a) the Revenue Bond Index published by The Bond Buyer, or such other reasonable index selected by the Trustee, in consultation with the Remarketing Agent and the Auction Agent, if The Bond Buyer is no longer published or (b) the BMA Municipal Swap Index, each as reported three (3) Business Days preceding the date of calculation; or (iv) if the Variable Rate Debt is treated as Taxable Bonds, the greater of (a) a rate equal to the 30 year U.S. Treasury Bond, as reported three (3) Business Days preceding the date of calculation, plus 125 basis points (1.25%) or (b) the one month LIBOR as reported three (3) Business Days preceding the date of calculation, A-4

81 plus 125 basis points (1.25%). Such interest and Principal Installments for the Bonds shall be calculated on the assumption that no Bonds at the date of calculation will cease to be Outstanding except by reason of the payment of each Principal Installment on the due date thereof. Except for the first Bond Year, Debt Service Requirements for a Bond Year shall be determined by the Trustee annually on July 1 of the preceding year, commencing July 1, For the first Bond Year, the Debt Service Requirements for a Series of Bonds shall be set forth in the Supplemental Indenture authorizing such Series of Bonds. "Debt Service Reserve Investment" means, with respect to a Series of Bonds, an irrevocable, transferable letter or line of credit or any insurance policy, surety bond or other evidence of insurance, if any, deposited to the credit of the Debt Service Reserve Fund or any account thereof in lieu of or in partial substitution for cash or securities on deposit therein, all as more specifically set forth in a Supplemental Indenture authorizing such Series of Bonds. The issuer of the Debt Service Reserve Investment shall be an entity whose obligations are rated in the highest rating category by Fitch, Moody s and S&P at the time of delivery of such Debt Service Reserve Investment. "Debt Service Reserve Requirement" means, as of the date of any determination thereof, an amount equal to 100% of the maximum annual principal and interest due on all Bonds at the time outstanding; provided, however, that the Debt Service Reserve Requirement for any Series of Bonds may be satisfied with a Debt Service Reserve Investment, all as shall be determined in a Supplemental Indenture authorizing such Series of Bonds. In computing the Debt Service Reserve Requirement in respect of a Series of Bonds that constitute Variable Rate Debt, the interest rate on such Variable Rate Debt shall be assumed to be the least of: (i) the Maximum Rate; (ii) if, and to the extent, on such date of calculation the interest rate on such Variable Rate Debt shall then be hedged for a specified period, the interest rate used for such specified period for the purposes of the foregoing calculation shall be such hedged interest rate; (iii) the greater of (a) a rate equal to the Revenue Bond Index published by The Bond Buyer, or such other reasonable index selected by the Trustee, in consultation with the Remarketing Agent or the Auction Agent, if The Bond Buyer is no longer published or (b) the BMA Municipal Swap Index, each as reported three (3) Business Days preceding the date of calculation; or (iv) if the Variable Rate Debt is treated as Taxable Bonds, the greater of (a) a rate equal to the 30 year U.S. Treasury Bond as reported three (3) Business Days preceding the date of calculation, plus 125 basis points (1.25%) or (b) the one month LIBOR as reported three (3) Business Days preceding the date of calculation plus 125 basis points (1.25%). For each Series of Bonds, the Debt Service Reserve Requirement for a Bond Year shall be determined annually on July 1 of the preceding year, commencing July 1, For the first Bond Year for such Series of Bonds, the Debt Service Reserve Requirement shall be set forth in the Supplemental Indenture authorizing such Series of Bonds. "Default" or "default" means any event which with the giving of notice or the passage of time, or both, becomes an "event of default." "DTC" means The Depository Trust Company, and its successors and assigns. A-5

82 "DTC Participant" means a broker, securities dealer, bank, trust company, clearing corporation or other organization for which The Depository Trust Company holds Bonds as securities depository. "Emergency Assessments" means the emergency assessments authorized to be levied by the Corporation pursuant to the Citizens Act with respect to a plan year deficit. "Event of Default" or "event of default" means an occurrence or event specified in and defined pursuant to the provisions of the Master Indenture. "Extraordinary Services" and "Extraordinary Expenses" mean all services rendered and all expenses (including fees of Counsel) incurred by a trustee under the Master Indenture and the Tax Certificate other than Ordinary Services and Ordinary Expenses. "FAIR Plan" means the Corporation s program which provides a residual market for adequate insurance on property in the State pursuant to the Citizens Act. "Favorable Opinion of Bond Counsel" means an opinion of Bond Counsel addressed to the Corporation, any Applicable Credit Facility Provider and the Trustee to the effect that the action proposed to be taken is authorized or permitted by the laws of the State, the Master Indenture and any Supplemental Indenture hereto and will not, in and of itself, cause interest on the Tax Exempt Bonds, to be included in gross income of their owners for federal income tax purposes. "Fiscal Year" means, with respect to the Corporation, the twelve (12) month period beginning on January 1 and ending on December 31 of each year or any other twelve (12) month period determined by the Corporation as its Fiscal Year. "Fitch" means Fitch, Inc., a corporation organized and existing under the laws of the State of Delaware and its successors and assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, the term "Fitch" shall refer to any other nationally recognized securities rating agency designated by the Corporation and approved by any Applicable Credit Facility Provider providing a Applicable Credit Facility Agreement for a Series of Bonds then rated by Fitch, with notice to the Trustee and the Remarketing Agent, if any. "Fixed Rate Debt" means any Series of Bonds which bears interest at a fixed rate of interest from the Date of Issue to maturity or early redemption. "Funds and Accounts" means the funds and accounts established and created pursuant to the Master Indenture or any Supplemental Indenture. "Governing Board" means the board of directors of the Corporation, and where appropriate, any designee of the Governing Board. "Governmental Obligations" means direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America for full A-6

83 and timely payment and which obligations are not subject to redemption or prepayment except upon the option of the Trustee. "Hedge Agreement" means and includes, with respect to a Series of Bonds, an interest rate cap agreement, an interest rate exchange agreement, an interest rate swap agreement, a forward purchase contract, a put option contract, a call option contract, or other financial product used by the Corporation as an interest rate exchange or protection arrangement device with respect to its obligation to pay interest on such Series of Bonds or in connection with any of its Permitted Investments under the Master Indenture, entered into between the Corporation or the Trustee (as directed by the Corporation), as applicable, and a Hedge Counterparty. "Hedge Counterparty" means any person (other than the Corporation or the Trustee) that is a party to a Hedge Agreement. "Hedge Payments" means amounts payable by the Corporation or the Trustee (as directed by the Corporation), as applicable, to a Hedge Counterparty under a Hedge Agreement, including Termination Payments; provided, however, Termination Payments due to any Hedge Counterparty shall be subordinate to the payments to be made pursuant to the provisions of the Master Indenture. "Hedge Receipts" means net payments received by the Corporation or the Trustee, as applicable, from a Hedge Counterparty under a Hedge Agreement. "Interest Account" means the account of that title established as provided the provisions of the Master Indenture. "Interest Payment Date" means, with respect to a Series of Bonds, the dates for the payment of interest set forth in the Supplemental Indenture authorizing such Series of Bonds "Interest Period" means the period from and including any Interest Payment Date to and including the day immediately preceding the next following Interest Payment Date. "Interest Rate" means the interest rate or rates borne by a Series of Bonds as set forth in the Supplemental Indenture authorizing such Series of Bonds. "LIBOR" means the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of an Interest Period, as the rate for dollar deposits with a maturity comparable to an Interest Period. In the event that such rate is not available at such time for any reason, then "LIBOR" for such Interest Period shall be the rate at which dollar deposits of $5,000,0000 and for a maturity comparable to an Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time. A-7

84 "Master Indenture" means the Amended and Restated FAIR Plan Emergency Assessment Master Indenture of Trust, including any indentures supplemental to the Master Indenture or amendatory of the Master Indenture. "Maximum Rate" means, with respect to each Series of Bonds, the amount set forth in a Supplemental Indenture authorizing such Series of Bonds. "Moody s" means Moody s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, and its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, the term "Moody s" shall refer to any other nationally recognized securities rating agency designated by the Corporation and approved by any Applicable Credit Facility Provider providing an Applicable Credit Facility Agreement for a Series of Bonds then rated by Moody s, with notice to the Trustee and the Remarketing Agent, if any. "Optional Redemption" means any redemption of a Series of Bonds prior to maturity at the option of the Corporation made pursuant to the Supplemental Indenture authorizing such Series of Bonds. "Ordinary Services" and "Ordinary Expenses" means those services normally rendered and those expenses, including fees of Counsel, normally incurred by a trustee under instruments similar to the Master Indenture and the Tax Certificate. "Outstanding" or "outstanding" or "Bonds Outstanding," in connection with the Bonds, means, as of the time in question, all Bonds authenticated and delivered under the Master Indenture, except: A. Bonds canceled or required to be canceled pursuant to the provisions of the Master Indenture; B. Bonds which are deemed to have been paid in accordance with the provisions of the Master Indenture; and C. Bonds in lieu of or in substitution for which other Bonds have been issued. "Permitted Investments" means any of the following investments which are also permitted under the laws of the State for investments of the Corporation: (A)(1) Governmental Obligations, (2) Cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (2) below), (3) Direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America, or (4) Senior debt obligations of other government sponsored agencies approved by the Applicable Credit Facility Provider. A-8

85 (B)(1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: Export-Import Bank Farm Credit System Financial Assistance Corporation Rural Economic Community Development Administration (formerly the Farmers Home Administration) General Services Administration U.S. Maritime Administration Small Business Administration Government National Mortgage Association (GNMA) U.S. Department of Housing & Urban Development (PHAs) Federal Housing Administration Federal Financing Bank; (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: Senior debt obligations rated "Aaa" by Moody s, "AAA" by S&P and "AAA" by Fitch issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) Obligations of the Resolution Funding Corporation (REFCORP) Senior debt obligations of the Federal Home Loan Bank System Senior debt obligations of other government sponsored agencies approved by the Applicable Credit Facility Provider; (3) U.S. dollar-denominated deposit accounts, federal funds, and bankers acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P-1" by Moody s, "A-1+" by S&P and "F1+" by Fitch and maturing no more than 360 calendar days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) Commercial paper which is rated at the time of purchase in the single highest classification, "P-1" by Moody s, "A-1+" by S&P and "F1+" by Fitch and which matures not more than 270 calendar days after the date of purchase; (5) Investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P; (6) "Pre-refunded Municipal Obligations" defined as follows: Any obligations or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (A) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of any of S&P, Moody s and Fitch or any successors thereto; or A-9

86 (B) (i) with the prior written approval of S&P, Moody s or Fitch, as applicable, which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such obligations or other obligations on their maturity date or dates or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the obligations or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (7) Municipal obligations rated "Aaa/AAA" or general obligations of states with a rating of at least "A2/A/A" or higher by Moody s, S&P and Fitch, respectively; (8) Investment agreements approved in writing by the Applicable Credit Facility Provider supported by appropriate opinions of counsel; and (9) Other forms of investments (including repurchase agreements) approved in writing by all Applicable Credit Facility Providers. (C) The value of the above investments shall be determined as of the end of each month and shall be calculated as follows: (a) For securities: (1) the closing bid price quoted by Interactive Data Systems, Inc.; or (2) a valuation performed by a nationally recognized and accepted pricing service acceptable to the Applicable Credit Facility Provider whose valuation method consists of the composite average of various bid price quotes on the valuation date; or (3) the lower of two dealer bids on the valuation date. The dealers or their parent holding companies must be rated at least investment grade by Moody s, S&P and Fitch and must be market makers in the securities being valued. (b) As to certificates of deposit and bankers acceptances: their face amount, plus accrued interest; and (c) As to any investment not specified above: their value established by prior agreement between the Corporation, the Trustee, and, if applicable, any Applicable Credit Facility Provider. "Person" means natural persons, firms, partnerships, associations, corporations, trusts, public bodies, and other entities. A-10

87 "Plan of Operation" means the Corporation s plan of operation, effective January 1, 2004 and amended February 5, 2015, setting forth and establishing the structure, function, procedures and powers of the Corporation, as amended and supplemented from time to time. "Pledged Revenues" means (i) all 2005 Emergency Assessment Revenues; (ii) all Funds and Accounts held under the Master Indenture including interest and investment earnings on such Funds and Accounts held under the Master Indenture; (iii) Hedge Receipts; (iv) receipts under Applicable Credit Facilities; and (v) all proceeds thereof of any nature or kind. Pledged Revenues shall not include amounts held in any Rebate Fund. "Principal Account" means the account of that title established as provided pursuant to the provisions of the Master Indenture. "Principal Installment" means, for any Bond Year, as of any date of calculation, and with respect to any Series of Bonds, the principal amount outstanding of such Series which mature or are subject to mandatory redemption and for which no sinking fund installment has been or is required to be made in such Bond Year. "Principal Office" when used with respect to the Trustee means the designated corporate trust office of the Trustee, which office at the date of the Master Indenture is located at the address specified in the provisions of the Master Indenture. "Principal Payment Date" means, with respect to any Series of Bonds, the date on which any Principal Installment is due. "Quarterly Transfer Date" means February 15, May 15, August 15 and November 15 of each year, commencing May 15, "Rating Category" or "Rating Categories" means one or more of the generic rating categories of a nationally recognized securities rating agency, without regard to any refinement or gradation of such rating category or categories by a numerical modifier or otherwise. "Rebate Fund" means the Fund of that title established as provided in the provisions of the Master Indenture. "Redemption Fund" means the Fund of that title established as provided in the provisions of the Master Indenture. "Refunding Bonds" means any refunding bonds issued pursuant the provisions of the Master Indenture. "Registrar" means the Trustee as provided in the provisions of the Master Indenture. "Principal Office" of the Registrar shall mean the office designated in writing by the Trustee to the Corporation and the Remarketing Agent. "Regular Record Date" means, with respect to any Series of Bonds, the date set forth in a Supplemental Indenture authorizing such Series of Bonds. A-11

88 "Remarketing Agent" means the remarketing agent, if any, appointed pursuant to the provisions of a Supplemental Indenture. "Revenue Fund" means the Fund of that title established as provided in the provisions of the Master Indenture. "S&P" means Standard & Poor s Ratings Services, a Division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, and its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, the term "S&P" shall refer to any other nationally recognized securities rating agency designated by the Corporation and approved by any Applicable Credit Facility Provider providing a Applicable Credit Facility Agreement for a Series of Bonds then rated by S&P, with notice to the Trustee and the Remarketing Agent, if any. "Securities Depository" means DTC or any other securities depository which agrees to follow the procedures required to be followed by it in connection with the Bonds. "Series" means all of the Bonds (however designated) issued in a simultaneous transaction pursuant to a Supplemental Indenture, as may be further designated within a single Series of Bonds by numerical subseries. "Special Record Date" means the date and time established by the Trustee for determinations of which Registered Owners shall be entitled to receive overdue interest on the Bonds pursuant to the provisions of the Master Indenture. "Subordinated Debt" means any bond, note or other instrument issued or otherwise entered into by the Corporation in accordance with the requirements of Section 705(e) of the Master Indenture which expressly provides that the Subordinated Debt ranks junior and subordinate to the Bonds and which may be paid from moneys constituting 2005 Emergency Assessments only if the Debt Service Requirements which have become due and payable have been paid in full and the Corporation is current on all payments, if any, required to be made to replenish the Debt Service Reserve Fund. "Supplemental Indenture" means any indenture supplemental to the Master Indenture entered into by the Corporation and the Trustee in accordance with the provisions of the Master Indenture. "State" means the State of Louisiana. "2005 Emergency Assessments" means the Emergency Assessments authorized to be levied by the Corporation pursuant to the Citizens Act for the 2005 Plan Year Deficit and pledged to secure the payment of the Debt Service Requirements. "2005 Emergency Assessment Minimum Levy Requirement" means with respect to the amount of 2005 Emergency Assessments to be levied in any future calendar year, after taking into account moneys, if any, on deposit in the Bond Fund and the Capitalized Interest Fund which are set aside to pay the Debt Service Requirements in such future Bond Year, the amount A-12

89 necessary to (i) pay the Debt Service Requirements in the next succeeding Bond Year, (ii) cure any deficiency in the Debt Service Reserve Fund meeting the Debt Service Reserve Requirement; (iii) pay rebate, yield reduction payments or other amounts due as required by Section 148 of the Code, if any; and (iv) pay Termination Payments, if any. However, in no event shall the 2005 Emergency Assessment Minimum Levy Requirement in any calendar year exceed the greater of (A)(1) ten percent (10%) of the amount needed to cover the 2005 Plan Year Deficit, plus (2) interest, fees, commissions, required reserves (including amounts required to replenish reserves), and other costs associated with financing the 2005 Plan Year Deficit or (B)(1) ten percent (10%) of the aggregate statewide Direct Written Premiums for Subject Lines of Business and for all plan accounts of the Corporation for the prior year, plus (2) interest, fees, commissions, required reserves (including amounts required to replenish reserves), and the costs associated with financing the 2005 Plan Year Deficit; provided, however, if any event of default has occurred and is continuing, the determination of the 2005 Emergency Assessment Minimum Levy Requirement shall be subject to the provisions of the last paragraph of Section 1001 hereof. "2005 Emergency Assessment Revenues" means the revenues collected by insurance companies (including the Corporation) resulting from the levy of 2005 Emergency Assessments and remitted to the Corporation or the Trustee. "2005 Plan Year Deficit" means the amount determined by the Corporation from time to time pursuant to the Citizens Act equaling the amount of the Corporation s deficit in calendar year 2005 as a result of the impact of Hurricanes Katrina and Rita after taking into account revenues received by the Corporation as a result of the levy of Regular Assessments. "Tax Certificate" means the tax certificate of the Corporation delivered on the Date of Issue for a Series of Tax Exempt Bonds. "Tax Exempt Bonds" means Bonds issued hereunder, including Bond Anticipation Notes, the interest on which is intended to be excluded from gross income of the owners thereof for federal income tax purposes. "Taxable Bonds" means Bonds issued hereunder, including Bond Anticipation Notes, the interest on which is designated and/or intended to be includable in gross income of the owners thereof for federal income tax purposes and designated as Taxable Bonds in the Supplemental Indenture authorizing such Series of Bonds. "Termination Payment" means amounts due to a Hedge Counterparty by the Corporation or the Trustee (as directed by the Corporation), as applicable, in connection with the termination of a Hedge Agreement. "Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses of the Master Indenture. "Trustee" means Regions Bank, Baton Rouge, Louisiana, any successor trustee pursuant to the provisions of the Master Indenture at the time serving as successor Trustee, and any separate or co-trustee serving as such. A-13

90 "Variable Rate Debt" means any Series of Bonds which bears interest at a variable rate of interest, all as more specifically set forth in the Supplemental Indenture authorizing the issuance of such Series of Bonds. THE MASTER INDENTURE The Master Indenture authorizes the issuance of Bonds of the Corporation to be known and designated as "Louisiana Citizens Property Insurance Corporation Assessment Revenue Bonds" to be issued in one or more Series (including subseries) for the purpose of providing funds to assist the Corporation in (i) paying the 2005 Plan Year Deficit; (ii) funding a deposit, if any, to the Debt Service Reserve Fund; (iii) funding a deposit, if required pursuant to the Master Indenture or a Supplemental Indenture, to the Capitalized Interest Fund; and (iv) paying the costs of issuance related to the Bonds. Each Series of Bonds shall be issued pursuant to a Supplemental Indenture which shall specify: (a) the authorized principal amount of the Bonds, the Series designation and subseries designation, if any, of such Bonds and whether such Bonds are Taxable Bonds or Tax Exempt Bonds; (b) the purpose or purposes for which such Series is being issued; (c) the Date of Issue and the Principal Payment Date or Dates of the Bonds of such Series; (d) the interest rate or rates of the Bonds of such Series, or the manner of determining such rate or rates, whether interest will be paid periodically or at the maturity of all or a part of the Bonds of such Series, and the Interest Payment Date or Dates therefor; (e) the denominations of, and the manner of dating, numbering and lettering of the Bonds of such Series; (f) the place or places of payment of the Bonds of such Series, or the manner of appointing and designating the same; (g) the redemption prices, if any, and, subject to the provisions of the Master Indenture, the redemption terms and notice requirements for the Bonds of such Series; (h) the amount and due date of mandatory redemption payment, if any, for Bonds of like maturity of such Series; (i) if so determined by the Corporation, provisions for the sale of the Bonds of such Series; (j) the form of the Bonds of such Series; A-14

91 (k) provisions, if any, for the issuance of the Bonds of such Series in "book-entry only" form; (l) provisions for funding a deposit, if any, to the Debt Service Reserve Fund, unless waived by the initial purchaser of all Bonds Outstanding (or an agent appointed by the initial purchaser); (m) such provisions as may be necessary or desirable in connection with any Applicable Credit Facility or Hedge Agreement to be provided for or with respect to such Series of Bonds; and (n) any other provisions deemed advisable by the Corporation as shall not conflict with the provisions hereof. Payments of Principal of Premium, if any, and Interest; Persons Entitled to Payments. (a) Each Bond shall have such Interest Payment Dates, shall bear interest from such date or dates and at such rate or rates until the maturity thereof, payable on such Interest Payment Dates, and shall be stated to mature (subject to the right of prior redemption), all as provided in, or pursuant to, a Supplemental Indenture. (b) The principal of, premium, if any, and interest on the Bonds shall be payable in any coin or currency of the United States of America which is legal tender on the respective dates of payment thereof for the payment of public and private debts. Unless otherwise provided in the provisions of the Master Indenture or in a Supplemental Indenture, the principal and premium, if any, of all Bonds shall be payable in immediately available funds at the principal corporate trust office of the Trustee upon the presentation and surrender of such Bonds as the same shall become due and payable. (c) Except to the extent otherwise provided in the provisions of the Master Indenture or in a Supplemental Indenture, the following provisions shall apply: Interest on any Bond is payable on any Interest Payment Date by check or draft mailed on the Interest Payment Date to the person in whose name that Bond is registered at the close of business on the Regular Record Date for such Interest Payment Date, at such person s address as it appears on the Bond Register. The Bonds shall bear interest from the Interest Payment Date next preceding the date on which they are authenticated unless authenticated on an Interest Payment Date in which event they shall bear interest from such Interest Payment Date, or unless authenticated before the first Interest Payment Date in which event they shall bear interest from their date; provided, however, that if a Bond is authenticated between a Regular Record Date and the next succeeding Interest Payment Date, such Bond shall bear interest from such succeeding Interest Payment Date; provided further, however, that if at the time of authentication of any Bond interest thereon is in default, such Bond shall bear interest from the date to which interest has been paid. Any interest on any Bond which is payable, but is not punctually paid or provided for on any Interest Payment Date (hereinafter called "Defaulted Interest") shall be paid to the Bondholder in whose name the Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be not more than fifteen (15) nor less than ten (10) days prior to the date of proposed payment. The Trustee shall cause notice of the proposed A-15

92 payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class, postage-prepaid, to each Bondholder of record as of the fifth (5th) day prior to such mailing, at such person s address as it appears in the Bond Register not less than ten (10) days prior to such Special Record Date. The foregoing notwithstanding, any Bondholder of Bonds of a Series in an aggregate principal amount of at least $1,000,000 shall be entitled to have interest paid by wire transfer to such Bondholder to the bank account number on file with the Trustee, upon requesting the same in a writing received by the Trustee at least fifteen (15) days prior to the relevant Record Date, which writing shall specify the bank, which shall be a bank within the United States, and bank account number to which interest payments are to be wired. Any such request for interest payments by wire transfer shall remain in effect until rescinded or changed, in a writing delivered by the Bondholder to the Trustee, and any such rescission or change of wire transfer instructions must be received by the Trustee at least fifteen (15) days prior to the relevant Record Date. Interest on overdue principal and, to the extent lawful, on overdue interest will be payable at the numerical rate of interest borne by such Bonds on the day before the default occurred. Ownership, Registration of Transfer and Exchange of Bonds. (a) The Corporation shall cause books for the registration and transfer of the Bonds to be kept by the Trustee, acting as bond registrar, at its Principal Office, and the books shall contain such information as is necessary for the proper discharge of the duties of the Trustee under the Master Indenture. (b) follows: The transfer of Bonds may be registered, and Bonds may be exchanged, as (i) The transfer of any Bond may be registered upon its surrender to the Trustee, together with an assignment duly executed by the Registered Owner or his attorney or legal representative, in such form as shall be satisfactory to the Trustee, whereupon the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds bearing interest at the same rate and in the same denominations as the Bond surrendered for transfer or in different authorized denominations equal in the aggregate to the principal amount of the surrendered Bond. (ii) Any Bond or Bonds may be exchanged for one or more Bonds in the same principal amount, but in a different authorized denomination or denominations. Each Bond so to be exchanged shall be surrendered by its Registered Owner or his duly appointed attorney to the Trustee, whereupon a new Bond or Bonds bearing interest at the same rate shall be authenticated and delivered to the Registered Owner. (iii) In the case of any Bond properly surrendered for partial redemption, the Trustee shall authenticate and deliver a new Bond in exchange for it, such new Bond bearing interest at the same rate, to be in a denomination equal to the unredeemed principal amount of the surrendered Bond. Except as provided in subparagraph (iii) above, the Trustee shall not be required to register the transfer or to exchange any Bond during the fifteen (15) days immediately preceding A-16

93 the date of mailing of any notice of redemption or after Bonds have been selected for redemption. No charge shall be imposed upon Registered Owners in connection with any such registration of transfer or exchange, except for taxes or governmental charges related to the registration. Execution; Obligations of the Corporation. The Bonds will be signed on behalf of the Corporation with the manual or facsimile signature of the Chairman of the Corporation and attested by the manual or facsimile signature of the Corporation s Secretary. If an officer of the Corporation whose signature is on a Bond no longer holds that office at the time the Trustee authenticates the Bond, the Bond shall nevertheless be valid. Also, if a person signing a Bond is the proper officer on the actual date of execution, the Bond shall be valid even if that person is not the proper officer on the nominal date of execution. The Bonds are obligations of the Corporation, payable solely from the Pledged Revenues and other lawfully available funds of the Corporation. The Bonds are not secured by the full faith and credit of State. Authentication. No Bond shall be valid or become obligatory for any purpose until the certificate of authentication on such Bond shall have been duly executed by the manual signature of an authorized signatory of the Trustee, acting as authenticating agent, and such authentication shall be conclusive proof that such Bond has been duly authenticated and delivered under the Master Indenture and that its Bondholder is entitled to the benefits of the trust created hereby. Mutilated, Destroyed, Lost, or Stolen Bonds. (a) In the event any Bond is mutilated, lost, stolen or destroyed, the Corporation may authorize the execution and delivery of a new Bond of like form and tenor as that mutilated, lost, stolen, or destroyed; provided, however, that in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Trustee, and in the case of any lost, stolen, or destroyed Bond, there shall be first furnished to the Corporation and the Trustee evidence of its ownership and of such loss, theft or destruction satisfactory to the Corporation and the Trustee, together with a bond of indemnity satisfactory to them. In the event any such Bond is about to mature or shall have matured, instead of issuing a new Bond, the Corporation may pay the same without its surrender. The Corporation and the Trustee may charge the holder or owner of such Bond with their reasonable fees and expenses in this connection and with any amounts provided by any applicable law. Upon compliance with the foregoing and pursuant to directions from the Corporation, a new Bond of like form and tenor, executed by the Corporation, shall be authenticated by the Trustee and delivered to the Registered Owner, all at the expense of the Registered Owner to whom the substitute Bond is delivered. Nonetheless, the Trustee shall not be required to authenticate and deliver any substitute for a Bond which has been called for redemption or which is about to mature or has matured and, in any such case, the principal or redemption price then A-17

94 due or becoming due shall be paid by the Trustee in accordance with the terms of the mutilated, lost, stolen, or destroyed Bond without substitution for it. (b) Every substituted Bond issued pursuant to the provisions of the Master Indenture shall constitute an additional contractual obligation of the Corporation, whether or not the Bond alleged to have been destroyed, lost or stolen shall be at any time enforceable by anyone, and shall be entitled to all the benefits of the Master Indenture equally and proportionately with any and all other Bonds duly issued under the Master Indenture. (c) All Bonds shall be held and owned upon the express condition that the provisions of the Master Indenture are exclusive with respect to the replacement or payment of mutilated, destroyed, lost, or stolen Bonds, and shall preclude any and all other rights or remedies, unless such provisions are expressly inconsistent with any law or statute existing or subsequently enacted with respect to the replacement or payment of negotiable instruments, investments, or other securities without their surrender. Delivery of Series of Bonds. On each Date of Issue and subject to the conditions of the provisions of the Master Indenture, the Corporation shall execute and deliver a Series of Bonds to the Trustee, and the Trustee shall authenticate such Series of Bonds and deliver them to the initial purchasers thereof as directed by the request and authorization to the Trustee on behalf of the Corporation and signed by its Chairman to authenticate and deliver such Series of Bonds to or as directed by the initial purchasers thereof of such Series of Bonds, registered in the names and in the denominations specified to the Trustee by the initial purchasers of such Series of Bonds, which delivery will occur upon payment by the initial purchasers of such Series of Bonds of the purchase price set forth in the related underwriting agreement for deposit with the Trustee as described in the Supplemental Indenture authorizing such Series of Bonds. Cancellation and Disposition of Surrendered Bonds. The Trustee shall cancel and may destroy (a) all Bonds surrendered for registration of transfer or exchange, for payment at maturity or upon redemption and (b) all Bonds purchased at the direction of the Corporation and surrendered to the Trustee for cancellation. The Trustee shall deliver to the Corporation a certificate of cancellation or destruction in respect of all Bonds cancelled or destroyed in accordance with the provisions of the Master Indenture. Refunding Bonds. The Corporation may issue, and expressly reserves the right to issue, to the extent permitted by law, Refunding Bonds under the provisions of the Master Indenture (or under any other indenture or resolution) to refund all or any principal amount of the Bonds; provided, however, that the net proceeds of any such Refunding Bonds used to refund all or any principal amount of the Bonds shall be paid directly to the Trustee for the Bondholders and shall not come into the possession or control of the Corporation. A-18

95 Use of Certain Amounts in the Bond Fund upon Refunding. In the event that Refunding Bonds shall be issued by the Corporation to pay the principal of all or any portion of the Bonds, the net proceeds of those Refunding Bonds remaining after payment of expenses incident to the refunding shall be deposited by the Trustee into the Bond Fund as provided in the provisions of the Master Indenture or applied as provided in the provisions of the Master Indenture. All amounts remaining in the Bond Fund on the date of the refunding to be used to pay interest on the Bonds to be refunded shall be held in a segregated account held by the Trustee, as collateral for the payment of the Bonds to be refunded, by the Trustee, in trust for and on behalf of the Registered Owners of the Bonds to be refunded, together with the portion of the proceeds of the sale of the Refunding Bonds so deposited and any investments or reinvestments of such proceeds, in one or more separate accounts in the Bond Fund irrevocably in trust for the respective holders of Bonds to be refunded, and upon defeasance of the Bonds to be refunded as provided in the provisions of the Master Indenture shall be held, invested and used as provided in the provisions of the Master Indenture. Investment income or profit on any such investments or reinvestments shall remain in the Bond Fund. Bonds Owned by Corporation Not Entitled to Payment under Credit Enhancement Policy. Notwithstanding any provision of the Master Indenture to the contrary, Bonds owned of record by the Corporation or held by the Trustee for the account of the Corporation shall not be entitled to payment from amounts realized by the Trustee under any Applicable Credit Facility and such Bonds, to such extent, are not equally and ratably secured with other Bonds. Additional Limitation on Interest. Notwithstanding any provision of the Master Indenture to the contrary, in no event shall the interest paid or payable on the Bonds (including interest calculated as provided in the Master Indenture, together with all other amounts that constitute interest on the Bonds under the laws of the State which are contracted for, charged, reserved, taken, or received pursuant to the Master Indenture) through any Interest Payment Date or through the date of payment on the Bonds (whether at maturity, by acceleration or upon earlier redemption) exceed the applicable Maximum Rate. Payment of Debt Service Requirements on Bonds. The Corporation shall promptly pay or cause to be paid the Debt Service Requirements on all Bonds issued under the Master Indenture and any Supplemental Indentures according to the terms of the Bonds and on all other obligations payable from the Bond Fund in accordance with their terms from Pledged Revenues and other lawfully available funds of the Corporation. Performance of Covenants of the Corporation. The Corporation covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in the Master Indenture, in any and every Bond executed, authenticated, and delivered under the Master Indenture and in all of its proceedings pertaining to them. A-19

96 Instruments of Further Assurance. The Corporation covenants that it will do, execute, acknowledge, and deliver or cause to be done, executed, acknowledged, and delivered, such indentures supplemental to the Master Indenture and such further acts, instruments, and transfers as the Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Trustee all and singular the rights assigned and the amounts pledged under the Master Indenture to the payment of the Debt Service Requirements. The Corporation covenants and agrees that, except as provided in the Master Indenture, it will not sell, convey, mortgage, encumber, or otherwise assign, pledge or dispose of any part of the Pledged Revenues. Financing Statements; Perfection. (a) The Corporation shall (1) cause the Master Indenture or a financing statement relating to it and any subsequent continuation statement, if any, with respect to such instruments, amendments, or supplements to be filed, registered, and recorded and to be refiled, reregistered and rerecorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the lien of the Master Indenture and to publish notice of and to protect and perfect the rights and security of the Registered Owners of the Bonds and the rights of the Trustee under the Master Indenture and (2) perform or cause to be performed from time to time any other act as required by law, and execute and file or cause to be executed and filed any and all instruments of further assurance (including financing statements with respect to any of such instruments, as well as notices to account debtors and third party obligors, and control agreements) that may be necessary for perfection, collection and such other purposes as the Trustee may deem appropriate. The Corporation and the Trustee shall execute all such instruments, memoranda, or statements necessary to maintain, protect, perfect, or preserve the interests assigned to the Trustee under the Master Indenture. (b) The Corporation covenants that it, as appropriate, will do, execute, acknowledge, and deliver, or cause to be done, executed, acknowledged, and delivered, such indentures supplemental to the Master Indenture and such further acts, instruments, and transfers as the Trustee may reasonably require for the better assigning, pledging and confirming unto the Trustee the Trust Estate assigned and the Pledged Revenues pledged under the Master Indenture. (c) The Trustee shall be obligated to continue perfection of any Permitted Investments that may be held by a third party securities intermediary, depository institution or other third person. Inspection of Books. The Corporation and the Trustee covenant and agree that all books and documents in their possession relating to the Bonds and the Pledged Revenues shall at all times be open to inspection by such accountants or other agencies as the other party or the Applicable Credit Facility Provider may from time to time designate. A-20

97 Applicable Credit Facility. The Trustee shall take action under any Applicable Credit Facility, in accordance with the terms and subject to the coverage of the Master Indenture, to the extent necessary in order to cause amounts in respect of the principal of and interest on the Bonds to be payable by the Applicable Credit Facility Provider pursuant to any Applicable Credit Facility to the Bondholders. The Trustee shall not sell, assign, transfer, or surrender the Applicable Credit Facility except to a successor Trustee under the Master Indenture. Applicable Credit Facility Provider as Third-Party Beneficiary. To the extent that the Master Indenture confers upon or gives or grants to any Applicable Credit Facility Provider any right, remedy or claim under or by reason of the Master Indenture, the Applicable Credit Facility Provider is explicitly recognized as being a third-party beneficiary under the Master Indenture and may enforce any such right remedy or claim conferred, given or granted under the Master Indenture. Establishment of Funds. (a) There are established the following funds to be held by the Trustee: a Bond Proceeds Fund, a Capitalized Interest Fund, a Bond Fund, a Revenue Fund, a Debt Service Reserve Fund, a Redemption Fund, a Claims Payment Fund and a Rebate Fund. (b) All moneys and investments deposited with the Trustee in the Funds and Accounts shall be held in trust and applied only in accordance with the Master Indenture and shall be trust funds for the purposes of the Master Indenture. The Corporation may, in any Supplemental Indenture, to the extent not inconsistent with the provisions of the Master Indenture, create and establish such additional funds or accounts or such sub-funds and subaccounts as it shall determine to be necessary or desirable, including separate sub-accounts corresponding to a Series of Bonds. The Trustee may establish additional accounts and subaccounts if it determines such account or sub-account is necessary or desirable for the administration of the Trust Estate. Bond Proceeds Fund. All amounts received upon the sale of each Series of Bonds, other than Refunding Bonds, shall be deposited, as specified in the Supplemental Indenture for such Series, in the Bond Proceeds Fund. There shall be created in the Bond Proceeds Fund for each Series of Bonds, a Costs of Issuance Account. A portion of the proceeds of each Series of Bonds shall be deposited into the Costs of Issuance Account to pay the costs of issuance associated with such Series of Bonds. The amounts remaining in the Bond Proceeds Fund shall be applied in accordance with the provisions of the Supplemental Indenture authorizing such Series of Bonds. Capitalized Interest Fund. Amounts on deposit in the Capitalized Interest Fund shall be transferred by the Trustee as necessary for deposit to the Bond Fund to be used to pay Debt Service Requirements during the Capitalized Interest Period for any Series of Bonds. Earnings on amounts in the Capitalized A-21

98 Interest Fund shall be retained in such Fund and used to pay Debt Service Requirements. Any amounts remaining in the Capitalized Interest Fund after the Capitalized Interest Period shall be transferred to the Redemption Fund. Revenue Fund. (a) The Revenue Fund shall be maintained with the Trustee. All Pledged Revenues received by the Trustee and any amounts required to be transferred to the Revenue Fund pursuant to the terms hereof shall be deposited by the Trustee in the Revenue Fund immediately upon receipt. On each Quarterly Transfer Date, commencing May, 15, 2007, the Trustee shall transfer moneys held in the Revenue Fund in the amounts and in the following order of priority: (i) to the Bond Fund, an amount sufficient to cause the amount on deposit in the Bond Fund to equal that portion of the Debt Service Requirements due during the three (3) month period commencing on the first day of the month succeeding such Quarterly Transfer Date; and (ii) to the Debt Service Reserve Fund, unless waived by the initial purchasers of all Bonds (or an agent appointed by such initial purchasers), an amount sufficient to cause the amount on deposit in the Debt Service Reserve Fund to equal the Debt Service Reserve Fund Requirement for the Bonds. (b) On each May 15, commencing May 15, 2008, the Trustee shall transfer moneys held in the Revenue Fund in the amounts and in the following order of priority: (i) and to the applicable Hedge Counterparty, Termination Payments due, if any; (ii) as directed by an Authorized Corporation Representative, the amount necessary to pay the principal of and interest on Subordinated Debt then due and payable; and (iii) to the Claims Payment Fund, as directed by an Authorized Corporation Representative, to pay additional claims (and associated expenses) that are, after the Date of Issue of the most recent Series of Bonds, determined by the Governing Board to be included in the 2005 Plan Year Deficit; and (iv) to the Redemption Fund, any remaining moneys to effect the redemption of Bonds prior to their maturity in accordance with the redemption provisions applicable to the Bonds or to purchase Bonds prior to their maturity in accordance with Section 405 hereof, unless the Trustee is directed by an Authorized Corporation Representative to retain such moneys in the Revenue Fund. (c) The creation of the Revenue Fund shall in no way diminish the pledge to the payment of the Bonds of Pledged Revenues which may not have been deposited in the Revenue Fund. A-22

99 Bond Fund; Custody of Bond Fund. (a) The Bond Fund shall be maintained with the Trustee and be used to pay the Debt Service Requirements as those amounts become due and payable, whether at maturity or earlier redemption. The Trustee shall establish a Principal Account and an Interest Account within the Bond Fund and may establish subaccounts for each Series of Bonds. (b) The Bond Fund shall be in the custody of the Trustee but in the name of the Corporation, and the Corporation authorizes and directs the Trustee to withdraw sufficient funds from the Bond Fund in accordance with the provisions of the Master Indenture to pay the Debt Service Requirements as those amounts becomes due and payable and to comply with the Tax Certificate, which authorization and direction the Trustee accepts. Debt Service Reserve Fund. (a) Amounts shall be deposited in the Debt Service Reserve Fund from the proceeds of a Series of Bonds, as specified in the Supplemental Indenture for the Series, and, to the extent the amount on deposit in the Debt Service Reserve Fund is less than Debt Service Reserve Fund Requirement, from the Revenue Fund until the Debt Service Reserve Fund Requirement has been satisfied; provided, however, the Registered Owners of all outstanding Bonds (or an agent appointed by such Registered Owners) may waive the requirement that deposits be made into the Debt Service Reserve Fund. Moneys in the Debt Service Reserve Fund are to be retained solely for the purposes of paying the principal of and interest on the Bonds as to which there would otherwise be an event of default and to pay obligations under any Applicable Credit Facility Agreement owed to any Applicable Credit Facility Provider with respect to any Bonds, without preference or priority. If on the last Business Day prior to any Interest Payment Date or Principal Payment Date or any date on which such obligations are due and payable to any Applicable Credit Facility Provider, the amount in the Bond Fund shall be less than the amount necessary to pay the Debt Service Requirements then due, the Trustee shall apply amounts from the Debt Service Reserve Fund, to the extent necessary to make up the deficiency. Any moneys on deposit in the Debt Service Reserve Fund in excess of the Debt Service Reserve Requirement shall be deposited on the next Business Day immediately preceding each Quarterly Transfer Date in the Revenue Fund. Whenever the total amount on deposit in the Bond Fund and the Debt Service Reserve Fund is sufficient to pay in full all Outstanding Bonds in accordance with their respective terms (including principal, premium, if any, and interest thereon), the funds on deposit in the Debt Service Reserve Fund shall be transferred to the Bond Fund and applied to pay the principal of, premium, if any, and interest on the Bonds. (b) If at any time it shall be necessary to use moneys in the Debt Service Reserve Fund for the purpose of paying Debt Service Requirements, then the Corporation shall adjust the 2005 Emergency Assessment Minimum Levy Requirement for the next succeeding Bond Year to levy 2005 Emergency Assessments in an amount sufficient to (i) pay the Debt Service Requirements, and (ii) cure any deficiencies in the Debt Service Reserve Fund. (c) All or any part of the moneys in the Debt Service Reserve Fund shall, at the written request of the Corporation, be invested in Permitted Investments with maturities of five years or less or such other length of time acceptable to the Applicable Credit Facility Provider, as A-23

100 evidenced in writing to the Trustee, and in any event, maturing prior to the time when payments are expected to be needed, and such investments shall, to the extent at any time necessary, be liquidated and the proceeds thereof applied to the purposes for which the Debt Service Reserve Fund is herein created; however, if the Permitted Investments on deposit in the Debt Service Reserve Fund are of such a nature that they can be drawn or redeemed at par, such Permitted Investments may mature no later than the final maturity of the Bonds. Unless otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, all income or earnings from such investments shall be deposited in the Bond Fund and applied toward the payments required to be made therefrom. (d) Notwithstanding the foregoing, in lieu of the required deposits into the Debt Service Reserve Fund, the Corporation may cause to be deposited into the Debt Service Reserve Fund a Debt Service Reserve Investment in lieu of any cash amount required to be deposited therein in connection with the issuance of any Series of Bonds or in substitution for the full amounts then on deposit therein or in an amount equal to the difference between the amount required to be deposited and the sum, if any, then on deposit in the Debt Service Reserve Fund, which Debt Service Reserve Investment shall be payable (upon the giving of notice as required thereunder) on any Interest Payment Date or Principal Payment Date on which a deficiency exists which cannot be remedied by moneys in any other Fund or Account held pursuant to the Indenture and available for such purpose. If any such Debt Service Reserve Investment is substituted for moneys on deposit in the Debt Service Reserve Fund, the moneys in the Debt Service Reserve Fund shall be transferred to and deposited in the Claims Payment Fund or the Revenue Fund, as directed by the Corporation. If a disbursement is made from a Debt Service Reserve Investment, the Corporation shall be obligated to either reinstate the maximum limits of such Debt Service Reserve Investment immediately following such disbursement or to deposit into the Debt Service Reserve Fund for restoration of withdrawals from the Debt Service Reserve Fund, funds in the amount of the disbursement made under such Debt Service Reserve Investment. Redemption Fund. The Trustee shall withdraw and apply moneys on deposit in the Redemption Fund to pay principal of, premium, if any, and interest on Bonds prior to their stated maturity or to pay the purchase price of the Bonds purchased under the provisions of the Master Indenture. Claims Payment Fund. A portion of the proceeds of each Series of Bonds shall be deposited in the Claims Payment Fund, as more specifically set forth in a Supplemental Indenture. So long as no Event of Default has occurred or is continuing, amounts on deposit in the Claims Payment Fund shall be requisitioned by the Corporation to pay claims or other expenses related to the 2005 Plan Year Deficit pursuant to the Form of Requisition attached to the Master Indenture as Exhibit A. Within three Business Days of the receipt of the requisition of the Corporation, the Trustee shall transfer the amount requested by the Corporation pursuant to the directions of the Corporation. Upon receipt of a certificate of an Authorized Corporation Representative that all claims and other expenses related to the 2005 Plan Year Deficit have been paid, the Trustee shall transfer A-24

101 any amounts remaining in the Claims Payment Fund to the Redemption Fund to pay the principal of, premium, if any, and interest on the Bonds. Non-Presentment of Bonds. In the event any Bond shall not be presented for payment when the principal of the Bond becomes due, either at maturity, upon redemption or otherwise or in the event any interest payment thereon is unclaimed, if money sufficient to pay such Bond or interest shall have been deposited in the Bond Fund, all liability of the Corporation to the Registered Owner of the Bond for the payment of such Bond or interest shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such amounts, without liability for interest on them, for the benefit of the Registered Owner of such Bond who shall thereafter be restricted exclusively to such money for any claim of whatever nature on his part under the Master Indenture or on, or with respect to, the Bond. Any money so deposited with and held by the Trustee not so applied to the payment of Bonds or such interest, if any, within one year after the date on which the same shall have become due shall be paid by the Trustee to the Corporation and subsequently Bondholders shall be entitled to look only to the Corporation for payment, and then only to the extent of the amount so repaid, and the Corporation shall not be liable for any interest on and shall not be regarded as a trustee of such amounts and the Trustee shall have no further responsibility with respect to such amounts. Money to Be Held in Trust. All money required to be deposited with or paid to the Trustee for deposit into the Bond Fund under any provision of the Master Indenture, and amounts withdrawn from the Bond Fund and held by the Trustee, shall be held by the Trustee, in trust, and such amounts (other than amounts held pursuant to the provisions of the Master Indenture and subject to the provisions of the Tax Certificate) shall, while so held, constitute part of the Trust Estate and be subject to the lien of the Master Indenture. Payments of Debt Service Requirements. The Trustee shall pay from the Bond Fund, in the order of priority indicated in the provisions of the Master Indenture, the Debt Service Requirements on the Bonds as the same become due and payable. If, prior to the maturity of any Bond, the Corporation surrenders such Bond to the Trustee, the Trustee shall cancel such Bond. Pledged Revenues to Be Held for All Bondholders; Certain Exceptions. Pledged Revenues shall, until applied as provided in the Master Indenture, be held by the Trustee for the benefit of the Registered Owners of all Outstanding Bonds, except that any portion of the Pledged Revenues representing the principal of, premium, if any, and interest on, any Bonds previously called for redemption in accordance with the provisions of the Master Indenture or in a Supplemental Indenture or previously matured or representing unclaimed interest on the Bonds shall be held for the benefit of the Registered Owners of such Bonds only and shall not be deposited or invested pursuant to the provisions of the Master Indenture. Any A-25

102 portion of the Pledged Revenues represented by money paid under a Applicable Credit Facility shall not be available to pay Bonds owned by the Corporation. Rebate Fund; Tax Certificate. Notwithstanding anything in the Master Indenture to the contrary, the Trustee is authorized to deposit money in the Bond Fund and to withdraw money from the Bond Fund in order to comply with the provisions of Section 148 of the Code. The Trustee shall transfer amounts from other funds to the Rebate Fund as required by the Tax Certificate and the directions of the Corporation. Additional Bonds; Refunding Bonds; Bond Anticipation Notes; Subordinated Debt. (a) After the delivery of the initial Series of Bonds hereunder, Additional Bonds (except for Bond Anticipation Notes, which may be authorized pursuant to subsection (c) hereof) may be issued by the Corporation on parity with the initial Series of Bonds, in one or more Series pursuant to a Supplemental Indenture, but solely to assist the Corporation in paying the 2005 Plan Year Deficit, funding a deposit, if any, to the Debt Service Reserve Fund, funding a deposit to the Capitalized Interest Fund, if required by the Master Indenture or any Supplemental Indenture, and paying costs of issuance related to the Additional Bonds. Such Additional Bonds may be issued so long as: (i) No Event of Default under the Master Indenture has occurred and is then continuing and the Corporation shall have approved the issuance of such Additional Bonds; (ii) The Corporation shall have obtained all necessary approvals, permits and consents required under the laws of the State for the issuance of Additional Bonds; (iii) The provisions of Master Indenture relating to the issuance of a Series of Bonds have been satisfied; (iv) All conditions precedent to the purchase of the Additional Bonds by the initial purchasers thereof have been satisfied; (v) There shall have been filed with the Trustee an opinion of Bond counsel to the effect that the exclusion from "gross income" for Federal income tax purposes of the interest on the Tax Exempt Bonds then outstanding under the Master Indenture shall not be adversely affected; (vi) The Corporation shall obtain the written consent of all Registered Owners of any Bond Anticipation Notes then Outstanding (or an agent appointed by such Registered Owners) which shall not be redeemed in full with proceeds of the Additional Bonds; and (vii) The principal amount maturing in any year of the Additional Bonds and the Outstanding Bonds which shall not be redeemed in full with the proceeds of the Additional Bonds shall not exceed ten percent (10%) of the amount needed to cover A-26

103 the 2005 Plan Year Deficit (as determined pursuant to the Citizens Act and the Plan of Operation) and certified by the Corporation to the Trustee. Such Series of Additional Bonds shall be appropriately designated, shall be dated, shall bear interest at a rate or rates not exceeding the Maximum Rate applicable to such Series of Bonds, shall be numbered and shall have such maturities and redemption provisions, all as may be provided in the supplement to the Master Indenture or the Supplemental Indenture authorizing the issuance of such series of Additional Bonds. (b) Refunding Bonds may be issued under and secured by a supplement to the Master Indenture for the purpose of providing funds for the refunding of the Bonds and Additional Bonds; provided that the conditions set forth in the provisions of the Master Indenture have been satisfied. (c) In addition to the foregoing, one or more series of Bond Anticipation Notes, payable on a parity with all Bonds, may be authenticated and delivered upon original issuance from time to time in such principal amount for each such Series as may be determined by the Corporation for the purpose of financing the 2005 Plan Year Deficit. The Corporation hereby covenants to apply so much of the proceeds of the Bonds in anticipation of which such Bond Anticipation Notes have been issued as shall be necessary to provide for the payment of all Principal Installments on such Bond Anticipation Notes, interest on such Bond Anticipation Notes and related fees. Except as provided in the provisions of the Master Indenture, such Bond Anticipation Notes may be issued so long as: (i) Each Supplemental Indenture authorizing the issuance of a Series of Bond Anticipation Notes shall require the Corporation to deposit a specified amount of money from the proceeds of the sale of such Series of Bond Anticipation Notes into the Claims Payment Fund to pay claims or other expenses relating to the 2005 Plan Year Deficit; (ii) No Bond Anticipation Note shall mature later than June 15, 2006; (iii) Each Bond Anticipation Note shall be issued in an Authorized Denomination of $1,000,000 or any integral multiple in excess thereof; and (iv) The provisions of the Master Indenture relating to the issuance of a Series of Bonds have been satisfied. (d) Anything herein to the contrary notwithstanding, no additional Bond Anticipation Notes shall be issued until the Corporation and the Trustee have obtained the prior written consent of the Registered Owners of all Bond Anticipation Notes then outstanding (or an agent appointed by such Registered Owners). (e) Subordinated Debt may be issued by the Corporation solely to assist the Corporation in paying the 2005 Plan Year Deficit, only if: A-27

104 (i) No Event of Default under this Master Indenture has occurred and is then continuing and the Corporation shall have approved the issuance of such Subordinated Debt; (ii) The Corporation shall have obtained all necessary approvals, permits and consents required under the laws of the State for the issuance of Subordinated Debt; (iii) All conditions precedent to the purchase of the Subordinated Debt by the initial purchasers thereof have been satisfied; (iv) There shall have been filed with the Trustee an opinion of Bond counsel to the effect that the exclusion from "gross income" for Federal income tax purposes of the interest on the Tax Exempt Bonds then outstanding under this Master Indenture shall not be adversely affected; and (v) There shall be no provision in the documents evidencing the Subordinated Debt which would permit the acceleration of such Subordinated Debt while Bonds are Outstanding. Maintenance of Separate Accounts. The Corporation covenants and agrees to prepare and maintain books and records separating all revenues, assets, liabilities, losses and expenses of the Corporation into the FAIR Plan and the Coastal Plan, as required by the Citizens Act and the Plan of Operation, all in accordance with standard accounting principles in conformity with accounting practices prescribed or permitted by the Department of Insurance. In furtherance, and not in limitation, of this requirement, the Corporation shall allocate all regular assessments (as defined in the Act), Emergency Assessments, market equalization surcharges (as defined in the Act) and the proceeds of any reinsurance purchased by the Corporation to the FAIR Plan and the Coastal Plan, as applicable, for the corresponding Plan Year Deficit and shall not levy regular assessments, Emergency Assessments or market equalization surcharges within each of the FAIR Plan and the Coastal Plan in excess of the maximum assessment or surcharge permitted by the Citizens Act for each such account. All books, records and other documents in the possession of the Corporation relating to the Pledged Revenues shall at all reasonable times be open to inspection by such accountants or other agencies as the Trustee or any Applicable Credit Facility Provider may from time to time designate. Depopulation Covenants. The Corporation covenants and agrees not to initiate, participate in or approve any depopulation program which would exempt any policyholders or class of policyholders in the FAIR Plan or the Coastal Plan from 2005 Emergency Assessments imposed by the Corporation. Compliance with Laws. The Corporation covenants and agrees to comply (i) with all provisions of the Citizens Act, the Plan of Operation, the Cooperative Endeavor Agreement and with all provisions of other laws, ordinances, rules, regulations and requirements of governmental authorities applicable to A-28

105 the Corporation relating to the regular assessments, Emergency Assessments, policy premiums and the transactions contemplated by the Master Indenture and (ii) in all material respects with all other material provisions of the Citizens Act, the Plan of Operation, the Cooperative Endeavor Agreement and other laws, ordinances, rules, regulations and requirements of governmental authorities applicable to the Corporation. Instruments of Further Assurance; No Impairment. (a) The Corporation covenants and agrees that the Trustee may defend the Corporation s rights to the payments and other amounts due under the Act for the benefit of the Bondholders, against the claims and demands of all persons whomsoever. The Corporation covenants and agrees that it will do, execute, acknowledge and deliver, or make its best efforts to cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, pledging, assigning and confirming to the Trustee all and singular the rights assigned by the Master Indenture and the amounts pledged by the Master Indenture or any Supplemental Indenture to the payment of the Debt Service Requirements. (b) The Corporation shall not take any action, or fail to take any action, which would impair its contractual obligations with respect to the Bondholders, the Applicable Credit Facility Providers, the Hedge Counterparties or the Trustee. Recording and Filing Further Instruments. The Corporation shall record and/or file, or cause to be recorded and/or filed on its behalf, in the manner and in the places required by law, such instruments and related documents as may be required in order to preserve and protect fully (to the extent permitted by law) the security granted to the Bondholders under the Master Indenture. The Corporation shall, upon the reasonable request of the Trustee, from time to time execute and deliver such further instruments, including, without limitation, the filing of any financing statements and continuation statements required under Chapter 9 of the Louisiana Commercial Laws, and take such further action as may be reasonable and as may be required to effectuate the purposes of the Master Indenture or any provision of it. Observance and Performance of Covenants, Agreements, Authority and Actions. The Corporation covenants and agrees to observe and perform faithfully at all times all covenants, agreements, authority, actions, undertakings, stipulations and provisions to be observed or performed on its part under the Master Indenture and the Bonds which are executed, authenticated and delivered under the Master Indenture, and under all proceedings of its Governing Board pertaining thereto. Certain Notices to Trustee. The Corporation covenants and agrees to provide prompt written notice to the Trustee immediately upon the Corporation s becoming aware of the existence of an Event of Default (or event that with the passage of time or giving of notice, or both, would constitute an Event of Default) hereunder. Within ninety (90) days after the end of each Fiscal Year, the Corporation A-29

106 shall provide to the Trustee a certificate signed on behalf of the Corporation by its Chairman or Chief Executive Officer to the effect that no Event of Default (or event that with the passage of time or giving of notice, or both, would constitute an Event of Default) occurred during the recently concluded Fiscal Year and is continuing hereunder or, if any such Event of Default (or event that with the passage of time or giving of notice, or both, would constitute an Event of Default), occurred and is continuing, containing a description of such Event of Default or other event. Tax Covenants Applicable to Tax Exempt Bonds. The Corporation covenants and agrees that, to the extent permitted by laws, it will comply with the requirements of the Code in order to establish, maintain and preserve the exclusion from "gross income" for federal income tax purposes of interest on Tax Exempt Bonds. The Corporation further covenants and agrees that it will not take any action, fail to take any action, or permit any action within its control to be taken, or permit at any time or times any of the proceeds of Tax Exempt Bonds or any other funds of the Corporation to be used directly or indirectly in any manner, the effect of which would be to cause Tax Exempt Bonds to be "arbitrage bonds" or would result in the inclusion of the interest on any of Tax Exempt Bonds in gross income for federal income tax purposes under the Code, including, without limitation, (i) the failure to comply with the limitation on investment of Bond proceeds or (ii) the failure to pay any required rebate of arbitrage earnings to the United States of America pursuant to Section 148(f) of the Code or (iii) the use of the proceeds of the Bonds or Note in any manner which would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code. In furtherance of the foregoing, the Corporation shall comply with the provisions of the Tax Certificate as to any Series of Tax Exempt Bonds and such other instructions as may be prescribed by Bond Counsel. Notwithstanding any provision of the Master Indenture to the contrary, the obligations of the Corporation to comply with this provision of the Master Indenture shall survive the payment, redemption or defeasance of all Series of Tax Exempt Bonds. The Chairman and the Chief Executive Officer of the Corporation are hereby empowered, authorized and directed to take any and all action and to execute and deliver any instrument, document or certificate necessary to effectuate the purposes of the provisions of the Master Indenture. Amendment to Plan of Operation. The Corporation covenants and agrees that it will not take any action or permit any action to be taken with respect to the Plan of Operation which would adversely affect the levy or collection of the 2005 Emergency Assessments in the amounts required to satisfy the Corporation s obligations under the Master Indenture. Staffing. The Corporation covenants and agrees to maintain or cause to be maintained adequate levels of staffing in order to carry out the purposes of the Corporation, including, but not limited to, the administration of the FAIR Plan and the Coastal Plan. A-30

107 Policy Termination. To the extent permitted by law, the Corporation covenants and agrees that failure by an insured to pay the 2005 Emergency Assessment shall be treated as non-payment of premium by the insured and such failure to pay, unless promptly remedied after notice, shall result in termination of such policy by the Corporation. Payments to Trustee. The Corporation covenants and agrees to promptly direct insurance company obligors to remit directly to the Trustee for deposit in the Revenue Fund any 2005 Emergency Assessments collected by the insurance company obligors. Such notices shall be sent pursuant to Louisiana Civil Code Article 2643 and La. R.S. 10:9-607(a)(i), to the extent applicable. The Trustee shall have the right to collect payment of 2005 Emergency Assessments directly from insurance company obligors both prior to and after the occurrence of an Event of Default hereunder. The Trustee shall further have the right to direct and receive payment of other Pledged Revenues from persons obligated to pay such moneys both prior to and after the occurrence of an Event of Default hereunder. Determination and Notification of 2005 Emergency Assessment Minimum Levy Requirement. The Corporation covenants and agrees to (i) levy the 2005 Emergency Assessments to be effective as of January 1 of each year, commencing January 1, 2007; (ii) determine the 2005 Emergency Assessment Minimum Levy Requirement and the uniform assessment percentage no later than August 1 of each year, commencing August 1, 2006; and (iii) notify insurance company obligors (a) by July 1, 2006, of the implementation of the 2005 Emergency Assessments and (b) of the uniform assessment percentage no later than September 15 of each year, commencing September 15, Collection and Frequency of Remittance of 2005 Emergency Assessments. The Corporation covenants and agrees to (i) notify insurance company obligors by May 1, 2006 to directly remit 2005 Emergency Assessments to the Trustee by January 31, April 30, July 31 and October 31 of each year, commencing April 30, 2007, (ii) collect 2005 Emergency Assessments from its policyholders and deposit such 2005 Emergency Assessments in a segregated account separate and apart from the general funds of the Corporation no later than the last day of each calendar month; and (iii) remit 2005 Emergency Assessments collected by the Corporation to the Trustee by January 31, April 30, July 31 and October 31 of each year, commencing April 30, Confirmation or Revision of 2005 Plan Year Deficit. The Corporation covenants and agrees to confirm or revise its determination of the 2005 Plan Year Deficit no later than August 1 of each year, commencing August 1, A-31

108 Defeasance. If there is paid or caused to be paid by the Corporation to or for the benefit of the Registered Owners of the Bonds the principal, premium, if any, and interest which is and shall subsequently become due on the Bonds at the times and in the manner stipulated in them, and if the Corporation shall keep, perform, and observe all and singular the covenants and promises relating to those Bonds in the Master Indenture and in those Bonds expressed as to be kept, performed, and observed by it or on its part, and shall pay or cause to be paid to the Trustee all sums of money due or to become due according to the provisions of the Master Indenture, then the Master Indenture and the lien, rights, and interests created shall cease, determine and become null and void with respect to those Bonds (except as to any surviving rights of payment, registration of transfer or exchange of those Bonds in the Master Indenture provided for and except that the rights and obligations under any Tax Certificate applicable to those Bonds shall also continue). If all Bonds are so defeased, the Trustee, upon written request of the Corporation, shall cancel and discharge the Master Indenture, and execute and deliver to the Corporation such instruments in writing as shall be requested by the Corporation and necessary to discharge the Master Indenture, and release, assign and deliver unto the Corporation any and all the estate, right, title, and interest in and to any and all rights assigned or pledged to the Trustee or otherwise subject to the Master Indenture, except money or securities held by the Trustee for the payment of the principal of and premium, if any, and interest on, and purchase prices of, the Bonds. Any Bond or a portion of a Bond in an Authorized Denomination shall be deemed to be paid within the meaning of the Master Indenture when (a) payment of the principal of and premium, if any, on such Bond or a portion of a Bond in an Authorized Denomination, plus interest to accrue thereon through the due date of the Bond (whether such due date is by reason of maturity or upon redemption as provided in the Master Indenture) either (i) shall have been made or caused to be made in accordance with the terms of the Master Indenture, (ii) shall have been provided for by depositing sufficient moneys for such payment with the Trustee and the due date of such principal, interest and premium, if any, has occurred, or (iii) shall have been provided for by irrevocably depositing with the Trustee in trust and irrevocably setting aside exclusively for such payment on such due date (1) moneys sufficient to make such payment and/or (2) Governmental Obligations not subject to prepayment or call maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment and, if money is invested in Governmental Obligations, the Corporation shall cause a nationally recognized certified public accounting firm or other nationally recognized provider of escrow verification reports to deliver to the Trustee and to Moody s, if the Bonds are then rated by Moody s, to S&P, if the Bonds are then rated by S&P and to Fitch, if the Bonds are then rated by Fitch, a report verifying the sufficiency of such maturing principal and interest to make such payment without relying upon reinvestment income therefrom, (b) the Trustee has received the written consent of the Applicable Credit Facility Provider, (c) the Trustee has received an opinion acceptable to Moody s, if the Bonds are then rated by Moody s, to S&P, if the Bonds are then rated by S&P and to Fitch, if the Bonds are then rated by Fitch of nationally recognized bankruptcy counsel (which may assume that no Registered Owner of a Bond is an insider under applicable bankruptcy law) to the effect that the use of such money contemplated under the provisions of the Master Indenture to pay the principal of and premium, if any, or interest on the Bonds would not be avoidable as preferential payments under A-32

109 Section 547 of the Bankruptcy Code, or under any other insolvency proceeding applicable to the Corporation, should the Corporation become a debtor in a proceeding commenced thereunder, and (d) all necessary and proper fees, compensation and expenses of the Trustee pertaining to any such deposit shall have been paid or the payment provided for to the satisfaction of the Trustee. At such times as a Bond or Authorized Denomination of Bonds shall be deemed to be paid under the Master Indenture, such Bond shall no longer be secured by or entitled to the benefits of the Master Indenture (other than the provisions of the Master Indenture in the case of a deposit under clause (a)(iii) above), except for the purposes of any such payment from such money or Governmental Obligations. Notwithstanding the preceding paragraph, in the case of a Bond which by its terms may be redeemed prior to its stated maturity, no deposit under clause (a)(iii) of the immediately preceding paragraph shall be deemed a payment of such Bond as provided above until: (a) proper notice of redemption of such Bond shall have been previously given in accordance with the provisions of the Master Indenture, or in the event the Bond is not to be redeemed within the next succeeding sixty (60) days, until the Corporation shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to notify, as soon as practicable, the Registered Owner of such Bond in accordance with the provisions of the Master Indenture, that the deposit required by (a)(iii) above has been made with the Trustee and that the Bond or a portion of a Bond in an Authorized Denomination is deemed to have been paid in accordance with the provisions of the Master Indenture and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal of and the applicable premium, if any, on the Bond or a portion of a Bond in an Authorized Denomination, plus interest to accrue on it through its due date, or (b) the maturity of such Bond or a portion of a Bond in an Authorized Denomination. All moneys or Governmental Obligations set aside and held in trust pursuant to the provisions of the Master Indenture for the payment of Bonds (including interest and premium, if any) shall be applied to and used solely for the payment of the particular Bonds (including interest and premium, if any) with respect to which such moneys and Governmental Obligations have been so set aside in trust. Anything in the provisions of the Master Indenture to the contrary notwithstanding, if moneys or Governmental Obligations have been deposited or set aside with the Trustee pursuant to the provisions of the Master Indenture for the payment of Bonds or a portion of a Bond in an Authorized Denomination of Bonds and the interest and premium, if any, on them and such Bonds and the interest and premium, if any, on them shall not have in fact been actually paid in full, no amendment to the provisions of the Master Indenture shall be made without the consent of the Registered Owner of each of the Bonds affected. Rights of Applicable Credit Facility Provider. Notwithstanding anything in the Master Indenture to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by an Applicable Credit Facility Provider pursuant to an Applicable Credit Facility, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied, and not be considered paid by the Corporation until any amounts owed to such Applicable Credit Facility Provider have been repaid, and the assignment A-33

110 and pledge of the Trust Estate and all covenants, agreements, and other obligations of the Corporation to the Registered Owners shall continue to exist and shall inure to the benefit of the Applicable Credit Facility Provider, which shall be subrogated to the rights of Registered Owners that have been paid by the Applicable Credit Facility. Defaults; Events of Default. If any of the following events occurs, it is defined as and declared to be and to constitute a default or an event of default: (a) Failure to make payment when due of any installment of interest upon any Bond; (b) Failure to make due and punctual payment of the principal of and premium, if any, on any Bond at its stated maturity or upon its redemption; (c) Other than as provided in the provisions of the Master Indenture, a breach by the Corporation of its warranties, representations and obligations hereunder or upon any Bond, or a failure on the part of the Corporation to perform or observe any of its covenants, agreements or conditions in the Master Indenture or in the Bonds contained and failure to remedy the same after notice of the failure pursuant to the provisions of the Master Indenture; and (d) A material misrepresentation by the Department of Insurance in the Cooperative Endeavor Agreement, a breach of the Department of Insurance s obligations under the Cooperative Endeavor Agreement or a termination of the Cooperative Endeavor Agreement by the Department of Insurance and failure to remedy the same within five (5) days after notice of the occurrence of the event. The Corporation covenants and agrees that if a default has occurred and for as long as it continues under the Master Indenture, the Corporation shall levy and collect the maximum amount of 2005 Emergency Assessment permitted under the Citizens Act and the Plan of Operation until all Bonds, including accrued interest thereon, are paid in full. Acceleration. Upon the occurrence of an event of default under the provisions of the Master Indenture (except for a default under the provisions described above in (c) or (d) under "Defaults; Events of Default"), the Trustee (i) may, with the prior written consent of all Applicable Credit Providers or (ii) shall, upon the written direction of Bondholders of not less than twenty-five percent (25%) in principal amount of Bonds Outstanding and with the prior written consent of all Applicable Credit Providers, if any, declare the principal of all Bonds then outstanding and the interest accrued thereon to the date of such declaration immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and all options to tender any Bonds shall be immediately suspended. The provisions of the paragraph are subject to waiver, rescission and annulment as provided in the provisions of the Master Indenture. A-34

111 Remedies; Rights of Bondholders and Applicable Credit Facility Provider. Upon the occurrence and continuation of an event of default, the Trustee (i) may, with the prior written consent of all Applicable Credit Providers or (ii) shall, upon the written direction of Bondholders of not less than twenty-five percent (25%) in principal amount of Bonds Outstanding and with the prior written consent of all Applicable Credit Providers, if any, upon being indemnified as provided in the provisions of the Master Indenture, pursue any available remedy at law or in equity by suit, action, mandamus, or other proceeding to enforce the payment of the principal of and premium, if any, and interest on the Bonds then outstanding, and to enforce and compel the performance of the duties and obligations of the Corporation as in the Master Indenture set forth, including, without limitation, all rights and remedies granted to a secured creditor under the Louisiana Commercial Laws and the right, to the extent permitted by applicable law, to appoint a receiver for the Corporation. If an event of default shall have occurred and be continuing and if requested so to do by the Registered Owners of not less than twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding with the prior written consent of the Applicable Credit Facility Provider and subject to the provisions of the Master Indenture, the Trustee shall, subject to being properly indemnified in accordance with the provisions of the Master Indenture, be obliged to exercise such one or more of the rights and powers conferred by the provisions of the Master Indenture as the Trustee being advised by Counsel shall deem most expedient in the interests of the Bondholders. No remedy by the terms of the Master Indenture conferred upon or reserved to the Trustee (or to the Bondholders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bondholders under the Master Indenture or now or subsequently existing at law or in equity or by statute. No delay or omission to exercise any right, power, or remedy accruing upon any event of default shall impair any such right, power, or remedy or shall be construed to be a waiver of any such event of default or acquiescence in the event of default; and every such right, power, or remedy may be exercised from time to time and as often as may be deemed expedient. No waiver of any event of default under the Master Indenture, whether by the Trustee or by the Bondholders or by the Applicable Credit Facility Provider or otherwise, shall extend to or shall affect any subsequent event of default or shall impair any rights or remedies consequent on that subsequent default. Anything in the Master Indenture to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default, any Applicable Credit Facility Provider shall be entitled to control and direct the enforcement of all rights and remedies granted to the Registered Owners of the Bonds secured by the Applicable Credit Facility or the Trustee for the benefit of the Registered Owners of the Bonds secured by the Applicable Credit Facility under the Master Indenture, including, without limitation: (i) the right to accelerate the principal of the Bonds and (ii) the right to annul any declaration of acceleration, and the Applicable Credit Facility Provider shall also be entitled to approve all waivers of events of default, but if an Applicable Credit A-35

112 Facility Provider fails to make a payment when and as required under the provisions of an Applicable Credit Facility and such failure is continuing, the Applicable Credit Facility Provider shall not be entitled to exercise any such rights under the Master Indenture, including without limitation, the right to give any directions, waivers, or consents, except to the extent of any rights which the Applicable Credit Facility Provider may have as a result of subrogation to the rights of Bondowners prior to such Applicable Credit Facility Provider default. Right of Bondholders to Direct Proceedings. Anything in the Master Indenture to the contrary notwithstanding, but subject to all rights granted to the Applicable Credit Facility Provider in the Master Indenture, the Registered Owners of not less than a majority in aggregate principal amount of the Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method, and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Master Indenture, or for the appointment of a receiver or any other proceedings under the Master Indenture, but any such direction shall not be otherwise than in accordance with the provisions of law and of the Master Indenture and shall not involve the Trustee in personal liability. Application of Amounts. All amounts received by the Trustee pursuant to any right given or action taken under the provisions of the Master Indenture shall, after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the expenses, liabilities and advances incurred or made by the Trustee and its Counsel, be deposited in the Bond Fund and all such money in the Bond Fund shall be applied to the payment of the Debt Service Requirements, including with respect to payments then due and unpaid upon the Bonds as to which such right or action pertains, without preference or priority of any kind, ratably, according to the amounts due and payable on the Bonds for principal, premium, if any, and interest, respectively, to the persons entitled to that payment without any discrimination or privilege; provided, however, that no money drawn under the Applicable Credit Facility or amounts in the Bond Fund held for the payment of the principal of or premium, if any, and interest on specific Bonds or money held for the payment of the purchase price of specific Bonds or amounts held pursuant to the provisions of the Master Indenture may be used to reimburse the Trustee and its Counsel for such costs and expenses. Whenever amounts are to be applied pursuant to the provisions of the Master Indenture, such amounts shall be applied at such times, and from time to time, as the Trustee shall determine. Whenever the Trustee shall apply such amounts, it shall fix the date upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such amounts and of the fixing of any such date. Whenever the Debt Service Requirements have been paid under the provisions of the Master Indenture and all expenses and charges of the Trustee have been paid, and no amount remains unpaid with respect to a Termination Payment to a Hedge Counterparty or any payment A-36

113 payable from the Rebate Fund, any balance remaining in the Bond Fund shall be paid to the Corporation. Remedies Vested in Trustee. All rights of action (including the right to file proofs of claims) under the Master Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production of the Bonds in any trial or other proceedings relating to the right of action and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Registered Owners of the Bonds, and any recovery of judgment shall be for the equal and ratable benefit of the Registered Owners of the Outstanding Bonds. In the event of a bankruptcy or reorganization of the Corporation, the Trustee may file a proof of claim on behalf of all Bondholders. Rights and Remedies of Bondholders. No Registered Owner of any Bond shall have any right to institute any suit, action, or proceeding in equity or at law for the enforcement of the Master Indenture or for the execution of any trust of the Master Indenture or for the appointment of a receiver or any other remedy under the Master Indenture, unless (i) a default has occurred of which the Trustee is deemed to have notice or has been notified as provided in the provisions of the Master Indenture, (ii) such default shall have become an event of default and be continuing, (iii) the Registered Owners of more than fifty percent (50%) in aggregate principal amount of the Bonds then Outstanding of which such Bond comprises a portion shall have made written request to the Trustee, either to proceed to exercise the powers in the Master Indenture granted or to institute such action, suit, or proceeding in its own name, and shall have offered to the Trustee indemnity as provided in the provisions of the Master Indenture, the Trustee shall for sixty (60) days after such notice, request and offer of indemnity fail or refuse to exercise the powers granted in the provisions of the Master Indenture, or to institute such action, suit, or proceeding in its own name; and such notification, request, and offer of indemnity are declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of the Master Indenture, and to any action or cause of action for the enforcement of the Master Indenture, or for the appointment of a receiver or for any other remedy under the Master Indenture. No one or more Registered Owners of the Bonds shall have any right in any manner whatsoever to enforce any right under the Master Indenture except in the manner provided in the Master Indenture, and all proceedings at law or in equity shall be instituted, had and maintained in the manner provided in the Master Indenture and for the equal and ratable benefit of the Registered Owners of all Bonds then Outstanding. Nothing in the Master Indenture contained shall, however, affect or impair the right of any Bondholder to enforce the payment of the principal of and premium, if any, and interest on any Bond at and after the maturity of the Master Indenture. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under the Master Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been A-37

114 discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the Corporation, the Trustee, the Bondholders and the Applicable Credit Facility Provider then in effect shall be restored to their former positions and rights under the Master Indenture, respectively, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. Waivers of Events of Default. The Trustee, with the prior written consent of the Applicable Credit Facility Provider, may in its discretion waive any event of default under the Master Indenture and rescind its consequences and shall do so with the consent of the Applicable Credit Facility Provider upon the written request of the Registered Owners of not less than a majority in aggregate principal amount of all Bonds then outstanding or the Applicable Credit Facility Provider, provided, however, that there shall not be waived any event of default in the payment of the principal of, or premium on, any outstanding Bonds when due (whether at maturity or by redemption), or any event of default in the payment when due of the interest on any such Bonds, unless prior to such waiver and rescission, all arrears of principal of and interest, with interest at the rate borne by the Bonds on the date on which such principal or interest became due and payable on overdue principal and (to the extent permitted by law) on overdue installments of interest, and all arrears of premium, if any, when due, together with the reasonable expenses of the Trustee and to the Registered Owners of such Bonds, including reasonable attorneys fees paid or incurred, shall have been paid or provided for. In the case of any such waiver and rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Corporation, the Trustee, any Applicable Credit Facility Provider and the Bondholders shall be restored to their former positions and rights under the Master Indenture, respectively, but no such waiver and rescission shall extend to any subsequent or other default, or impair any right or remedy consequent on that subsequent or other default. All waivers under the Master Indenture shall be in writing and a copy of the waiver shall be delivered to the Corporation and to any Applicable Credit Facility Provider. If, following an event of default and after the Trustee shall have declared the principal of all Bonds then outstanding to be due and payable, and before a judgment or decree for payment of amounts due has been obtained by the Trustee, all arrears of principal of such Bonds, and interest on them with interest on overdue principal and (to the extent permitted by law) on overdue installments of interest at a rate per year which is equal to the rate per year borne by the Bonds on the date of such declaration, or as otherwise set forth as the default rate in a Supplemental Indenture authorizing such Bonds, and the principal and premium, if any, on all Bonds then outstanding which shall have become due and payable otherwise than by acceleration, and all other sums payable under the Master Indenture, except the principal of, premium, if any, and interest on, the Bonds which by such declaration shall have become due and payable, shall have been paid by or on behalf of the Corporation, together with the reasonable expenses of the Trustee, the Registered Owners of such Bonds and any Applicable Credit Facility Provider, including reasonable attorneys fees paid or incurred, and all other defaults shall have been cured or waived and any Applicable Credit Facility Provider shall have consented to such waiver in writing, then and in every such case, the Trustee shall annul such declaration of maturity and its consequences, which annulment shall be binding upon all A-38

115 Bondholders; but no such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. In the case of any such annulment, the Corporation, the Trustee, any Applicable Credit Facility Provider, and the Bondholders shall be restored to their former positions and rights under the Master Indenture. All annulments under the Master Indenture shall be in writing and a copy of the annulment shall be delivered to the Corporation and to any Applicable Credit Facility Provider. The Trustee shall promptly give written notice of such waiver, rescission or annulment and of the corresponding waiver, rescission and annulment of the Event of Default under the Master Indenture to the Corporation, any Applicable Credit Facility Provider and the Remarketing Agent, and shall give notice of such waiver, rescission or annulment under the Master Indenture by first class mail to all Registered Owners of Outstanding Bonds; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Notice of Event of Default under Section 1001(c) of the Master Indenture; Opportunity of Corporation to Cure Defaults. Anything in the Master Indenture to the contrary notwithstanding, no default under Section 1001(c) of the Master Indenture shall constitute an event of default until actual notice of such default, requiring that it be remedied and stating that such notice is a "Notice of Default" under the Master Indenture, by registered or certified mail shall be given to the Corporation by the Trustee or to the Corporation and the Trustee by any Applicable Credit Facility Provider or the Registered Owners of more than fifty percent (50%) in aggregate principal amount of all Bonds Outstanding, and the Corporation shall have had thirty (30) days after receipt of such notice to correct the default or cause the default to be corrected, and shall not have corrected the default or caused the default to be corrected within the applicable period; provided, however, if the default be such that it cannot be corrected within the applicable period, it shall not constitute an event of default if corrective action is instituted within the applicable period and diligently pursued until the default is corrected and the fact of such non-correction, corrective action and diligent pursuit is evidenced to the Trustee by a certificate of an Authorized Corporation Representative. Right of Registered Owners to Direct Remedies. Anything in the provisions of the Master Indenture to the contrary notwithstanding, as long as any Bond Anticipation Notes are Outstanding, the Agent appointed by the Registered Owners of all Bond Anticipation Notes then Outstanding shall have the right to direct remedies under the Master Indenture. Supplemental Indentures Not Requiring Consent of Bondholders (But Requiring Consent of Applicable Credit Facility Provider and Trustee). The Corporation and the Trustee may without the consent of, or notice to, any of the Bondholders but with notice to and the written consent of any Applicable Credit Facility Provider, enter into an indenture or indentures supplemental to the Master Indenture for any one or more of the following purposes: A-39

116 (a) to add to the covenants and agreements of, and limitations and restrictions upon, the Corporation in the Master Indenture, other covenants, agreements, limitations, and restrictions to be observed by the Corporation which are not contrary to or inconsistent with the Master Indenture as in effect prior to the effectiveness of the Supplemental Indenture; (b) to grant to or confer or impose upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers, authority, security, liabilities, or duties which may lawfully be granted, conferred, or imposed and which are not contrary to or inconsistent with the Master Indenture as previously in effect; (c) to cure any ambiguity or omission or to cure, correct, or supplement any defective provision of the Master Indenture in each case in such manner as shall not adversely affect the Bondholders; (d) to evidence the appointment of a separate Trustee or a co-trustee or to evidence the succession of a new Trustee under the Master Indenture; (e) to comply with the requirements of the Trust Indenture Act of 1939, as from time to time amended; (f) to subject to the Master Indenture additional revenues, properties, or collateral; (g) to modify the provisions relating to the use of a book-entry system (provided, however, that the Corporation and the Trustee have received a Favorable Opinion of Bond Counsel); (h) to authorize different Authorized Denominations of the Bonds and to make correlative amendments and modifications to the Master Indenture regarding exchangeability of Bonds of different Authorized Denominations, redemptions of portions of Bonds of particular Authorized Denominations, and similar amendments and modifications of a technical nature; (i) to modify, alter, amend, or supplement the Master Indenture in any other respect which is not materially adverse to the Bondholders and which does not involve a change described in the lettered clauses of the provisions of the Master Indenture and which, in the judgment of the Trustee, is not to the prejudice of the Trustee; or (j) to provide for a Series of Bonds, Additional Bonds, Refunding Bonds or Bond Anticipation Notes pursuant to the Master Indenture. The Trustee may receive an opinion of Counsel that any such supplemental indenture entered into by the Corporation and the Trustee complies with the provisions of the Master Indenture and the Trustee may rely upon such opinion. Anything in the provisions of the Master Indenture to the contrary notwithstanding, so long as one or more Series of Bond Anticipation Notes are Outstanding, no Supplemental Indenture shall be entered into without the consent of all of the Registered Owners of the Bond A-40

117 Anticipation Notes Outstanding (or an agent appointed by the Registered Owners of all Bond Anticipation Notes Outstanding). Notwithstanding any provision of the Master Indenture to the contrary, while only Bond Anticipation Notes are Outstanding, a Supplemental Indenture that has been consented to by the Registered Owners of all Bonds Outstanding (or the Agent appointed by the Registered Owners) may vary any of the terms of the Master Indenture that are applicable to the Bond Anticipation Notes that are covered by that Supplemental Indenture. Supplemental Indentures Requiring Consent of Bondholders, Applicable Credit Facility Provider, and Corporation. Exclusive of supplemental indentures covered by the provisions of the Master Indenture and subject to the terms and provisions described under this heading, and not otherwise, any Applicable Credit Facility Provider and the holders of not less than a majority in aggregate principal amount of Bonds then Outstanding shall have the right, from time to time, anything contained in the Master Indenture to the contrary notwithstanding, to consent to and approve the execution by the Corporation and the Trustee of such other indenture or indentures supplemental to the Master Indenture for the purpose of modifying, amending, adding to, or rescinding, in any particular, any of the terms or provisions contained in the Master Indenture; provided, however, that nothing in provisions described under this heading contained shall permit or be construed as permitting (a) an extension of the maturity date of the principal of or the interest on any Bond issued under the Master Indenture, or (b) a reduction in the principal amount of, premium, if any, on any Bond or the rate of interest thereon, or (c) an adverse change in the rights of the Registered Owners of the Bonds to demand the purchase of the Bonds or to have their Bonds subject to mandatory tender pursuant to the provisions of the Master Indenture, or (d) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (e) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indenture, or (f) except as otherwise provided in the Master Indenture, release any Bonds or any other collateral held under the Master Indenture from the lien of the Master Indenture. If at any time the Corporation shall request the Trustee to enter into any such supplemental indenture for any of the purposes allowed by provisions described under this heading, the Trustee shall, at the request of the Corporation and upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Indenture to be delivered (together with copies of such proposed supplemental indenture) to any Applicable Credit Facility Provider and to be mailed in substantially the manner provided in the provisions of the Master Indenture with respect to redemption of Bonds. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies of the proposed Supplemental Indenture are on file at the Principal Office of the Trustee for inspection by all Bondholders. Subject to the provisions of the Master Indenture, if, within sixty (60) days or such longer period of time as shall be prescribed by the Corporation following the mailing of such notice, any Applicable Credit Facility Provider and the Registered Owners of a majority in aggregate principal amount of Bonds Outstanding at the time of the execution of any such Supplemental Indenture shall have consented to and approved the execution of the Supplemental Indenture as in the Master Indenture provided, no Registered Owner of any Bond shall have any right to object to any of the terms and provisions contained in A-41

118 the Supplemental Indenture, or the operation of the Supplemental Indenture, or in any manner to question the propriety of the execution the Supplemental Indenture, or to enjoin or restrain the Trustee or the Corporation from executing the same or from taking any action pursuant to the provisions of the Supplemental Indenture. The Corporation shall have the right to extend from time to time the period within which such consent and approval may be obtained from Bondholders. Upon the execution of any such Supplemental Indenture as permitted and provided in the Master Indenture, the Master Indenture shall be and be deemed to be modified and amended in accordance with the Supplemental Indenture. The Trustee may receive an opinion of Counsel that any such supplemental indenture entered into by the Corporation and the Trustee complies with the provisions of the Master Indenture and the Trustee may rely upon that opinion. Consents to Supplemental Indentures. Anything in the Master Indenture to the contrary notwithstanding, a supplemental indenture under the provisions of the Master Indenture which affects any rights or obligations of the Corporation, the Remarketing Agent, or the Trustee under the Master Indenture shall not become effective unless and until the affected party or parties shall have consented in writing to the execution and delivery of that supplemental indenture. The Corporation, the Trustee, or the Remarketing Agent shall be given prior written notice of the proposed execution and delivery of any supplemental indenture whether or not its rights or obligations are affected. In this regard, the Trustee shall cause notice of the proposed execution and delivery of any such supplemental indenture together with a copy of the proposed supplemental indenture to be mailed by certified or registered mail (postage prepaid) to the Trustee and the Remarketing Agent at least fifteen (15) days prior to the date of the mailing of notice of the proposed execution of such supplemental indenture as provided in the provisions of the Master Indenture. The Remarketing Agent shall be deemed to have consented to the execution and delivery of any such supplemental indenture if the Trustee does not receive at its Principal Office a letter of protest or objection to it signed by or on behalf of the Remarketing Agent on or before 4:30 p.m., New York time, of the fifteenth day after the mailing of the notice and a copy of the proposed supplemental indenture. The Trustee may, but shall not be obligated to, enter into any supplemental indenture which affects the Trustee s own rights, liabilities, duties, or immunities under the Master Indenture or otherwise. Opinion of Bond Counsel. An amendment or supplement to the Master Indenture or the Bonds pursuant to the provisions of the Master Indenture shall not become effective unless the Trustee has received a Favorable Opinion of Bond Counsel with respect to the amendment or supplement. A-42

119 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CORPORATION FOR FISCAL YEAR ENDED DECEMBER 31, 2015

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121 R E P O R T LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION DECEMBER 31, 2015 AND 2014

122 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION REPORT INDEX DECEMBER 31, 2015 AND 2014 PAGE INDEPENDENT AUDITOR'S REPORT MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL STATEMENTS: Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION: Schedules of Changes in Net Pension Asset and Related Ratios Schedules of Funding Progress for OPEB Notes to Required Supplementary Information SUPPLEMENTARY INFORMATION: Schedule of Council Compensation INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

123 INDEPENDENT AUDITOR'S REPORT June 20, 2016 To the Board of Directors of Louisiana Citizens Property Insurance Corporation Metairie, Louisiana We have audited the accompanying financial statements of Louisiana Citizens Property Insurance Corporation (the Company ), a component unit of the State of Louisiana, which comprise the statement of net position as of December 31, 2015, and the related statements of revenues, expenses and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 financial statements based on our audit. We conducted our audit 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 financial statements are free from material misstatement.

124 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 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 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 financial statements referred to above present fairly, in all material respects, the net position of Louisiana Citizens Property Insurance Corporation as of December 31, 2015 and the results of its operations and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As disclosed in Note 22, for the year ended December 31, 2015, the Company adopted GASB Statement No Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27. The new standard required the Company to record its pension amounts related to its participation in an agent multiple-employer defined benefit pension plan, restating the earliest year presented to the extent practical. As a result of the adoption of the new accounting standard, the Company s net position and deferred outflows increased by $296,958 for the year ended December 31, Other Matters Prior Period Financial Statements The financial statements of the Company as of December 31, 2014, were audited by other auditors whose report dated June 18, 2015, expressed an unmodified opinion on those financial statements. As discussed in Note 21 to the financial statements, the Company has adjusted its 2014 financial statements to retrospectively apply the correction of errors related to the Company recording a receivable where rights did not exist and an unrecorded liability related to a reinsurance commutation. The other auditors reported on the financial statements before the retrospective adjustments. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and other required supplementary information, as listed in the index to the report, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial 2

125 statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Louisiana Citizens Property Insurance Corporation s basic financial statements. The supplementary information, as listed in the table of contents, is presented for purpose of additional analysis and is not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 20, 2016 on our consideration of the Company s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Company s internal control over financial reporting and compliance. Duplantier, Hrapmann, Hogan & Maher, LLP New Orleans, Louisiana 3

126 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 The Management s Discussion and Analysis of the Louisiana Citizens Property Insurance Corporation s (the Company) financial performance presents a narrative overview and analysis of the Company s activities for the year ended December 31, This discussion and analysis focuses on current year s activities, resulting changes and currently known facts in comparison with the prior year s information. We encourage readers to consider the information presented here in conjunction with the additional information contained in the Company s financial statements. Financial Highlights: The financial highlights for the Louisiana Citizens Property Insurance Corporation for the fiscal year ended December 31, 2015 were: The Company renewed its reinsurance program in May 2015 for the same storm coverage of $650 million with a $50 million retention that includes a traditional reinsurance program and cat bonds for a savings of $15.7 million compared to The Company completed its 9 th round of depopulation effective December 1, 2015 transferring 12,648 policies and approximately $2.5 billion of exposure to the private insurance market. The Company issued $333,295,000 of assessment revenue refunding bonds in July 2015 in order to advance refund $415,290,000 principal amount of the Series 2006B Assessment Revenue Bonds callable on June 1, There were no significant catastrophes that occurred in Overview of the Financial Statements: This discussion and analysis is intended to serve as an introduction to the Louisiana Citizens Property Insurance Corporation s basic financial statements. The Company s financial statements comprise three components: 1) Management s Discussion and Analysis, 2) the Basic Financial Statements (including the notes to the financial statements), and 3) Required Supplementary Information. This report also contains other supplementary information in addition to the basic financial statements themselves. Basic Financial Statements The basic financial statements present information for the Company as a whole in a format designed to make the statements easier for the reader to understand. The statements in this section include the Statement of Net Position, the Statement of Revenues, Expenses and Changes in Net Position and the Statement of Cash Flows. 4

127 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 The Statement of Net Position presents information on all of the Company s assets and deferred outflows of resources and liabilities and deferred inflows of resources with the difference between them presented as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Company is improving or deteriorating. The Statement of Revenues, Expenses and Changes in Net Position presents information showing how the Company s net position changed during the most recent fiscal year. Regardless of when cash is affected, all changes in net position are reported when the underlying transactions occur. As a result, there are transactions included that will not affect cash until future fiscal periods. The Statement of Cash Flows presents information showing how the Company s cash changed as a result of current year operations. The cash flow statement is prepared using the direct method and includes the reconciliation of operating income (loss) to net cash provided (used) by operating activities as required by GASB 34. The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. 5

128 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 Financial Analysis of the Entity: The following is a summary of the Statement of Net Position: Restated Change Current assets $ 187,508,396 $ 148,703,719 $ 38,804,677 Capital assets 1,239,376 1,022, ,546 Other non-current assets 101,310, ,684,476 (52,374,467) Total assets 290,057, ,411,025 (13,353,244) Deferred outflows of resources 10,194,018-10,194,018 Current liabilities 210,172, ,629,465 (16,457,131) Non-current liabilities 590,202, ,941,257 (110,739,150) Total liabilities 800,374, ,570,722 (127,196,281) Net position: Net investment in capital assets 1,239,376 1,022, ,546 Restricted for debt service 137,973, ,398,299 17,574,966 Unrestricted (639,335,283) (745,580,826) 106,245,543 Total Net Position $ (500,122,642) $ (624,159,697) $ 124,037,055 Assets Condensed Statement of Net Position As of December 31, 2015 and 2014 below. Total assets decreased by $13.4 million in 2015 compared to 2014 due to the reasons described Other non-current assets consist primarily of the restricted assets with bond trustee related to the assessment revenue bond obligations issued in 2006 to pay Hurricane Katrina Losses. These assets are money market securities held by the bond custodian, Regions Bank. In 2015, the restricted assets with bond trustee decreased by $51.8 million primarily due to a cash withdrawal in July 2015 of $66.4 million used in part to advance refund the Company s Assessment Revenue Bonds, Series 2006B. Prepaid reinsurance premiums were $5.8 million in 2015 as compared to $13.1 million in The decrease of $7.3 million primarily resulted from the redemption of the Company s 2012 catastrophe bond. 6

129 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 Financial Analysis of the Entity: (Continued) Assets (Continued) Offsetting the decrease in total assets was cash, which at the end of 2015 was $137.8 million compared to $88.6 million in The $49.2 million increase primarily resulted from a decrease in payments for the Oubre class action suit in Deferred Outflows of Resources Total deferred outflows of resources increased by $10.1 million in 2015 compared to 2014 primarily due to $9.9M from the advanced refunding of the Company s Assessment Revenue Bonds, Series 2006B, as described on page 6. Liabilities Total liabilities decreased by $127.2 million in 2015 compared to 2014 primarily due to the reasons described below. The combined current and noncurrent bonds payable decreased by $105.2 million in 2015 compared to 2014 primarily because of $82.0 million bond principal reduction from the refinancing of the Series 2006B bonds, and a $46.7 million bond principal payment made in Offsetting this decrease was $23.3 million received in bond premiums from the bond refinancing. Unearned premiums decreased by $14.6 million in 2015 compared to 2014 primarily as a result of the Company s depopulation program. Net Position The increase in total net position of $124.0 million in 2015 compared to 2014 was primarily due to a net operating income of $54.6 million and a net non-operating income of $69.4 million as described on page 8. 7

130 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 Financial Analysis of the Entity: (Continued) The following is a summary of the Statement of Revenues, Expenses and Changes in Net Position: Condensed Statement of Revenues, Expenses and Changes in Fund Net Position For the Years Ended December 31, 2015 and Restated Change Operating revenue: Net premium revenue $ 105,229,788 $ 110,635,529 $ (5,405,741) Other operating revenues 2,047,633 2,447,301 (399,668) Total operating revenues 107,277, ,082,830 (5,805,409) Operating expenses: Losses and underwriting expenses 52,474, ,564,688 (87,090,001) Depreciation 196, ,890 23,005 Total operating expenses 52,671, ,738,578 (87,066,996) Operating income (loss) 54,605,839 (26,655,748) 81,261,587 Non-operating revenues (expenses): Other expense (30,510,050) (37,157,616) 6,647,566 Other revenue 99,941,266 98,240,845 1,700,421 Total non-operating revenues (expen 69,431,216 61,083,229 8,347,987 Change in net position 124,037,055 34,427,481 89,609,574 Net position at beginning of year (624,159,697) (658,587,178) 34,427,481 Net position at end of year $ (500,122,642) $ (624,159,697) $ 124,037,055 Change in net position decreased $89.6 million in 2015 compared to 2014 due to the reasons described below. Net premium revenue was $5.4 million lower in 2015 compared to The decrease in net premium revenue in 2015 was primarily due to the Company s depopulation efforts. The loss and underwriting expense was $87.1 million lower in 2015 compared to In 2015 incurred losses decreased primarily due to a $92.5 million decline in class action settlements. Offsetting the decrease to losses incurred was the increase of $3.9 million incurred for Hurricane Katrina related claims. 8

131 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 Financial Analysis of the Entity: (Continued) Other expenses decreased by $6.6 million in 2015 compared to The decrease in 2015 was primarily attributable to a decrease in interest costs of approximately $9.4 million related to interest savings on the 2015 advanced refunding and was offset by debt insurance costs of approximately $2.8 million. Cash Flow and Liquidity: Cash Flow Sources of cash include cash receipts from customers, principally, premiums collected, emergency assessments and amounts received from unrestricted investments. Primary uses of cash include cash payments for services provided, cash payments to employees, principal and interest paid on debt, and amounts paid for restricted investments. The other cash flow from non-capital financing activities is primarily assessment collections less debt service costs on long-term debt obligations from restricted cash. The proceeds from sale of investment securities under cash flows from investing activities relate to the interest received and proceeds of securities sold of restricted investments held by the Trustee for the repayment of the Katrina bonds. Interest and dividends earned on investment securities relate to interest received from unrestricted investments. Liquidity All liquid funds held by the Company are kept in commercial bank accounts that are FDIC insured or 100% collateralized. In addition to policyholder premiums, the Company has a much broader range of resources available to pay losses and repay debt obligations than does a typical insurer. The Company can institute a regular assessment on the state insurance industry of up to 10% for deficits each year, and an emergency assessment of up to 10% on property policyholders of the State of Louisiana for each calendar year of a storm to pay debt incurred in previous years. In 2015, the Company secured a $100.0 million line of credit with Regions Bank that matures in June The line of credit provides additional liquidity to the corporation. In 2010, the Company instituted lockbox processing to reduce cash flow interruption in the event of a temporary closure of its office for a catastrophic event. 9

132 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION MANAGEMENT S DISCUSSION AND ANALYSIS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 Cash Flow and Liquidity: (Continued) In 2005, the Company did not have sufficient funds to pay 80,000 claims resulting from Hurricanes Katrina and Rita. In 2006, the Company issued $678.0 million of assessment revenue bonds and $300.0 million in auction rate securities. After multiple refinancing s, the Company has approximately $600.4 million of fixed rate assessment revenue bonds outstanding on December 31, The debt service of these bonds is paid through emergency assessments on property insurance policies written in the State of Louisiana. The emergency assessments are remitted quarterly to the bond trustee. Pending Litigation As of December 31, 2015 there were approximately 663 open litigation matters against the Company. The majority of these lawsuits are first-party suits related to Hurricanes Katrina, Rita and Isaac. Loss and loss adjustment expenses accrued related to these claims are included on the Statement of Net Position of approximately $9.7 million, excluding the Oubre class action suit described below. The balance of the litigated matters are related to first party losses, third-party bodily injury claims, subrogation or claims where the issue of coverage is in dispute. Oubre v. Louisiana Citizens Property Insurance Corporation. The plaintiffs in this suit allege that the Company failed to timely initiate loss adjustment as required by Louisiana statutory law exposing the Company to penalties up to the amount of $5,000. On July 23, 2012, the Company settled the first phase of this class action suit with a payment of $104.7 million to the plaintiff counsel for distribution to the class members. The Company entered into a settlement on October 30, 2013 with the class for the remaining Oubre claims. The Company has paid $97.1 million towards the final settlement as of December 31, 2015 and has a reserve of $47.1 million for the remaining settlement (included in loss reserves and LAE reserves on the Statements of Net Position). The Company will continually review the reserve to ensure that it meets the anticipated settlement costs. Future Plans The Company had $650.0 million in total reinsurance and cat bonds in place for the 2015 storm season. The cat bonds include a $140.0 million four year catastrophe bond and a $100.0 million three year catastrophe bond. In addition to the reinsurance program and cat bonds, The Company has reinstatement premium protection and second event catastrophe coverage. The amount of reinsurance purchased by the Company is determined by many factors that include, losses projected by catastrophe models, insured values of the company, reinsurance market prices, and availability of cash. The reinsurance coverage, excluding cat bonds, described above expires on May 31, The Company has purchased a similar reinsurance program for the 2016 storm season. Contacting Louisiana Citizens Property Insurance Corporation s Management: This financial report is designed to provide the citizens and taxpayers of Louisiana, customers, and creditors with a general overview of the Company s finances. If you have questions about this report or need additional financial information, contact Larry L. Hayward at (504) or lhawyard@lacitizens.com. 10

133 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATEMENTS OF NET POSITION DECEMBER 31, 2015 AND (Restated) ASSETS: Current assets: Cash $ 86,836,457 $ 37,717,239 Short-term investments 50,995,711 50,893,830 Premium receivables and agent's balances, net 16,613,718 19,246,068 Reinsurance recoverables 7,616,206 8,406,264 Emergency assessments receivable 19,000,000 18,500,000 Prepaid reinsurance premiums 5,830,000 13,079,132 Net pension asset 216, ,130 Other current assets 399, ,056 Total current assets 187,508, ,703,719 Noncurrent assets: Restricted investment with bond trustee 95,937, ,775,923 Restricted cash for escheatment 5,264,469 5,800,082 Capital assets 1,239,376 1,022,830 Other noncurrent assets 108, ,471 Total noncurrent assets 102,549, ,707,306 Total assets $ 290,057,781 $ 303,411,025 DEFERRED OUTFLOWS OF RESOURCES: Deferred outflows - pensions $ 296,958 $ - Deferred outflows - advanced refunding 9,897,060 - Total deferred outflows of resources $ 10,194,018 $ - See accompanying notes to the financial statements. 11

134 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATEMENTS OF NET POSITION (Continued) DECEMBER 31, 2015 AND (Restated) LIABILITIES AND NET POSITION: Current liabilities: Loss reserves $ 65,484,575 $ 69,528,032 Loss adjustment expense reserves 7,414,195 7,542,295 Unearned premiums 69,038,349 83,610,483 Bonds payable - current portion 54,212,345 49,111,149 Unearned tax exempt surcharge 2,321,251 2,690,320 Commissions payable to agents 3,127,655 3,600,855 Taxes, licenses, and fees due 1,500,768 1,716,099 Accrued bond interest 2,508,279 3,233,860 Other liabilities 4,564,917 5,596,372 Total current liabilities 210,172, ,629,465 Noncurrent liabilities: Bonds payable, net of unamortized premium (discount) 583,224, ,540,308 Escheatment payable 5,264,469 5,800,082 Other postretirement benefits 1,713,507 1,600,867 Total noncurrent liabilities 590,202, ,941,257 Total liabilities 800,374, ,570,722 NET POSITION: Net investment in capital assets 1,239,376 1,022,830 Restricted for debt service 137,973, ,398,299 Unrestricted (639,335,283) (745,580,826) Total net position $ (500,122,642) $ (624,159,697) See accompanying notes to the financial statements. 12

135 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATEMENTS OF REVENUE, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEARS ENDED DECEMBER 31, 2015 AND (Restated) OPERATING REVENUES: Premiums earned $ 154,683,654 $ 172,843,641 Premiums ceded (49,453,866) (62,208,112) Net premium revenue 105,229, ,635,529 Finance and service charges 2,019,528 2,417,859 Other operating income 28,105 29,442 Total operating revenues 107,277, ,082,830 OPERATING EXPENSES: Losses incurred and LAE 29,281, ,921,658 Contingent (recovery) expenses - non claims lawsuits 480 (2,618,595) Commissions and brokerage 13,127,628 15,989,893 Service provider fees - 233,364 Salary and related items 3,344,219 3,449,208 Board, bureaus and associations 1,627,495 1,952,492 Taxes, licenses and fees 746, ,938 Equipment, depreciation, and repairs and maintenance 757, ,444 General office 1,048, ,905 Employee benefits 1,472, ,986 Other underwriting expenses 1,265,750 1,303,285 Total losses and underwriting expenses 52,671, ,738,578 Operating income (loss) 54,605,839 (26,655,748) NONOPERATING REVENUE (EXPENSE): Interest expense (27,685,903) (37,157,616) Debt issuance costs (2,824,147) - Investment income 3,737,979 1,591,474 Emergency assessment income 91,165,402 90,923,157 Tax exempt surcharge 5,037,885 5,726,214 Total nonoperating revenues 69,431,216 61,083,229 CHANGE IN NET POSITION 124,037,055 34,427,481 Net position, beginning of year (624,159,697) (658,587,178) NET POSITION, END OF YEAR $ (500,122,642) $ (624,159,697) See accompanying notes to the financial statements. 13

136 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND OPERATING ACTIVITIES: Premiums collected $ 93,290,730 $ 108,463,752 Finance and service charges collected 2,019,048 5,036,454 Non-claim litigation settlements - (18,000,000) Other receipts 28,105 29,441 Losses paid (22,848,064) (102,760,090) Loss adjustments paid (10,112,809) (9,763,840) Underwriting expense paid (17,305,850) (38,795,547) Net cash provided (used) by operating activities 45,071,160 (55,789,830) NONCAPITAL FINANCING ACTIVITIES: Emergency assessments received 90,665,403 92,423,156 Tax exempt surcharge received 4,668,816 5,453,177 Amounts remitted to bond trustee, net (76,866,147) (37,952,157) Interest paid on capital debt (17,642,673) (39,949,344) Net cash provided by noncapital financing activities 825,399 19,974,832 CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase of capital assets (413,441) (361,893) Net cash used by capital and related financing activities (413,441) (361,893) INVESTING ACTIVITIES: Investment income received 3,737,981 1,591,474 Net cash provided by investing activities 3,737,981 1,591,474 NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 49,221,099 (34,585,417) Cash and short-term investments, beginning of year 88,611, ,196,486 CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 137,832,168 $ 88,611,069 See accompanying notes to the financial statements. 14

137 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATEMENTS OF CASH FLOWS (Continued) FOR THE YEARS ENDED DECEMBER 31, 2015 AND (Restated) RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) $ 54,605,839 $ (26,655,748) Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Depreciation expense 196, ,690 Changes in net assets and liabilities: Decrease (increase) in: Premiums receivable and agents' balances 2,632,350 3,010,258 Reinsurance recoverables 790,058 (313,528) Prepaid reinsurance premiums 7,249,132 - Other current assets (120,410) 1,942,801 Increase (decrease) in: Loss reserves and loss adjustment expense reserves (4,171,557) 3,711,253 Unearned premiums (14,572,134) (9,748,366) Servicing fees payable - (155,576) Accrued taxes, licenses and fees due (215,331) (1,212,641) Commissions payable to agents (473,200) (565,163) Other postemployment benefits 112,640 3,830 Contingent liability - non claims liability - (18,000,000) Other current liabilities (963,122) (7,979,640) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 45,071,160 $ (55,789,830) See accompanying notes to the financial statements. 15

138 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 NATURE OF THE BUSINESS: Louisiana Citizens Property Insurance Corporation (the Company ) is a component unit of the State of Louisiana. The Company s principal business activity is to operate insurance plans which provide property insurance for residential and commercial property, solely for applicants who are in good faith entitled, but are unable to procure insurance through the voluntary market. Louisiana Citizens Property Insurance Corporation was created in accordance with provisions of Louisiana Revised Statutes (LRS) 22: :2370 and began operations on January 1, The Company operates solely in Louisiana. The Company operates residual market insurance programs designated as the Coastal Plan and the Fair Access to Insurance Requirements Plan (FAIR Plan). The Coastal Plan is for property insurance written on locations between the Gulf of Mexico and the Intracoastal Waterway and the FAIR Plan is property insurance above the Intracoastal Waterway. The Company is governed by a board of directors consisting of fifteen members, who serve without compensation. The Board consists of the Commissioner of the Department of Insurance, the State Treasurer, the chairman of the House Committee on Insurance, the chairman of the Senate Committee on insurance or their designees, six representatives appointed by the Governor, two members appointed by the Commissioner of the Louisiana Department of Insurance, and three members appointed by the Governor. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reporting Entity: Criteria for defining the reporting entity are identified and described in the Governmental Accounting Standards Board s (GASB) Codification of Governmental Accounting and Financial Reporting Standards, Sections 2100 and Application of these criteria determines potential component units for which the primary government is financially accountable and the organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the primary government s financial statements to be misleading or incomplete. Based on the application of these criteria, the Company is a component unit of the State of Louisiana and its financial activity is reported in the state s Comprehensive Annual Financial Report by discrete presentation. The financial statements presented herein relate solely to the financial position and results of operations of the Company and are not intended to present the financial position of the State of Louisiana or the results of its operations or its cash flow. GASB Statement No. 34 established standards for financial reporting for all state and local governmental entities, which includes a statement of net position, a statement of revenues, expenses, and changes in net position, and a statement of cash flows. It requires net position to be classified and reported in three components: investment in capital assets, net of related debt and deferred inflows and outflows; restricted; and unrestricted. These classifications are defined as follows: 16

139 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Reporting Entity: (Continued) Net investment in capital assets - this component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets as adjusted for deferred inflows and outflows associated with the acquisition, construction or improvement of those assets. If there are significant unspent related debt proceeds at yearend, the portion of the debt attributable to the unspent proceeds are not included in the calculation of net investment in capital assets. Rather that portion of the debt is included in the same net position component as the unspent proceeds. As of December 31, 2015 and 2014, the Company did not have any outstanding debt that was attributable to capital assets. Restricted net position - this component of net position includes assets subject to external constraints imposed by creditors, such as through debt covenants, grantors, contributors, laws or regulations of other governments, or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted net position - this component of net position consists of net position that did not meet the definition of restricted or net investment in capital assets. Basis of Accounting: The accounting policies and practices of the Company conform to accounting principles generally accepted in the United States applicable to a proprietary fund of a governmental entity. The GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Company applies all applicable GASB pronouncements as they become effective. The financial statements of proprietary funds are prepared using the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred. All assets and liabilities associated with the operations of the Company are included in the statement of net position. The statement of cash flows provides information about how the Company finances and meets the cash flow needs of its activities. Proprietary funds also distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with a proprietary fund s principal ongoing operations. All revenues and expenses not meeting this criteria are reported as non-operating revenues and expenses. 17

140 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Cash and Short-Term Investments: Cash and short-term investments include all unrestricted, liquid investments with a maturity of one year or less when purchased. Short-term investments are stated at market, which approximates fair value. Securities: Debt and equity securities are recorded at fair value with changes in fair value recorded in earnings. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specified identification method. Policy Acquisition Costs: Costs which associated with the production of new renewing policies and servicing existing insurance policies, such as net agent commissions, servicing company fees and other taxes and fees are expensed as incurred. Depopulation: The Company is required to undertake a depopulation effort annually per Louisiana state statute LARS 22:2314. The Company accounts for premiums of depopulated policies as a reduction of direct premiums written. Losses and other costs associated with depopulated policies are removed from the financial statements. Capital Assets: The Company s capital assets include items such as furniture, office equipment and electronic data processing equipment (EDP). The Company has a capitalization policy whereby thresholds are applied to determine if the asset should be capitalized or expensed. All movable property, not including computer software, over $5,000 is capitalized based upon a variable useful life depending on the descriptive category for which that property meets. Office furniture and fixtures are capitalized and depreciated over a 10-year life. Computers and peripheral equipment such as hard drives, printer, monitor, keyboards and such are capitalized and depreciated over a five-year life. Office machinery and equipment other than computers are capitalized and depreciated over a six-year life. All computer software purchased or developed for internal use over $1,000,000 is capitalized and amortized over three years. The straight-line depreciation method is used for depreciation of capital assets and the assets are assumed to have no salvage value and a full year of depreciation will be taken in the year the asset is placed into service. All depreciation expense is allocated between loss adjustment expenses and underwriting expenses. 18

141 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Loss Reserves and Loss Adjustment Expense Reserves: The liabilities for losses and loss adjustment expenses include an amount determined from loss reports and individual cases and an amount, based on past experience, for losses incurred but not reported. Such liabilities are necessarily based on estimates and, while management believes that the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates and for establishing the resulting liabilities are continually reviewed, and any adjustments are reflected in current earnings. Deferred Outflows/Inflows of Resources: Deferred outflows of resources represent a consumption of net position that applies to future periods and will not be recognized as an outflow of resources (expense) until then. The Company records deferred outflows of resources related to pensions and amounts deferred on advanced refundings of debt. Deferred inflows of resources represent an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The Company does not currently have any items that qualify for reporting in this category. Premiums: Premiums are recorded as earned on a daily pro rata basis over the policy period. The portion of premiums not earned at the end of the period is recorded as unearned premiums. Premiums receivable includes amounts due from policyholders for billed premiums. Billings are calculated using the estimated annual premiums for each policy and are paid either through an installment plan offered by the Company or in their entirety at the inception of the policy. Assessments: In the event that the Governing Board of the Company determines that a deficit exists in either the Coastal Plan or the FAIR Plan, the Company may levy a regular assessment for each affected Plan in order to remedy any deficit. All insurers who become authorized and then engage in writing property insurance within Louisiana shall participate in regular assessment of the Coastal and FAIR Plans in the proportion that the net direct premium of such participant written in the State during the preceding calendar year bears to the aggregate net direct premiums written in the Sate by all insurers during the preceding calendar year as certified to the Governing Board by the Louisiana Insurance Rating Commission. 19

142 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Assessments: (Continued) When the deficit incurred in a particular calendar year is not greater than ten percent of the aggregate state wide direct written premium for the subject lines of business for the prior calendar year, the entire deficit will be recovered through regular assessments. When the deficit incurred exceeds ten percent, the regular assessment may not exceed the greater of ten percent of the calendar year deficit, or ten percent of the aggregate statewide direct written premium for the subject lines of business for the prior calendar year. Any remaining deficit shall be recovered through an emergency assessment. All persons who procure a policy of insurance of one or more subject lines of business from an insurer who becomes authorized and then engages in writing property insurance with Louisiana from the FAIR or Coastal plans are subject to emergency assessment by the Company. Upon determination by the Governing Board of the Company that a deficit exceeds the amount allowed to be recovered through regular assessment, the Governing Board shall levy an emergency assessment for as many years as necessary to cover all deficits. The amount of emergency assessment levied in a particular year shall be a uniform percentage of that year s direct written premium for the subject lines of business. The total amount of emergency assessment levied in any calendar year will not exceed the greater of: (a) ten percent of the amount needed to cover the original deficit plus interest, fees, commissions, required reserves, and other costs associated with the financing of the original deficit, or (b) ten percent of the aggregate state wide direct written premium for the subject lines of business and for all plan accounts of the Company for the prior year, plus interest, fees, commissions, required reserves, and other costs associated with the financing of the original deficit. To the extent the aggregate amount of the emergency assessment will not exceed the greater of (a) or (b), the Governing Board shall impose an emergency assessment in the amount required by any applicable loan agreement, trust indenture or other financing agreement. Reinsurance: Premiums ceded under reinsurance agreements are recorded as a reduction of earned premiums. Reinsurance recoverables on paid or unpaid losses are recorded as receivables. All catastrophe reinsurance payments are recorded as premiums ceded and are amortized over the life of the hurricane season for which the payments apply. Premiums ceded included catastrophe reinsurances purchases. 20

143 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Bond Issuance Costs: Bond issuance costs are incurred in connection with acquiring bonds payable (see Note 8) and are expensed as incurred. Income Taxes: The Company constitutes an integral part of the State of Louisiana and its income is exempt from federal income tax pursuant to Private Letter Ruling from the Internal Revenue Service. Obligations issued by the Company constitute obligations of the State of Louisiana within the meaning of Section 103(c)(1) of the Internal Revenue Code. Pensions: For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position and changes in fiduciary net position of the defined benefit pension plan in which the Company participates has been determined on the same basis as it was reported by the respective defined benefit pension plan. For this purpose, benefit payments are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Reclassifications: Certain amounts in the 2014 financial statements have been reclassified to conform with the 2015 presentation. Use of Estimates: The preparation of financial statements in accordance with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Market Risk: The Company underwrites residential and commercial property insurance policies in the State of Louisiana through Coastal Plan and FAIR Plan. Therefore, adverse economic changes or certain changes in the insurance laws of the State of Louisiana could have a significant impact on the Company s future financial position and results of operations. 21

144 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Market Risk: (Continued) The Coastal Plan is for property insurance written on locations between the Gulf of Mexico and the Intracoastal Waterway. The FAIR Plan is property insurance above the Intracoastal Waterway. Therefore, severe storm activity in any of these areas or throughout the State of Louisiana could have a significant impact on the Company s future financial position and results of operations. Unlike private insurers that are subject to liquidation in the event of insolvency, the Company is able (and statutorily required) to levy assessments in the event of a deficit in any or all of its accounts. 2. CASH, CASH EQUIVALENTS AND INVESTMENTS: Cash and Cash Equivalents: State statute authorizes the Company to invest in U.S. bonds, treasury notes, or certificates. The Company may also invest in direct repurchase agreements of any federal bank. The collateral for the agreement can only include securities as described above. The Company s cash and cash equivalents, including restricted for escheatment, consisted to the following: Carrying Amount Bank Balance December 31, 2015 Demand Deposits $ 92,100,926 $ 94,337,292 December 31, 2014 Demand Deposits $ 43,517,321 $ 46,302,214 Custodial Credit Risk - Deposits: Included in Cash and Cash Equivalents at December 31, 2015 and 2014 is unclaimed property, consisting of outstanding checks totaling $5,264,469 and $5,800,082, respectively, which is restricted for escheatment to the appropriate states. Custodial credit risk is the risk that, in the event of the failure of a financial institution, the Company will not be able to recover deposits or collateral securities that are in possession of an outside party. The Company does not have a formal policy for custodial credit risk. Under state law, deposits (or the resulting bank balances) must be secured by federal deposit insurance or the pledge 22

145 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND CASH, CASH EQUIVALENTS AND INVESTMENTS: (Continued) Custodial Credit Risk - Deposits: (Continued) pledge of securities owned by the fiscal agent bank. The market value of the pledged securities plus the federal deposit insurance must at all times equal the amount on deposit with the fiscal agent. These securities are held in the name of the pledging fiscal agent bank in a holding or custodial bank that is mutually acceptable to both parties. As of December 31, 2015 and 2014, none of the Company s cash was exposed to custodial credit risk. These deposits were either secured by the pledge of securities owned by the fiscal agent bank or covered by the FDIC Insurance. Deposit balances at December 31, were secured as follows: Insurance (FDIC Coverage) $ 250,000 $ 250,000 Uninsured and collateral held in Company's name 94,087,292 46,052,214 Bank Balance $ 94,337,292 $ 46,302,214 Investments: The Company s investment objectives and guidelines are created to enable the Company to invest funds prudently for the benefit of the Company to provide reasonable risk characteristics while emphasizing safety of principal first, liquidity second and yield third. The consideration of sufficient short-term funds in order to continue operations is paramount and during certain times sufficient liquidity should be maintained in order to meet peak demands which may be adjusted due to reinsurance coverage and other circumstances. The Company is authorized to invest retained funds pursuant to the limitations set forth in Title 22 for insurers. As of December 31, 2015 and 2014, the Company had investments with a fair value totaling $146,932,780 and $198,669,753, respectively. Custodial Credit Risk - Investments: Custodial credit risk is defined as the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The Company does not presently have a formal policy for custodial credit risk. Investments are exposed to custodial risk if the securities are uninsured and unregistered with securities held by a financial institution or agent, and in the Company s name. Investments were not exposed to custodial credit risk as of December 31, Investments in repurchase agreements were exposed to custodial risk as of December 31,

146 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND CASH, CASH EQUIVALENTS AND INVESTMENTS: (Continued) Custodial Credit Risk - Investments: (Continued) In 2006, the Company entered into a Repurchase Agreement with Societe Generale, New York Branch to invest a portion of the Debt Service Reserve Fund. The agreement requires Societe Generale to maintain margins on collateral of 104% to 105% of market value depending on the type of collateral. Acceptable securities are GNMA, Government Agencies, mortgage backed securities of FHLMC or FHLB and U. S. Treasury securities. The custodian for the collateral is Wells Fargo Bank, N.A. The fair value of collateral accepted from Societe Generale as of December 31, 2014 was $29,583,099 with a corresponding book value of $28,298,272. The collateral percentage as of December 31, 2014 was %. The Repurchase Agreement with Societe Generale was sold during the year end December 31, Interest Rate Risk: Interest rate risk is defined as the risk a government may face should interest rate variances adversely affect the fair value of investments. The fair value of fixed-maturity investments fluctuates in response to changes in market interest rates. Increases in prevailing interest rates generally translate into decreases in fair value of those instruments. The fair value of interest sensitive instruments may also be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments and other general market conditions. The Company does not presently have a formal policy that addresses interest rate risk. The fair values of securities at December 31, 2015 and 2014, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties Investment Maturities Less than Greater than Total 1 year 1-5 years 5-10 years 10 years Investments: Money Market Funds - Restricted $ 95,937,069 $ 95,937,069 $ - $ - $ - Money Market Funds - Unrestricted $ 50,995,711 $ 50,995,711 $ - $ - $ - 24

147 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND CASH, CASH EQUIVALENTS AND INVESTMENTS: (Continued) Interest Rate Risk: (Continued) 2014 Investment Maturities Less than Greater than Total 1 year 1-5 years 5-10 years 10 years Investments: Repurchase Agreement - Restricted $ 28,298,272 $ - $ - $ - $ 28,298,272 Money Market Funds - Restricted 119,477, ,477, Total Restricted Investments $ 147,775,923 $ 119,477,651 $ - $ - $ 28,298,272 Money Market Funds - Unrestricted $ 50,893,830 $ 50,893,830 $ - $ - $ - Investments in the amount of $95,937,069 and $147,775,923 as of December 31, 2015 were held by a bond trustee for the repayment of the Company s emergency assessment revenue bonds issued to cover the 2005 Plan Year Deficit resulting from Hurricanes Rita and Katrina. Credit Risk: Credit risk is the risk that an insurer or other counterparty to an investment will not fulfill its obligations. The Company may be invested in direct United States Treasury Obligations, United States Government Agency Obligations, direct security repurchase and reverse repurchase agreements, time certificates of deposit, investment grade commercial paper, investment grade corporate notes and bonds, investment grade municipal bonds and money market funds consisting solely of securities otherwise eligible for investment. Where applicable, investments shall have a rating of 1 or 2 as determined by the Securities Valuation Office of the National Association of Insurance Commissioners. As of December 31, 2015 and 2014, the Company had the following exposure to investment credit risk: Rating Percentage Rating Percentage Treasury Obligations Money Market Fund AAAm 65% AAAm 60% Trust Cash Sweep Money Market Fund BBB+ 35% BBB+ 26% Repurchase Agreement N/A N/A A 14% Concentration of Credit Risk: Concentration of credit risk is defined as the risk of loss attributed to the magnitude of a government s investment in a single issuer. The Company, shall not, except in the case of investments in or loans upon the security of general obligations of the government of the United States or of any state or territory of the United States, or the District of Columbia, have a single security that compromises more than 5 percent of the fair value of the Company s portfolio. 25

148 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND CASH, CASH EQUIVALENTS AND INVESTMENTS: (Continued) Credit Risk: (Continued) The Company had the following investments that represent more than 5 percent of net investments as of December 31, 2015 and 2014: Issuer Total Percentage Total Percentage Treasury Obligations Money Market Fund $ 95,937,069 65% $ 119,477,651 60% Repurchase agreement - 0% 28,298,272 14% Total Restricted Investments $ 95,937,069 $ 147,775,923 Trust Cash Sweep Money Market Fund $ 50,995,711 35% $ 50,893,830 26% Foreign Currency Risk: Foreign currency risk is defined as the risk that changes in exchange rates will adversely affect the fair value of an investment. The Company does not presently have a formal policy that addresses foreign currency risk. The Company s exposure to foreign currency risk is limited to investments in global or pooled non-u.s. equity mutual funds. The Company had no investments in global or pooled non-u.s. equity mutual funds at December 31, 2015 and ASSESSMENTS RECEIVABLE: Louisiana Revised Statute 22: provides that any insurer who engages in writing property insurance with the State shall become as assessable insurer in the Coastal Plan and FAIR Plan. In the event that the governing board of the Company determines that a deficit exists in either the Coastal Plan or the FAIR Plan, the Company may levy regular assessments against assessable insurers for each affected plan to help offset such deficit. Furthermore, assessable insurers are permitted to recoup all regular assessments from their policyholders by applying a surcharge to all policies. Any amounts recouped by the insurers in excess of amounts assessed are required to be forwarded to the Company. The Company did not execute a regular assessment in 2015 and Upon a determination by the governing board that a deficit in a plan exceeds the amount that will be recovered through regular assessments, the governing board is authorized to levy, after verification by the Department of Insurance, emergency assessments for as many years as necessary to cover the deficit. The board determined that the 2005 plan year deficit exceeded the amounts levied under the 2005 regular assessment and has levied an emergency assessment beginning in Assessment rates for the years ended December 31, 2015 and 2014 were 3.42% and 3.54% of written premium, respectively. The assessments are collected by the insurers and remitted to the Company s bond trustee quarterly. The total of emergency assessments levied for 26

149 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND ASSESSMENTS RECEIVABLE: (Continued) for years ended December 31, 2015 and 2014 amounted to $91,165,402 and $90,923,157, respectively, of which approximately $19,000,000 and $18,500,000 remained outstanding as of December 31, 2015 and 2014, respectively. 4. CAPITAL ASSETS: Depreciation expense for capital assets for the years ended December 31, 2015 and 2014 was $196,895 and $172,690, respectively, and was allocated to loss adjustment expenses and underwriting expenses. A summary of changes in capital assets and depreciation follows: 2015 Depreciable capital assets: Electronic data processing equipment 17,377,257 Beginning Ending Balance Additions Deletions Balance $ $ 381,017 $ - $ 17,758,274 Office equipment 1,213,256 32,424 (140,041) 1,105,639 Total depreciable assets 18,590, ,441 (140,041) 18,863,913 Less accumulated depreciation: Electronic data processing equipment (16,824,715) (84,075) - (16,908,790) Office equipment (742,968) (112,820) 140,041 (715,747) Total accumulated depreciation (17,567,683) (196,895) 140,041 (17,624,537) Capital assets, net $ 1,022,830 $ 216,546 $ - $ 1,239,376 27

150 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND CAPITAL ASSETS: (Continued) Beginning Ending Balance Additions Deletions Balance 2014 Depreciable capital assets: Electronic data processing equipment $ 17,246,968 $ 130,289 $ - $ 17,377,257 Office equipment 981, ,889 (17,285) 1,213,256 Total depreciable assets 18,228, ,178 (17,285) 18,590,513 Less accumulated depreciation: Electronic data processing equipment (16,761,027) (63,688) - (16,824,715) Office equipment (648,369) (109,002) 14,403 (742,968) Total accumulated depreciation (17,409,396) (172,690) 14,403 (17,567,683) Capital assets, net $ 819,224 $ 206,488 $ (2,882) $ 1,022, LINE OF CREDIT: The Company maintains a line of credit providing for a maximum borrowing of $100,000,000 and $125,000,000 at December 31, 2015 and 2014, respectively. Interest on this note is payable monthly at a variable rate based on the 30-day London Interbank Offered Rate (LIBOR) plus 2.0% for the first 90 days following the date drawn and 30-day LIBOR plus 2.35% commencing on the 91 st day. The line of credit is secured by all premiums and accounts receivable and revenue from all sources, exclusive of emergency assessment levied pursuant to LA R.S. 22:2307E. There was no balance outstanding on the line of credit at December 31, 2015 and RESTRICTED ASSETS: Restricted assets in the Company at December 31, 2015 and 2014, in the amount of $101,201,538 and $153,576,005, respectively, is reported in the non-current assets section on the Statement of Financial Position, and consisted of the following: Cash for escheatment $ 5,264,469 $ 5,800,082 Repurchase agreement - 28,298,272 Treasury obligation mutual funds 95,937, ,477,651 Total $ 101,201,538 $ 153,576,005

151 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RESTRICTED ASSETS: (Continued) The cash is held by the Company until escheated, the repurchase agreements and money market mutual funds are held by a bond trustee for the repayment of the Company s emergency assessment revenue bond issued to cover the 2005 plan year deficit resulting from Hurricanes Katrina and Rita. 7. LIABILITIES FOR LOSS AND LOSS ADJUSTMENT EXPENSES: Activity in the liabilities for loss and loss adjustment expenses is summarized as follows (in thousands of dollars): Years ended December 31, Balance at January 1, $ 77,070,327 $ 73,376,595 Less: reinsurance recoverables 7,058,711 7,076,234 Net balance at January 1, 70,011,616 66,300,361 Incurred related to: Current year 23,405,829 26,153,966 Prior years 6,016,769 90,981,514 Total incurred 29,422, ,135,480 Paid related to: Current year 18,108,312 21,679,776 Prior years 15,063,203 91,744,449 Total paid 33,171, ,424,225 Net balance at December 31 66,262,699 70,011,616 Plus reinsurance recoverables 6,636,071 7,058,711 Balance at December 31, $ 72,898,770 $ 77,070,327 Unpaid losses and loss adjustment expenses are stated as the Company s estimate of the ultimate cost, excluding reinsurance, of settling all incurred but unpaid claims. Unpaid losses and loss adjustment expenses are not discounted and no estimate for salvage and subrogation is applied as a reduction to the unpaid losses. The estimate for unpaid losses and loss adjustment expenses is closely monitored and adjusted for changes in economic, social, judicial and legislative conditions, as well as historical trends. The Company uses various development modeling techniques to assist in the evaluation of its reserves under the direction of its chief actuary. 29

152 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND LIABILITIES FOR LOSS AND LOSS ADJUSTMENT EXPENSES: (Continued) Management believes that the loss reserves are adequate, but establishing reserves is a judgmental and inherently uncertain process. It is, therefore, possible that as conditions and experience develops, reserve adjustments may be required in the future. For both catastrophic and non-catastrophic claims, the loss adjusting function is performed by Company employees and contracted independent adjusting firms. The Company compensates the independent adjusting firms, depending upon the type or nature of the claims, either on perday rate or on a graduated fee schedule based on the gross claim amount, consistent with industry standard methods of compensation. The Company is involved in a number of class action lawsuits and other legal proceedings arising out of various aspects of its business which have been reserved for above. See Note 15 for a description of these class action claims. 8. BONDS PAYABLE: Series 2006B: During April 2006, the Company issued $678,205,000 of assessment revenue bonds for the purpose of redeeming the bond anticipation notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 in the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance the balance of the Plan Year for 2005, to make deposits to the Capitalized Interest Fund and Debt Service Reserve Fund and to pay costs of issuance. The bonds were issued in denominations of $5,000 or any integral multiple thereof and bear interest ranging from 4.00% to 5.25% per annum, payable semiannually on June 1 and December 1 of each year, commencing December 1, The bonds are secured, together with additional bonds, if any, by pledged revenues, which include primarily the 2005 Emergency Assessments. The bonds are not secured by the full faith and credit of the State of Louisiana. Payments of the principal and interest on the bonds when due is insured by a bond insurance policy. The bond maturity dates range from June 1, 2009 to June 1, Bond principal payments of $459,035,000 and $40,595,000 were made in 2015 and 2014, respectively. During year ending December 31, 2015 the Company refinanced the Series 2006B revenue bonds. The outstanding balance due as of years ended December 31, 2015 and 2014 was $0 and $459,035,000, respectively. Series 2006C1 through 2006C3: During April 2006, the Company issued $300,000,000 of assessment revenue bonds at auction rate for the purpose of redeeming the bond anticipation notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 in the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance the balance of the Plan Year for 2005, to make deposits to the Capitalized Interest Fund and Debt Service Reserve Fund and to pay cost of issuance. The bonds 30

153 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND BONDS PAYABLE: (Continued) Series 2006C1 through 2006C3: (Continued) bonds were issued in denominations of $25,000 or any integral multiple thereof. Prior to their remarketing explained below, interest on the bonds adjusted based upon 35-per day auction periods. Generally, the interest payment date for an auction period was the business day immediately following each auction period. The length of the auction period with respect to the bonds could be changed at the option of the Company in accordance with the auction agreement. The bonds are secured, together with additional bonds, if any, by pledged revenues, which include primarily the 2005 Emergency Assessments. The bonds are not secured by the full faith and credit of the State of Louisiana. Payments of the principal and interest on the bonds when due is insured by a bond insurance policy. The bonds were reoffered in March 2009 after the Auction Rate Securities market collapsed. During March 2009, the 2006C1 through 2006C4 series were reoffered in connection with the conversion of the interest rate from the auction mode rate to the long-term interest rate and the remarketing of the 2006C bonds. In connection with the conversion and remarketing of the Series 2006C bonds, the original seventh supplement indenture was amended and restated by the amended and restated seventh supplemental indenture of trust dated as of April 1, The Series 2006C bonds were remarketed in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. On and after the respective conversion dated of each subseries of the series 2006C bonds, interest on the bonds is payable on each June 1 and December 1 commencing June 1, 2009, until maturity or prior redemption and the bonds were converted to the long-term interest rate on May 6, The 2006C bonds bear interest ranging from 2.75% to 6.75% per annum with a weighted average of 5.90%. On and after the respective conversion dates of each subseries of the series 2006C bonds the schedule payment of principal and interest on such subseries of the bonds, when due, is guaranteed under a financial guaranty insurance policy issued concurrently with the delivery of such subseries of the 2006C bonds by Assured Guaranty Corp. The Series 2006C bonds are subject to optional redemption prior to maturity. On April 1, 2012, the 2006C4 bonds were paid with the issuance of the 2012R bonds proceeds. The bond maturity dates range from June 1, 2009 to June 1, Principal payments, including the refinanced amount, were $2,045,000 and $2,945,000 during the years ended December 31, 2015 and 2014, respectively. The outstanding balance due on these bonds as of December 31, 2015 and 2014 was $216,350,000 and $218,395,000, respectively. 31

154 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND BONDS PAYABLE: (Continued) Series 2012R: During April 2012, the Company issued $53,620,000 of assessment revenue refunding bonds in order to advance refund $54,235,000 principal amount of the Assessment Revenue Bonds Series 2006C4, issued in the original aggregate principal amount of $75,000,000, and to pay the cost of issuance of the Series 2012R bonds. The bonds were issued in denominations of $5,000 or any integral multiple thereof. The 2012R bonds bear interest ranging from 2.00% to 5.00% per annum (weighted average of 4.55%), payable semiannually on June 1 and December 1 of each year, commencing June 1, The bond maturity dates range from June 1, 2012 to June 1, Principal payments of $920,000 and $900,000 were made in 2015 and 2014, respectively. The outstanding balance due on this bond as of December 31, 2015 and 2014 was $50,730,000 and $51,650,000, respectively. Series 2015R: During July 2015, the Company issued $333,295,000 of assessment revenue refunding bonds in order to advance refund $415,290,000 principal amount of the Assessment Revenue Bonds Series 2006B, issued in the original aggregate principal amount of $678,205,000, and to pay the cost of issuance of the Series 2015R bonds. The bonds were issued in denominations of $5,000 or any integral multiple thereof. The 2015R bonds bear interest of 5.00% per annum, payable semiannually on June 1 and December 1 of each year, commencing June 1, The bond maturity dates range from June 1, 2016 to June 1, No principal payments were made during The outstanding balance due on this bond as of December 31, 2015 and 2014 was $333,295,000 and $0, respectively. A schedule of debt service requirements, including bond premiums and discounts, is as follows: Maturity Principal Premium/ (Discount) 2016 $ 45,600,000 $ 8,612, ,495,000 7,972, ,795,000 6,724, ,190,000 5,408, ,765,000 4,015, ,530,000 4,328,542 $ 600,375,000 $ 37,061,476 Net unamortized premium (discount) at December 31, 2015 and 2014 was approximately $37,061,476 and $13,571,457, respectively. 32

155 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND BONDS PAYABLE: (Continued) Series 2015R: (Continued) The total interest expense on the fixed rate bonds for the years ended December 31, 2015 and 2014 was approximately $27,685,903 and $37,157,616, respectively, including annual amortized net premium of $14,752,349 and $2,602,808, and is included in Interest Expense in the accompanying Statements of Revenues, Expenses and Changes in Net Position. Beginning Ending Balance Additions Deletions Balance December 31, 2015: Bonds payable - face $ 729,080,000 $ 333,295,000 $ (462,000,000) $ 600,375,000 Bond premium/discount 13,571,457 38,242,368 (14,752,349) 37,061,476 Bonds Payable $ 742,651,457 $ 371,537,368 $ (476,752,349) $ 637,436,476 Beginning Ending Balance Additions Deletions Balance December 31, 2014: Bonds payable - face $ 773,520,000 $ - $ (44,440,000) $ 729,080,000 Bond premium/discount 16,174,265 - (2,602,808) 13,571,457 Bonds Payable $ 789,694,265 $ - $ (47,042,808) $ 742,651, AGENT COMMISSIONS AND SERVICING COMPANY FEES: The Company policies are written by various insurance agents licensed in the State of Louisiana. These agreements provide for commissions to be paid to the agents at rates established by the Board and calculated as a percentage of direct written premiums, net of certain surcharges and assessments. Agent commissions included in other underwriting expenses incurred were approximately $13,127,628 and $15,989,893 on during the years ended December 31, 2015 and 2014, respectively. Additionally, the Company entered into agreements with two servicing companies to provide underwriting and policy management services. The agreements provide for monthly compensation to the servicing companies based on a Per Transaction Fee applied to the number of transactions processed in a monthly cycle. During 2012, the servicing agreements were extended under the same (or similar) terms and expired on March 31, Since the expiration of the servicing agreement, claims and underwriting management have been brought in-house. Servicing company fees incurred and included in other underwriting expenses incurred were approximately $0 and $233,364 during the years ended December 31, 2015 and 2014, respectively. 33

156 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND REINSURANCE: The Company purchases private reinsurance through AON Benfield, Inc. and Guy Carpenter & Company, LLC, as licensed reinsurance intermediaries. The participating reinsurance companies will reimburse the Company, through the intermediary, a specified percentage of losses incurred if a prescribed retention is reached. The Company purchases reinsurance based on levels of loss. The Company is liable for the first amount of ultimate net loss, shown in the table below as Company Retention, arising out of each loss occurrence. The reinsurer is then liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company s applicable retention for that layer. However, the liability of the reinsurer under any excess layer of reinsurance coverage provided does not exceed either of the following: (1) the amount shown below as Reinsurer Per Occurrence Limit for that excess layer as respects loss or losses arising out of any one loss occurrence, or (2) the amount shown as Reinsurer s Term Limit for that excess layer. Each excess layer of reinsurance coverage provided is as follows: Reinsurance in place for the year ended December 31, 2015 was as follows: January 1,2015 to May 31, 2015 First Excess Second Excess Third Excess Company's retention $ 50,000,000 $ 75,000,000 $ 175,000,000 Reinsurer's per occurrence limit $ 25,000,000 $ 100,000,000 $ 47,000,000 Reinsurer's term limit $ 50,000,000 $ 200,000,000 $ 94,000,000 Annual minimum premium $ 5,375,000 $ 14,000,000 $ 4,700,000 Adjustment rate % % % June 1, 2015 to December 31, 2015 First Excess Second Excess Third Excess Company's retention $ 50,000,000 $ 75,000,000 $ 175,000,000 Reinsurer's per occurrence limit $ 25,000,000 $ 100,000,000 $ 44,000,000 Reinsurer's term limit $ 50,000,000 $ 200,000,000 $ 88,000,000 Annual minimum premium $ 4,125,000 $ 12,000,000 $ 3,740,000 Adjustment rate % % % 34

157 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND REINSURANCE: (Continued) Reinsurance in place for the year ended December 31, 2014 was as follows: January 1,2014 to May 31, 2014 First Excess Second Excess Third Excess Company's retention $ 75,000,000 $ 193,000,000 $ 264,000,000 Reinsurer's per occurrence limit $ 118,000,000 $ 71,000,000 $ 111,000,000 Reinsurer's term limit $ 236,000,000 $ 142,000,000 $ 222,000,000 Annual minimum premium $ 15,104,000 $ 6,390,400 $ 6,216,000 Adjustment rate % % % June 1, 2014 to December 31, 2014 First Excess Second Excess Third Excess Company's retention $ 50,000,000 $ 75,000,000 $ 175,000,000 Reinsurer's per occurrence limit $ 25,000,000 $ 100,000,000 $ 47,000,000 Reinsurer's term limit $ 50,000,000 $ 200,000,000 $ 94,000,000 Annual minimum premium $ 5,375,000 $ 14,000,000 $ 4,700,000 Adjustment rate % % % As of June 2014, the Company s contract for reinsurance was restructured. There are no longer adjustment rates. The premium can potentially be adjusted if the total insurable value is greater than or less than 10% of the estimated total insurable value used to calculate the contract premium. In the event that all or any portion of the reinsurance under the excess layer above is exhausted by loss, the amount exhausted will be reinstated immediately upon payment of a reinsurance premium. The Company has entered into a Reinsurance Premium Protection (RPP) contract which guarantees payment of the reinstatement premium. In addition, the Company purchases additional reinsurance coverage through three catastrophe bonds. In 2012, the Company purchased a $125 million, three-year catastrophe bond that provides coverage for 63.8% of up to $389 million in losses in excess of $193 million covered by retention and traditional reinsurance. In 2013, the Company purchased coverage through a $140 million, four-year catastrophe bond providing coverage for 93.3% of up to $539 million in losses in excess of $389 million covered by retention, traditional reinsurance and the 2012 catastrophe bond. In 2015, the Company purchased additional coverage through a $100 million, three-year catastrophe bond that provides coverage for 69.4% of up to $319 million in losses in excess of $175 million covered by retention and traditional reinsurance. 35

158 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND REINSURANCE: (Continued) The effect of reinsurance on premiums written and earned was as follows: Year-ended December 31,2015: Premiums Written Earned Direct $ 140,385,470 $ 154,683,654 Ceded (49,453,866) (49,453,866) Net premiums $ 90,931,604 $ 105,229,788 Year-ended December 31,2014 (Restated): Premiums Written Earned Direct $ 168,068,464 $ 177,409,973 Ceded (66,774,444) (66,774,444) Net premiums $ 101,294,020 $ 110,635,529 Amounts recoverable from reinsurers on unpaid losses and loss adjustment expenses are estimated based on the allocation of estimated unpaid losses and loss adjustment expenses among coverage lines. Actual amount recoverable will depend on the ultimate settlement of losses and loss adjustment expenses. Reinsurance contracts do not relieve the Company from its obligation to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under their reinsurance agreements. At December 31, 2015 and 2014, the Company had reinsurance recoverables on unpaid losses of $6,636,071 and $7,058,711 and reinsurance recoverables on paid losses of $980,135 and $1,347,553, respectively. 11. RETIREMENT PLANS: Prior to September 1, 2008, the Company sponsored a non-contributory agent multipleemployer defined benefit pension plan covering all employees that were hired prior to April 1, 2008, through a services agreement with Property Insurance Association of Louisiana (PIAL) to participate in the Pension Plan for Insurance Organization (PPIO). 36

159 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Benefits Provided: PPIO provides retirement and survivor s benefits to all qualified employees of the Company. The following is a brief description of the plan and its benefits. Participants should refer to the detailed plan description for more complete information. Normal Retirement Benefit: Normal retirement benefit is the annual benefit that is payable as a life annuity beginning on individual s normal retirement date. Normal retirement benefit is equal to the following: 1.15% of average annual compensation up to covered compensation multiplied by years of credited service (maximum 35 years); plus 1.55% of average annual compensation in excess of covered compensation multiplied by years of credited service (maximum 35 years); plus 0.5% of average annual compensation multiplied by years of credited service from 35 to 45 years. Under a life annuity, participant will receive monthly payments for the rest of his/her life. No benefits will be paid after the death. Minimum Retirement Benefit Normal retirement benefit cannot be less than the benefit the participant would have received on any earlier retirement date or the benefit accrued as of December 31, Also, if the participant has completed at least 15 years of vesting service, normal retirement benefit will not be less than $1,200 per year. If the participant has completed less than 15 years of vesting service, the $1,200 will be reduced by $80 for each year of vesting service that is less than 15 years. Adjustment of Pension Benefit Payment Before or After Normal Retirement Date Following the termination of employment, the participant may decide when to begin pension benefit payments. The amount of the pension benefit that a member may receive as a life annuity may vary if he/she receives pension benefit payments on a date other than normal retirement date. Generally, the following rules apply: 37

160 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Benefits Provided: (Continued) Adjustment of Pension Benefit Payment Before or After Normal Retirement Date (Continued) If participant has completed at least 15 years of vesting service, the life annuity he/she could begin to receive on normal retirement date will be unreduced if individual begins to receive pension benefit payments as of the first day of any month between the first day of the month after attaining age 62 and before normal retirement date. If participant has completed at least 15 years of vesting service, the life annuity he/she could begin to receive on normal retirement date will be reduced, but by less than a full actuarial reduction, if individual begins to receive pension benefit payments as of the first day of any month between the first day of the month after you attaining age 55 and before the first day of the month after attaining age 62. If participant has completed at least 5 years of vesting service but less than 15 years of vesting service, the life annuity he/she could begin to receive on normal retirement date will be actuarially reduced if individual begins to receive pension benefit payments as of the first day of any month between the first day of the month after attaining age 55 and before normal retirement date. If participant begins pension benefit payments after the normal retirement date, the life annuity, he/she could begin to receive on normal retirement date (or upon termination of employment if later) will be actuarially increased until the benefit commencement date. Early Retirement Benefit If participant terminates employment and begins to receive a pension benefit as a life annuity before normal retirement date, the life annuity may be reduced because it commences early. The reduction for early commencement is described below. Age 55 with at Least 5, but Less Than 15 Years of Vesting Service Individual may begin receiving pension benefit before normal retirement date if he/she is age 55 or older and have completed at least 5, but less than 15, years of vesting service. Pension benefit will be actuarially reduced based on member s age when commenced benefit to reflect the longer period over which pension benefit will be paid. The following factors are used to determine the amount of benefit participant would receive as a life annuity on an earlier retirement date. Normal retirement benefit would be multiplied by the factors below (which are adjusted for partial years) to determine reduced pension amount payable as a life annuity: 38

161 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Benefits Provided: (Continued) Age 55 with at Least 5, but Less Than 15 Years of Vesting Service (Continued) Age at early retirement: Early retirement reduction factor for normal retirement benefit Age 55 with at Least 15 Years of Vesting Service Participants may begin receiving pension benefit before normal retirement date if he/she is age 55 or older and have completed at least 15 years of vesting service. Pension benefit will have less of an early retirement reduction than if participant had completed fewer than 15 years of vesting service. If the participant terminates employment with at least 15 years of vesting service and elects to commence pension benefit on or after reaching age 62 but before reaching age 65, pension benefit payable as a life annuity will be equal to the amount payable as a life annuity beginning on normal retirement date. If the participant terminates employment with at least 15 years of vesting service and elects to commence pension benefit on or after reaching age 55 but prior to age 62, pension benefit payable as a life annuity will be equal to the amount of a normal retirement benefit, but reduced to take into account younger age and the longer period over which benefit payments will be received. The following factors are used to determine the amount of benefit participant would receive as a life annuity beginning on an earlier retirement date. Normal retirement benefit would be multiplied by the factors below (which are adjusted for partial years) to determine reduced pension amount payable as a life annuity: 39

162 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Benefits Provided: (Continued) Age 55 with at Least 15 Years of Vesting Service (Continued) Age at early retirement: Early retirement reduction factor for normal retirement benefit Special Social Security Supplement In addition to the pension benefit described above, if the participant begins receiving benefits before age 62, completed at least 15 years of vesting service, and elects to receive retirement benefits as a life annuity, individual will receive, from benefit commencement date to the first day of the month on or after 62nd birthday (or date of death if earlier), the amount described as follows, reduced by the applicable early retirement reduction factor above: 0.4% of average annual compensation up to covered compensation multiplied by years of credited service, up to a maximum of 35 years. This amount is then adjusted by the early retirement reduction factor of Participant would receive an additional amount equal to $575 per month until age 62. If the member elects to receive a pension benefit in a form of payment other than a life annuity, the special social security supplement will be adjusted to reflect that other form of payment. Once the member has attained age 62, the special social security supplement will cease. If participant elects to receive pension benefit as a life annuity, the special social security supplement will cease at date of death if he/she would die before you attaining age 62. The special social security supplement is intended to provide bridge payments until participant is eligible to begin receiving social security retirement benefits. This supplement will cease at age 62, regardless of whether or not member has applied for Social Security benefits. 40

163 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Benefits Provided: (Continued) Small Benefit and Younger Than Age 55 If the participant terminates employment after becoming vested and the value of pension benefit when he/she terminates employment exceeds $5,000, participant may begin to receive pension benefit as of the first day of any month following termination of employment provided that the value of pension benefit does not exceed $20,000 as of that time. Individual may elect to receive pension benefit in a lump sum or in another form of payment. If participant elects to receive pension benefit beginning before age 55, pension benefit will be actuarially reduced based on age when member commences benefit to reflect the longer period over which pension benefit will be paid. Pension Guarantees Pension benefits under this plan are insured by the PBGC, a Federal insurance agency. If the plan terminates (ends) without enough money to pay all benefits, the PBGC will step in to pay pension benefits. Most people receive all of the pension benefits they would have received under their plan, but some people may lose certain benefits. The PBGC guarantee generally covers: Normal and early retirement benefits; Disability benefits of participant becomes disabled before the plan terminates; Certain benefits for survivors. Employees Covered by the Benefit Terms As of December 31, 2015, the following employees were covered by the Plan: Active employees 32 Inactive employees or beneficiaries currently receiving benefits 4 Inactive employees entitled to but not yet receiving benefits 11 Total 47 Contributions: Contributions to pay for plan benefits are paid by the participating employers to a trust administered by the Principal Trust Company (the Trust), or its successors or assigns. When participants retire, the necessary amount will be allocated from the available funds under the Trust to 41

164 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Contributions: (Continued) to provide pension benefit. Both participant and employer contribute toward social security taxes throughout participant s career; however the cost of the plan is paid entirely by participating employers. Participants are not required to contribute to the plan. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions: As of December 31, 2015, the Company reported an asset of $216,838 for its proportionate share of the net pension asset. The net pension asset was measured as of December 31, 2015 and the total pension asset used to calculate the net pension asset was determined by an actuarial valuation as of that date. For the year ended December 31, 2015, the Company recognized pension expense of $68,334. As of December 31, 2015, the Company reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ 154,795 $ - Changes of assumptions 72,662 - Net difference between projected and actual earnings on pension plan investments 69,501 - Total $ 296,958 $ - Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ending: 2016 $ 28, , , , ,642 Thereafter 26,451 Total $ 296,958 42

165 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Actuarial Assumptions: The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Discount rate 6.00% Investment Rate of Return 6.25% Inflation 3.00% Salary Increases 2.50% Discount Rate: Mortality Rates RP-2015 mortality tables with the MP-2015 mortality improvement scale applied on a generation basis The discount rate used to measure the total pension liability was 6.00%. The long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in Plan s Net Pension Asset: Changes in the Plan s net pension asset for the year ended December 31, 2015 were as follows: 43

166 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Changes in Plan s Net Pension Asset: (Continued) Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Asset Balance, December 31, 2014 $ 1,449,020 $ 2,031,150 $ 582,130 Changes for the year: Service cost 39,518 - (39,518) Interest cost 88,164 - (88,164) Difference between expected and actual experience 155,128 - (155,128) Changes of assumptions 19,877 - (19,877) Net investment income - (52,967) (52,967) Contributions - employer Benefit payments (76,800) (76,800) - Administrative expenses - (9,638) (9,638) Net changes 225,887 (139,405) (365,292) Balance, December 31, 2015 $ 1,674,907 $ 1,891,745 $ 216,838 Sensitivity of the Company s Proportionate Share of the Net Pension Asset to Changes in the Discount Rate: The following presents the Company s proportionate share of the net pension liability or net pension asset using the discount rate of 6.00%, as well as what the employer s proportionate share of the net pension liability or net pension asset would be if it were calculated using a discount rate that is one percentage-point lower, 5.00%, or one percentage-point higher, 7.00%, than the current rate: 1.0% Decrease Current Discount 1.0% Increase 5.00% Rate 6.00% 7.00% Company's proportionate share of the net pension asset (liability) $ (29,638) $ 216,838 $ 417,165 44

167 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Defined Contribution Plans: As of September 1, 2008, the Company froze its defined benefit pension plan and in its place established a defined contribution plan. The Company contributes 11% of each employee s wages to the defined contribution plan. Contributions are expensed each month and the Company carried no assets or liabilities for the defined contribution plan on its statement of net assets. The Company s contribution to the plan was approximately $658,318 and $629,715 during the years ended December 31, 2015 and 2014, respectively. In addition, the Company sponsors a contributory 401k savings plan covering eligible employees for which the Company matches 75% of employee contributions up to a maximum of 6% of eligible compensation. The Company s matching contributions to the plan totaled approximately $183,347 and $187,760 for the years ended December 31, 2015 and 2014, respectively. Both defined contribution plans are ICSO 401k Saving Plan s and are administered by Prudential Financial, Inc. 12. COMPENSATED ABSENCES: Employees earn and accrue vacation and sick leave at various rates, depending on their years of service. The maximum amount of sick leave that may be accrued by each employee at any given time is 20 days. The maximum vacation carry-over at the end of the year is five days. Upon termination, employees are compensated for any unused vacation leave at the employee s hourly rate of pay at the time of termination. The liability of unused vacation leave at December 31, 2015 and 2014 was approximately $86,664 and $94,401, respectively. 13. LEASES The Company leases office space under certain non-cancelable operating leases which will expire in September The future minimum lease payments as of December 31, 2015 are as follows: Years ending December 31, 2016 $ 473, , , , , $ 1,386,256 3,805,975 45

168 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND LEASES: (Continued) Lease expense for the years ended December 31, 2015 and 2014 was approximately $515,126 and $507,348, respectively. 14. UNAUDITED RECONCILIATION BETWEEN GAAP AND STATUTORY NET INCOME: Accounting principles generally accepted in the United States of America (GAAP basis) differ in certain respects from the accounting practices prescribed or permitted by insurance regulatory authorities (statutory basis). A reconciliation between the change in net assets and the deficiency in net assets as reported under GAAP basis and statutory basis follows: 2014 Years ended December 31, 2015 Restated Change in net position - GAAP basis $ 124,037,055 $ 34,427,481 Adjustments to: Pension plan expense (46,791) (2,295,758) Allowance for doubtful accounts - (18,897) Other (1,634) 97,335 Interest expense (9,897,060) Excess emergency assessments (54,387,906) (55,255,337) Tax exempt surcharge (5,037,885) (5,726,214) Net income (loss) - statutory basis $ 54,665,779 $ (28,771,390) 2014 Years ended December 31, 2015 Restated Total deficiency in net assets - GAAP basis $ (500,122,642) $ (624,159,697) Adjustments to: Non-admitted assets (7,279,974) (14,482,561) Premiums receivable - (503,824) Net pension asset (216,838) (582,130) Deferred outflows - pension (296,958) - Deferred outflows - advanced refunding (9,897,060) - Other accrued liabilities (1,146,510) (1,031,384) Excess emergency assessments (76,234,581) (150,551,674) Allowance for doubtful accounts 660,623 1,159,597 Emergency assessments receivable 633,201, ,906,939 Provision for reinsurance receivable (14,768) (19,310) Accumulated (deficit) surplus - statutory basis $ 38,653,231 $ (28,264,044) 46

169 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND COMMITMENTS AND CONTINGENCIES: The Company is involved in certain litigation and disputes incidental to its operations. In the opinion of management, after consultation with legal counsel, there are substantial defenses to such litigation and disputes and any ultimate liability, in excess of reserves resulting there from, will not have a material adverse effect on the Company s financial condition or results of operations. The Company is also involved in other potentially significant litigation described below; any of which could have a material adverse effect on the financial condition or results of operations. These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard, or investigated; differences in applicable laws and judicial interpretations; the length of time before many of these matters might be resolved by settlement through litigation or otherwise; and the current legal environment faced by large corporations and insurance companies. The outcome of these matters may be affected by decisions, verdicts, settlements and the timing of such other individual and class action lawsuits that involve the Company, other insurers, or other entities and by other legal, governmental, and regulatory actions that involve the Company, other insurers, or other entities. The outcome may also be affected by future state legislation, the timing or substance of which cannot be predicted. In lawsuits, plaintiffs seek a variety of remedies. In some cases, the monetary damages sought include punitive or treble damages. Often specific information about the relief sought, such as the amount of damages is not available. When specific monetary demands are made, they are often set just below a state court jurisdictional limit in order to seek the maximum amount available regardless of the specifics of the case. For the reasons previously specified, it is often not possible to make meaningful estimates of the amount or range of loss that could result from the known and unknown matters described. The Company reviews these matters on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, the Company bases its decisions on its assessment of the ultimate outcome following all appeals. Additionally, in instances where a judgment, assessment or fine has been rendered against the Company, there is a presumption that criteria in reaching a reasonably possible and probable outcome have been met. In such instances, the amount of liability recorded by the Company will include the anticipated settlement amount, legal costs, insurance recoveries and other related amounts and take into account factors such as the nature of the litigation, progress of the case, opinions of legal counsel, and management s intended response to the litigation, claim or assessment. 47

170 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND COMMITMENTS AND CONTINGENCIES: (Continued) Due to the complexity and scope of the matters disclosed below and the many uncertainties that exist, the ultimate outcome of these matters cannot be reasonably predicted. In the event of an unfavorable outcome in any one or more of these matters, the ultimate liability may be in excess of the amounts currently reserved. A summary of potentially significant litigation follows: Oubre v. Louisiana Citizens Property Insurance Corporation. The plaintiffs in this suit allege that the Company failed to timely initiate loss adjustment as required by Louisiana statutory law exposing the Company to mandatory penalties in the amount of $5,000. On July 23, 2012, the Company settled the majority of this class action suit with a payment of $104 million to the plaintiff counsel for distribution to the current class members. The Company entered into a settlement with the class for the remaining Oubre claims. At December 31, 2015 and 2014, the Company had a reserve of $47.1 and $55.2 million, respectively for this case for resolution of the remaining claims which the Company believes is adequate. The reserve is included in loss and loss adjustment reserves on the accompanying statement of admitted assets, liabilities, surplus and other funds. Various other lawsuits against the Company have arisen in the course of the Company s business, including approximately 663 first-party suits, of which a majority are related to Hurricanes Katrina and Rita. The Company believes it has established appropriate reserves for all lawsuits, in addition to class action claims described above. The Company has no assets that it considers to be impaired. In addition to claims under the insurance policies it issues, the Company is potentially exposed to various risks of loss, including those related to torts; theft of, damage to, and destruction of assets; errors or omissions; injuries to employees; and natural disasters. As of the end of 2015 and 2014, the Company had insurance protection in place from various commercial insurance carriers covering various exposures, including workers compensation, property loss, employee liability, general liability, and directors and officers liability. Management continuously revisits the limits of coverage and believes that current coverage is adequate. There were no significant reductions in insurance coverage from the previous year. 16. DEPOPULATION: The Louisiana State Legislature created the Company to operate insurance plans as a residual market for residential and commercial property. The legislature further intended that the Company work toward the ultimate depopulation of these residual market plans also known as the Coastal Plan and FAIR Plan. To encourage the ultimate depopulation to these residual market plans, the Louisiana Citizens Property Insurance Corporation Policy Take-Out Program was created. 48

171 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND DEPOPULATION: (Continued) Under the take-out plan guidelines, not less than once per calendar year, the Company will offer its in-force policies for removal to the voluntary market. The Company will include offers for depopulation policies with all available geographic and risk characteristics that serve to reduce the exposure of the corporation. Each insurer admitted to write homeowners insurance or insurance insuring one- or two-family owner occupied premises for fire and allied lines or insurance which covers commercial structures in the State of Louisiana may apply to the Company to become a take-out company. Insurers will be approved to participate in the depopulation of the Company based on statutory guidelines set forth in accordance with LRS 22:2314(C). Policies may be removed from the Company at policy renewal or as part of a bulk assumption. In an assumption, the take-out company is responsible for losses occurring from the assumption date through the expiration of the Company s policy period. Unearned premiums remitted to take-out companies pursuant to assumption agreements is reflected as a reduction in premium earned in the Statements of Revenues, Expenses, and Changes in Net Position and totaled $15,181,982 and $13,615,931 for the years ended December 31, 2015 and 2014, respectively. The Company provides administration services with respect to the assumed policies. All agreements provide for the take-out company to adjust losses. The take-out company pays a ceding commission to the Company to compensate the Company for policy acquisition costs, which includes servicing company fees and agent commissions. While the Company is not liable to cover claims after the assumption, the Company continues to service policies for items such as policyholder endorsements or cancellation refunds. Should the Company process and provide a refund to policyholders, such amount is subsequently collected from the take-out company. At December 31, 2015 and 2014, there were no assumed premiums due from certain take-out companies. 17. RESTRICTED NET POSITION: The Statement of Net Position includes $137,973,265 and $120,398,299 of funds restricted by enabling legislation for the repayment of Special Assessment Revenue Bonds as of December 31, 2015 and 2014, respectively. The amounts equal the excess of unspent emergency assessment collected to satisfy the debt service requirements for the year. 18. DEFICIENCY IN NET POSITION: The Company reported a deficiency in net position of $(500,122,642) and $(624,159,697) at December 31, 2015 and 2014, respectively, resulting primarily from losses on insured property caused by Hurricanes Katrina and Rita during The Company plans to eliminate the deficit through emergency assessments on affected insurance companies and policy holders. 49

172 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS (OPEB): The Company implemented GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions. This guideline is for all governmental employers who provide postemployment benefits other than pension for which the employer pays all or a part of the cost of the benefits, such as the postretirement health care benefits discussed below. Statement No. 45 improves financial reporting and disclosure by matching the cost of postemployment benefits with the periods when the related services are received by the employer, by providing information about accrued liabilities for promised benefits related to past services and the extent those liabilities have been funded and by providing valuable information about demands on future employer cash flows. The Company is required to measure and recognize the annual cost of the future benefits and calculate the annual employer funding requirements and, to the extent funding is not made by the Company; recognize an OPEB liability on the balance sheet. The postemployment benefit liability reported on the financial statements was $1,713,507 and $1,600,867 at December 31, 2015 and 2014, respectively. Plan Description: The Company provides postretirement medical and life insurance for qualified employees hired prior to January 1, Employees may quality for participation in the plan by: a) attaining age 55 and completing 14 years and one hour of service or b) attaining age 60; completing at least 5 years of service, two of which occur after October 28, 2010, be employed with the Company at the time of retirement and retire in good status. Contribution Rates: Plan members contribute 25% of medical premiums, including Medicare supplement, dental and vision coverage, and 100% of supplemental life insurance. Plan members are not required to contribute for basic life insurance. Funding Policy: The Company s plan is administered by the Company. Annual Required Contribution: The Company s Annual Required Contribution (ARC) is an amount actuarially determined in accordance with GASB 45. The Annual Required Contribution (ARC) is the sum of the Normal Cost plus the contribution to amortize the Actuarial Accrued Liability (AAL). A level dollar, closed amortization period of 30 years (the maximum amortization period allowed by GASB 45) has been used for the postemployment benefits. The total ARC for the fiscal year ended December 31, 2015 and 2014 is $203,969 and $111,374, respectively, as set forth below: 50

173 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS (OPEB): (Continued) Annual Required Contribution: (Continued) Employer's normal cost $ 90,293 $ 58,520 Amortization of unfunded actuarial accrued liability (UAAL) 103,963 47,550 Interest on normal cost and UAAL 9,713 5,304 Annual required contribution (ARC) $ 203,969 $ 111,374 Net Postemployment Benefit Obligation: The table below shows the Company s Other Postemployment Benefit (OPEB) Obligation for the fiscal year ending December 31: Beginning net OPEB obligation, January 1, $ 1,600,867 $ 1,597,037 Annual required contribution 203, ,374 Interest on net OPEB obligation 80,043 79,852 ARC adjustment (104,139) (103,890) OPEB cost 179,873 87,336 Contribution (67,233) (83,506) Change in net OPEB obligation 112,640 3,830 Ending net OPEB obligation, December 31, $ 1,713,507 $ 1,600,867 The following table shows the Company s annual other postemployment benefits (OPEB) cost, percentage of the cost contributed, and the net unfunded other postemployment benefits (OPEB) liability: Percentage Post of Annual Employment Fiscal Year Annual Cost Net OPEB Benefit Ended OPEB Cost Contributed Obligation Medical December 31, 2015 $ 179, % $ 1,713,507 Medical December 31, 2014 $ 87, % $ 1,600,867 51

174 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS (OPEB): (Continued) Funded Status and Funding Progress: In the year ended December 31, 2015 and 2014, the Company made no contributions to its postemployment benefits plan. The plan has no assets, and hence has a funded ratio of zero. As of December 31, 2015 and 2014, the most recent actuarial valuation reported the Actuarial Accrued Liability (AAL) as $2,488,662 and $2,148,920, respectively. The AAL is defined as that portion, as determined by a particular actuarial cost method (the Company uses the Projected Unit Credit Method), of the actuarial present value of postemployment plan benefits and expenses which is not provided by normal cost. Since the plan was not funded in fiscal year 2015 and 2014, the entire actuarial accrued liability of $2,488,662 and $2,148,920, respectively, was unfunded Actuarial Accrued Liability (AAL) $ 2,488,662 $ 2,148,920 Actuarial Value of Plan Assets - - Unfunded Act. Accrued Liability (UAAL) $ 2,488,662 $ 2,148,920 Funded Ratio (Act. Val. Assets/AAL) 0% 0% Covered Payroll (active plan members) $ 3,822,488 $ 4,352,508 UAAL as a percentage of covered payroll 65.11% 49.37% Assumptions used to determine projected benefit obligations at December 31, 2015 and 2014, were as follows: Discount rate 5.00% 5.00% Salary increase rate N/A N/A Current healthcare cost trend rate 7.00% 7.00% Ultimate healthcare cost trend rate 5.00% 5.00% Year ultimate healthcare cost trend rate Actuarial Methods and Assumptions: Actuarial valuations involve estimates of the value of the reported amounts and assumptions about the probability of events far into the future. The actuarial valuation for postemployment benefits includes estimates and assumptions regarding (1) turnover rate; (2) retirement rate; (3) health care cost trend; (4) mortality rate; (5) discount rate (investment return assumption); and (6) the period to which the costs apply (past, current, or future years if service by employees). Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. 52

175 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS (OPEB): (Continued) Actuarial Methods and Assumptions: (Continued) The actuarial calculations are based on the types of benefits provided under the terms of the substantive plan (the plan as understood by the Company and its employee plan members) at the time of the valuation and on the pattern of sharing costs between the Company and its plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between Board and plan members in the future. Consistent with the long-term perspective of actuarial calculations, the actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial liabilities and the actuarial value of assets. In the December 31, 2015 actuarial valuation, the projected unit credit cost method was used. The actuarial assumptions included a 5% investment rate of return ad a current health care cost trend rate of 7% gradually decreasing to an ultimate trend rate of 5%. The Unfunded Actuarial Accrued Liability (UAAL) is being amortized over 30 years assuming 30 annual level payments. The remaining amortization period at December 31, 2015 was 30 years. Actuarial Value of Plan Assets: There are currently no plan assets. It is anticipated that in future valuations, should funding take place, a smoothed market value as provided in paragraph number 125 of GASB Statement 45 will be used. 20. DISAGGREGATION OF RECEIVABLE BALANCES: Receivable (net of allowance for doubtful accounts) at December 31, 2015 and 2014 as follows: Description Premiums receivable $ 2,263,777 $ 20,405,665 Premiums deferred 15,009,837 - Allowance for doubtful accounts (659,896) (1,159,597) Total premium receivables, net $ 16,613,718 $ 19,246,068 Emergency assessment receivable $ 19,000,000 $ 18,500,000 Reinsurance recoverable for reinsurers $ 980,860 $ 1,347,552 Reinsurance loss & loss adjustment expense 6,635,346 7,058,712 Total reinsurance recoverables $ 7,616,206 $ 8,406,264 53

176 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2015 AND CHANGE IN ACCOUNTING PRINCIPLE: The Company adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions during the fiscal year ending December 31, The adoption of this statement required the Company to record a beginning net pension liability, deferred outflows of resources and deferred inflows of resources during the initial measurement period (fiscal year ending December 31, 2015). As a result of the implementation, the Company recorded deferred outflows of resources of $296,958 for the year ended December 31, The Company did not restate beginning balances relating to the implementation of GASB No. 68 as it was not practical to determine these amounts and were also not material. 22. PRIOR PERIOD ADJUSTMENT: The company restated its historical financial statements for the year ended December 31, This restatement and resulting revisions related to the recording of a reinsurance receivable for which rights did not exist and an unrecorded liability related to the commutation of a reinsurance contract. The effect of the write-off of the reinsurance receivable was to decrease reinsurance receivable and decrease premiums earned by $3,726,592 for the year ended December 31, The effect of the unrecorded liability was to increase reinsurance premiums payable and decrease premiums earned by $839,740. The cumulative effect of the correction of errors was to decrease the deficit for the year ended December 31, 2014 by $4,566,

177 REQUIRED SUPPLEMENTARY INFORMATION

178 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION ASSET AND RELATED RATIOS FOR THE YEAR ENDED DECEMBER 31, Total pension liability: Service cost $ 39,518 $ 40,198 Interest 88,164 79,982 Difference between expected and actual experience 155,128 33,868 Change of assumptions 19,877 79,179 Benefit payments, including refunds (76,800) (47,450) Net change in total pension liability 225, ,777 Total pension liability - beginning 1,449,020 1,263,243 Total pension liability - ending $ 1,674,907 $ 1,449,020 Plan fiduciary net position: Net investment income $ (52,967) $ 172,670 Benefit payments, including refunds (76,800) (47,450) Administrative expense (9,638) (11,113) Net change in plan fiduciary net position (139,405) 114,107 Plan fiduciary net position - beginning 2,031,150 1,917,043 Plan fiduciary net position - ending $ 1,891,745 $ 2,031,150 Net pension asset - ending $ 216,838 $ 582,130 Plan fiduciary net position as a % of total pension liability % % Covered employee payroll $ 3,640,441 $ 2,706,620 Net pension asset as % of covered-employee payroll 5.96% 21.51% This schedule is intended to show information for 10 years. Additional years will be presented as they become available. 55

179 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION REQUIRED SUPPLEMENTARY INFORMATION SCHEDULES OF FUNDING PROGRESS FOR OPEB FOR THE THREE YEARS ENDED DECEMBER 31, 2015 Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability AAL Funded Covered of Covered Valuation Assets (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) [(b-a)/c] 12/31/15 $ - $ 2,488,662 $ 2,488,662 - % $ 3,822, % 12/31/14-2,148,920 2,148,920-4,352, /31/13-1,393,202 1,393,202-3,689,

180 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, CHANGES OF BENEFIT TERMS: There were no changes of benefit terms for any of the years presented in the Schedule of Changes in Net Pension Asset and Related Ratios. 2. CHANGES OF ASSUMPTIONS: Amounts reported for 2015 reflect a change to the use of the RP-2015 mortality tables with the MP-2015 mortality improvement scale applied on a generational basis. Also in 2015, the discount rate used to measure the total pension liability was reduced from 6.25% to 6.00%. 57

181 SUPPLEMENTARY INFORMATION

182 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION SUPPLEMNTARY INFORMATION SCHEDULE OF COUNCIL COMPENSATION DECEMBER 31, 2015 Year ended December 31, 2015: Expense Total Council Members Per Diem Reimbursement Compensation Eric Berger $ - $ - $ - Fred C. Bosse Denise Brignac Gregory Cromer Jason G. Dupree Gene Galligan - 1,281 1,281 Eric LaFleur Craig LeBouef Sam Little - 1,349 1,349 A. Eugene Montgomery, III Dan Morrish Johnny Reeves Kevin Reinke Preston Robinson J. William Starr $ - $ 3,716 $ 3,716 58

183 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of Louisiana Citizens Property Insurance Corporation Metairie, Louisiana June 20, 2016 We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Louisiana Citizens Property Insurance Corporation (the Company ), a component unit of the State of Louisiana, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the Company s basic financial statements, and have issued our report thereon dated June 20, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Company s internal control over financial reporting to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Accordingly, we do not express an opinion on the effectiveness of the Company s internal control.

184 A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. Given these limitations, during our audit, we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Company s basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that were reported to management of the Company in a separate letter dated June 20, Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Duplantier, Hrapmann, Hogan & Maher, LLP New Orleans, Louisiana 60

185 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION (STATUTORY BASIS) DECEMBER 31, 2015 AND 2014

186 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION REPORT INDEX DECEMBER 31, 2015 AND 2014 PAGE INDEPENDENT AUDITOR'S REPORT STATUTORY FINANCIAL STATEMENTS: Statutory Statements of Admitted Assets, Liabilities, Surplus and Other Funds Statutory Statements of Income... 6 Statutory Statements of Changes in Accumulated Surplus and Other Funds... 7 Statutory Statements of Cash Flows... 8 Notes to Statutory Financial Statements SUPPLEMENTARY INFORMATION: Summary Investment Information Supplemental Investment Risk Interrogatories... 37

187 INDEPENDENT AUDITOR'S REPORT May 25, 2016 To the Board of Directors of Louisiana Citizens Property Insurance Corporation Metairie, Louisiana We have audited the accompanying statutory financial statements of Louisiana Citizens Property Insurance Corporation (the "Company"), which comprise the statutory statements of admitted assets, liabilities, surplus and other funds as of December 31, 2015, and the related statutory statements of income, changes in accumulated surplus and other funds, and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices prescribed or permitted by the Louisiana Department of Insurance. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 financial statements are free from material misstatement.

188 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 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 financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and surplus of the Company as of December 31, 2015, and the results of its operations and its cash flows for the year then ended, in accordance with the basis of accounting described in Note 1. Emphasis-of-Matter Basis of Accounting As described in Note 1 to the financial statements, the financial statements were prepared in conformity with accounting practices prescribed or permitted by the Louisiana Department of Insurance, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to comply with the requirements of Louisiana. Our opinion is not modified with respect to this matter. Other Matters Adjustments to Prior Period Financial Statements The financial statements of the Company as of December 31, 2014, were audited by other auditors whose report dated May 21, 2015, expressed an unmodified opinion on those financial statements. As discussed in Note 18 to the financial statements, the Company has adjusted its 2014 financial statements to retrospectively apply the correction of errors related to the Company recording a receivable where rights did not exist and an unrecorded liability related to a reinsurance commutation. The other auditors reported on the financial statements before the retrospective adjustments. 2

189 As part of our audit of the 2015 financial statements, we also audited the adjustments to the 2014 financial statements to retrospectively apply the correction of the errors as described in Note 18. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the Company s 2014 financial statements other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements as a whole. Other Information Our audit was conducted for the purpose of forming an opinion on the statutory financial statements taken as a whole. The supplementary information listed in the index to the report is presented to comply with the National Association of Insurance Commissioners' Annual Statement Instructions and the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual and is not a required part of the basic statutory financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the statutory basis financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic statutory basis financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the statutory basis financial statements or to the statutory basis financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the statutory basis financial statements as a whole. Restriction on Use This report is intended solely for the information and use of the board of directors and management of the Company and the Louisiana Department of Insurance and is not intended to be and should not be used by anyone other than these specified parties. Duplantier, Hrapmann, Hogan & Maher, LLP New Orleans, Louisiana 3

190 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS DECEMBER 31, 2015 AND 2014 ADMITTED ASSETS (Restated) Cash and invested assets: Money market mutual funds $ 146,932,779 $ 170,371,481 Cash and short-term investments 92,100,926 71,815,593 Total cash and invested assets 239,033, ,187,074 Premium receivable and agent's balances, net 16,613,718 19,246,068 Reinsurance receivable 980,134 1,347,552 Admitted electronic data processing equipment and software, at cost less accumulated depreciation of approximately $16,908,790 and $16,824,715 at December 31, 2015 and 2014, respectively. 849, ,542 Emergency assessments receivable ,201, ,906,939 Emergency assessments receivable - companies 19,000,000 18,500,000 Other receivables 108, ,160 TOTAL ADMITTED ASSETS $ 909,787,459 $ 1,043,850,335 See notes to statutory financial statements. 4

191 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS DECEMBER 31, 2015 AND 2014 LIABILITIES AND ACCUMULATED SURPLUS (Restated) Liabilities: Loss reserves $ 60,163,559 $ 63,846,136 Loss adjustment expense reserves 6,099,140 6,165,480 Commissions payable to agents 3,127,655 3,600,855 Unearned premiums 69,038,349 83,610,484 Taxes, licenses, and fees due or accrued 4,234,414 4,266,365 Provision for reinsurance 14,768 19,307 Accounts payable and other accrued expenses 8,120,005 8,325,215 Amounts retained or withheld from others 3,159 4,454 Ceded reinsurance premiums payable, net of ceding commissions 1,832,592 3,148,771 Unearned tax exempt surcharge 2,321,251 2,690,320 Interest payable 2,508,279 3,233,860 Bonds payable 637,436, ,651,458 Liability for funds restricted for debt service 76,234, ,551,674 Total liabilities 871,134,228 1,072,114,379 Surplus: Unassigned surplus (deficit) 38,653,231 (28,264,044) Total accumulated surplus (deficit) 38,653,231 (28,264,044) TOTAL LIABILITIES AND ACCUMULATED SURPLUS $ 909,787,459 $ 1,043,850,335 See notes to statutory financial statements. 5

192 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATUTORY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND (Restated) REVENUES: Premiums earned $ 105,259,889 $ 110,736,079 LOSSES AND UNDERWRITING EXPENSES: Losses incurred 19,531, ,281,803 Loss adjustment expenses incurred 9,891,147 10,853,682 Other underwriting expenses 23,294,569 27,536,339 Total losses and underwriting expenses 52,717, ,671,824 Net underwriting gain (loss) 52,542,722 (33,935,745) Net investment income 3,720,479 1,581,974 Debt issuance cost (2,824,147) - Interest expense (37,565,462) (37,148,116) Emergency assessment income 36,771,011 35,667,820 Application and other miscellaneous fees 1,506,967 1,821,351 Finances and service charges not included in premiums 540, ,950 Non-claim related litigation recovery (expense) (480) 2,618,595 Net loss from agents or premium balances charged off (25,975) (3,219) NET INCOME (LOSS) $ 54,665,779 $ (28,771,390) See notes to statutory financial statements. 6

193 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATUTORY STATEMENTS OF CHANGES IN ACCUMULATED SURPLUS AND OTHER FUNDS FOR THE YEARS ENDED DECEMBER 31, 2015 AND (Restated) UNASSIGNED DEFICIT, BEGINNING OF YEAR $ (28,264,044) $ (5,281,743) Net income (loss) 54,665,779 (28,771,390) Change in nonadmitted assets 7,202,587 62,360 Change in provision for reinsurance 4, Tax exempt surcharge 4,668,816 5,453,177 Other gains and losses in surplus 375, ,029 UNASSIGNED SURPLUS (DEFICIT), END OF YEAR $ 38,653,231 $ (28,264,044) See notes to statutory financial statements. 7

194 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION STATUTORY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND OPERATING ACTIVITIES: Premiums, policy proceeds, and other considerations received, net of reinsurance $ 99,248,934 $ 107,028,711 Underwriting expenses paid (33,757,205) (38,585,238) Investment income received (36,669,130) (35,566,142) Other revenues received 38,792,187 40,730,498 Losses and loss adjustment expenses paid (22,847,337) (102,778,988) Net cash provided (used) by operating activities 44,767,449 (29,171,159) INVESTING ACTIVITIES: Proceeds from investments sold or matured 236,072, ,593,902 Cost of investments acquired (212,633,968) (349,207,737) Net cash provided by investing activities 23,438,702 6,386,165 FINANCING ACTIVITIES: Payments on borrowed funds (105,940,563) (47,231,727) Other cash provided 58,019,745 33,460,092 Net cash used by financing activities and miscellaneous (47,920,818) (13,771,635) Net change in cash and short-term investments 20,285,333 (36,556,629) Cash and short-term investments, beginning of year 71,815, ,372,222 CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 92,100,926 $ 71,815,593 See notes to statutory financial statements. 8

195 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Louisiana Citizens Property Insurance Corporation was created in accordance with provisions of Louisiana Revised Statute (LRS) 22:2293 and began operations on January 1, The Company operates solely in Louisiana. The Company's principal business activity is to operate insurance plans which provide property insurance for residential and commercial property, solely for applicants who in good faith are entitled, but are unable to procure insurance through the voluntary market. The Company operates residual market insurance programs designated as the Coastal Plan and the Fair Access to Insurance Requirements Plan (FAIR Plan). The Coastal Plan is for property insurance written on locations between the Gulf of Mexico and the lntracoastal Waterway and the FAIR Plan is for property insurance written on locations above the lntracoastal Waterway. Louisiana Citizens Property Insurance Corporation (the "Company") is a component unit of the State of Louisiana. The Company is governed by a board of directors consisting of fifteen members, who serve without compensation. The Board consists of the Commissioner of the Department of Insurance, the State Treasurer, the chairman of the House Committee on Insurance, the chairman of the Senate Committee on Insurance or their designees, six representatives appointed by the Governor, two members appointed by the Commissioner of the Louisiana Department of Insurance, and three members appointed by the Governor. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation and Accounting: The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Louisiana Department of Insurance. The State of Louisiana generally requires that insurance companies domiciled in the State of Louisiana prepare their statutory basis financial statements in accordance with the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual. Such practices vary from accounting principles generally accepted in the United States of America (GAAP). The more significant variances from GAAP are as follows: Commissions and other costs of acquiring insurance are expensed when incurred rather than capitalized and amortized over the terms of the related policies as required by GAAP. Certain assets designated as "nonadmitted" are excluded from the balance sheet and are charged directly to unassigned surplus. Reserves for losses and loss adjustment expenses are reported net, rather than gross, of certain reinsurance recoverables. Gains and losses on the defeasance of debt are reported in the period the debt was extinguished. GASB requires the deferral of gains and loss to be amortized over the shorter of the remaining life of the old bonds or the life of the new bonds. 9

196 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Basis of Presentation and Accounting: (Continued) The statement of cash flows is presented in the required statutory format. This format differs from the format specified by GAAP which requires a reconciliation of net income to net cash flow from operating activities and supplemental schedules of noncash financing and investing activities. Cash and short-term investments in the statement of cash flows represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and investments with initial maturities of three months or less. Also, under GAAP, short-term investments are disclosed separately from cash and include investments with remaining maturities of one year or less. The aggregate effect on the accompanying statutory financial statements of the variations from GAAP is outlined in Note 14 to the financial statements. Estimates: The financial statements are prepared in conformity with accounting practices prescribed or permitted by the Louisiana Department of Insurance which require 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 financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Statement of Cash Flows: For the purpose of reporting cash flows, cash and short-term investments include all liquid investments with a maturity of one year or less when purchased. Short-term investments are stated at cost, which approximates fair value. Bonds: Bonds, which consist solely of debt securities, are recorded at admitted asset values as prescribed by NAIC valuation procedures, and are rated in accordance with current NAIC guidelines. Debt securities are stated at amortized cost using the interest method. Bonds are recorded in cash and short-term investments within the Statutory Statements of Admitted Assets, Liabilities, Surplus and Other Funds. 10

197 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Equity Investments: Equity investments held by the Company represent money market mutual funds. Shares of mutual funds, regardless of the underlying security, are considered to be shares of common stock and are reported as such as designated by NAIC reporting requirements. These funds are stated at cost, which approximates fair value. EDP Equipment and Operating System Software: Electronic Data Processing (EDP) equipment and software purchased or developed for internal use with an original cost of over $1,000,000 is capitalized and depreciated using the straight line method over the software s useful life of 3 years. Depopulation: The Company is required to undertake a depopulation effort annually per Louisiana Revised Statute R.S. 22:2314. The Company accounts for premiums of depopulated policies as a reduction of direct premiums written. Losses and other costs associated with depopulated policies are assumed by the acquiring entity and thus are removed from the Company's financial statements. Loss Reserves and Loss Adjustment Expense Reserves: The liabilities for losses and loss adjustment expenses include an amount determined from loss reports and individual cases and an amount, based on historical data, for losses incurred but not reported. Such liabilities are based on estimates and, while management believes that the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates and for establishing the resulting liabilities are continually reviewed, and any adjustments are reflected in current earnings. Premiums: Premiums are recorded as earned on a daily pro rata basis over the policy period. The portion of premiums not earned as of the end of the fiscal year are recorded as unearned premiums. Premiums receivable includes amounts due from policyholders for billed premiums. Billings are calculated using the annual premiums for each policy and are paid either through an installment plan offered by the Company or in their entirety at the inception of the policy. 11

198 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Market Risk: The Company underwrites residential and commercial property insurance policies in the State of Louisiana through the Coastal Plan and the FAIR Plan. Therefore, adverse economic changes or certain changes in the insurance laws of the State of Louisiana could have a significant impact on the Company's future financial position and results of operations. The Coastal Plan is for property insurance written on locations between the Gulf of Mexico and the lntracoastal Waterway. The FAIR Plan is for property insurance above the lntracoastal Waterway. Therefore, severe storm activity in any of these areas or throughout the State of Louisiana could have a significant impact on the Company's future financial position and results of operations. Assessments: In the event that the Governing Board of the Company determines that a deficit exists in either the Coastal Plan or the FAIR Plan, the Company may levy a regular assessment for each affected Plan in order to remedy any deficit. All insurers who become authorized and then engage in writing property insurance within the State of Louisiana shall participate in regular assessment of the Coastal and FAIR Plans in the proportion that the net direct premium of such participant written in the State during the preceding calendar year bears to the aggregate net direct premiums written in the State by all insurers during the preceding calendar year as certified to the Governing Board by the Louisiana Insurance Rating Commission. When the deficit incurred in a particular calendar year is not greater than ten percent of the aggregate statewide direct written premium for the subject lines of business for the prior calendar year, the entire deficit will be recovered through regular assessments. When the deficit incurred exceeds ten percent, the regular assessment may not exceed the greater of ten percent of the calendar year deficit, or ten percent of the aggregate statewide direct written premium for the subject lines of business for the prior calendar year. Any remaining deficit shall be recovered through an emergency assessment. Upon determination by the Governing Board of the Company that a deficit exceeds the amount allowed to be recovered through regular assessment, the governing Board shall levy an emergency assessment for as many years as necessary to cover all deficits. The amount of emergency assessment levied in a particular year shall be a uniform percentage of that year's direct written premium for the subject lines of business. The total amount of emergency assessment levied in any calendar year will not exceed the greater of: (a) ten percent of the amount needed to cover the original deficit plus interest, fees, commissions, required reserves, and other costs associated with the financing of the original deficit, or (b) ten percent of the aggregate statewide direct written premiums for subject lines of business and for all plan accounts 12

199 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Assessments: (Continued) accounts of the Company for the prior year, plus interest, fees, commissions, required reserves, and other costs associated with financing the original deficit. To the extent the aggregate amount of the emergency assessment will not exceed the greater of (a) or (b) above, the governing Board shall impose an emergency assessment in the amount required by any applicable loan agreement, trust indenture or other financing agreement. All persons who procure a policy of insurance of one or more subject lines of business from an insurer who becomes authorized and then engages in writing property insurance within the State of Louisiana are subject to emergency assessment by the Company. Liability for Funds Restricted For Debt Service and Related Accounting Changes: The Commissioner of Insurance has the right to permit other specific practices that deviate from prescribed practices. During the second quarter of 2009, with agreement from the Louisiana Department of Insurance ("the Department"), the Company received permission from the Department to reclassify, as a liability, the excess emergency assessments collected that were greater than the debt service costs since the inception of the bond debt in 2006 with the cumulative excess amount being $76,234,581 and $150,551,674 at December 31, 2015 and 2014, respectively. The Company will record emergency assessment collections and costs through net income only in amounts sufficient to offset interest costs and amortization of bond issuance costs. Reinsurance and Reinsurance Recoverables: All catastrophe reinsurance premiums are recorded as premiums ceded and are amortized over the life of the hurricane season for which the payments apply. Reinsurance recoverables on unpaid losses are recorded as a reduction of losses incurred and loss adjustment expenses incurred. Reinsurance recoverable on paid losses is recorded as an asset in the accompanying statutory statements of admitted assets, liabilities, surplus and other funds. Premiums ceded include catastrophe reinsurance purchased. Income Taxes: The Company is exempt from federal income tax pursuant to Private Letter Ruling from the Internal Revenue Service. Obligations issued by the Company constitute obligations of the State of Louisiana within the meaning of section 103(c)(l) of the Internal Revenue Code. 13

200 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Financial Instruments: The carrying value of cash and cash equivalents, premiums receivable, other admitted assets and other liabilities approximates fair value given their short-term nature. Unlike private insurers that are subject to liquidation in the event of insolvency, the Company is able (and statutorily required) to levy assessments in the event of a deficit in any or all of its accounts. 2. REPURCHASE AGREEMENTS: In 2006, the Company entered into a Repurchase Agreement with Societe Generale, New York Branch to invest a portion of the Debt Service Reserve Fund. The agreement requires Societe Generale to maintain margins on collateral of 104% to 105% of market value depending on the type of collateral. Acceptable securities are GNMA, Government Agencies, mortgage-backed securities of FHLMC or FHLB and U.S. Treasury securities. The custodian for the collateral is Wells Fargo Bank, N.A. The collateral percentage, fair value and book value of collateral accepted from Societe Generale was as follows: Collateral Book Fair Year End Percentage Value Value December 31, % $ - $ - December 31, % $28,298,272 $29,583,099 The Repurchase Agreement with Societe Generale was sold during year end December 31, FAIR VALUE MEASUREMENTS FOR INVESTMENTS: FASB ASC Topic Fair Value Measurements and Disclosures (FASB ASC 820) and FASB ASC Topic Financial Instruments (FASC ASC 825), requires disclosure of fair value information about financial instruments, whether or not recognized in the Statutory Statements of Admitted Assets, Liabilities, Surplus and Other Funds. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and 14

201 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND FAIR VALUE MEASUREMENTS FOR INVESTMENTS: (Continued) and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Level 1 classification is applied to assets (liabilities) that have readily available quoted prices from active markets where significant transparency exists in the executed/quoted price. Level 2 classification is applied to assets (liabilities) that have evaluated prices received from fixed income vendors with data inputs which are observable either directly or indirectly, but do not represent quoted prices from an active market for each individual security. Level 3 classification is applied to assets (liabilities) for which prices are not derived from existing market data. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Common Stock: Fair values of common stock are based on quoted market prices. The valuation of the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014 are as follows: Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Common stock - Money Market Mutual Funds $ 146,932,779 $ 146,932,779 $ 170,371,481 $ 170,371,481 15

202 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND FAIR VALUE MEASUREMENTS FOR INVESTMENTS: (Continued) Level 1 Level 2 Level 3 Total As of December 31, 2015 Common Stock - Money Market Mutual Funds $ 146,932,779 $ - $ - $ 146,932,779 As of December 31, 2014 Common Stock - Money Market Mutual Funds $ 170,371,481 $ - $ - $ 170,371,481 The carrying amounts in the preceding table are included in the accompanying Statutory Statements of Admitted Assets, Liabilities, Surplus and Other Funds under the applicable captions. Net investment income consists of: Interest earned on money market mutual funds $ 114,548 $ 114,634 Interest earned on cash, cash equivalents and short-term investments 3,623,431 1,476,840 Investment expenses (17,500) (9,500) Total $ 3,720,479 $ 1,581,974 Management evaluates securities for other-than-temporary impairment (OTTI) on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. As of December 31, 2015 and 2014, no declines are deemed to be other-than-temporary. 4. ELECTRONIC DATA PROCESSING EQUIPMENT AND SOFTWARE: Electronic Data Processing (EDP) equipment and software with an original cost of $17,758,274 and $17,377,257 at December 31, 2015 and 2014, respectively, is being depreciated using the straight-line method over the asset s useful life of three years, in accordance with NAIC statutory requirement. Depreciation expense for admitted EDP equipment and operating system software totaled $84,075 and $63,688 for the years ended December 31, 2015 and 2014, respectively. 16

203 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND LIABILITIES FOR LOSS AND LOSS ADJUSTMENT EXPENSES: Activity in the liabilities for loss and loss adjustment expenses is summarized as follows for the years ended December 31, 2015 and 2014: Balance at January 1, $ 70,011,616 $ 66,300,361 Incurred related to: Current year 23,405,829 26,153,966 Prior years 6,016,769 90,981,514 Total incurred 29,422, ,135,480 Paid related to: Current year 18,108,312 21,679,776 Prior years 15,063,203 91,744,449 Total paid 33,171, ,424,225 Balance at December 31, $ 66,262,699 $ 70,011,616 For both catastrophic and non-catastrophic claims, the loss adjusting function is performed by the Company through its employees and through contracted independent adjusting firms. The Company compensates the independent adjusting firms, depending upon the type or nature of the claims, either on a per-day rate or on a graduated fee scheduled based on the gross claim amount, consistent with industry standard methods of compensation. The Company is involved in a number of class action lawsuits and other legal proceedings arising out of various aspects of its business which have been reserved for above. See Note 15 for a description of these class action claims. 6. AGENT COMMISSIONS AND SERVICING COMPANY FEES: The Company policies are written by various insurance agents licensed in the State of Louisiana. These agents are compensated at commission rates established by the Board and calculated as a percentage of direct written premiums, net of certain surcharges and assessments. Agent commissions are reported in the statutory statement of income as other underwriting expenses. Agent commissions incurred were approximately $13,127,628 and $15,989,890 during the years ended December 31, 2015 and 2014, respectively. Additionally, the Company entered into agreements with two servicing companies to provide underwriting and policy management services. The agreements provide for monthly compensation to the servicing companies based on a "Per Transaction Fee" applied to the number of transactions processed in a monthly cycle. During 2012, the servicing agreements were 17

204 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND AGENT COMMISSIONS AND SERVICING COMPANY FEES: (Continued) were extended under the same (or similar) terms and expired on March 31, Since the expiration of the servicing agreements, claims and underwriting management have been brought in-house. Servicing company fees incurred and included in other underwriting expenses were approximately $0 and $233,364 during the years ended December 31, 2015 and 2014, respectively. 7. CAPITAL AND ACCUMULATED SURPLUS: Changes in balances of surplus from the prior year are, in part, due to collections made by the Company during the normal course of collecting policy component charges. The policy component charge affecting surplus funds is the tax exempt surcharge. In 2005, the Company suffered losses of $1.8 billion as a result of Hurricanes Katrina and Rita. In 2006, the Company issued $978.2 million of bonds to pay for these losses. Under LRS 22:2307, the Company may assess, in any one year, up to 10% of the total property premiums assessable statewide to pay the debt service on the bonds. The total statewide assessable premiums are approximately $2.5 billion. Emergency assessments were as follows: December 31, December 31, % assessment rate $ 78,012,088 $ 78,012, % assessment rate 99,751,686 99,751, % assessment rate 116,753, ,753, % assessment rate 103,046, ,046, % assessment rate 101,027, ,027, % assessment rate 92,242,635 92,242, % assessment rate 95,503,384 95,503, % assessment rate 94,979,546 94,979, % assessment rate 91,158, ,475, ,316,652 Plus: cumulative bond earnings 33,485,857 29,849,758 Less: cumulative debt service (829,726,845) (660,614,736) Liability for funds restricted for debt service $ 76,234,581 $ 150,551,674 The unassigned surplus/(deficit) as of December 31, 2015 and 2014 was $38,653,231 and $(28,264,044), respectively. 18

205 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND REINSURANCE AGREEMENTS: The Company purchases private reinsurance through Aon Benfield, Inc. and Guy Carpenter & Company, LLC, as licensed reinsurance intermediaries. The participating reinsurance companies will reimburse the Company, through the intermediary, a specified percentage of losses incurred if a prescribed retention is reached. The Company purchases reinsurance based on levels of loss. The Company is liable for the first amount of ultimate net loss, shown in the table below as "Company Retention", arising out of each loss occurrence. The reinsurer is then liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company's applicable retention for that layer. However, the liability of the reinsurer under any excess layer of reinsurance coverage provided does not exceed either of the following: (1) the amount shown below as "Reinsurer Per Occurrence Limit" for that excess layer as respect to loss or losses arising out of any one loss occurrence, or (2) the amount shown as "Reinsurer's Term Limit'' for that excess layer. Each excess layer of reinsurance coverage provided is as follows. For the year ended December 31, 2015 (in thousands): January 1, 2015 to May 31,2015 June 1, 2015 to December 31, 2015 First Excess Second Excess Third Excess First Excess Second Excess Third Excess Company's Retention $ 50,000 $ 75,000 $ 175,000 $ 50,000 $ 75,000 $ 175,000 Reinsurer's Per Occurence Limit $ 25,000 $ 100,000 $ 47,000 $ 25,000 $ 100,000 $ 44,000 Reinsurer's Term Limit $ 50,000 $ 200,000 $ 94,000 $ 50,000 $ 200,000 $ 88,000 Annual Minimum Premium $ 5,375 $ 14,000 $ 4,700 $ 4,125 $ 12,000 $ 3,740 Adjustment Rate % % % % % % As of June 2014, the Company's contract for reinsurance was restructured. There are no longer adjustment rates. The premium can potentially be adjusted if the total insurable value is greater than or less than 10% of the estimated total insurable value used to calculate the contract premium. 19

206 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND REINSURANCE AGREEMENTS: (Continued) For the year ended December 31, 2014 (in thousands): January 1, 2014 to May 31,2014 June 1, 2014 to December 31, 2014 First Excess Second Excess Third Excess First Excess Second Excess Third Excess Company's Retention $ 75,000 $ 193,000 $ 264,000 $ 50,000 $ 75,000 $ 175,000 Reinsurer's Per Occurence Limit $ 118,000 $ 71,000 $ 111,000 $ 25,000 $ 100,000 $ 47,000 Reinsurer's Term Limit $ 236,000 $ 142,000 $ 222,000 $ 50,000 $ 200,000 $ 94,000 Annual Minimum Premium $ 15,104 $ 6,390 $ 6,216 $ 5,375 $ 14,000 $ 4,700 Adjustment Rate % % % % % % In the event that all or any portion of the reinsurance under the excess layer above is exhausted by loss, the amount exhausted will be reinstated immediately upon payment of a reinstatement premium. The Company has entered into a Reinstatement Premium Protection (RPP) contract related to the second layer only which guarantees payment of the reinstatement premium. In addition, the Company has additional coverage through three catastrophe bonds. In 2012, the Company purchased coverage through a $125 million, three-year catastrophe bond providing coverage for 63.8% of up to $389 million in losses in excess of $193 million covered by retention and traditional reinsurance. In 2013, the Company purchased coverage through a $140 million, four-year catastrophe bond providing coverage for 93.3% of up to $539 million in losses in excess of $389 million covered by retention, traditional reinsurance and the 2012 catastrophe bond. In 2015, the Company purchased additional coverage through a $100 million, three-year catastrophe bond that provides coverage for 69.4% of up to $319 million in losses in excess of $175 million covered by retention and traditional reinsurance. The effect of reinsurance on premiums written and earned is as follows: 2015 Premiums 2014 Premiums Years ended December 31, Written Earned Written Earned Direct $ 140,385,470 $ 154,713,755 $ 168,068,464 $ 177,510,523 Ceded (49,453,866) (49,453,866) (66,774,444) (66,774,444) Net premiums $ 90,931,604 $ 105,259,889 $ 101,294,020 $ 110,736,079 20

207 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND REINSURANCE AGREEMENTS: (Continued) Amounts recoverable from reinsurers on unpaid losses and loss adjustment expenses are estimated based on the allocation of estimated unpaid losses and loss adjustment expenses among coverage lines. Actual amount recoverable will depend on the ultimate settlement of losses and loss adjustment expenses. Reinsurance contracts do not relieve the Company from its obligation to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under their reinsurance agreements. The reserve for uncollectable reinsurance recoverables at December 31, 2015 and 2014 were as follows: December 31, Colisee Re $ - $ 4,425 Hanover Rueck SE 9,748 11,747 Markel Bermuda Ltd - 3,135 New Castle Reinsurance Company 5,020 - $ 14,768 $ 19, LINE OF CREDIT: The Company maintains a line of credit providing for a maximum borrowing of $100,000,000 and $125,000,000 at December 31, 2015 and 2014, respectively. Interest on this note is payable monthly at a variable rate based on the 30-day London Interbank Offered Rate (LIBOR) plus 2.0% for the first 90 days following the date drawn and 30-day LIBOR plus 2.35% commencing on the 91 st day. LIBOR at December 31, 2015 and 2014 was 0.43% and 0.17%, respectively. The line of credit is secured by all premiums and accounts receivable and revenue from all sources, exclusive of emergency assessments resulting from the 2005 catastrophes levied pursuant to LA R.S. 22:2307E. There was no balance outstanding on the line of credit at December 31, 2015 and BONDS PAYABLE: Series 2006B: During April 2006, the Company issued $678,205,000 of assessment revenue bonds for the purpose of redeeming bond anticipation notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 in the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance the balance of the Plan Year Deficit for 2005, to make deposits to the Capitalized Interest Fund and the Debt Service Reserve Fund and to pay costs of issuance. The bonds were issued in denominations of $5,000 or any integral multiple thereof. The 2006B bonds 21

208 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND BONDS PAYABLE: (Continued) Series 2006B: (Continued) bonds bear interest ranging from 4.00% to 5.25% per annum, payable semiannually on June 1 and December 1 of each year, commencing December 1, The bonds are secured, together with additional bonds, if any, by pledged revenues, which include primarily the 2005 Emergency Assessments. The bonds are not secured by the full faith and credit of the State of Louisiana. Payment of the principal of and interest on the bonds when due is insured by a bond insurance policy. The bond maturity dates range from June 1, 2009 to June 1, Bond principal payments of $459,035,000 and $40,595,000 were made in 2015 and 2014, respectively. During year ending December 31, 2015, the Company refinanced the Series 2006B revenue bonds. The outstanding balance due as of the years ended December 31, 2015 and 2014 was $0 and $459,035,000, respectively. Series 2006C1 through 2006C3: During April 2006, the Company issued $300,000,000 of assessment revenue bonds at auction rate for the purpose of redeeming bond anticipation notes issued to finance, on an interim basis, a portion of the Plan Year Deficit for 2005 in the FAIR Plan resulting from Hurricanes Katrina and Rita, to finance the balance of the Plan Year Deficit for 2005, to make deposits to the Capitalized Interest Fund and the Debt Service Reserve Fund and to pay cost of issuance. The bonds were issued in denominations of $25,000 or any integral multiple thereof. Prior to their remarketing explained below, interest on the bonds adjusted based upon 35-day auction periods. Generally, the interest payment date for an auction period was the business day immediately following each auction period. The length of the auction period with respect to the bonds could be changed at the option of the Company in accordance with the auction agreement. The bonds are secured, together with additional bonds, if any, by pledged revenues, which include primarily the 2005 Emergency Assessments. The bonds are not secured by the full faith and credit of the State of Louisiana. Payment of the principal and interest on the bonds when due is insured by a bond insurance policy. The bonds were reoffered in March 2009 after the Auction Rate Securities market collapsed. During March 2009, the 2006Cl through 2006C4 series were reoffered in connection with the conversion of the interest rate from the auction mode rate to the long-term interest rate and the remarketing of the 2006C bonds. In connection with the conversion and remarketing of the Series 2006C bonds, the original seventh supplement indenture was amended and restated by the amended and restated seventh supplemental indenture of trust dated as of April 1,

209 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND BONDS PAYABLE: (Continued) Series 2006C1 through 2006C3: (Continued) The Series 2006C bonds were remarketed in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. On and after the respective conversion date of each subseries of the Series 2006C bonds, interest on the bonds is payable on each June 1 and December 1 commencing June 1, 2009, until maturity or prior redemption and the bonds were converted to the long-term interest rate on May 6, The 2006C bonds bear interest ranging from 2.75% to 6.75% per annum. On and after the respective conversion dates of each subseries of the series 2006C bonds, the scheduled payment of principal and interest on such subseries of the bonds, when due, is guaranteed under a financial guaranty insurance policy issued concurrently with the delivery of such subseries of the 2006C bonds by Assured Guaranty Corp. The Series 2006C bonds are subject to optional redemption prior to maturity. On April 1, 2012, the 2006C4 bonds were paid with the issuance of the 2012R bonds proceeds. Bond maturity dates range from June 1, 2009 to June 1, Principal payments, including the refinanced amount, were $2,045,000 and $2,945,000 during the years ended December 31, 2015 and 2014, respectively. The outstanding balance due on these bonds as of December 31, 2015 and 2014 was $216,350,000 and $218,395,000, respectively. Series 2012R: During April 2012, the Company issued $53,620,000 of assessment revenue refunding bonds in order to advance refund $54,235,000 principal amount of the Assessment Revenue Bonds Series 2006C4, issued in the original aggregate principal amount of $75,000,000, and to pay the cost of issuance of the Series 2012R bonds. The bonds were issued in denominations of $5,000 or any integral multiple thereof. The 2012R bonds bear interest ranging from 2.00% to 5.00% per annum, payable semiannually on June 1 and December 1 of each year, commencing June 1, The bond maturity dates range from June 1, 2012 to June 1, Bond principal payments of $920,000 and $900,000 were made during the years ended December 31, 2015 and 2014, respectively. The outstanding balance due on this bond as of December 31, 2015 and 2014 was $50,730,000 and $51,650,000, respectively. Series 2015R: During July 2015, the Company issued $333,295,000 of assessment revenue refunding bonds in order to advance refund $415,290,000 principal amount of the Assessment Revenue Bonds Series 2006B, issued in the original aggregate principal amount of $678,205,000, and to pay the cost of issuance of the Series 2015R bonds. The bonds were issued in denominations of $5,000 or any integral multiple thereof. The 2015R bonds bear interest of 5.00% per annum, payable semiannually on June 1 and December 1 of each year, commencing June 1, The bond maturity dates range from June 1, 2016 to June 1, No principal payments were made 23

210 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND BONDS PAYABLE: (Continued) Series 2015R: (Continued) made during the year ended December 31, The outstanding balance due on this bond as of December 31, 2015 and 2014 was $333,295,000 and $0, respectively. A schedule of debt service requirements, including bond premiums and discounts, is as follows: Maturity Principal Premium/ (Discount) 2016 $ 45,600,000 $ 8,612, ,495,000 7,972, ,795,000 6,724, ,190,000 5,408, ,765,000 4,015, ,530,000 4,328,542 $ 600,375,000 $ 37,061,476 Net unamortized premium at December 31, 2015 and 2014 was approximately $37.1 and $13.6 million, respectively. The total interest expense on the fixed rate bonds for the years ended December 31, 2015 and 2014 was $37,565,462 and $37,148,116, respectively, including annual amortized premiums of $14,752,349 and $2,602,808, respectively, and is included in "Interest expense, net" in the accompanying Statutory Statements of Income. 11. RETIREMENT PLANS: Defined Benefit Plan: Prior to September 1, 2008, the Company sponsored a non-contributory defined benefit pension plan covering all employees that were hired prior to April 1, 2008, through a services agreement with Property Insurance Association of Louisiana (PIAL) in which retirement expenses were previously reimbursed to PIAL. The table below sets forth the changes in projected benefit obligations, changes in plan assets, and components of the net periodic benefit costs for fiscal year ending December 31: 24

211 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Defined Benefit Plan: (Continued) Change in projected benefit obligation: Beginning projected benefit obligation, January 1, $ 2,196,368 $ 1,744,434 Interest cost 88,221 87,816 Actuarial gain/(loss) (222,310) 411,568 Benefit payments (76,800) (47,450) Plan amendments 49,937 - Ending projected benefit obligation, December 31, $ 2,035,416 $ 2,196, Change in plan assets: Fair value of plan assets, January 1, $ 2,031,150 $ 1,917,043 Benefit payments (76,800) (47,450) Actual return on plan assets (62,605) 161,557 Fair value of plan assets, December 31, 1,891,745 2,031,150 Funded status $ (143,671) $ (165,218) Assumptions used to determine projected benefit obligations and pension costs at December 31, 2015 and 2014, were as follows: Discount rate 4.25% 5.00% Long-term rate of return on assets 6.00% 6.25% Rate of compensation increase N/A N/A Net periodic benefit cost for the years ended December 31, 2015 and 2014, includes the following components: Interest cost $ 88,221 $ 87,816 Expected return on plan assets (118,877) (118,210) Amortization net loss 31,692 5,421 Ending net periodic benefit cost, December 31, $ 1,036 $ (24,973) 25

212 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Defined Benefit Plan: (Continued) Changes in amounts recognized in accumulated surplus for the years ended December 31, 2015 and 2014 are as follows: Unrecognized balances, January 1, $ 564,985 $ 202,185 Net gain recognized (31,692) (5,421) New prior service cost/(credit) occurring 49,937 - Actuarial loss/(gain) occurring (40,828) 368,221 Ending unrecognized balances, December 31, $ 542,402 $ 564,985 The fair value of assets as of December 31, 2015 was determined in a manner similar to the allocation method used for the ERISA funding valuation for the Pension Plan for Insurance Organizations (PPIO). The asset allocation method in general projects the assets from the prior year using the actual return on the PPIO fund for the years ending December 31, 2015 and 2014 and adjusting for actual payments and contributions. The fund return for the years ending December 31, 2015 and 2014 was (1.33%) and 9.26%, respectively. Future benefit payments expected to be paid in each of the next five years and in the aggregate for the following five years: Years ending December 31, 2016 $ 55, , , , , ,218 $ 938,392 26

213 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RETIREMENT PLANS: (Continued) Defined Contribution Plans: As of September 1, 2008, the Company froze its defined benefit pension plan and in its place established a defined contribution plan. The Company contributes 11% of each employee's wages to the defined contribution plan. Contributions are expensed each month and the Company carried no assets or liabilities for the defined contribution plan on its statement of admitted assets, liabilities and surplus. The Company's contribution to the plan was approximately $658,318 and $629,715 and during the years ended December 31, 2015 and 2014, respectively. In addition, the Company sponsors a contributory 401k plan covering eligible employees for which the Company matches 75% of employee contributions up to a maximum of 6% of eligible compensation. Contributions by the Company to the 401k plan during the years ended December 31, 2015 and 2014 totaled $183,347 and $187,760, respectively. 12. OTHER POSTEMPLOYMENT BENEFITS: Plan Description: The Company provides postretirement medical and life insurance for qualified employees hired prior to January 1, Employees may qualify for participation in the plan by a) attaining age 55 and completing 14 years and one hour of service or b) attaining age 60; completing at least 5 years of service, two of which occur after October 28, 2010, be employed with the Company at the time of retirement and retire in good status. Contribution Rates: Plan members contribute 25% of medical premiums, including Medicare supplement, dental and vision coverage, and 100% of supplemental life insurance. Plan members are not required to contribute for basic life insurance. Funding Policy: The Company's plan is administered by the Company. The table below sets forth the changes in accumulated postretirement benefit obligation (APBO) for eligible participants, changes in plan assets, and components of the net periodic benefit costs for fiscal year ending December 31: 27

214 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS: (Continued) Funding Policy: (Continued) Change in benefit obligation: Beginning APBO, January 1, $ 2,467,034 $ 1,393,202 Interest on net benefit obligation 103,841 70,632 Service cost 112,010 61,446 Plan participants' contributions 18,838 14,275 Actuarial gain/(loss) 100,694 1,025,260 Benefit payments (86,071) (97,781) Ending APBO, December 31, $ 2,716,346 $ 2,467,034 Change in plan assets: Fair value of plan assets, January 1, $ - $ - Employer contributions 67,233 83,506 Plan participants' contributions 18,838 14,275 Benefit payments (86,071) (97,781) Fair value of plan assets, December 31, - - Funded status $ (2,716,346) $ (2,467,034) Assumptions used to determine projected benefit obligations at December 31, 2015 and 2014, were as follows: Discount rate 4.50% 4.25% Rate of compensation increase 3.00% 3.00% Assumed health care cost trend rate during first year 7.00% 7.00% Ultimate health care cost trend 5.00% 5.00% Year ultimate health care cost trend reached

215 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS: (Continued) Funding Policy: (Continued) Net periodic benefit cost for the years ended December 31, 2015 and 2014, includes the following components: Service cost $ 112,010 $ 61,446 Interest cost 103,841 70,632 Net prior service cost amortization 114, ,917 Amortization net loss 129,848 19,481 Ending net periodic benefit cost, December 31, $ 460,616 $ 266,476 Assumptions used to determine projected benefit costs at December 31, 2015 and 2014, were as follows: Discount rate 4.25% 5.00% Long-term rate of return assets N/A N/A Rate of compensation increase 3.00% 3.00% Assumed health care cost trend during first year 7.00% 7.50% Ultimate health care cost trend rate 5.00% 5.00% Year ultimate health care cost trend reached Changes in amounts recognized in accumulated surplus for the years ended December 31, 2015 and 2014 are per the table below: Change in unrecognized balances Unrecognized balances, January 1, $ 1,569,595 $ 678,733 Net prior service cost recognized (114,917) (114,917) Net gain recognized (129,848) (19,481) Actuarial loss/(gain) occuring 100,694 1,025,260 Ending unrecognized balances, December 31, $ 1,425,524 $ 1,569,595 29

216 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND OTHER POSTEMPLOYMENT BENEFITS: (Continued) Funded Status and Funding Progress: During the years ended December 31, 2015 and 2014, the Company made no contributions to its postemployment benefits plan. The plan has no assets, and hence has a funded ratio of zero. Future benefit payments expected to be paid in each of the next five years and in the aggregate for the following five years: 13. LEASES: Years ending December 31, 2016 $ 65, , , , , ,155 $ 916,385 The Company is obligated under certain non-cancelable operating leases for office space that will expire in September The future minimum payments as of December 31, 2015 follow: Years ending December 31, 2016 $ 473, , , , , ,386,256 $ 3,805,975 Rental expense for the years ended December 31, 2015 and 2014 was approximately $515,126 and $507,348, respectively. 30

217 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RECONCILIATION OF GAAP AND STATUTORY BASIS OF ACCOUNTING (UNAUDITED): Accounting principles generally accepted in the United States of America (GAAP basis) differ in certain respects from the accounting practices prescribed or permitted by insurance regulatory authorities (statutory basis). A reconciliation between the change in net assets and the deficiency in net assets as reported under GAAP basis and statutory basis for the years ended December 31, 2015 and 2014 was as follows: (Restated) Change in net position - GAAP basis $ 124,037,055 $ 34,427,481 Adjustments to: Pension plan expense (46,791) (2,295,758) Allowance for doubtful accounts - (18,897) Other (1,634) 97,335 Interest expense (9,897,060) - Excess emergency assessments (54,387,906) (55,255,337) Tax exempt surcharge (5,037,885) (5,726,214) Net income (loss) - statutory basis $ 54,665,779 $ (28,771,390) (Restated) Total deficiency in net assets - GAAP basis $ (500,122,642) $ (624,159,697) Adjustments to: Non-admitted assets (7,279,974) (14,482,561) Deferral of loss on advanced refunding (9,897,060) - Premiums receivable - (503,824) Net pension asset (513,796) (582,130) Other accrued liabilities (1,146,510) (1,031,384) Excess emergency assessments (76,234,581) (150,551,674) Allowance for doubtful accounts 660,623 1,159,597 Emergency assessments receivable 633,201, ,906,939 Provision for reinsurance receivable (14,768) (19,310) Accumulated (deficit) surplus - statutory basis $ 38,653,231 $ (28,264,044) 31

218 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND COMMITMENTS AND CONTINGENCIES: The Company is involved in certain litigation and disputes incidental to its operations. In the opinion of management, after consultation with legal counsel, there are substantial defenses to such litigation and disputes and any ultimate liability, in excess of reserves resulting there from, will not have a material adverse effect on the Company's financial condition or results of operations. The Company is also involved in other potentially significant litigation described below; any of which could have a material adverse effect on the financial condition or results of operations. These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard, or investigated; differences in applicable laws and judicial interpretations; the length of time before many of these matters might be resolved by settlement, through litigation or otherwise; and the current legal environment faced by large corporations and insurance companies. The outcome of these matters may be affected by decisions, verdicts, settlements and the timing of such in other individual and class action lawsuits that involve the Company, other insurers, or other entities and by other legal, governmental, and regulatory actions that involve the Company, other insurers, or other entities. The outcome may also be affected by future state legislation, the timing or substance of which cannot be predicted. In lawsuits, plaintiffs seek a variety of remedies. In some cases, the monetary damages sought include punitive or treble damages. Often specific information about the relief sought, such as the amount of damages is not available. When specific monetary demands are made, they are often set just below a state court jurisdictional limit in order to seek the maximum amount available regardless of the specifics of the case. For the reasons previously specified, it is often not possible to make meaningful estimates of the amount or range of loss that could result from the known and unknown matters described. The Company reviews these matters on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. When assessing "reasonably possible" and "probable" outcomes, the Company bases its decisions on its assessment of the ultimate outcome following all appeals. Additionally, in instances where a judgment, assessment or fine has been rendered against the Company, there is a presumption that criteria in reaching a "reasonably possible" and "probable" outcome has been met. In such instances, the amount of liability recorded by the Company will include the anticipated settlement amount, legal costs, insurance recoveries and other related amounts and take into account factors such as the nature of the litigation, progress of the case, opinions of legal counsel, and management's intended response to the litigation, claim, or assessment. 32

219 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND COMMITMENTS AND CONTINGENCIES: (Continued) Due to the complexity and scope of the matters disclosed below and the many uncertainties that exist, the ultimate outcome of these matters cannot be reasonably predicted. In the event of an unfavorable outcome in any one or more of these matters, the ultimate liability may be in excess of amounts currently reserved. A summary of potentially significant litigation follows: Oubre v. Louisiana Citizens Property Insurance Corporation. The plaintiffs in this suit allege that the Company failed to timely initiate loss adjustment as required by Louisiana statutory law exposing the Company to mandatory penalties in the amount of $5,000 per claim. On July 23, 2012, the Company settled the majority of this class action suit with a payment of $104 million to the plaintiff counsel for distribution to the current class members. The Company entered into a settlement with the class for the remaining Oubre claims. At December 31, 2015 and 2014, the Company had a reserve of $47.1 and $55.2 million for this case for resolution of the remaining claims which the Company believes is adequate. The reserve is included in loss and loss adjustment reserves on the accompanying statement of admitted assets, liabilities, surplus and other funds. Various other lawsuits against the Company have arisen in the course of the Company's business, including approximately 663 first-party suits of which a majority are related to Hurricanes Katrina, Rita and Isaac. The Company believes it has established appropriate reserves for all lawsuits, in addition to class action claims described above. The Company has no assets that it considers to be impaired. In addition to claims under the insurance policies it issues, the Company is potentially exposed to various risks of loss, including those related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. As of the end of 2015 and 2014, the Company had insurance protection in place from various commercial insurance carriers covering various exposures, including workers' compensation, property loss, employee liability, general liability, and directors' and officers' liability. Management continuously revisits the limits of coverage and believes that current coverage is adequate. There were no significant reductions in insurance coverage from the previous year. 16. DEPOPULATION: The Louisiana State Legislature created the Company to operate insurance plans as a residual market for residential and commercial property. The legislature further intended that the Company work toward the ultimate depopulation of these residual market plans also known as the Coastal Plan and the FAIR plan. To encourage the ultimate depopulation of these residual market plans, the Louisiana Citizens Property Insurance Corporation Policy Take-Out Program was created. 33

220 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND DEPOPULATION: (Continued) Under the take-out plan guidelines, not less than once per calendar year, the Company will offer its in-force policies for removal to the voluntary market. The Company will include offers for depopulation policies with all available geographic and risk characteristics that serve to reduce the exposure of the corporation. Each insurer admitted to write homeowners insurance or insurance insuring one or two family owner occupied premises for fire and allied lines or insurance which covers commercial structures in the state of Louisiana may apply to the Company to become a take-out company. Insurers will be approved to participate in the depopulation of the Company based on statutory guidelines set forth in accordance with LRS 22:2314(C). Policies may be removed from the Company at policy renewal or as part of a bulk assumption. In an assumption, the take-out company is responsible for losses occurring from the assumption date through the expiration of the Company's policy period. Unearned premiums remitted to take-out companies pursuant to assumption agreements is reflected as a reduction in "Premiums earned" in the Statutory Statements of Income and totaled $15,181,982 and $13,615,931 for the years ended December 31, 2015 and 2014, respectively. The Company provides administration services with respect to the assumed policies. All agreements provide for the take-out company to adjust losses. The take-out company pays a ceding commission to the Company to compensate for policy acquisition costs, which includes servicing company fees and agent commissions. While the Company is not liable to cover claims after the assumption, the Company continues to service policies for items such as policyholder endorsements or cancellation refunds. Should the Company process and provide a refund to policyholders, such amount is subsequently collected from the take-out company. At December 31, 2015 and 2014, there were no assumed premiums due from certain take-out companies. 17. SUBSEQUENT EVENTS: In connection with the preparation of the financial statements, management of the Company evaluated subsequent events through May 25, 2016, which was the date the financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events that required recognition in the disclosures to the December 31, 2015 financial statements. 34

221 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION NOTES TO STATUTORY FINANCIAL STATEMENTS DECEMBER 31, 2015 AND RESTATEMENT: The Company restated its historical financial statements for the year ended December 31, This restatement and resulting revisions related to the recording of a reinsurance receivable for which rights did not exist and an unrecorded liability related to the commutation of a reinsurance contract. The effect of the write-off of the reinsurance receivable was to decrease reinsurance receivable and decrease premiums earned by $3,726,592 for the year ended December 31, The effect of the unrecorded liability to increase reinsurance premiums payable and decrease premiums earned by $839,740. The cumulative effect of the correction of errors was to decrease the deficit for the year ended December 31, 2014 by $4,566,

222 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION SUPPLEMENTARY INFORMATION SUMMARY INVESTMENT INFORMATION DECEMBER 31, 2015 Admitted assets as reported Gross investment holdings in the annual statement Amount Percentage Amount Percentage Equity interests: Investments in mutual funds $ 146,932, % $ 146,932, % Cash, cash equivalents, short-term investments 92,100, % 92,100, % Total invested assets $ 239,033, % $ 239,033, % 36

223 LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION SUPPLEMENTARY INFORMATION SUPPLEMENTAL INVESTMENT RISK INTERROGATORIES DECEMBER 31, 2015 The following is a summary of certain statutory financial data included in the supplemental investment risk interrogatories. 1. Total admitted assets as reported on the statutory assessments of admitted assets, liabilities, surplus and other funds $909,787, By investment category, the ten largest exposures to a single issuer/borrower/investment, excluding (i) U.S. government, U.S. government agency securities, and those U.S. government money market funds listed in the Appendix to the SVO Purposes and Procedures Manual, as exempt, (ii) property occupied by the Company, and (iii) policy loans. Of Total Description of Admitted Issuer Exposure Amount Assets Fidelity Instl Cash PTF Treas II CS Money Market Mutual $95,937, % Regions Trust Cash Sweep CS Money Market Mutual $50,995, % Interrogatories 3 through 23 are not applicable to the Company. 37

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225 APPENDIX C-1 PROPOSED FORM OF OPINION OF SPECIAL TAX COUNSEL July 28, 2016 Honorable Board of Directors Louisiana Citizens Property Insurance Corporation Metairie, Louisiana Ladies and Gentlemen: $160,810,000 Louisiana Citizens Property Insurance Corporation Assessment Revenue Refunding Bonds, Series 2016A We have acted as special tax counsel to the Louisiana Citizens Property Insurance Corporation, a non-profit public corporation (the "Corporation"), in connection with its issuance of $160,810,000 aggregate principal amount of its Assessment Revenue Refunding Bonds, Series 2016 (the "Series 2016A Bonds"). As special tax counsel, we have reviewed the record of proceedings related to the issuance by the Corporation of the Series 2016A Bonds, including a Tax Certificate as to Arbitrage and the Provisions of Sections 103 and of the Internal Revenue Code of 1986 (the "Tax Certificate"), Subpart B of Part XXX of Chapter 1 of Title 22 of the Louisiana Revised Statutes of 1950, as amended, as further amended by Act No. 13 of the 1st Extraordinary Session, 2006, of the Louisiana Legislature, as redesignated by Act No. 415 of the 2008 Regular Session of the Louisiana Legislature, being La. R.S. 22:2291, et seq. (the "Authorizing Act"), an Amended and Restated 2005 FAIR Plan Emergency Assessment Master Indenture of Trust of the Corporation dated as of April 1, 2006, as supplemented (the "Master Indenture"), including as supplemented and amended by a supplemental indenture entitled "Tenth Supplemental Indenture of Trust" authorizing the issuance of the Series 2016A Bonds dated as of July 1, 2016 (the "Supplemental Indenture" and, collectively with the Master Indenture, the "Indenture") and such other matters of fact and law as we have deemed necessary to enable us to render the opinions contained herein. The Internal Revenue Code of 1986 (the "Code") sets forth certain requirements which must be met subsequent to the issuance and delivery of the Series 2016A Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2016A Bonds to be included in gross income for Federal income tax purposes retroactive to the date of issue of the Series 2016A Bonds. Pursuant to the Indenture and the Tax Certificate, the Corporation has covenanted to maintain the exclusion from gross income of the interest on the Series 2016A Bonds. In addition, the Corporation has made certain representations and certifications in the Indenture and the Tax Certificate. In rendering the opinions set forth below, we have relied upon the approving opinion of Breazeale, Sachse & Wilson, L.L.P., Bond Counsel, delivered on even date herewith, relating among other things to the validity of the Series 2016A Bonds. We have not independently verified the accuracy of those representations and certifications or that opinion. We are of the opinion that, under existing law and assuming compliance with the tax covenants described herein and the accuracy of the aforementioned representations and certifications, and in reliance on the approving opinion of Bond Counsel as to the validity of the Series 2016A Bonds, interest on the Series 2016A Bonds is excluded from gross income for Federal income tax purposes under Section 103 of C-1(i)

226 the Code. We are also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code with respect to individuals and corporations. Interest on the Series 2016A Bonds is, however, included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. Except as stated in the preceding paragraph, we express no opinion as to any other Federal or state tax consequences of the ownership or disposition of the Series 2016A Bonds. Furthermore, we express no opinion as to any Federal, state or local tax law consequences with respect to the Series 2016A Bonds, or the interest thereon, if any action is taken upon the advice or approval of other counsel. Except as stated above, we express no opinion as to any other matter in connection with the issuance and sale of the Series 2016A Bonds. Very truly yours, C-1(ii)

227 APPENDIX C-2 PROPOSED FORM OF OPINION OF BOND COUNSEL July 28, 2016 Honorable Board of Directors Louisiana Citizens Property Insurance Corporation Metairie, Louisiana $160,810,000 ASSESSMENT REVENUE REFUNDING BONDS, SERIES 2016A OF THE LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION $56,700,000 TAXABLE ASSESSMENT REVENUE REFUNDING BONDS, SERIES 2016B OF THE LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION We have acted as bond counsel to the Louisiana Citizens Property Insurance Corporation (the "Corporation"), in connection with the issuance by the Corporation of (i) its $160,810,000 Assessment Revenue Refunding Bonds, Series 2016A (the "Series 2016A Bonds"), and (ii) its $56,700,000 Taxable Assessment Revenue Refunding Bonds, Series 2016B (the "Series 2016B Taxable Bonds," and, together with the Series 2016A Bonds, the "Bonds"). The Series 2016A Bonds are dated July 28, 2016, are in fully registered form, are numbered from RA-1 upwards, bear interest until paid at the rates per annum and mature in the principal amounts and on the dates all as set forth in the Indenture (hereinafter defined). The Series 2016B Taxable Bonds are dated July 28, 2016, are in fully registered form, are numbered RB-1 upwards, bear interest until paid at the rates per annum and mature in the principal amounts and on the dates all as set forth in the Indenture. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture. The Bonds have been issued by the Corporation pursuant to a duly adopted resolution of the Board of Directors of the Louisiana Citizens Property Insurance Corporation, acting as the governing authority of the Corporation (the "Governing Board"), on May 12, 2016 (the "Resolution"), and an Amended and Restated 2005 FAIR Plan Emergency Assessment Master Indenture of Trust dated as of April 1, 2006 (the "Master Indenture"), by and between the Corporation and Regions Bank, as trustee (the "Trustee"), as supplemented and amended through the date hereof including a Tenth Supplemental Indenture of Trust dated as of July 1, 2016 (the "Tenth Supplemental Indenture," and, together with the Master Indenture, the "Indenture"), by and between the Corporation and the Trustee. The Series 2016A Bonds have been issued for the purpose of providing sufficient funds to advance refund (i) $63,195,000 principal amount of the Assessment Revenue Bonds, Series 2006C-1, dated April 22, 2009, in the original aggregate principal amount of $75,000,000, (ii) $75,000,000 principal amount of the Assessment Revenue Bonds, Series 2006C-2, dated April 29, 2009, in the original aggregate principal amount of C-2(i)

228 $75,000,000, and (iii) $75,000,000 principal amount of the Assessment Revenue Bonds, Series 2006C-3, dated May 6, 2009, in the original aggregate principal amount of $75,000,000, and to pay the costs of issuance of the Series 2016A Bonds. The Series 2016B Taxable Bonds have been issued for the purpose of providing sufficient funds to advance refund $49,785,000 in principal amount of the Assessment Revenue Refunding Bonds, Series 2012, dated March 15, 2012, in the original aggregate principal amount of $53,620,000, and to pay the costs of issuance of the Series 2016B Taxable Bonds. The Bonds are also issued under the authority conferred by Subpart B of Part XXX of Chapter 1 of Title 22 of the Louisiana Revised Statutes of 1950, as amended, as further amended by Act No. 13 of the First Extraordinary Session, 2006, of the Louisiana Legislature, as redesignated by Act No. 415 of the 2008 Regular Session of the Louisiana Legislature, being La. R.S. 22:2291, et seq. (the "Citizens Act"), Chapter 14-A of Title 39 of the Louisiana Revised Statutes of 1950, as amended (the "Refunding Act"), and other constitutional and statutory authority. The principal of the Bonds is payable upon maturity at the principal corporate trust office of the Trustee, upon presentation and surrender of the Bonds. Interest on the Bonds is payable in the manner set forth in the Indenture by the Trustee to the registered owner thereof (determined as provided in the Indenture) at the address as shown on the registration books of the Trustee. The Corporation, in and by the Indenture, has also entered into certain covenants and agreements with the owners of the Bonds with respect to the security and payment of the Bonds, including a provision for the issuance of pari passu obligations hereafter under certain conditions and restrictions, for the terms of which reference is made to the Indenture. We have examined the provisions of the Louisiana Constitution of 1974, as amended (the "Constitution") and statutes of the State of Louisiana (the "State"), including the Citizens Act, a certified transcript of the proceedings of the Corporation relating to the issuance of the Bonds, and such other documents, proofs and matters of law as we deemed necessary or appropriate to render this opinion. As to questions of fact material to our opinion, we have relied upon representations contained in the Indenture, the certified proceedings and other certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. On the basis of the foregoing examinations, we are of the opinion, as of the date hereof and under existing law, as follows: 1. The proceedings, documents and proofs show lawful authority for the issuance of the Bonds pursuant to the Constitution and statutes of the State of Louisiana, particularly the Citizens Act, and the Indenture. 2. The Corporation has the power and authority to enter into the Tenth Supplemental Indenture and such action is authorized or permitted by the laws of the State and the Master Indenture. 3. The Tenth Supplemental Indenture and the Bonds have been duly authorized, executed and delivered by the Corporation and constitute valid and binding agreements or obligations of the Corporation, enforceable in accordance with their terms; provided, however, C-2(ii)

229 the enforceability of the Tenth Supplemental Indenture and the Bonds may be limited by the exercise of the sovereign police powers of the State or its governmental bodies and to valid bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws affecting creditors rights and laws affecting the remedies for the enforcement of the rights and security provided for therein, including the remedy of specific performance and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. 4. The Bonds have been duly authorized, executed and delivered by the Corporation and constitute legally binding obligations of the Corporation and are payable as to both principal and interest solely from the Trust Estate, which includes emergency assessments levied by the Governing Board pursuant to Section 2307(E) of the Citizens Act (formerly Section (E) of the Citizens Act), and the Pledged Revenues. 5. Interest on the Series 2016B Taxable Bonds is includible in gross income for federal income tax purposes. 6. Under the Refunding Act, the Bonds and the income therefrom shall be exempt from all taxation by the State or any political subdivision thereof. 7. The Resolution has been duly adopted by the Governing Board. 8. The 2005 Emergency Assessments to be levied by the Corporation to be collected by insurers from their policyholders, and by the Corporation from its policyholders, to the extent levied or imposed in compliance with the Citizens Act and the Plan of Operation, shall be lawful under the Constitution and all other applicable laws and regulations of the State, and under the Constitution and other applicable laws and regulations of the United States of America. 9. The 2005 Emergency Assessments may be levied and collected to the full extent provided by the Citizens Act and the Plan of Operation with respect to all Subject Lines of Business (as defined in the Citizens Act). 10. There is neither pending nor, to the best of our knowledge after due inquiry, threatened against the Corporation any action, suit, other proceeding or investigation at law or in equity before or by any court, governmental authority or instrumentality, wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by, or the validity or enforceability of, the Indenture or the Bonds, or any related agreement or instrument to which the Corporation is a party, and which is used or contemplated for use in the consummation of the transactions contemplated in the Indenture or the Bonds, or which would adversely affect the exclusion from gross income of interest on the Bonds from federal income tax purposes, or the ability of the Corporation to pay principal and interest on the Bonds as and when due, with the exception of any actions, suits or other proceedings, inquiries or investigations previously disclosed in writing to the underwriters. 11. To the best of our knowledge, after due inquiry, the Corporation has not previously pledged or granted a security interest in the Trust Estate in favor of any person other than the Trustee that has not now been satisfied, or assigned the 2005 Emergency Assessments in favor of any person other than the Trustee. C-2(iii)

230 12. The Bonds will be secured by the Trust Estate, including the Pledged Revenues on a pari passu, parity basis with the Corporation s Assessment Revenue Refunding Bonds, Series 2015, in the original aggregate principal amount of $333,295,000, of which $291,795,000 is currently outstanding. 13. The Indenture is effective to create a security interest in the Trust Estate in favor of the Trustee, the UCC-1 Financing Statement filed in the Louisiana UCC Records naming the Corporation as debtor and the Trustee as secured party covering the Trust Estate described therein and in the Indenture is in proper form, and the Trustee has a perfected Louisiana UCC security interest in the Trust Estate described therein and in the Indenture, all in accordance with the provisions of Chapter 9 of the Louisiana Commercial Laws (La. R.S. 10:9-101 et seq.) and pursuant to La. R.S. 22:2307(G), authorizing the Corporation to pledge, assign and grant a security interest in assessments, insurance and insurance recoverables, surcharges and other funds available to the Corporation to pay and secure the Corporation s obligations under bonds and other indebtedness. Except as stated in paragraphs 5 and 6 above, we express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of the Bonds. In rendering the foregoing opinions, we have assumed the due authentication, execution and delivery of the Indenture and the Bonds by the parties thereto other than the Corporation. In our examination, we have also assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, the authenticity of the originals of such latter documents and the occurrence of the statements contained in such certificates. In basing the opinions and other matters set forth herein on "our knowledge," the words "our knowledge" signify that, in the course of our representation of the Corporation in matters with respect to which we have been engaged by it, no information has come to our attention that would give us actual knowledge or actual notice that any such opinion or other matters are not accurate or that any of the foregoing documents, certificates, reports and information on which we have relied are not accurate and complete. The words "our knowledge" and similar language used herein are intended to be limited to the knowledge of the lawyers within our respective firms who have devoted substantive attention to the transaction contemplated by the Indenture and not to knowledge of our respective firms generally. We express no opinion as to the laws of any jurisdiction other than the laws of the State of Louisiana and any applicable federal laws. No opinion is extended and we specifically disclaim any opinion as to: (i) the applicability of or compliance with any state securities or "blue sky" law or regulation; and (ii) the enforceability of any provision of the documents referred to herein, which purports to grant extrajudicial remedies. The scope of our engagement has not extended beyond the examinations and the rendering of the opinions expressly set forth herein. The opinions expressed herein are based upon existing law C-2(iv)

231 as of the date hereof, and we express no opinion as of any subsequent date or with respect to any pending legislation. We assume no obligation to supplement this opinion if any applicable laws change after the date hereof or if we become aware of any facts that might change the opinions expressed herein after the date hereof. No one other than the addressees hereof shall be entitled to rely upon this opinion. Respectfully submitted, C-2(v)

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233 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the Louisiana Citizens Property Insurance Corporation, a nonprofit corporation and an entity considered to be a political instrumentality of the State of Louisiana (the "Issuer") in connection with the issuance of (i) $160,810,000 of its Assessment Revenue Refunding Bonds, Series 2016A (the "Series 2016A Bonds"), and (ii) $56,700,000 of its Taxable Assessment Revenue Refunding Bonds, Series 2016B (the "Series 2016B Taxable Bonds," and, together with the Series 2016A Bonds, the "Bonds"). The Bonds are being issued by the Issuer pursuant to a Resolution adopted by the Board of Directors of the Issuer, the governing authority of the Issuer, on May 12, The Bonds are also being issued pursuant to the Amended and Restated 2005 FAIR Plan Emergency Assessment Master Indenture of Trust dated as of April 1, 2006 (the "Master Indenture"), as supplemented and amended through the date hereof including a Tenth Supplemental Indenture of Trust dated as of July 1, 2016 (the "Tenth Supplemental Indenture," and, together with the Master Indenture, the "Indenture"), each by and between the Issuer and Regions Bank, as trustee (the "Trustee"), and Subpart B of Part XXX of Chapter 1 of Title 22 of the Louisiana Revised Statutes of 1950, as further amended by Act No. 13 of the 2006 First Extraordinary Session of the Louisiana Legislature, as redesignated by Act No. 415 of the 2008 Regular Session of the Louisiana Legislature, being La. R.S. 22:2291, et seq., and Chapter 14-A of Title 39 of the Louisiana Revised Statutes of 1950, as amended. The Issuer covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered and constitutes the written undertaking by the Issuer for the benefit of the owners, including beneficial owners, or holders of the Bonds (the "Bondholders"), required by Section (b)(5) of Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (17 CFR Part 240, c2-12), and is further executed and delivered in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Audited Financial Statements" means, collectively, (i) the Issuer s annual Financial Statements and Supplementary Information (Statutory Basis) and (ii) the Issuer s annual Financial Statements and Supplementary Information (GAAP). D-1

234 "Beneficial Owner" shall mean any person who has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). "Disclosure Representative" shall mean the Chief Financial Officer of the Issuer or his or her designee, or such other officer or employee as the Issuer shall designate in writing to the Trustee from time to time. "EMMA" shall mean the internet-based portal referred to as the Electronic Municipal Market Access system operated by the Municipal Securities Rulemaking Board. The online address of EMMA is "Financial Statements and Supplementary Information (GAAP)" shall mean the Issuer s Financial Statements and Supplementary Information prepared in accordance with GAAP, which financial statements shall have been audited by such auditor as selected by the Issuer. "GAAP" shall mean generally accepted accounting principles, as such principles are prescribed, in part, by the Financial Accounting Standards Board and modified by the Government Accounting Standards Board and in effect from time to time. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "MSRB" shall mean the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the single centralized repository for the collection and availability of continuing disclosure documents for purpose of the Rule. The continuing disclosure documents must be provided to the MSRB in searchable portable document format (PDF) to the following: Municipal Securities Rulemaking Board Electronic Municipal Market Access Center "Notice of Material Events" shall mean the Notice required to be given in accordance with Section 5 hereof. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. "Official Statement" shall mean the final Official Statement for the Bonds dated July 20, "Participating Underwriter" shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Rule" shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Securities Counsel" shall mean legal counsel expert in federal securities law. D-2

235 "State" shall mean the State of Louisiana. "Statutory Financial Statements and Supplementary Information (Statutory Basis)" shall mean the Financial Statements and Supplementary Information (Statutory Basis), which financial statements shall have been audited by such auditor as selected by the Issuer. "Trustee" shall mean Regions Bank, or any successor thereto. SECTION 3. Provision of Annual Reports. (a) The Issuer shall not later than one hundred eighty (180) days after the end of the Issuer s fiscal year (presently, such report would be due no later than July 1 of each year) (the "Report Date"), commencing July 1, 2017, provide to the MSRB an Annual Report, including the operating data described in Section B of Exhibit B hereto, which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the Audited Financial Statements of the Issuer may be submitted separately from the balance of the Annual Report. (b) The Issuer may adjust the Report Date if the Issuer changes its fiscal year by providing written notice of the change of fiscal year and the new Report Date to the Trustee and to the MSRB; provided that the new Report Date shall be 180 days after the end of the new fiscal year and provided further that the period between the final Report Date relating to the former fiscal year and the initial Report relating to the new fiscal year shall not exceed one year in duration. (c) If the Issuer is unable to provide to the MSRB the Annual Report, including the operating data described in Section B of Exhibit B hereto, by the date required in subsection (a), the Issuer shall, in a timely manner, send a notice to the MSRB in substantially the form attached hereto as Exhibit A. SECTION 4. Content of Annual Reports. The Issuer s Annual Report shall contain or incorporate by reference the information described in Exhibit B attached hereto, as well as the following: (i) the Audited Financial Statements; and (ii) the accounting principles pursuant to which the Audited Financial Statements were prepared. The Issuer s Financial Statements and Supplementary Information (GAAP) shall be audited and prepared in accordance with GAAP with such changes as may be required from time to time in accordance with the laws of the State. The Issuer reserves the right to cross-reference any or all such annual financial information and operating data to other documents to be provided to the MSRB. D-3

236 The Issuer reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the Issuer; provided that the Issuer agrees that any such modification will be done in a manner consistent with the Rule as provided in Section 8 hereof. Any or all of the items listed above may be included by specific reference to other documents available to the public on the MSRB s Internet Web site or filed with the Securities and Exchange Commission (the "SEC"). The Issuer shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Listed Events. (a) The Issuer covenants to provide, or cause to be provided, to the MSRB notice of the occurrence of any of the following events with respect to the Bonds, in a timely manner not in excess of ten (10) business days after the occurrence of the event. Each notice shall be so captioned and shall prominently state the date, title and CUSIP numbers of the Bonds. (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves, if any, reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of Bondholders, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property, if any, securing repayment of the Bonds, if material; (11) rating changes; D-4

237 (12) bankruptcy, insolvency, receivership, or similar event of the Issuer; (1) (13) the consummation of a merger, consolidation, or acquisition involving the Issuer or the sale of all or substantially all of the assets of the Issuer, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and/or (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) The Issuer acknowledges that the "rating changes" referred to above in Section 5(a)(11) of this Disclosure Agreement may include, without limitation, any change in any rating on the Bonds or other indebtedness for which the Issuer is liable. (c) The Issuer acknowledges that it is not required to provide a notice of a Listed Event with respect to credit enhancement when the credit enhancement is added after the primary offering of the Bonds, the Issuer does not apply for or participate in obtaining such credit enhancement, and such credit enhancement is not described in the Official Statement. (d) As of the date of this Disclosure Agreement, the Listed Events described in subsection (a)(10) is not applicable to the Bonds. SECTION 6. Mandatory Electronic Filing with EMMA. All filings with the MSRB under this Disclosure Agreement shall be made by electronically transmitting such filings through the EMMA Dataport at as provided by the amendments to the Rule adopted by the SEC in Securities Exchange Release No on December 5, SECTION 7. Termination of Reporting Obligation. The Issuer's obligations under this Disclosure Agreement shall terminate upon the defeasance or payment in full of all of the Bonds. In addition, any provision hereof and any provision relating to the Rule as set forth in the shall be null and void in the event that the Issuer receives an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which require this Disclosure Agreement, or any such provision, are invalid, have been repealed retroactively or otherwise do not apply to the Bonds; provided that the Issuer shall have provided notice of such delivery and the cancellation of this Disclosure Agreement and that portion of the Indenture relating to the Rule to the MSRB. (1) For the purposes of this event, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Issuer in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court of governmental authority has assumed jurisdiction over substantially all of the assets or business of the Issuer, or if such jurisdiction has been assumed by leaving the existing government body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan or reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction or substantially all of the assets or business of the Issuer. D-5

238 SECTION 8. Amendment; Waiver. (a) Notwithstanding any other provision of this Disclosure Agreement, this Disclosure Agreement may be amended, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (1) if the amendment or waiver relates to the provisions of Section 3(a), (b), (c), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, a change in law or a change in the identity, nature, or status of the Issuer or the type of business conducted by the Issuer; (2) this Disclosure Agreement, as so amended or taking into account such waiver, would, in the opinion of Securities Counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (3) the amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders or Beneficial Owners. (b) If the amendment results in a change to the accounting principles to be followed in preparing financial statements as set forth in Section 4 of this Disclosure Agreement, the Annual Report for the year in which the change is made shall include a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of such differences and the impact of the changes on the presentation of the financial information. To the extent reasonably feasible, the comparison shall also be quantitative. A notice of the change in accounting principles shall be filed by the Issuer with the MSRB. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or Notice of Material Event, in addition to that which is required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report or Notice of Material Event in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or Notice of Material Event. SECTION 10. Failure to Comply. In the event of a failure of the Issuer to comply with any provision of this Disclosure Agreement any Participating Underwriter or any Bondholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Agreement. Provided, with respect to matters relating to the adequacy of the information required by the Rule, only bondholders aggregating not less than twenty-five percent (25%) of the aggregate principal amount of the Bonds outstanding may exercise remedies with D-6

239 respect thereto. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Issuer to comply with this Disclosure Agreement shall be an action to compel performance. The Trustee shall not have any power or duty to enforce this Disclosure Agreement. SECTION 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Participating Underwriters and the owners, including beneficial owners, or holders of the Bonds, and shall create no rights in any other person or entity. SECTION 12. Transmission of Information and Notices. Unless otherwise required by law or this Disclosure Agreement and, in the sole determination of the Issuer, subject to technical and economic feasibility, the Issuer shall employ such methods of information and notice transmission as shall be requested or recommended by the herein designated recipients of such information and notices. SECTION 13. Additional Disclosure Obligations. The Issuer acknowledges and understands that other State of Louisiana and federal laws, including, without limitation, the Securities Act of 1933, as amended, and Rule 10b-5 promulgated by the SEC pursuant to the 1934 Act, may apply to the Issuer, and that under some circumstances, compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Issuer under such laws. SECTION 14. Governing Law. This Disclosure Agreement shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Disclosure Agreement shall be instituted in a court of competent jurisdiction in the State. Notwithstanding the foregoing, to the extent this Disclosure Agreement addresses matters of federal securities laws, including the Rule, this Disclosure Agreement shall be construed and interpreted in accordance with such federal securities laws and official interpretations thereof. LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION Denise Brignac, Chairperson Date: July 28, 2016 D-7

240 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Louisiana Citizens Property Insurance Corporation Name of Bond Issue: $160,810,000 of its Assessment Revenue Refunding Bonds, Series 2016A $56,700,000 of its Taxable Assessment Revenue Refunding Bonds, Series 2016B Date of Issuance: July 28, 2016 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report and/or operating data with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated July 28, The Louisiana Citizens Property Insurance Corporation anticipates that the Annual Report will be filed by. Dated: LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION By:

241 EXHIBIT B (A) Names of the entities, enterprises, funds, accounts and other persons with respect to whom information will be provided: Entity: Louisiana Citizens Property Insurance Corporation (B) Types of information to be provided: (e.g., specific types of financial statements and general descriptions of operating, statistical, demographic, utilization and trend data) Provided separately or incorporated by reference to the Annual Financial Report: Emergency Assessments Collection Data 2. Updates of Tables 1, 2, 3, 6, 7, 8, 9, and 10 in the Official Statement dated July 20, Updates of the section entitled "THE CORPORATION Reinsurance"

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243 APPENDIX E CERTAIN INFORMATION REGARDING THE LOUISIANA ECONOMY General State Overview The information included in this section, which the Corporation believes to be reliable, has been compiled from publicly available sources. The State is a resource-rich region located in the southern United States on the Gulf of Mexico. The State is a major source of domestic petroleum and refined petroleum products, natural gas, petrochemicals, forest products, agricultural crops, salt, sulfur and seafood. The State achieved statehood on April 30, Louisiana covers an area of 52,389 square miles, of which 9,829 are water. Terrain in the State consists of pine hills, hardwood forests, bluffs, prairies, coastal marshes, cypress-tupelo swamps and alluvial plains. The highest elevation in the State is Driskill Mountain in North Louisiana at 535 feet. The lowest point of elevation is in New Orleans, parts of which are roughly five to eight feet below sea level. The State is strategically located astride the mouth of the Mississippi River. Its location makes it the natural gateway into the heavily industrialized Mississippi River Valley and also the logical point of export for much of the goods and produce of the American Midwest. The State's resources and key location have made it a region favored by international investors almost from its founding by the French some 300 years ago. As of June 2015, total announced and invested capital expenditures by non-u.s. entities in the State total approximately $72.0 billion. The State is a predominantly urban state with nearly three-fourths of its citizens living in nine combined metropolitan statistical areas (MSA). These include New Orleans (a major port and tourist destination with its famous food, music, culture, cruise ships and convention facilities), Baton Rouge (the State capital and a center of education, government, petrochemical production and petroleum refining), Shreveport (the commercial, distribution and manufacturing center of northwest Louisiana), Lafayette (the oil and gas center and unofficial "capital" of Acadiana and Cajun and Creole culture), Alexandria (central Louisiana's wood products, agriculture and distribution center), Monroe (the manufacturing, distribution and commercial center of northeastern Louisiana), Lake Charles (the major petrochemical, agricultural and port city in southwestern Louisiana) and Houma/Thibodaux (the oil exploration, seafood and agricultural center of the southern coastal region of the State). The Hammond MSA was recently added to the State by the White House's Office of Management and Budget as a sign of growing trade in the State. The geographical distribution of the State s population is demonstrated in the table below. E-1

244 1 The figures in the Louisiana 2010 Census Results Map comport with 2015 population estimates, with the following exceptions: The estimated population of St. Tammany Parish grew to 250,288, which moves St. Tammany Parish up one bracket. Also, East Baton Rouge Parish has a 2015 population estimate of 446,753, which raises the limits of the first bracket under "Number of People." E-2